NATIONWIDE INVESTING FOUNDATION III, 497, 1998-01-13

NATIONWIDE INVESTING FOUNDATION III
497, 1998-01-13

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<PAGE> 1
[PHOTO] [NATIONWIDE LOGO] NATIONWIDE
ADVISORY
SERVICES, INC.

NATIONWIDE (R)
FAMILY OF FUNDS

PROSPECTUS

JANUARY 6, 1998

(Prospectus Begins on Page One)

<PAGE> 2

This Prospectus provides
you with information you
should know before
investing in the Funds.
Read it and keep it for
future reference.

A Statement of Additional
Information dated January
6, 1998, incorporated
herein by reference and
containing further
information about the
Funds, has been filed with
the Securities and
Exchange Commission. You
may obtain a copy without
charge by calling or
writing Nationwide
Advisory Services, Inc.
(NAS), Three Nationwide
Plaza, P.O. Box 1492,
Columbus, Ohio 43216-1492.

Nationwide Investing
Foundation III ("NIF-III"
or the "Trust") is an
open-end management
investment company.
NIF-III was created under
the laws of Ohio, as an
Ohio business trust as of
October 30, 1997. The
Trust offers shares in
nine separate mutual
funds, each with its own
investment objectives.
This Prospectus relates to
the following eight funds
(collectively, the
"Funds"):
Nationwide Mid Cap Growth
Fund
Nationwide Growth Fund
Nationwide Fund
(together referred to as
the "Stock Funds")
Nationwide Bond Fund
Nationwide Tax-Free
Income Fund
Nationwide Long-Term
U.S. Government
Bond Fund
Nationwide Intermediate
U.S. Government
Bond Fund
(together referred to as
the "Bond Funds")
Nationwide Money Market
Fund

Except for the Money
Market Fund, this
Prospectus offers Class D
shares of the Funds, which
are sold with a front end
sales charge. Except for
the Money Market Fund, it
is anticipated that the
Funds will offer two other
classes of shares
beginning in March 1998.
See page 19 for additional
information about
purchasing Class D shares
of the Funds.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE NATIONWIDE MONEY MARKET FUND IS
NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT
AND THERE CAN BE NO ASSURANCE THAT THE NATIONWIDE MONEY
MARKET FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
Three Nationwide Plaza - P.O.
Box 1492
Columbus, Ohio 43216-1492

January 6, 1998

Call toll-free 1-800-848-0920
for information, assistance,
and wire orders, 8 AM-5 PM

Call toll-free 1-800-637-0012
for 24-hour account access

FAX: (614) 249-8705

CONTENTS

<TABLE>
<S> <C>
A Brief Overview of the Funds.............. 2
Summary of Fund Expenses................... 3
Which Fund Is Right for You................ 4
Objectives And Management.................. 6
Investment Techniques, Considerations and
Risk Factors............................. 12
Minimum Investment......................... 18
How to Purchase Shares..................... 19
How to Sell (Redeem) Shares................ 20
Investor Strategies........................ 21
Investor Privileges........................ 22
Investor Services.......................... 24
Management of the Trust.................... 25
Distributions and Taxes.................... 26
Tax Advantages of the Tax-Free Income
Fund..................................... 27
Performance Advertising for the Funds...... 28
Additional Information..................... 28
</TABLE>

NATIONWIDE
FAMILY OF
FUNDS
NATIONWIDE
MID CAP
GROWTH FUND
Capital Appreciation --
Mid size companies
NATIONWIDE
GROWTH FUND
Capital Appreciation --
Companies of all sizes
NATIONWIDE FUND
Total Return --
Generally larger companies
NATIONWIDE
BOND FUND
Monthly Income --
Investment grade
debt securities
NATIONWIDE TAX-FREE
INCOME FUND
Monthly Income --
Free from Federal income
taxes
NATIONWIDE
LONG-TERM
U.S. GOVERNMENT
BOND FUND
Monthly Income --
U.S. Gov't securities with
long-term average
duration
NATIONWIDE
INTERMEDIATE
U.S. GOVERNMENT
BOND FUND
Monthly Income --
U.S. Gov't securities
with intermediate
average duration
NATIONWIDE
MONEY MARKET FUND
Monthly Income --
Current money market rates
<PAGE> 3

A BRIEF OVERVIEW OF THE FUNDS

WHAT ARE THE INVESTMENT OBJECTIVES OF THE FUNDS?

THE STOCK FUNDS -- The Mid Cap Growth Fund and Growth Fund each seek long-term
capital appreciation while the Nationwide Fund seeks total return from a
combination of capital appreciation and current income.

THE BOND FUNDS -- Each of the Bond Funds (except the Tax-Free Income Fund)
seeks as a high level of income as is consistent with preservation of capital.
The Tax-Free Income Fund seeks as high a level of current income exempt from
Federal income tax as is consistent with the preservation of capital through
investing in investment grade municipal obligations.

THE MONEY MARKET FUND -- The Money Market Fund seeks a high level of income
with preservation of capital and maintenance of liquidity. The Fund will attempt
to maintain a stable net asset value of $1 per share.

HOW WILL THE FUNDS ATTEMPT TO ACHIEVE THEIR INVESTMENT OBJECTIVES?

THE STOCK FUNDS -- The Stock Funds will primarily invest in equity securities,
generally common stocks. The Mid Cap Growth Fund will generally invest in equity
securities of mid cap companies, the Nationwide Fund in equity securities of
larger companies and the Growth Fund in equity securities of companies of all
sizes.

THE BOND FUNDS -- The Bond Funds will invest primarily in investment-grade
fixed income securities with various lengths of maturities or duration. The U.S.
Government Bond Funds will concentrate investments in securities of the U.S.
Government and its agencies and instrumentalities; the Bond Fund will invest
primarily in a combination of corporate and U.S. Government fixed income
securities and the Tax-Free Income Fund will invest primarily in municipal
securities.

THE MONEY MARKET FUND -- The Money Market Fund will invest primarily in
high-quality money market instruments maturing in 397 days or less.

WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUNDS?

Each of the Funds (except the Money Market Fund) involves the risk that the
value of a Fund's shares will fluctuate in response to economic conditions,
interest rates and market perception. The Stock Funds are generally more
volatile than the Bond Funds while Bond Funds tend to be affected more by
changes in interest rates.

WHAT CLASSES OF SHARES ARE AVAILABLE?

The Stock and Bond Funds currently offer Class D shares which are purchased with
a front-end sales charge but no 12b-1 fee. The Money Market Fund has no sales
charge or 12b-1 fee.

HOW DO I PURCHASE AND REDEEM SHARES?

You can purchase or redeem shares on any day that the Funds are open for
business through a representative of Nationwide Advisory Services, Inc. ("NAS")
or directly with the Funds. See "How to Purchase Shares" and "How to Sell
(Redeem) Shares" in this Prospectus for more information.

HOW ARE DIVIDENDS PAID?

Dividends are distributed quarterly by the Stock Funds and distributed monthly
by the Bond and Money Market Funds. Capital gains, if any, are paid at least
annually by each Fund.

WHO IS THE FUNDS' INVESTMENT ADVISER?

NAS is the investment manager, administrator and distributor of the Funds. NAS
is a wholly-owned subsidiary of Nationwide Life Insurance Company.

2
<PAGE> 4

NATIONWIDE FAMILY OF FUNDS

SUMMARY OF
FUND EXPENSES

This summary helps you
understand the various
costs and expenses you
will bear, directly or
indirectly, when investing
in the Funds.

Nationwide Mid Cap Growth
Fund
Nationwide Growth Fund
Nationwide Fund
Nationwide Bond Fund
Nationwide Tax-Free
Income Fund
Nationwide Long-Term
U.S. Government
Bond Fund
Nationwide Intermediate
U.S. Government
Bond Fund
Nationwide Money Market
Fund
SHAREHOLDER TRANSACTION EXPENSES FOR CLASS D SHARES
(OTHER THAN MONEY MARKET FUND)

<TABLE>
<CAPTION>
LONG-TERM
MID TAX-FREE U.S. INTERMEDIATE MONEY
CAP GROWTH FUND BOND INCOME GOV'T U.S. GOV'T MARKET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maximum
Sales
Charge
Imposed on
Purchases* 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% None
(as a
percentage
of
offering
price)
Maximum
Contingent
Deferred
Sales
Charge on
Redemptions None None None None None None None None
Redemption
Fee** None None None None None None None None
(as a
percentage
of amount
redeemed,
if
applicable)
</TABLE>

* Lower sales charges are available as the amount of the
investment increases. To receive even greater sales charge
discounts, investors may also include the value of Class D
shares held in certain other accounts (including household
family members' accounts). See "How to Purchase Shares"
for more information.

** A $5 fee will be deducted from the proceeds of any
redemptions wired to your bank. A fee also will be charged
if you utilize Western Union's Quick Cash service; this
fee is $9.50 per $10,000 redeemed. See "How to Sell
(Redeem) Shares" for more information.

ANNUAL FUND OPERATING EXPENSES***
(as a percentage of average net assets)

<TABLE>
<CAPTION>
LONG-TERM
MID TAX-FREE U.S. INTERMEDIATE MONEY
CAP GROWTH FUND BOND INCOME GOV'T U.S. GOV'T MARKET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management
Fees .60% .58% .57% .50% .50% .50% .50% .40%
12b-1
Fees None None None None None None None None
Other
Expenses .38% .20% .15% .29% .19% .27% .29% .20%
----- ----- ----- ----- ----- ----- ----- -----
Total
Fund
Operating
Expenses .98% .78% .72% .79% .69% .77% .79% .60%
</TABLE>

Example:
The following example illustrates the expenses you would
pay on a $1,000 investment over the indicated time periods
assuming: (1) a 5% annual return, (2) redemption at the
end of each time period, and (3) payment of the maximum
applicable sales charge.

<TABLE>
<CAPTION>
LONG-TERM
MID TAX-FREE U.S. INTERMEDIATE MONEY
CAP GROWTH FUND BOND INCOME GOV'T U.S. GOV'T MARKET
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 55 $ 53 $52 $53 $ 52 $ 53 $ 53 $ 6
3 Years $ 75 $ 69 $67 $69 $ 66 $ 68 $ 69 $ 19
</TABLE>

THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.

*** For a more detailed explanation of these expenses, see
"Management of the Trust" below. Other expenses are
estimates for the fiscal year ending October 31, 1998.

3
<PAGE> 5

NATIONWIDE FAMILY OF FUNDS

Each Fund is a separate, diversified investment fund of the Trust, which was
organized as of October 30, 1997, as an Ohio business trust. The Trust is
registered and operates as an open-end management investment company. Each Fund
was organized for the purposes of acquiring all of the assets and liabilities of
one or more separate series of Nationwide Investing Foundation ("NIF"),
Nationwide Investing Foundation II ("NIF II") and/or Financial Horizons
Investment Trust ("FHIT") (together called the "Former Trusts"), to effect a
reorganization of each series of the Former Trusts with and into a separate
series of NIF III. Subject to shareholder approval, such reorganization is
anticipated to be completed during the first quarter of 1998. Each Fund and its
corresponding series of a Former Trust are as follows:

<TABLE>
<CAPTION>
FUND SERIES OF THE FORMER TRUST
- ------------------------------- ------------------------------
<S> <C>
Mid Cap Growth Fund Growth Fund of FHIT
Growth Fund Growth Fund of NIF
Nationwide Fund Nationwide Fund of NIF
Bond Fund Bond Fund of NIF
Tax-Free Income Fund Tax-Free Income Fund of NIF II
and Municipal Bond Fund of
FHIT
Long-Term U.S. Government Bond Government Bond Fund of FHIT
Fund
Intermediate U.S. Government U.S. Government Income Fund of
Bond Fund NIF II
Money Market Fund Money Market Fund of NIF and
Cash Reserve Fund of FHIT
</TABLE>

Class D shares are available for purchase by (1) shareholders receiving Class D
shares or Money Market Fund shares as a result of the reorganization if the
shareholder is purchasing in the same capacity and through the same account, and
(2) shareholders entitled to purchase shares of a Fund at net asset value as
described in "Net Asset Value Purchase Privilege" below.

WHICH FUND IS RIGHT FOR YOU?

Long-term and short-term goals require different financial planning. Whether
you're seeking greater growth opportunity, looking for more income, or a
combination of both, Nationwide's Family of Funds, strategies, and services may
help.

While there is careful selection of securities and constant supervision of the
Funds, there can be no guarantee that a Fund's investment objective will be
achieved.

CONSIDER YOUR TIME FRAME

For long-term goals, you have the luxury of time on your side. With goals five
or more years away -- where growth of your investments is the highest
priority -- you may want to consider Nationwide's Stock Funds. These Stock Funds
provide greater long-term return potential through portfolios of common stocks
with a higher degree of risk.

If you're seeking greater income today or have intermediate to long-term
goals -- you may want to consider Nationwide's Bond Funds. These Bond Funds
invest in high-quality and investment grade bonds, providing monthly income and
normally providing greater price stability than stock funds. Plus, it is also
possible to have some capital appreciation in these Bond Funds.

For short-term goals such as saving for next year's needs, an emergency reserve,
or as a temporary "parking place" for your money, the Money Market Fund may be
more appropriate for you. This Fund provides investors with greater stability of
principal while providing current monthly income.

Most investors have a combination of long and short-term goals. By investing in
one or more of the Funds, you may be able to satisfy many of your investment
needs.

ASSESS YOUR TOLERANCE FOR RISK

Where you choose to invest depends as much on your tolerance for risk as on your
desire for reward. Opportunity and risk go hand-in-hand. Generally the greater
the potential long-term opportunity, the greater the potential risk.

The most common risk people associate with investing is short-term market
risk -- the day-to-day fluctuation of an investment's value. Although short-term
market risk cannot be eliminated, the Funds' portfolio managers seek to minimize
this risk by investing primarily in quality securities.

Investors looking for greater growth in our Stock Funds should be willing to
accept greater account value fluctuation. A wide range of factors -- corporate
earnings potential, interest rates, competition, and other economic
conditions -- can cause both downward and upward share price changes.

In the past, investors with a long-term time horizon and a tolerance for
fluctuation have typically been rewarded. Despite years when short-term returns
have not been satisfactory, over most long-term holding periods, money invested
in common stocks has grown more than money invested in fixed income securities.

Bond funds generally provide investors with greater price stability than stock
funds. More predictable investments may make an investor more comfortable, but
historically the total return in bond funds has been less than in stock funds.
Prevailing interest rates, more than any other factor, contribute to price

4
<PAGE> 6

NATIONWIDE FAMILY OF FUNDS

fluctuation in bond funds, and long-term bonds are generally affected more than
shorter-term bonds.

Investors who would prefer not to have their investment principal fluctuate
should consider the Money Market Fund. While it provides greater price stability
than the other Funds, it has less long-term return potential.

One of the biggest risks investors may face is being too conservative, thereby
not earning enough return on their investments to achieve their future goals.
Another big risk to consider is inflation. The amount of money needed to satisfy
a financial goal (after taking inflation into consideration) may dictate
investment in a Fund with the potential for greater returns. Although common
stocks are generally more volatile, historically they have provided higher
returns than bonds or money market instruments and their returns have exceeded
inflation over long periods.

Procrastination is yet another risk investors must consider. Delay, and you take
the chance that there may not be enough time to attain your objective. Start
early and invest regularly in funds with growth opportunities, and you stand a
better chance to reach your financial goals.

For more information concerning the risk factors of the Funds, see "Investment
Techniques, Considerations and Risk Factors."

CONSIDER YOUR TAX BRACKET

For investors seeking to shelter their investment income from Federal income
taxes, the Tax-Free Income Fund may be an appropriate investment. The
tax-equivalent yield of this Fund can be especially appealing for investors in
the 28% or higher tax brackets. To determine if such an investment may be right
for you, see "Tax Advantages of the Tax-Free Income Fund."

5
<PAGE> 7

OBJECTIVES AND MANAGEMENT

THE MID CAP GROWTH FUND
INVESTMENT OBJECTIVE & POLICY: Seeks long-term capital appreciation. The Fund
invests primarily in equity securities of mid size companies.

- - LONG-TERM GROWTH WITH CAPITAL APPRECIATION.

- - EQUITY PORTFOLIO -- GENERALLY MID CAP COMPANIES.

RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Mid Cap Growth Fund generally falls on this continuum.

++
ARROW

<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>

PORTFOLIO MANAGEMENT: Major emphasis in the selection of securities is placed on
companies which have capable management, and are in fields where social and
economic trends, technological developments, and new processes or products
indicate a potential for greater-than-average growth.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities of mid cap companies. The Fund defines mid cap
companies as those with market capitalization or sales in the range between $300
million and $8 billion, but will generally focus on companies between $300
million and $5 billion. The equity securities in which the Fund will invest are
generally common stocks or securities convertible into common stocks
("convertible securities").
Investments are made in equity securities of many different companies and
industries which provide diversification to help minimize risk.

PORTFOLIO MANAGER: John M. Schaffner, MBA, CFA -- is the portfolio manager for
the Nationwide Mid Cap Growth Fund. He has been with Nationwide since 1977 and
has managed the FHIT Growth Fund which is the predecessor to the Mid Cap Growth
Fund from June 1989 through December 1995 and resumed managing the Fund in
August 1997. Mr. Schaffner graduated with a Bachelor of Arts in Economics from
Occidental College. He received his Master of Business Administration degree
from the University of Michigan and is a Chartered Financial Analyst.

THE GROWTH FUND
INVESTMENT OBJECTIVE & POLICY: Seeks long-term capital appreciation. The Fund
invests primarily in equity securities of companies of all sizes.

- - LONG-TERM GROWTH WITH CAPITAL APPRECIATION.

- - EQUITY PORTFOLIO -- COMPANIES OF ALL SIZES.

RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Growth Fund generally falls on this continuum.

++
ARROW

<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>

PORTFOLIO MANAGEMENT: Major emphasis in the selection of securities is placed on
companies which have capable management, and are in fields where social and
economic trends, technological developments, and new processes or products
indicate a potential for greater-than-average growth.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities of companies of all sizes. Equity securities
in which the Fund will invest generally are common stocks and convertible
securities.
Investments are made in equity securities of many different companies and
industries which provide diversification to help minimize risk.

PORTFOLIO MANAGER: John M. Schaffner, MBA, CFA -- is the portfolio manager for
the Nationwide Growth Fund. He has been with Nationwide since 1977 and has
managed the NIF Growth Fund which is the predecessor to the Growth Fund since
June 1981. Mr. Schaffner graduated with a Bachelor of Arts in Economics from
Occidental College. He received his Master of Business Administration degree
from the University of Michigan and is a Chartered Financial Analyst.

THE NATIONWIDE FUND
INVESTMENT OBJECTIVE & POLICY: Seeks total return through a flexible combination
of current income and capital appreciation. The Fund invests primarily in common
stocks, but also in convertible securities, other equity securities, bonds and
money market obligations.

- - TOTAL RETURN THROUGH CAPITAL APPRECIATION AND CURRENT INCOME.

- - COMMON STOCK PORTFOLIO -- GENERALLY LARGER COMPANIES.

RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Nationwide Fund generally falls on this continuum.

++
ARROW

<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>

PORTFOLIO MANAGEMENT: Major emphasis is placed on capital appreciation and
current income. The Fund seeks to maximize

6
<PAGE> 8
OBJECTIVES AND MANAGEMENT

shareholder returns through a diversified portfolio where the primary emphasis
is given to equity securities, especially common stocks. Although not limited to
these investments, in the past the majority of the portfolio assets of the
Fund's predecessor, NIF Nationwide Fund, normally consisted of the common stocks
of well-known, larger companies.
Investments are made in securities of many different companies and
industries which provide diversification to help minimize risk.

PORTFOLIO MANAGER: Charles Bath, MBA, CFA, CPA -- is the portfolio manager of
the Nationwide Fund. Mr. Bath joined Nationwide as a securities analyst and has
managed the NIF Nationwide Fund, predecessor to the Nationwide Fund since 1985.
He graduated with a Bachelor of Science in Accounting from Miami University. He
received his Master of Business Administration degree in Finance from The Ohio
State University and is a Certified Public Accountant and a Chartered Financial
Analyst.

ADDITIONAL INFORMATION CONCERNING THE STOCK FUNDS
Equity securities include common stock, preferred stock, convertible securities
and warrants, and the Stock Funds may invest in both domestic and foreign
issues. The Stock Funds may invest in foreign securities directly or through
depository receipts. In addition to investing in equity securities, the Stock
Funds may invest in index futures, options and other derivatives and securities
which are not readily marketable or are restricted as to disposition. They may
also invest in U.S. Government securities, short-term fixed income securities
and money market obligations ("Money Market Obligations") and shares of other
investment companies. The Stock Funds may also enter into repurchase agreements,
lend portfolio securities, and may purchase securities on a when-issued or
delayed delivery basis.
As a temporary defensive position as determined by NAS each such Fund may
invest up to 100% of its total assets in cash and/or Money Market Obligations.
See "Investment Techniques, Considerations and Risk Factors" below and
"Additional Information on Portfolio Instruments and Investment Policies" in the
Statement of Additional Information for further information.

THE BOND FUND

INVESTMENT OBJECTIVE & POLICY: Seeks as high a level of income as is consistent
with preservation of capital. The Fund invests primarily in fixed-income
securities and currently focuses on corporate debt investments and U.S.
Government mortgage-backed securities. Under normal market conditions, the
dollar-weighted average portfolio maturity of the Fund will be intermediate,
which is defined by the Fund as being between six and ten years.

- - MONTHLY INCOME FROM A PORTFOLIO OF INVESTMENT GRADE CORPORATE AND GOVERNMENT
OBLIGATIONS.

- - INTERMEDIATE MATURITIES -- YIELDS AND VOLATILITY ARE USUALLY HIGHER THAN
SHORT-TERM FUNDS, BUT WITH LOWER YIELDS AND VOLATILITY THAN LONGER-TERM FUNDS.

RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Bond Fund generally falls on this continuum.

++
ARROW

<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>

PORTFOLIO MANAGEMENT: Under normal market conditions, the Fund will invest at
least 65% of its total assets in bonds. For purposes of this Fund's policy,
bonds are debt obligations of all types including bonds of varying maturities,
debentures and notes. Major emphasis is placed on investment grade taxable debt
securities including corporate debt securities rated within the four highest
rating categories by a nationally recognized statistical rating organization
("NRSRO") (e.g. Standard & Poor's Corporation or Moody's Investors Service,
Inc.), U.S. and Canadian Government obligations, mortgage-backed securities,
asset-backed securities and commercial paper rated in one of the two highest
rating categories by an NRSRO. The Fund may invest in zero coupon securities and
in unrated securities if NAS determines them to be of comparable quality. The
Fund may enter into repurchase agreements, purchase restricted or illiquid
securities which are not readily marketable or are restricted as to disposition,
and engage in securities lending transactions. The Fund may also purchase
securities on a when-issued or delayed delivery basis and securities of other
investment companies.
Securities rated in the fourth highest rating category by an NRSRO are
commonly referred to as medium-grade securities. Should subsequent events cause
the rating of medium-grade securities to fall NAS will consider such an event in
determining whether the Fund should continue to hold that security. In no event,
however, would the Fund be required to liquidate any portfolio security where
the Fund would suffer a loss on the sale of such security.
Certain debt securities in which the Fund may invest, such as
mortgage-backed securities and other securities subject to prepayment of
principal prior to the stated maturity date, are expected to be repaid prior to
their stated maturity dates. As a result, the effective maturity of these
securities is expected to be shorter than the stated maturity. For purposes of
calculating the Fund's average weighted portfolio maturity, the effective
maturity of such securities will generally be used.
In addition, as a temporary defensive position, the Fund may invest up to
100% of its total assets in cash and/or Money Market Obligations.
See "Investment Techniques, Considerations and Risk Factors" below and
"Additional Information on Portfolio
7
<PAGE> 9

OBJECTIVES AND MANAGEMENT

Instruments and Investment Policies" in the Statement of Additional Information
for further information.

PORTFOLIO MANAGER: Douglas Kitchen, CFA -- is the portfolio manager of the
Nationwide Bond Fund. He joined Nationwide in 1986 as a securities analyst and
began managing the NIF Nationwide Bond Fund, the predecessor of the Nationwide
Bond Fund, on March 11, 1997. From 1992 to March 11, 1997, he managed the bond
portfolio for the Nationwide Foundation. Mr. Kitchen received a Bachelor of Arts
in Geology from Thiel College and a Bachelor of Science in Finance from The Ohio
State University and is a Chartered Financial Analyst.

THE TAX-FREE INCOME FUND

INVESTMENT OBJECTIVE & POLICY: Seeks as high a level of current income exempt
from Federal income tax* as is consistent with the preservation of capital
through investing in investment grade municipal obligations.

- - MONTHLY INCOME FROM A PORTFOLIO OF INVESTMENT GRADE MUNICIPAL BONDS.

- - INCOME FREE FROM FEDERAL TAXES.*

*Investors may be subject to state and local tax.

RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Tax-Free Income Fund generally falls on this continuum.

++
ARROW

<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>

PORTFOLIO MANAGEMENT: The Fund has adopted a fundamental investment policy which
requires it to invest at least 80% of its net assets in securities, the interest
income from which is exempt from Federal income taxes and is not treated as a
preference item for purposes of the Federal alternative minimum tax. Major
emphasis is placed on municipal obligations rated within the four highest rating
categories (investment grade) by an NRSRO or, if not rated, are of equivalent
investment quality as determined by NAS.
Such obligations include: (1) municipal securities backed by the full faith
and credit of the United States; (2) municipal bonds and notes rated within the
four highest rating categories by an NRSRO; (3) other types of municipal
securities such as commercial paper, provided that such securities are rated
within the two highest rating categories by an NRSRO.
The municipal securities in which the Fund may invest may include variable
and floating rate securities, some of which may be callable. The Fund also
purchases securities on a when-issued or delayed delivery basis, zero coupon
securities and securities of other investment companies and enters into
repurchase agreements.
The Fund may, as a temporary defensive position, hold and invest up to 20%
of its assets in cash and in taxable Money Market Obligations.
See "Investment Techniques, Consideration and Risk Factors" below and
"Additional Information on Portfolio Investments and Investment Policies" in the
Statement of Additional Information for further information.

PORTFOLIO MANAGER: Alpha Benson, MBA -- is the portfolio manager of the
Nationwide Tax-Free Income Fund. She joined Nationwide in 1977 as a financial
analyst in the Securities Investment Department. She has managed the NIF II
Tax-Free Income Fund, the predecessor of the Tax-Free Income Fund since its
inception in March 1986 and the FHIT Municipal Bond Fund since March 11, 1997.
Ms. Benson graduated with a Bachelor of Science in Accounting from Central State
University. She received her Master of Business Administration degree from the
University of Dayton.

THE LONG-TERM U.S. GOVERNMENT BOND FUND

INVESTMENT OBJECTIVE & POLICY: Seeks as high a level of current income as is
consistent with the preservation of capital. The Fund invests in securities of
the U.S. Government, and its agencies and instrumentalities ("U.S. Government
Securities"). The average duration of the Fund will be greater than six years
and the dollar-weighted average portfolio maturity will be greater than 10
years.

- - MONTHLY INCOME FROM A PORTFOLIO OF U.S. GOVERNMENT SECURITIES.

- - LONG-TERM PORTFOLIO.

RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Long-Term U.S. Government Bond Fund generally falls on this
continuum.

++
ARROW

<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>

PORTFOLIO MANAGEMENT: While the Fund will normally invest all of its assets in
U.S. Government Securities and in repurchase agreements collateralized by these
securities, it will under normal market conditions invest at least 65% of its
total assets in bonds issued or guaranteed by the U.S. Government or its
agencies and instrumentalities. For purposes of this Fund's policy, bonds are
debt obligations of all types including bonds of varying maturities, bills and
notes.

The Fund may also invest in mortgage-related securities issued by U.S.
Government agencies. These securities include pass-through securities and
collateralized mortgage obligations (CMOs). Pass-through securities represent
part ownership in a pool of mortgage loans. These securities differ from typical
bonds because principal is repaid monthly over the term of the

8
<PAGE> 10

OBJECTIVES AND MANAGEMENT

loan rather than returned in a lump sum at maturity. CMOs are fully
collateralized by a pool of mortgages on which payments of principal and
interest are dedicated to payment of principal and interest on the various
classes of the CMOs.
The Fund may also invest in zero coupon securities, that are direct
obligations of the U.S. Government and its agencies and instrumentalities and in
Money Market Obligations issued or guaranteed by the U.S. Government, and its
agencies or instrumentalities.
In selecting securities for the Fund, NAS utilizes interest-rate
expectations, yield-curve analysis, economic forecasting, market sector
analysis, and other security selection techniques. The Fund's investments will
be concentrated in areas of the long-term U.S. Government Securities market
(based on sector, coupon or maturity) the investment manager believes are
relatively undervalued.
The U.S. Government Securities in which the Fund may invest include variable
and floating rate securities, some of which may be callable. The Fund may also
purchase securities on a when-issued or delayed delivery basis and securities of
other investment companies and may lend portfolio securities. In addition, as a
temporary defensive position, the Fund may invest up to 100% of its total assets
in cash and/or Money Market Obligations.

THE INTERMEDIATE U.S. GOVERNMENT BOND FUND

INVESTMENT OBJECTIVE & POLICY: Seeks as high a level of current income as is
consistent with the preservation of capital. The Fund invests primarily in U.S.
Government Securities. The average duration of the Fund will be between three
and a half and six years.

- - MONTHLY INCOME FROM A PORTFOLIO OF U.S. GOVERNMENT SECURITIES.

- - INTERMEDIATE PORTFOLIO.

RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Intermediate U.S. Government Bond Fund generally falls on this
continuum.

++
ARROW

<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>

The Fund may invest in mortgage-backed securities issued by U.S. Government
agencies. These securities include pass-through securities and CMOs as described
under "The Long-Term U.S. Government Bond Fund." Pass-through securities
represent part ownership in a pool of mortgage loans. These securities differ
from typical bonds because principal is repaid monthly over the term of the loan
rather than returned in a lump sum at maturity. CMOs are fully collateralized by
a pool of mortgages on which payments of principal and interest are dedicated to
payment of principal and interest on the various classes of the CMOs.
The Fund may also invest in zero coupon securities, that are direct
obligations of the U.S. Government and its agencies and instrumentalities and in
Money Market Obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
In selecting securities for the Fund, NAS utilizes interest-rate
expectations, yield-curve analysis, economic forecasting, market sector
analysis, and other security selection techniques. The Fund's investments will
be concentrated in areas of the intermediate U.S. Government Securities market
(based on sector, coupon or maturity) that NAS believes are relatively
undervalued.
The U.S. Government Securities in which the Fund may invest include variable
and floating rate securities, some of which may be callable. The Fund may also
purchase securities on a when-issued or delayed delivery basis and securities of
other investment companies and may lend portfolio securities. In addition, as a
temporary defensive position, the Fund may invest up to 100% of its total
assets, in cash and/or Money Market Obligations.

9
<PAGE> 11

OBJECTIVES AND MANAGEMENT

PORTFOLIO MANAGERS FOR THE LONG-TERM AND INTERMEDIATE U.S. GOVERNMENT BOND FUNDS
(THE "U.S. GOVERNMENT BOND FUNDS"): Wayne Frisbee, CFA; Kimberly Bingle, CFA,
FLMI; and Gary Hunt, MBA are the portfolio managers for the U.S. Government Bond
Funds. Mr. Frisbee joined Nationwide in 1981 as a securities analyst and has
managed the NIF II Nationwide U.S. Government Income Fund, predecessor to the
Nationwide Intermediate U.S. Government Bond Fund, since its inception in 1992
and the FHIT Government Bond Fund, predecessor to the Nationwide Long-Term U.S.
Government Bond Fund, since its inception in 1988. He received a Bachelor of
Science from The Ohio State University and is a Chartered Financial Analyst.
Ms. Bingle joined Nationwide in 1986 as a securities analyst and began
co-managing the predecessors of the U.S. Government Bond Funds on March 11,
1997. Since April of 1992, she has managed the Fixed Income Fund which is part
of the Nationwide Insurance Enterprise incentive savings plan. Prior to April
1992, she co-managed the Nationwide Foundation bond portfolio. Ms. Bingle
received a Bachelor of Arts in Finance from The Pennsylvania State University.
She is a Chartered Financial Analyst and a Fellow of the Life Management
Institute.
Mr. Hunt joined Nationwide in 1992 as a securities analyst and began
co-managing the predecessors of the U.S. Government Bond Funds on March 11,
1997. In his career at Nationwide, Hunt has been responsible for the analysis of
agency CMOs and U.S. Treasury securities. In addition, he has managed the
commercial mortgage-backed securities sector for Nationwide Life Insurance
Company and its affiliates. Mr. Hunt received a Bachelor of Science in Finance
and a Master of Business Administration from The Ohio State University.

ADDITIONAL INFORMATION CONCERNING THE DURATION OF THE U.S. GOVERNMENT BOND
FUNDS: The Long-Term U.S. Government Bond Fund will maintain a duration which,
on a weighted average basis and under normal market conditions, will generally
be greater than six years. The Intermediate U.S. Government Bond Fund will
maintain a duration which, on a weighted average basis and under normal market
conditions, will generally be between three and a half and six years. Duration
is a measure of the average life of a fixed-income security that was developed
as a more precise alternative to the concepts of "term to maturity" or "average
dollar weighted maturity" as measures of "volatility" or "risk" associated with
changes in interest rates. Duration incorporates a security's yield, coupon
interest payments, final maturity and call features into one measure.
Most debt obligations provide interest ("coupon") payments in addition to
final ("par") payment at maturity. Some obligations also have call provisions.
Depending on the relative magnitude of these payments and the nature of the call
provisions, the market values of debt obligations may respond differently to
changes in interest rates.
Traditionally, a debt security's "term-to-maturity" has been used as a
measure of the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "volatility" of the security). However,
"term-to-maturity" measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments prior
to maturity. Average dollar weighted maturity is calculated by averaging the
terms to maturity of each debt security held with each maturity "weighted"
according to the percentage of assets that it represents. Duration is a measure
of the expected life of a debt security on a present value basis and reflects
both principal and interest payments. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable security, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time. For any debt security with interest payments
occurring prior to the payment of principal, duration is ordinarily less than
maturity. In general, all other factors being the same, the lower the stated or
coupon rate of interest of a debt security, the longer the duration of the
security; conversely, the higher the stated or coupon rate of interest of a debt
security, the shorter the duration of the security.
There are some situations where the standard duration calculation does not
properly reflect the interest rate exposure of a security. For example, floating
and variable rate securities often have final maturities of ten or more years;
however, their interest rate exposure corresponds to the frequency of the coupon
reset. Another example where the interest rate exposure is not properly captured
by duration is the case of mortgage pass-through securities. The stated final
maturity of such securities is generally 30 years, but current prepayment rates
are more critical in determining the securities' interest rate exposure. In
these and other similar situations, NAS will use more sophisticated analytical
techniques to project the economic life of a security and estimate its interest
rate exposure. Since the computation of duration is based on predictions of
future events rather than known factors, there can be no assurance that either
U.S. Government Bond Fund will at all times achieve its targeted portfolio
duration.
The change in market value of U.S. Government fixed-income securities is
largely a function of changes in the prevailing level of interest rates. When
interest rates are falling, a portfolio with a shorter duration generally will
not generate as high a level of total return as a portfolio with a longer
duration. When interest rates are flat, shorter duration portfolios generally
will not generate as high a level of total return as longer duration portfolios
(assuming that long-term interest rates are higher than short-term rates, which
is commonly the case.) When interest rates are rising, a portfolio with a
shorter duration will generally outperform longer duration portfolios. With
respect to the composition of a fixed-income portfolio, the longer the duration
of the portfolio, generally, the greater the anticipated potential for total
return, with, however, greater attendant interest rate risk and price volatility
than for a portfolio with a shorter duration.
While each U.S. Government Bond Fund intends to maintain the average
duration described above under normal market conditions, there is no limit as to
the maturity of any one security which each U.S. Government Bond Fund may
purchase.

10
<PAGE> 12

OBJECTIVES AND MANAGEMENT

THE MONEY MARKET FUND

INVESTMENT OBJECTIVE & POLICY: Seeks as high a level of current income as is
consistent with the preservation of capital and maintenance of liquidity. The
Fund invests in high-quality money market instruments maturing in 397 days or
less. Although principal is not intended to fluctuate, there can be no assurance
that the Fund will be able to maintain a stable net asset value of $1.00 per
share.

- - MONTHLY INCOME WITH QUICK LIQUIDITY THROUGH CHECK-WRITING PRIVILEGE.

- - HISTORICALLY MAINTAINED A FIXED SHARE PRICE THROUGH HIGH-QUALITY, SHORT-TERM
SECURITIES.

RISK PROFILE: The illustration below shows a continuum of risk. The triangle
shows where the Money Market Fund generally falls on this continuum.

++
ARROW

<TABLE>
<S> <C>
More risk; greater Less risk; lower
potential for reward. growth potential.
</TABLE>

PORTFOLIO MANAGEMENT: Emphasis is on a diversified portfolio having a dollar
weighted average maturity of 90 days or less. The portfolio consists of
high-quality money market instruments with a remaining maturity of 397 days or
less including, but not limited to: U.S. Government Securities; U.S. dollar
denominated obligations of foreign governments including Canadian government and
provincial obligations; obligations of commercial banks and savings associations
which have assets over $500 million and are members of the Federal Deposit
Insurance Corporation, and the 50 largest foreign banks with U.S. branches;
taxable or partly taxable obligations issued by state, county or municipal
governments; commercial paper rated within the two highest rating categories by
an NRSRO; corporate obligations and asset-backed securities rated at the time of
purchase within the two highest rating categories assigned by at least two
NRSROs; and repurchase agreements collateralized by any of the above. In
addition, the Fund may invest in variable and floating rate obligations, some of
which may have call features. The Fund may also purchase securities on a
when-issued or delayed delivery basis and securities of other investment
companies and may lend portfolio securities. See "Investment Techniques,
Considerations and Risk Factors" below and "Additional Information on Portfolio
Instruments and Investment Policies" in the Statement of Additional Information
for further information.

PORTFOLIO MANAGER: Patricia A. Mynster, Director of Short-Term
Investments -- began managing the NIF Money Market Fund, the predecessor of the
Money Market Fund, in July 1997 and has managed short-term investments for over
20 years. She received a Bachelor of Arts degree in Business Administration from
Otterbein College. She has held her current position as Director of Short-Term
Investments for the Nationwide Enterprise since 1991.

11
<PAGE> 13

INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS

An investment in the Funds involves certain risks. As a general matter, an
investment in the Funds (except the Money Market Fund) involves the risk that
the net asset value of a Fund's shares will fluctuate in response to changes in
economic conditions, interest rates, and the market's perception of the
securities held by the Fund. In addition, an investment in the Stock Funds is
subject to stock market risk, which means that such an investment is subject to
the risk that stock prices in general will decline over short or extended
periods of time. Equity securities of companies with smaller capitalizations
generally are more volatile in price and may be less liquid than securities of
larger capitalized companies.
An investment in the Bond Funds is subject to bond market risk, i.e., the
risk that the market price of bonds in general will fluctuate. Bond prices
fluctuate largely in response to changes in the level of interest rates. When
interest rates rise, bond prices generally fall; conversely, when interest rates
fall, bond prices generally rise. Although the fluctuation in the price of bonds
is normally less than that of common stocks, in the past there have been
extended periods of cyclical increases in interest rates that have caused
significant declines in the price of bonds in general and have caused the
effective maturity of securities with prepayment features to be extended, thus
effectively converting short or intermediate term securities (which tend to be
less volatile in price) into longer term securities (which tend to be more
volatile in price). The value of shares of the Bond Fund and the Tax-Free Income
Fund may also be affected by the market's perception of changes in any issuer's
credit risk. As perceived credit risk increases, the value of a specific
security generally decreases, and the reverse is also true.
An investment in the Funds is subject to other risks as well, depending upon
the particular investment techniques employed by a Fund and the types of
securities in which a Fund invests. Certain of these risks are described below.

SPECIAL SITUATION COMPANIES -- The Mid Cap Growth Fund may invest in securities
of issuers in special situations. These securities may be more volatile than
other securities since the market value of these securities may decline in value
if the anticipated benefits do not materialize. Companies in "special
situations" include, but are not limited to, companies involved in an
acquisition or consolidation; reorganization; recapitalization; merger,
liquidation or distribution of cash, securities or other assets; a tender or
exchange offer; a breakup or workout of a holding company; litigation which, if
resolved favorably, would improve the value of the companies' securities; or
change in corporate control.

Although investing in securities of issuers in "special situations" offers
potential for above-average returns if the companies are successful, the risk
exists that the benefit of the "special situation" may not materialize and
therefore the prices of those companies' shares could significantly decline in
value.

WARRANTS -- Each Stock Fund may invest in warrants. A warrant is an instrument
which gives the holder the right to subscribe to a specified amount of the
issuer's securities at a set price for a specified period of time or on a
specified date. Warrants do not carry the right to dividends or voting rights
with respect to their underlying securities and do not represent any rights in
assets of the issuer. An investment in warrants may be considered speculative.
In addition, the value of a warrant does not necessarily change with the value
of the underlying securities, and a warrant ceases to have value if it is not
exercised prior to its expiration date.

CONVERTIBLE SECURITIES -- The Stock Funds may invest in convertible securities,
which are bonds, debentures, notes, preferred stocks or other securities that
may be converted into or exchanged for a specified amount of common stock of the
same or a different issuer within a particular period of time at a specified
price or formula. Convertible securities have general characteristics similar to
both debt obligations and equity securities. Although to a lesser extent than
with debt obligations generally, the market value of convertible securities
tends to decline as interest rates increase and, conversely, tends to increase
as interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in the
market value of the underlying common stock and therefore will also react to
variations in the general market for equity securities. A unique feature of
convertible securities is that as the market price of the underlying common
stock declines, convertible securities tend to trade increasingly on a yield
basis and so may not experience market value declines to the same extent as the
underlying common stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise as a reflection
of the value of the underlying common stock. While no securities investments are
without risk, investments in convertible securities generally entail less risk
than investments in common stock of the same issuer.
As fixed-income securities, convertible securities are investments that
provide for a stable stream of income with generally higher yields than common
stocks. Of course, like all debt obligations, there can be no assurance of
current income because the issuers of the convertible securities may default on
their obligations. Convertible securities, however, generally offer lower
interest or dividend yields than non-convertible securities of similar quality
because of the potential for capital appreciation. A convertible security, in
addition to providing

12
<PAGE> 14

INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS

fixed income, offers the potential for capital appreciation through the
conversion feature, which enables the holder to benefit from increases in the
market price of the underlying common stock. There can be no assurance of
capital appreciation, however, because the market value of securities will
fluctuate.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock of the
same issuer. Because of the subordination feature, however, convertible
securities typically are rated below investment grade or are not rated. The
Stock Funds will limit their investment in convertible securities rated below
investment grade to less than 5% of total net assets.

U.S. GOVERNMENT SECURITIES -- As discussed above, each of the Funds may invest
in U.S. Government Securities. Securities issued by the U.S. Government include
U.S. Treasury obligations, such as Treasury bills, notes, and bonds. Securities
issued by U.S. Government agencies or instrumentalities include, but are not
limited to, obligations of the following:

- - the Federal Housing Administration, Farmers Home Administration, and the
Government National Mortgage Association ("GNMA"), including GNMA pass-through
certificates, whose securities are supported by the full faith and credit of
the United States;

- - the Federal Home Loan Banks.

- - the Federal National Mortgage Association ("FNMA").

- - the Student Loan Marketing Association, Federal Home Loan Mortgage Corporation
("FHLMC").

- - the Federal Farm Credit Banks.

The U.S. Government and its agencies and instrumentalities do not guarantee
the market value of their securities; consequently, the value of such securities
will fluctuate.

STRIPPED TREASURY SECURITIES -- The Bond Funds and the Money Market Fund may
invest in Treasury securities that have been stripped of their unmatured
interest coupons (which typically provide for interest payments semi-annually);
interest coupons that have been stripped from such U.S. Treasury securities;
receipts and certificates for such stripped debt obligations and stripped
coupons (collectively, "Stripped Treasury Securities"). Stripped Treasury
Securities will include coupons that have been stripped from U.S. Treasury
bonds, which may be held through the Federal Reserve Bank's book-entry system
called "Separate Trading of Registered Interest and Principal of Securities"
("STRIPS") or through a program entitled "Coupon Under Book-Entry Safekeeping"
("CUBES").

Stripped Treasury Securities are sold at a deep discount because the buyer of
those securities receives only the right to receive a future fixed payment
(representing principal or interest) on the security and does not receive any
rights to periodic interest payments on the security.

MORTGAGE- AND ASSET-BACKED SECURITIES -- The Bond Funds (except Tax-Free Income
Fund) may purchase mortgage-backed securities. The Nationwide Bond Fund and the
Nationwide Money Market Fund may also invest in asset-backed securities.
Mortgage-backed securities represent direct or indirect participation in, or are
secured by and payable from, mortgage loans secured by real property, and
include single- and multi-class pass-through securities and CMOs. Such
securities may be issued or guaranteed by the U.S. Government, and its agencies
or instrumentalities or in the case of the Nationwide Bond Fund only, by private
issuers, generally originators of or investors in mortgage loans, including
savings and loan associations, mortgage bankers, commercial banks, investment
banks, and special purpose entities (collectively, "private lenders"). The
underlying mortgage assets may have fixed rates or adjustable rates of interest.
Mortgage-backed securities in which the Bond Funds may invest include both
fixed-rate and adjustable-rate mortgage-backed securities.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first-lien
mortgage loans or interests therein; rather they include assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property and receivables from credit
card and other revolving credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may be supported by
non-governmental credit enhancements similar to those utilized in connection
with mortgage-backed securities.
The yield characteristics of mortgage-backed securities differ from those of
traditional debt obligations. Among the principal differences are that interest
and principal payments are made more frequently on mortgage- and asset-backed
securities, usually monthly, and that principal may be prepaid at any time
because the underlying mortgage loans or other assets generally may be prepaid
at any time. As a result, if a Fund purchases these securities at a premium, a
prepayment rate that is higher than expected will reduce yield, while a
prepayment rate that is lower than expected will have the opposite effect of
increasing the yield. Conversely, if a Fund purchases these securities at a
discount, a prepayment rate that is faster than expected will increase yield,
while a prepayment rate that is slower than expected will reduce yield.
Accelerated prepayments on securities purchased by the Fund at a premium also
impose a risk of

13
<PAGE> 15

INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS

loss of principal because the premium may not have been fully amortized by the
time the principal is prepaid in full.
Unlike fixed rate mortgage securities, adjustable rate mortgage securities
are collateralized by or represent interest in mortgage loans with variable
rates of interest. These variable rates of interest reset periodically to align
themselves with market rates. The Fund will not benefit from increases in
interest rates to the extent that interest rates rise to the point where then
cause the current coupon of the underlying adjustable rate mortgages to exceed
any maximum allowable annual or lifetime reset limits (or "cap rates") for a
particular mortgage. In this event, the value of the adjustable rate
mortgage-backed securities in the Fund would likely decrease. Also, the Fund's
net asset value could vary to the extent that current yields on adjustable rate
mortgage-backed securities are different than market yields during interim
periods between coupon reset dates or if the timing of changes to the index upon
which the rate for the underlying mortgage is based lags behind charges in
market rates. During periods of declining interest rates, income to the Fund
derived from adjustable rate mortgages which remain in a mortgage pool will
decrease in contrast to the income on fixed rate mortgages, which will remain
constant. Adjustable rate mortgages also have less potential for appreciation in
value as interest rates decline than do fixed rate investments.
The Nationwide Bond Fund may purchase mortgage-backed securities issued by
private issuers, and therefore, the purchase of such securities may entail
greater risk than mortgage-backed securities that are guaranteed by the U.S.
Government, its agencies or instrumentalities. Mortgage-backed securities issued
by private lenders may be supported by pools of mortgage loans or other
mortgage-backed securities that are guaranteed, directly or indirectly, by the
U.S. Government or one of its agencies or instrumentalities, or they may be
issued without any governmental guarantee of the underlying mortgage assets but
with some form of non-governmental credit enhancement. Since privately-issued
mortgage certificates are not guaranteed by an entity having the credit status
of GNMA or FHLMC, such securities generally are structured with one or more
types of credit enhancement. Such credit support falls into two categories: (i)
liquidity protection; and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provisions of advances, generally by the entity administering the pool of
assets, to ensure that the pass-through of payments due on the underlying pool
occurs in a timely fashion. Protection against losses resulting from ultimate
default enhances the likelihood of ultimate payment of the obligations on at
least a portion of the assets in the pool. Such protection may be provided
through guarantees, insurance policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches.
The ratings of mortgage-backed securities for which third-party credit
enhancement provides liquidity protection or protection against losses from
default are generally dependent upon the continued creditworthiness of the
provider of the credit enhancement. The ratings of such securities could be
subject to reduction in the event of deterioration in the creditworthiness of
the credit enhancement provider even in cases where the delinquency loss
experience on the underlying pool of assets is better than expected. There can
be no assurance that the private issuers or credit enhancers of mortgage-backed
securities can meet their obligations under the relevant policies or other forms
of credit enhancement.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments sometimes funded from a portion of the
payments on the underlying assets are held in reserve against future losses) and
"over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information with
respect to the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that which is anticipated could adversely
affect the return on an investment in such security.

COLLATERALIZED MORTGAGE OBLIGATIONS -- The Bond Funds (other than the Tax-Free
Income Fund) may also acquire CMOs and stripped mortgage-backed securities. CMOs
are debt obligations collateralized by mortgage loans or mortgage pass-through
securities. Typically, CMOs are collateralized by GNMA, FNMA or FHLMC
certificates, but also may be collateralized by whole loans or private mortgage
pass-through securities (such collateral collectively referred to as "Mortgage
Assets"). Payments of principal or interest on the Mortgage Assets, and any
reinvestment income thereon, provide the income to pay debt service on the CMOs.
CMOs may be issued by agencies or instrumentalities of the U.S. Government or by
private lenders.

INTEREST ONLY AND PRINCIPAL ONLY SECURITIES -- Stripped mortgage-backed
securities are securities representing interest in a pool of mortgages the cash
flow from which has been separated into interest and principal components. "IOs"
(interest only securities) receive the interest portion of the cash flow while

14
<PAGE> 16

INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS

"POs" (principal only securities) receive the principal portion. Stripped
mortgage-backed securities may be issued by U.S. Government agencies or by
private lenders. As interest rates rise and fall, the value of IOs tends to move
in the same direction as interest rates. The value of POs, like other debt
instruments, will tend to move in the opposite direction compared to interest
rates. POs perform best when prepayments on the underlying mortgages rise since
this increases the rate at which the investment is returned and the yield to
maturity on the PO. When payments on mortgages underlying a PO are slow, the
life of the PO is lengthened and the yield to maturity is reduced.

Each Bond Fund (other than the Tax-Free Income Fund) may purchase stripped
mortgage-backed securities for hedging purposes to protect that Fund against
interest rate fluctuations. For example, since an IO will tend to increase in
value as interest rates rise, it may be utilized to hedge against a decrease in
value of other fixed-income securities in a rising interest rate environment. If
the Fund purchases a mortgage-related security at a premium, all or part of the
premium may be lost if there is a decline in the market value of the security,
whether resulting from changes in interest rates or prepayments in the
underlying mortgage collateral. With respect to IOs, if the underlying mortgage
securities experience greater than anticipated prepayments of principal, the
Fund may fail to recoup fully its initial investment in these securities even if
the securities are rated in the highest rating category by an NRSRO. Stripped
mortgage-backed securities may exhibit greater price volatility than ordinary
debt securities because of the manner in which their principal and interest are
returned to investors. The market value of the class consisting entirely of
principal payments can be extremely volatile in response to changes in interest
rates. The yields on stripped mortgage-backed securities that receive all or
most of the interest are generally higher than prevailing market yields on other
mortgage-backed obligations because their cash flow patterns are also volatile
and there is a greater risk that the initial investment will not be fully
recouped. No more than 10% of a Bond Fund's total assets will be invested in IOs
and in POs. The market for CMOs and other stripped mortgage-backed securities
may be less liquid if these securities lose their value as a result of changes
in interest rates; in such instance, a Bond Fund may have difficulty in selling
such securities.

MUNICIPAL SECURITIES -- The two principal classifications of municipal
securities which may be held by the Tax-Free Income Fund are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Private activity bonds
held by the Tax-Free Income Fund are in most cases revenue securities and are
not payable from the unrestricted revenues of the issuer. Consequently, the
credit quality of private activity bonds is usually directly related to the
credit standing of the corporate user of the facility involved.
The Tax-Free Income Fund may also invest in "moral obligation" securities,
which are normally issued by special purpose public authorities. If the issuer
of moral obligation securities is unable to meet its debt service obligations
from current revenues, it may draw on a reserve fund, the restoration of which
is a moral commitment, but not a legal obligation, of the state or municipality
which created the issuer.

REPURCHASE AGREEMENTS -- Each of the Funds may engage in repurchase agreement
transactions as long as the underlying securities are of the type that the Fund
would be permitted to purchase directly. Under the terms of a typical repurchase
agreement, the Fund would acquire an underlying security for a relatively short
period (usually not more than one week) subject to an obligation of the seller
to repurchase, and the Fund to resell, the obligation at an agreed upon price
and time, thereby determining the yield during the Fund's holding period. The
Fund will enter into repurchase agreements with member banks of the Federal
Reserve System or certain non-bank dealers. Under each repurchase agreement the
selling institution will be required to maintain the value of the securities
subject to the repurchase agreement at not less than their repurchase price
(including interest). Repurchase agreements could involve certain risks in the
event of default or insolvency of the other party, including possible delays or
restrictions upon a Fund's ability to dispose of the underlying securities. NAS,
acting under the supervision of the Board of Trustees of the Trust, reviews the
creditworthiness of those banks and non-bank dealers with which the Fund enters
into repurchase agreements to evaluate these risks. For additional information,
see "Repurchase Agreements" in the Statement of Additional Information.

INVESTMENT COMPANIES -- As permitted by the Investment Company Act of 1940 (the
"1940 Act"), each Fund may invest up to 10% of its total assets, calculated at
the time of investment, in the securities of other investment companies. No more
than 5% of a Fund's total assets may be invested in the securities of any one
investment company nor may it acquire more than 3% of the voting securities of
any other investment company. Each Fund will indirectly bear its proportionate
share of any management

15
<PAGE> 17

INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS

fees paid by an investment company in which it invests in addition to the
advisory fee paid by the Fund.

WHEN-ISSUED SECURITIES -- Each of the Funds may invest without limitation in
securities purchased on a when-issued or delayed delivery basis. Although the
payment and interest terms of these securities are established at the time the
Fund enters into the commitment, these securities may be delivered and paid for
at a future date, generally within 45 days; for mortgage-backed securities, the
delivery date may extend to as long as 120 days. Purchasing when-issued
securities allows a Fund to lock in a fixed price or yield on a security it
intends to purchase. However, when the Fund purchases a when-issued security, it
immediately assumes the risk of ownership, including the risk of price
fluctuation until the settlement date.
The greater a Fund's outstanding commitments for these securities, the
greater the exposure to potential fluctuations in the net asset value of a Fund.
Purchasing when-issued securities may involve the additional risk that the yield
available in the market when the delivery occurs may be higher or the market
price lower than that obtained at the time of commitment. Although the Fund may
be able to sell these securities prior to the delivery date, it will purchase
when-issued securities for the purpose of actually acquiring the securities,
unless after entering into the commitment a sale appears desirable for
investment reasons. The Fund will set aside liquid assets in a segregated
account to secure its outstanding commitments for when-issued securities.

FLOATING AND VARIABLE RATE OBLIGATIONS -- The Bond Funds and the Money Market
Fund may invest in floating and variable rate obligations. Floating or variable
rate obligations bear interest at rates that are not fixed, but vary with
changes in specified market rates or indices, such as the prime rate, and at
specified intervals. Interest rates on floating rate obligations vary with
changes in an underlying index while interest rates on variable rate obligations
change at preset fixed times. Certain of the floating or variable rate
obligations that may be purchased by these Funds may be callable by the issuer
at certain dates during the term of the obligations. The dates on which they may
be called are set at the time of issuance. The obligations have the credit risks
other debt instruments have, but because the issuer may call the obligations,
these Funds are also subject to the risk that the rates at which a Fund will be
able to reinvest such assets may be less than the rate paid on the floating or
variable rate obligation. Certain of the floating or variable rate obligations
that may be purchased by these Funds may also carry a demand feature that would
permit the holder to tender them back to the issuer at par value prior to
maturity. Such obligations include variable rate master demand notes, which are
unsecured instruments issued pursuant to an agreement between the issuer and the
holder that permits the indebtedness thereunder to vary and provides for
periodic adjustments in the interest rate. The Bond Funds and the Money Market
Fund will limit their purchases of floating and variable rate obligations to
those of the same quality as they otherwise are allowed to purchase. NAS will
monitor on an ongoing basis the ability of an issuer of a demand instrument to
pay principal and interest on demand.

Although there may be no active secondary market with respect to a
particular variable or floating rate obligation purchased by a Fund, the Fund
may attempt to resell the obligation at any time to a third party. The absence
of an active secondary market, however, could make it difficult for a Fund to
dispose of a variable or floating rate obligation in the event the issuer of the
obligation defaulted on its payment obligations, and the Fund could, as a result
or for other reasons, suffer a loss to the extent of the default. Variable or
floating rate obligations may be secured by bank letters of credit.
In the event the interest rate of a variable or floating rate obligation is
established by reference to an index or an interest rate that may from time to
time lag behind other market interest rates, there is the risk that the market
value of such obligation, on readjustment of its interest rate, will not
approximate its par value or amortized cost, as the case may be.
Variable and floating rate obligations for which no readily available market
exists and which are not subject to a demand feature that will permit the Fund
to receive payment of the principal within seven days after demand by that Fund,
will be considered illiquid and therefore, together with other illiquid
securities held by such Fund, investments will not exceed such Fund's
limitations on investments in illiquid securities.
For a further discussion of floating and variable rate obligations, see
"Additional Information on Portfolio Instruments and Investment
Policies -- Floating and Variable Rate Instruments" in the Statement of
Additional Information.

ZERO COUPON SECURITIES -- The Bond Funds may invest in zero coupon securities.
Zero coupon securities are debt securities that pay no cash income but are sold
at substantial discounts from their value at maturity. When a zero coupon
security is held to maturity, its entire return, which consists of the
amortization of discount, comes from the difference between its purchase price
and its maturity value. This difference is known at the time of purchase, so
that investors holding zero coupon securities until maturity know at the time of
their investment what the expected return on their investment will be. Certain
zero coupon securities also are sold at substantial discounts from their
maturity value and provide for the commencement of regular interest payments at
a deferred date. Zero coupon securities may have conversion features.
Zero coupon securities tend to be subject to greater price fluctuations in
response to changes in interest rates than

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INVESTMENT TECHNIQUES, CONSIDERATIONS AND RISK FACTORS

ordinary interest-paying debt securities with similar maturities. The value of
zero coupon securities appreciates more during periods of declining interest
rates and depreciates more during periods of rising interest rates than ordinary
interest-paying debt securities with similar maturities. Zero coupon securities
may be issued by a wide variety of corporate and governmental issuers. Although
these instruments are generally not traded on a national securities exchange,
they are widely traded by brokers and dealers and, to such extent, will not be
considered illiquid for the purposes of the Fund's limitation on investments in
illiquid securities.
Current Federal income tax law requires the holder of a zero coupon security
to accrue income with respect to these securities prior to the receipt of cash
payments. Accordingly, to avoid liability for Federal income and excise taxes,
the Bond Funds may be required to distribute income accrued with respect to
these securities and may have to dispose of portfolio securities under
disadvantageous circumstances in order to generate cash to satisfy these
distribution requirements.

MONEY MARKET OBLIGATIONS -- Each of the Funds may invest its assets in
high-quality short-term money market obligations.
Money Market Obligations in which the Funds may invest include: 1) U.S.
Government Securities (as described above) with remaining maturities of one year
or less; 2) commercial paper rated in one of the two highest ratings categories
of any NRSRO; 3) short-term bank obligations that are rated in one of the two
highest categories by any NRSRO, with respect to obligations maturing in one
year or less; 4) repurchase agreements relating to debt obligations which a Fund
could purchase directly; 5) unrated debt obligations with remaining maturities
of one year or less which are determined by NAS to be of comparable quality to
securities described above; or 6) money market mutual funds.

CANADIAN AND PROVINCIAL OBLIGATIONS -- The Money Market Fund may invest in
Canadian and Provincial obligations. They are unsecured, discounted bills and
notes are issued in U.S. currency. Obligations have a final maturity of 270 days
or less from date of issue and are exempt from registration under section
3(a)(3) of the Securities Act of 1933, as amended. Canada Bills constitute
direct, unconditional obligations of Her Majesty in right of Canada and are a
direct charge on, and payable out of the Consolidated Revenue Fund of Canada.
Export Development Company and Canadian Wheat Board are crown corporations and
agents of Her Majesty in right of Canada. Provincial obligations have the full
faith and credit of the provincial governments.

MEDIUM-GRADE OBLIGATIONS -- The Nationwide Bond and Tax-Free Income Funds may
invest in medium-grade securities. Medium-grade securities are obligations rated
in the fourth highest rating category by any NRSRO. Medium-grade securities,
although considered investment-grade, have speculative characteristics and may
be subject to greater fluctuations in value than higher-rated securities. In
addition, the issuers of medium-grade securities may be more vulnerable to
adverse economic conditions or changing circumstances than issuers of
higher-rated securities.

All ratings are determined at the time of investment. Any subsequent rating
downgrade of a debt obligation will be monitored by NAS to consider what action,
if any, a Fund should take consistent with its investment objective; there is no
requirement that the Fund sell such downgraded securities.

LENDING PORTFOLIO SECURITIES -- From time to time, each of the Funds (except the
Tax-Free Income Fund) may lend their portfolio securities to brokers, dealers
and other financial institutions who need to borrow securities to complete
certain transactions. In connection with such loans, a Fund will receive
collateral consisting of cash, U.S. Government Securities or irrevocable letters
of credit. Such collateral will be maintained at all times in an amount equal to
at least 100% of the current market value of the loaned securities. A Fund can
increase its income through the investment of such collateral and continues to
be entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned security and receives interest on the amount
of the loan. Such loans will be terminable at any time upon specified notice.
The Fund might experience risk of loss if the institution with which it has
engaged in a portfolio loan transaction breaches its agreement with the Fund.

DERIVATIVE INSTRUMENTS -- NAS may use a variety of derivative instruments,
including options, futures contracts ("futures"), options on futures, stock
index options and forward currency contracts to hedge a Stock Fund's portfolio
or for risk management. Derivatives are financial instruments whose value and
performance are based on the value and performance of another security,
financial instrument or index.

PORTFOLIO TURNOVER
The Funds will attempt to purchase securities with the intent of holding them
for investment but may purchase and sell portfolio securities whenever NAS
believes it to be in the best interests of a Fund. The Funds will not consider
portfolio turnover rate a limiting factor in making investment decisions
consistent with their investment objective and policies.
The annual portfolio turnover rate for each of the Funds (except the Money
Market Fund) is not expected to exceed 150% of such Fund's portfolio. For
regulatory purposes, the Money Market Fund is expected to have a 0% portfolio
turnover rate. Higher turnover rates (i.e., 100% or more) will generally result
in higher transaction costs to the Fund, as well as higher brokerage expenses
and higher levels of capital gains. The portfolio turnover rates of each Fund
may vary greatly from year to year and within a particular year.

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NATIONWIDE FAMILY OF FUNDS

MINIMUM INVESTMENT

STOCK FUNDS AND
NATIONWIDE BOND FUND
A minimum investment of $250 is required, and subsequent investments of $25 or
more may be made at any time.
--OR--
You may establish a systematic Automatic Asset Accumulation plan for as little
as $25 per month. See page 22. Also available for certain qualified plans, i.e.
Individual Retirement Accounts (IRA), Simplified Employee Pensions (SEP), Profit
Sharing and Money Purchase Plans.

There is an initial sales charge for investments made in the Class D shares of
the Stock and Bond Funds. Sales charges decline as the amount invested increases
according to the chart on page 19.

There are no sales charges on the purchase or redemption of shares of the Money
Market Fund, on redemptions of Class D shares in the Stock and Bond Funds, or on
dividends and capital gains reinvested in any of the Funds.

BOND FUNDS (EXCEPT THE NATIONWIDE BOND FUND) AND MONEY MARKET FUND
A minimum investment of $1,000 is required, and subsequent investments of $100
or more may be made at any time.
--OR--
You may establish a systematic Automatic Asset Accumulation plan for as little
as $100 per month. See page 22. The above Funds (except Tax-Free Income Fund)
are also available for certain qualified plans, i.e. Individual Retirement
Accounts (IRA), Simplified Employee Pensions (SEP), Profit Sharing and Money
Purchase Plans.

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NATIONWIDE FAMILY OF FUNDS

HOW TO PURCHASE SHARES

YOU MAY INVEST IN THREE CONVENIENT WAYS:

BY MAIL -- Complete the application and mail with your check or other negotiable
bank draft payable to: NATIONWIDE ADVISORY SERVICES, INC., THREE NATIONWIDE
PLAZA, P.O. BOX 1492, COLUMBUS, OHIO 43216-1492. Purchases must be made in U.S.
dollars only. The share price you receive will be determined as of the Valuation
Time (as defined below) on the day the properly completed application is
received by NAS in Columbus, Ohio. Checks or drafts drawn on non-U.S. banks are
not accepted. NAS reserves the right to refuse certain third-party checks.

BY WIRE -- To avoid mail delays on initial and subsequent investments, you can
request that your bank transmit funds (Federal Funds) by wire to the Fund's
custodian bank. In order to use this method, you must call NAS by 11 A.M.
Eastern Time, and the wire must be received by the custodian bank by 2 P.M.
Eastern Time. The share price you receive will be determined as of the next
Valuation Time after your order is received. If NAS does not receive Federal
Funds for your order within 3 business days, your order will be cancelled. The
bank that wires your money may charge you a fee for this service. IF YOU CHOOSE
THIS METHOD TO OPEN YOUR ACCOUNT, YOU MUST CALL OUR TOLL-FREE NUMBER BEFORE YOU
WIRE YOUR INVESTMENT. If this is an initial investment, you must then complete
and mail the application.

BY TELEPHONE (NAS NOW) -- By calling 1-800-637-0012, 24 hours a day, seven days
a week you will be connected to our automated voice-response system, NAS NOW. It
gives you quick, easy access to mutual fund information. Select from a menu of
choices to conduct transactions and hear fund price information, mailing and
wiring instructions as well as other mutual fund information.

IN ORDER TO USE NAS NOW TO MAKE A PURCHASE YOU MUST COMPLETE THE APPROPRIATE
SECTION ON THE APPLICATION.

CALCULATION OF NET ASSET VALUE -- The net asset value per share for each Fund is
determined as of the close of regular trading on the New York Stock Exchange
(usually 4 P.M. Eastern Time), each day that the exchange is open and on such
other days as the Board of Trustees determines and on days in which there is
sufficient trading in portfolio securities of a Fund to materially affect the
net asset value of that Fund (the "Valuation Time").
The Funds will not compute net asset value on customary business holidays,
including Christmas, New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day and Thanksgiving.
The net asset value per share of a Fund is computed by adding the value of
all securities and other assets in that Fund's portfolio, deducting any
liabilities and dividing by the number of shares outstanding. In determining net
asset value, portfolio securities listed on national exchanges are valued at the
last sale price on the principal exchange, or if there is no sale on that day,
or if the securities are traded only in the over-the-counter market, at the
quoted bid prices, all obtained from an independent pricing organization.
Securities for which market quotations are not available are valued at fair
value in accordance with procedures adopted by the Board of Trustees.
In determining net asset value of the Money Market Fund, portfolio
securities are valued at amortized cost, which approximates market value, in
accordance with Rule 2a-7 of the 1940 Act as amended. Expenses and fees are
accrued daily.

PURCHASE PRICE

THE PURCHASE PRICES OF THE FUNDS ARE DETERMINED AS FOLLOWS:

SHARES OF THE MONEY MARKET FUND
Shares of the Money Market Fund are purchased at net asset value. You pay no
sales charge when you invest in or redeem the Money Market Fund.

CLASS D SHARES OF THE STOCK AND BOND FUNDS
Class D shares are purchased at the offering price. The offering price is
determined by adding the sales charge (based as a percentage of the offering
price) to the net asset value per share.

SALES CHARGE SCHEDULE AND AVAILABLE DISCOUNTS FOR CLASS D SHARES
For purchases of the Class D shares, your sales charge percentage is calculated
according to the chart below:

<TABLE>
<CAPTION>
SALES CHARGE SCHEDULE As a percentage of:
- -----------------------------------------------------------
If your investment plus the value Offering Amount
of other shares held is: Price Invested
- -----------------------------------------------------------
<S> <C> <C>
less than $100,000, the sales charge
is: 4.5 % 4.71%
$100,000 but less than $250,000 3.5 % 3.63%
$250,000 but less than $500,000 2.5 % 2.56%
$500,000 but less than $1,000,000 1.5 % 1.52%
$1,000,000 or more 0.5 % 0.5 %
</TABLE>

Shareholders can receive even greater discounts through the cumulative
effect of the discounts below:

LIFETIME ADDITIONAL DISCOUNT
The sales charge for Class D shares is computed at the rate applied to the
amount invested plus the accumulated value of all shares held in any of the
Funds (except Nationwide Money Market Fund) including shares acquired by
reinvestment of dividends and capital gains distributions.

FAMILY MEMBER DISCOUNT
In addition, all Class D shares held in any Fund accounts (except Nationwide
Money Market Fund) of members of the

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<PAGE> 21

NATIONWIDE FAMILY OF FUNDS

shareholder's family may be included, provided these family members reside at
the shareholder's address.

HOW TO SELL (REDEEM) SHARES

You can sell (redeem) all, or any part of, your shares of any Fund at any time.
Shares are redeemed at net asset value next computed after receipt of the
properly completed request by NAS, at its offices in Columbus, Ohio.
Requests for redemptions may be in writing or by telephone (if authorized).
Payment for shares redeemed is made within 3 business days of receipt. The value
of shares redeemed depends upon the market value of the investments of each Fund
at the time of redemption and may be more or less than the shareholders' cost.

Payment of redemption proceeds may be delayed until the check purchasing
shares has cleared or up to fifteen days from the date of purchase, whichever
occurs first. This is to assure that your check has cleared. To avoid this
possible delay, you may make your investment by wire (see "How To Purchase
Shares by Wire,"). You will receive a confirmation each time a liquidation of
shares is requested. Redemptions may be suspended or the date of payment
postponed when the New York Stock Exchange is closed (other than customary
weekend and holiday closings listed in the "How To Purchase Shares" section), or
if trading is restricted or if any emergency exists.

YOU CAN REDEEM IN ANY OF THE FOLLOWING WAYS:

BY TELEPHONE

NAS NOW -- By calling 1-800-637-0012, 24 hours a day, seven days a week, you
will automatically have access to NAS NOW to make a redemption (check mailed
to address of record) unless you declined the option in your application.
Additional NAS NOW redemption options are also available, if elected. NAS NOW
also gives you quick, easy access to mutual fund information. Select from a
menu of choices to conduct transactions and hear fund price information,
mailing and wiring instructions as well as other mutual fund information.
(Redemptions through NAS NOW, the automated voice-response system, will be
limited to the following registrations: Individual, Joint, Transfer on Death,
Trust, and Uniform Gift/Transfer to Minor accounts. Western Union redemptions
are not allowed through NAS NOW.)

CUSTOMER SERVICE LINE -- A check payable to the shareholder of record can be
mailed to the address of record, unless you declined the option in your
account application. Redemptions of $1,000 or more can be wired directly to
your account at a commercial bank (voided check must be attached to the
application) or sent via Western Union, if elected in the application. For
additional information on Western Union, please see below.

Telephone redemptions for IRAs are available upon receipt of the proper
forms. These redemptions will be subject to mandatory 10% Federal income tax
withholding, unless you elect out of withholding. For further information, or
to request these forms, please call our customer service line at
1-800-848-0920.

You must call our toll-free number by 4:00 p.m. Eastern Time to receive that
day's closing share price.

The Funds will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The Funds will not be liable for any
loss, injury, damage, or expense as a result of acting upon instructions
communicated by telephone reasonably believed to be genuine, and the Funds
will be held harmless from any loss, claims or liability arising from its
compliance with such instructions. These options are subject to the terms and
conditions set forth in this Prospectus and all telephone transaction calls
may be tape recorded. The Funds reserve the right to revoke this privilege at
any time without notice to shareholders and request the redemption in
writing, signed by all shareholders.

BY BANK WIRE -- Your funds will be wired to your bank on the next business
day after your redemption order has been processed. A $5 fee will be deducted
from the proceeds for this service. Your financial institution may also
charge you a fee for receipt of the wire. (If elected, this authorization
will remain in effect until written notice of its termination is received by
NAS.)

BY ACH -- Your funds will be sent via ACH to your bank account on the second
business day after your redemption order has been received by NAS. There is
no fee to receive your funds via ACH. (If elected, this authorization will
remain in effect until written notice of its termination is received by NAS.)
Funds sent through the automated clearing house should reach your bank in two
business days.

BY WESTERN UNION -- With Western Union's Quick Cash(R) service, you can
receive your redemptions the next day across the United States or throughout
the world. If you have elected, you can phone in your request to receive
funds, next business day, at 24,000 locations - including major supermarkets
and mail-box type outlets - many open 24 hours a day, seven days a week. The
fee for the Western Union service is $9.50 per $10,000. Funds being sent
outside

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NATIONWIDE FAMILY OF FUNDS

of The United States may be subject to a higher fee. This fee is deducted
from your account.

BY MAIL OR FAX (NO MINIMUM) -- Write or fax to Nationwide Advisory Services,
Inc., Three Nationwide Plaza, P.O. Box 1492, Columbus, Ohio 43216-1492 or FAX
(614) 249-8705. Please be sure that your letter or facsimile is signed exactly
as your account is registered and that your account number and the Fund from
which you wish to make the withdrawal are included. For example, if your account
is registered John Doe and Mary Doe, 'Joint Tenants With Right of Survivorship,'
then both John and Mary must sign the redemption request. For an IRA redemption,
you must include date of birth. Also, you must indicate whether or not you wish
Federal income tax (not less than 10%) to be withheld from the distribution. The
distribution will be processed effective the date the signed letter or fax is
received. Fax requests received after 4 P.M. Eastern time will be processed as
of the next business day. NAS reserves the right to require the original
document if you use the fax method.

BY MONEY MARKET CHECK WRITING -- Money Market shareholders receive free check
writing privileges. If you wish to withdraw your money this way, please complete
the appropriate section of the application. You pay no fee for this service, but
the Fund reserves the right to charge for it or to terminate this service.
IF YOU HAVE MONEY MARKET CHECK WRITING PRIVILEGES, YOU SHOULD NOT ATTEMPT TO
REDEEM YOUR ENTIRE ACCOUNT BY WRITING A CHECK. This is because dividends are
accrued daily which will not be credited to your account until the end of the
month. This could result in a small remaining balance, which would be subject to
the $2 per month fee on Money Market accounts below minimum requirements.

ALTERNATE METHODS -- In the event of significant market activity, it may be
difficult to reach NAS by telephone. If so, an investor may choose to use
alternate methods to contact NAS such as sending instructions by a special
delivery service, or by facsimile (FAX) machine (614-249-8705). If you use the
FAX method, NAS reserves the right to require the original document.

ACCOUNTS FALLING BELOW MINIMUM INVESTMENT REQUIREMENTS
Because of the high cost of maintaining small accounts, NAS MAY CLOSE ANY
ACCOUNT WHICH, AS A RESULT OF REDEMPTIONS, HAS A VALUE OF LESS THAN $250
(EXCLUDING AUTOMATIC ASSET ACCUMULATION ACCOUNTS). However, you will be notified
if your account value is less than the required minimum, and you will be allowed
90 days to make additional investments before the account is liquidated.
IN THE CASE OF A MONEY MARKET FUND ACCOUNT BELOW $250 ON AVERAGE FOR ANY
MONTH, A $2 MONTHLY FEE WILL BE ASSESSED. The fee is deposited into the Fund to
offset the expenses of carrying these small accounts. Shares are redeemed in the
first week of the following month to cover the fee.

SIGNATURE GUARANTEE
Based on the circumstances of each transaction, NAS reserves the right to
require that your signature be guaranteed by an authorized agent of an "eligible
guarantor institution," which include, but are not limited to, certain banks,
credit unions, savings associations, and member firms of national security
exchanges. A signature guarantee is designed to protect the shareholder by
helping to prevent an unauthorized person from redeeming shares and obtaining
the proceeds. A notary public is not an acceptable guarantor. In certain special
cases (such as corporate or fiduciary registrations), additional legal documents
may be required to ensure proper authorizations. If NAS decides to require
signature guarantees in all circumstances, shareholders will be notified in
writing prior to implementation of the policy.

INVESTOR STRATEGIES

1 MONEY MARKET PLUS GROWTH -- This strategy provides the security of principal
that the Money Market Fund offers plus the opportunity for greater long-term
capital appreciation through reinvestment of dividends into one of the Stock
Funds.
An initial investment of $5,000 or more is made in the Money Market, and
monthly dividends are then automatically invested into one or more of the Stock
Funds chosen by you at such Stock Fund's current offering price. Money Market
Plus Growth gives investors stability of principal through the Money Market's
stable share price, and its portfolio of high quality, short-term money market
investments. And the Money Market Fund offers instant liquidity through
unlimited free checking ($500 minimum), telephone redemption, or NAS NOW. NOTE:
Money Market Fund dividends reinvested into one of the Stock Funds are subject
to applicable sales charges.

2 MONEY MARKET PLUS INCOME -- This strategy provides the security of principal
that the Money Market Fund offers plus the opportunity for greater income by
reinvesting dividends into one or more of the Bond Funds.
An initial investment of $5,000 or more is made in the Money Market Fund and
monthly dividends are then reinvested into one of the Bond Funds chosen by you
at such Fund's current offering price.
When short-term interest rates increase, so do Money Market dividends. At
the same time, share prices of the Bond Funds generally decrease. So, with Money
Market Plus Income,

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NATIONWIDE FAMILY OF FUNDS

when you earn higher Money Market dividends, you can generally purchase more
shares of one of the Bond Funds at lower prices. Conversely, when interest rates
and Money Market dividends decrease, the share prices of the Bond Funds usually
increase -- you will automatically buy fewer shares of one of the Bond Funds at
higher prices. Money Market Plus Income provides investors with stability of
principal, instant liquidity through Money Market free checking ($500 minimum),
telephone redemption, or NAS NOW, and the opportunity for greater income. NOTE:
Money Market Fund dividends reinvested into one of the Bond Funds are subject to
applicable sales charges.

3 AUTOMATIC ASSET ACCUMULATION -- This is a systematic investment strategy which
combines automatic monthly transfers from your personal checking account to your
mutual fund account with the concept of Dollar Cost Averaging. With this
strategy, you invest a fixed amount monthly over an extended period of time,
during both market highs and lows. Dollar Cost Averaging can allow you to
achieve a favorable average share cost over time since your fixed monthly
investment buys more shares when share prices fall during low markets, and fewer
shares at higher prices during market highs. Although no formula can assure a
profit or protect against loss in a declining market, systematic investing has
proven a valuable investment strategy in the past.
You can get started with Automatic Asset Accumulation for as little as $25 a
month (Stock Funds), or $100 a month (Bond Funds or Money Market Fund). Another
way to take advantage of the benefits that Dollar Cost Averaging can offer is
through the Money Market Plus Growth or Money Market Plus Income investor
strategies.

4 AUTOMATIC ASSET ALLOCATION -- This strategy is for investors who want to set
up an account in more than one of our Funds. This allows you to diversify
further your portfolio to accommodate your unique needs. If you set up your
account with Automatic Asset Accumulation, additional investments can be
automatically allocated among the Funds based upon your initial percentage. You
must satisfy the account minimum requirements (subsequent investments) of each
Fund in which you invest. Changes to your percentage allocation can be made by
calling toll-free 1-800-848-0920.

5 AUTOMATIC ASSET TRANSFER -- This systematic investment plan is designed
especially for investors who want to invest $5,000 or more in the Stock or Bond
Funds, but not all at one time. An initial investment of $5,000 or more is made
in the Money Market Fund, then a fixed amount that you predetermine is
transferred systematically monthly or quarterly into another Fund ($50 minimum
for the Stock Funds, $100 minimum for the Bond Funds). The money is transferred
on the 25th day of the month or on the business day preceding the 25th day. This
strategy can provide investors with the benefits of Dollar Cost Averaging
through an opportunity to achieve a favorable average share cost over time. With
this plan, your fixed monthly or quarterly transfer from the Money Market to any
Fund you select buys more shares when share prices fall during low markets and
fewer shares at higher prices during market highs. Although no formula can
assure a profit or protect against loss in a declining market, systematic
investing has proven a valuable investment strategy in the past.
Those who have a more conservative outlook on investing can transfer smaller
sums monthly and spread the transfer of assets into another Fund over a longer
period of time, while those with a more aggressive outlook can transfer larger
sums over a shorter period. Either way, you receive the added benefits of
current rates paid on the portion of your investment in the Money Market, along
with the stability offered by the Money Market's fixed share price.

6 AUTOMATIC WITHDRAWAL PLAN ($50 OR MORE) -- You may have checks for any fixed
amount of $50 or more automatically sent bi-monthly, monthly, quarterly, three
times/year, semi-annually or annually, to you (or anyone you designate) from
your account.
NOTE: If your monthly withdrawals exceed the monthly dividends from your
account, you will be depleting principal, which will reduce your future dividend
potential.

INVESTOR PRIVILEGES

The Funds offer the following privileges to shareholders. Additional information
may be obtained by calling NAS toll-free at 1-800-848-0920.

1 NO SALES CHARGE ON REINVESTMENTS -- All dividends and capital gains will be
automatically reinvested in the form of additional shares free of charge within
the same Fund unless you have chosen to receive them in cash on your
application. Unless requested in writing by the shareholder, the Trust will not
mail checks for dividends and capital gains of less than $5 but instead they
will automatically be reinvested in the form of additional shares, and you will
receive a confirmation.

2 EXCHANGE PRIVILEGE -- The exchange privilege is a convenient way to exchange
shares from one Fund to another Fund in order to respond to changes in your
goals or in market conditions. There is no administrative fee, exchange fee or
limit to the number of exchanges permitted. HOWEVER, AN EXCHANGE IS A SALE AND
PURCHASE OF SHARES AND, FOR FEDERAL AND STATE INCOME TAX

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NATIONWIDE FAMILY OF FUNDS

PURPOSES, MAY RESULT IN A CAPITAL GAIN OR LOSS. The registration of the account
to which you are making an exchange must be exactly the same as that of the Fund
account from which the exchange is made, and the amount you exchange must meet
the applicable minimum investment of the Fund being purchased. (Shares of the
Fund exchanged to must be registered in the shareholder's state of residence).

EXCHANGES AMONG THE FUNDS

Class D shares of the Funds generally may be exchanged for Class D shares of any
of the Funds or for shares of the Money Market Fund without sales charge.

Exchanges from the Money Market Fund to any other Fund, however, will be
subject to applicable sales charges, unless a sales charge has already been
paid, see "Sales Charge Schedule and Available Discounts".

The Trust reserves the right to change the exchange privilege upon at least
60 days' written notice to shareholders.

EXCHANGES MAY BE MADE THREE CONVENIENT WAYS:

BY TELEPHONE

NAS NOW -- You can automatically process exchanges by calling
1-800-637-0012, 24 hours a day, seven days a week. However, if you declined
the option in the application, you will not have this automatic exchange
privilege. NAS NOW also gives you quick, easy access to mutual fund
information. Select from a menu of choices to conduct transactions and hear
fund price information, mailing and wiring instructions as well as other
mutual fund information.

CUSTOMER SERVICE LINE -- By calling 1-800-848-0920, you may exchange shares
by telephone if the shares are not issued in certificate form. Requests may
be made only by the account owner(s). You must call our toll-free number by
4:00 p.m. Eastern Time to receive that day's closing share price.

NAS may record all instructions to exchange. NAS reserves the right at any
time without prior notice to suspend, limit or terminate the telephone
exchange privilege or its use in any manner by any person or class.

The funds will employ the same procedure described under "How to Sell
(Redeem) Shares" to confirm that the instructions are genuine.

BY MAIL -- An exchange may be made by writing to Nationwide Advisory Services,
Inc., Three Nationwide Plaza, P.O. Box 1492, Columbus, Ohio 43216-1492. Please
be sure that your letter is signed by all owners of the account and that your
account number and the Fund you wish to exchange to are included.

ALTERNATE METHODS -- In the event of significant market activity, it may be
difficult to reach NAS by telephone. If so, an investor may choose to use
alternate methods to contact NAS such as sending instructions by a special
delivery service or by facsimile (FAX) machine (614-249-8705). If you use the
FAX method, NAS reserves the right to require the original document.

3 INSURANCE PROCEEDS OR BENEFITS DISCOUNT PRIVILEGE (CLASS D SHARES) -- If the
funds used to purchase shares come from proceeds or benefits of an insurance
policy issued by any member of the Nationwide Insurance Enterprise, the sales
charge is one-half the rate established, provided the purchase is made within 60
days after receipt of the proceeds or benefits.

4 LETTER OF INTENT (LOI) DISCOUNT -- This discount permits you to purchase Class
D shares at a reduced cost during a 13-month period if the amount invested, or
the value of shares held by you and other family members of your household, plus
the amount invested (excluding investments in Nationwide Money Market Fund),
equals or exceeds $50,000. LOI is not a binding obligation upon the investor to
buy the shares. It is merely a statement of intent.
By marking the appropriate box and signing the application, you indicate
your intention to complete the appropriate LOI. The LOI will be completed when
your new investments, together with the value of all existing shares held by
you, your spouse, minor children, and other family members of your household,
total an amount equal to the amount checked on the application. You obtain a
reduced sales charge on each share purchased during the 13-month period. The LOI
may be backdated, up to 90 days, to include previous purchases under the reduced
sales charge available under the LOI.

If the intended investment is not completed, the investor will be asked to
pay the difference between the sales charge actually paid and the sales charge
due on the amount invested according to the "Sales Charge Schedule." If the
difference is not paid within 20 days after written request, the investor
irrevocably constitutes and appoints NAS as their attorney-in-fact, with full
power of substitution, to redeem an appropriate number of shares from their
account to cover the amount due. For more details on the LOI Discount, call
1-800-848-0920.

5 NET ASSET VALUE PURCHASE PRIVILEGE (CLASS D SHARES ONLY) -- The sales charge
applicable to Class D shares may be waived for the following purchases: (1)
shares sold through

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NATIONWIDE FAMILY OF FUNDS

institutional sales to other registered investment companies affiliated with
NAS, (2) Class D shares which are received in exchange for Class D shares of
another Fund (see "Exchange Privilege" above), and (3) sales which may be made
(a) to any pension, profit sharing, or other employee benefit plan for the
employees of NAS, any of its affiliated companies, or investment advisory
clients and their affiliates, (b) to Trustees and retired Trustees of NIF III
(including its predecessor Trusts); directors, officers, full-time employees,
sales representatives and their employees, and retired directors, officers,
employees, and sales representatives, their spouses, children or immediate
relatives, and immediate relatives of deceased employees (immediate relatives
include mother, father, brothers, sisters, grandparents, grandchildren) of any
member of the Nationwide Insurance Enterprise, or any investment advisory
clients of NAS and their affiliates, (c) to directors, officers and full-time
employees, their spouses, children or immediate relatives, and immediate
relatives of deceased employees (immediate relatives include mother, father,
brothers, sisters, grandparents, grandchildren) of any sponsor group which may
be affiliated with the Nationwide Insurance Enterprise from time to time, which
include but are not limited to Farmland Industries, Inc., Maryland Farm Bureau,
Inc., Ohio Farm Bureau Federation, Inc., Pennsylvania Farmers' Association,
Ruralite Services, Inc., and Southern States Cooperative, (d) any endowment or
non-profit organization, (e) any pension, profit sharing, or deferred
compensation plan which is qualified under section 401(a), 403(b) or 457 of the
Internal Revenue Code of 1986 as amended, dealing directly with NAS with no
sales representative involved, at net asset value, upon written assurance of the
purchaser that the shares are acquired for investment purposes and will not be
resold except to the Trust, (f) any life insurance company separate account
registered as a unit investment trust, and (g) any qualified pension or profit
sharing plan established by a Nationwide sales representative for
himself/herself and his/her employees.

6 NO SALES CHARGE ON A REPURCHASE -- If you redeem all or part of your Class D
shares for which you paid sales charges, you have a one-time privilege to
reinvest all or part of the redemption proceeds in any of the Class D shares
without a sales charge, within 30 days after the effective date of the
redemption.
If you realize a gain on your redemption, the transaction is taxable and
reinvestment will not alter any capital gains tax payable. If you realize a loss
and you use the reinstatement privilege, some or all of the loss will not be
allowed as a tax deduction depending upon the amount reinvested.

7 FREE CHECKING ACCOUNT PRIVILEGE (MONEY MARKET FUND ONLY) -- You may request a
supply of free checks for your personal use and there is no monthly service fee.
You may use them to make withdrawals of $500 or more from your account at any
time. Your account will continue to earn daily income dividends until your check
clears your account. There is no limit on the number of checks you may write.
Cancelled checks will not be returned to you. However, your monthly statement
will provide the check number, date and amount of each check written. You will
also be able to obtain copies of cancelled checks by contacting one of our
service representatives at 1-800-848-0920.

INVESTOR SERVICES

1 NAS NOW AUTOMATED VOICE RESPONSE SYSTEM -- Our toll-free number 1-800-637-0012
will connect you 24 hours a day, seven days a week to NAS NOW, our automated
voice response system. Through a selection of menu options, you can conduct
transactions, hear fund price information, mailing and wiring instructions and
other mutual fund information.

2 TOLL-FREE INFORMATION AND ASSISTANCE -- Customer service representatives are
available to answer questions regarding the Funds and your account(s) between
the hours of 8 A.M. and 5 P.M. Eastern Time. Call toll-free: 1-800-848-0920. Or
contact NAS at our FAX telephone number (614) 249-8705.

3 RETIREMENT PLANS (NOT AVAILABLE WITH THE TAX-FREE INCOME FUND) -- Shares of
the Funds may be purchased for Self-Employed Retirement Plans, Individual
Retirement Accounts (IRAs), Simplified Employee Pension Plans, Corporate Pension
Plans, Profit Sharing Plans and Money Purchase Plans. For a free information
kit, call 1-800-848-0920.

4 MUTUAL FUND GIFT CERTIFICATES -- Gift Certificates may be purchased for
special occasions such as birthdays, graduations, weddings and as appreciation
gifts. NOTE: Respective minimum initial and subsequent purchase amounts must be
met when using gift certificates to open new accounts. Contact one of our
service representatives at 1-800-848-0920 for complete details and instructions.

5 SHAREHOLDER CONFIRMATIONS -- You will receive a confirmation statement each
time a requested transaction is processed. However, no confirmations are mailed
on certain pre-authorized, systematic transactions. Instead, these will appear
on your next consolidated statement.

6 CONSOLIDATED STATEMENTS -- Shareholders of the Stock Funds receive quarterly
statements as of the end of March, June, September and December. Shareholders of
the Bond and Money

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NATIONWIDE FAMILY OF FUNDS

Market Funds receive monthly statements. Please review your statement carefully
and notify us immediately if there is a discrepancy or error in your account.
For shareholders with multiple accounts, your consolidated statement will
reflect all your current holdings in the Funds. Your accounts are consolidated
by social security number and zip code. Accounts in your household under other
social security numbers may be added to your statement at your request.
Depending on which Funds you own, your consolidated statement will be sent
either monthly or quarterly. Only transactions during the reporting period will
be reflected on the statements. An annual summary statement reflecting all
calendar-year transactions in all your Funds will be sent after year-end.

7 AVERAGE COST STATEMENT -- This statement may aid you in preparing your tax
return and in reporting capital gains and losses to the IRS. If you redeemed any
shares during the calendar year, a statement reflecting your taxable gain or
loss for the calendar year (based on the average cost you paid for the redeemed
shares) will be mailed to you following each year-end. Average cost can only be
calculated on accounts opened on or after January 1, 1984. Fiduciary accounts
and accounts with shares acquired by gift, inheritance, transfer, or by any
means other than a purchase cannot be calculated.
Average cost is one of the IRS approved methods available to compute gains
or losses. You may wish to consult a tax advisor on the other methods available.
The information on your average cost statement will not be provided to the IRS.
If you have any questions, contact one of our service representatives at
1-800-848-0920.

8 SHAREHOLDER REPORTS -- All shareholders will receive reports semi-annually
detailing the financial operations of the funds.

9 PROSPECTUSES -- Updated prospectuses will be mailed to you annually.

10 UNDELIVERABLE MAIL -- If mail from NAS to a shareholder is returned as
undeliverable on three or more consecutive occasions, NAS will not send any
future mail to the shareholder unless it receives notification of a correct
mailing address for the shareholder. Any dividends that would be payable by
check to such shareholders will be reinvested in the shareholder's account until
NAS receives notification of the shareholder's correct mailing address.

MANAGEMENT OF THE TRUST

The business and affairs of the Trust are managed under the direction of its
Board of Trustees. The Board of Trustees sets and reviews policies regarding the
operation of the Trust, whereas the officers perform the daily functions of the
Trust.

INVESTMENT MANAGEMENT

Under the terms of the Investment Advisory Agreement, NAS, Three Nationwide
Plaza, Columbus, Ohio 43215, manages the investment of the assets and supervises
the daily business affairs of the Trust. NAS, an Ohio corporation, is a wholly
owned subsidiary of Nationwide Life Insurance Company, which is owned by
Nationwide Financial Services, Inc. (NFS). NFS, a holding company, has two
classes of common stock outstanding with different voting rights enabling
Nationwide Corporation (the holder of all outstanding Class B Common Stock) to
control NFS. Nationwide Corporation is also a holding Company in the Nationwide
Enterprise. All of the Common Stock of Nationwide Corporation is held by
Nationwide Mutual Insurance Company (95.3%) and Nationwide Mutual Fire Insurance
Company (4.7%), each of which is a mutual company owned by its policyholders.

The Funds pay NAS fees based on average daily net assets of each Fund at the
following annual rates:

<TABLE>
<CAPTION>
FUND ASSETS FEE
- ------------------------------ ----------------------- ----
<S> <C> <C>
Nationwide Mid Cap Growth, up to $250 Mill. .60%
$250 Mill. up to $1
Nationwide Growth, Nationwide Bill. .575%
Fund $1 Bill. up to $2 Bill. .55%
$2 Bill. up to $5 Bill. .525%
$5 Bill. and more .50%
Nationwide Bond, Nationwide up to $250 Mill. .50%
$250 Mill. up to $1
Tax-Free Income, Nationwide Bill. .475%
Long-Term U.S. Government $1 Bill. up to $2 Bill. .45%
Bond, Nationwide Intermediate $2 Bill. up to $5 Bill. .425%
U.S. Government Bond $5 Bill. and more .40%

Nationwide Money up to $1 Bill. .40%
Market Fund $1 Bill. up to $2 Bill. .38%
$2 Bill. up to $5 Bill. .36%
$5 Bill. and more .34%
</TABLE>

OTHER SERVICES

Under the terms of a Fund Administration Agreement, NAS also provides various
administrative and accounting services, including daily valuation of the Funds'
shares and preparation of financial statements, tax returns, and regulatory
reports. For these services, each Fund pays NAS an annual fee based on each
Fund's average daily net assets in the amount of 0.07% up to
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NATIONWIDE FAMILY OF FUNDS

$250 million in assets, 0.05% on the next $750 million and 0.04% on assets of $1
billion and more.

TRANSFER AND DIVIDEND DISBURSING AGENT
NAS, through its wholly-owned subsidiary, Nationwide Investors Services, Inc.
(NISI), serves as transfer agent and dividend disbursing agent for the Trust.
For these services, NAS receives an annual per account fee from each of the
Funds; $16 per Stock Fund account, $18 per Bond Fund account and $27 per Money
Market Fund account.

DISTRIBUTIONS AND TAXES

INCOME DIVIDENDS AND CAPITAL GAINS

Substantially all of the net investment income, if any, will be distributed to
shareholders quarterly by the Stock Funds and at the end of each month by the
Bond and Money Market Funds in the form of additional shares of the Fund unless
the shareholder has chosen to receive them in cash. Unless requested in writing
by the Shareholder, checks will not be mailed for dividends and capital gains of
less than $5. These dividends will be automatically reinvested in the form of
additional shares and you will receive a confirmation showing the transaction.

In those years in which sales of a Fund's portfolio securities result in net
realized capital gains, these gains will be declared and cause to be paid to
shareholders in December.

FEDERAL TAXES
Each of the Funds intends to qualify for treatment under subchapter M of the
Internal Revenue Code of 1986, as amended, (the "Code") and, therefore, must
distribute all or substantially all net investment income and capital gains to
shareholders annually. In general, if a Fund distributes all of its net
investment income, it is not required to pay any Federal income taxes. In
addition to Federal income tax, if a Fund fails to distribute the required
portion of investment income or capital gains in any year, it will be subject to
a non-deductible 4% excise tax on the amount which it failed to distribute. Each
Fund intends to make distributions in sufficient amounts to avoid the imposition
of this excise tax.
Dividends paid by each of the Funds (with the exception of the Tax-Free
Income Fund) are taxable as income to the shareholder for Federal income tax
purposes. For corporate shareholders, a portion of each year's distribution may
be eligible for the corporate dividend received deduction.
Dividends paid by the Tax-Free Income Fund will be exempt from Federal
income tax to the extent that the income of the Fund is derived from bonds that
qualify for such exemption. Some portion of the income from the Tax-Free Income
Fund may be taxable annually. The taxable portion of each distribution will be
based on the ratio, each year, between the Fund's taxable income and total
income. This ratio shall be determined within 60 days following the close of the
taxable year. The annual ratio may differ significantly from the ratio for the
period actually covered by each distribution.
The Taxpayer Relief Act of 1997 has substantially changed the manner in
which the income tax on net long-term capital gains is computed for individuals.
For corporations, net long-term capital gains are taxed at the same rates as
ordinary income. The following is a summary of the new rules for the taxation of
net long-term capital gains, which are applicable to individuals but not
corporations for sales and exchanges after May 6, 1997.
For investments held for more than 18 months (12 months if the investment
was sold after May 6 and before July 29, 1997), the top net long-term capital
gain rate is 20%. For taxpayers who are in the 15% regular tax bracket for 1997,
the top net long-term capital gain rate is 10%.
Commencing with sales after July 28, 1997, gain from assets that are held
for more than 12 months but not more than 18 months is treated as mid-term gain.
The top tax rate for mid-term gain is 28%.
If the investor's regular tax rate is lower than the top long-term capital
gain rate, the tax is computed using the regular tax rates.
The Funds will annually report to each shareholder that shareholder's
portion of the net income and capital gain of each Fund, for inclusion in the
shareholder's income.
Individual and corporate shareholders may be subject to the Alternative
Minimum Tax ("AMT") if their Alternative Minimum Taxable Income ("AMTI") exceeds
the exemption amounts set forth in Section 55 of the Code. The AMT, at rates as
high as 28% for individuals and 20% for corporations, is reduced by the regular
tax due for the year. AMTI is the taxpayer's taxable income for the year for
regular tax purposes, increased by the tax preferences described in Section 57
of the Code and adjusted as described in Section 56 of the Code. Preferences
include interest from Specified Private Activity Bonds, as defined in Section 57
(a) (5) (C) of the Code. Bonds of this type may be held by one or more of the
Funds from time to time.
A shareholder may be subject to federal backup withholding at a rate of 31%
of each distribution if the shareholder fails to certify that the taxpayer
identification number given is correct and that the shareholder is not subject
to such withholding because of underreporting of income (or if the Internal
Revenue Service gives notice that such certifications are not accurate).

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NATIONWIDE FAMILY OF FUNDS

STATE AND LOCAL TAXES
Distributions to shareholders of the Funds may be subject to state and local
taxes, even if not subject to Federal income taxes. These laws vary, and you are
advised to consult a tax adviser regarding such taxes.

REDEMPTIONS OF SHARES
Redeeming shares may result in a capital gain or loss for tax purposes. For your
convenience, NAS provides a year-end statement, reflecting your taxable gain or
loss for the year based on the average cost paid for redeemed shares.

TAX ADVANTAGES OF THE
TAX-FREE INCOME FUND

The yield on taxable securities is normally higher than on tax-exempt securities
of comparable quality and maturity. However, you can determine whether a
tax-free investment provides a higher after-tax yield or return than an
investment subject to tax by using the following formula:

<TABLE>
<S> <C>
Tax-Free Yield What you must earn
- ----------------------- = on a taxable investment
100%--[Your Tax Rate] to equal this tax-free yield
</TABLE>

By using current tax-free yields and your own tax rate in the formula above,
you can make an informed investment decision. This formula will not be
applicable if you are subject to the AMT.

The following tables show the advantages of investing in tax-exempt
obligations for those individuals in higher tax brackets. Taxable yields are
compared to equivalent tax-free yields. The first table is based on the maximum
marginal tax rates currently in effect under the Code for the 1998 tax year at
various levels of taxable income.

For example, if you file a joint return with an adjusted gross income of
$50,000, you are in the 28% tax bracket. A 5% tax-free yield would be equivalent
to an 6.9% taxable yield for you.
Over the long term, the effect of tax-free investing is significant. With
the Tax-Free Income Fund, dividends can be automatically reinvested and allowed
to accumulate on a tax-free basis. You can see this advantage in the "How a
$20,000 Investment Grows at 5% Tax-Free vs. 5% Taxable" table below:

TAX-EQUIVALENT YIELDS BASED ON INCOME, TAX RATE, AND TAX-FREE YIELD

<TABLE>
<CAPTION>
TAX-FREE YIELD
TAXABLE INCOME* 1998 MARGINAL FEDERAL ---------------------------------------------------------
JOINT RETURN SINGLE RETURN INCOME TAX RATE 4% 4.5% 5% 5.5% 6% 6.5% 7% 7.5% 8%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 - 42,350 $0 - 25,350 15% 4.7 5.3 5.9 6.5 7.1 7.6 8.2 8.8 9.4
$42,350 - 102,300 $25,350 - 61,400 28% 5.6 6.3 6.9 7.6 8.3 9.0 9.7 10.4 11.1
$102,300 - 155,950 $61,400 - 128,100 31% 5.8 6.5 7.2 8.0 8.7 9.4 10.1 10.9 11.6
$155,950 - 278,450 $128,100 - 278,450 36% 6.3 7.0 7.8 8.6 9.4 10.2 10.9 11.7 12.5
Over $278,450 Over $278,450 39.6% 6.6 7.5 8.3 9.1 9.9 10.8 11.6 12.4 13.2
</TABLE>

* Net amount after exemptions and deductions.

HOW A $20,000 INVESTMENT GROWS AT 5% TAX-FREE VS. 5% TAXABLE**

<TABLE>
<CAPTION>
1998 5 YEARS 10 YEARS 20 YEARS 30 YEARS
TAX -------------------- -------------------- -------------------- --------------------
BRACKET TAXABLE TAX-FREE TAXABLE TAX-FREE TAXABLE TAX-FREE TAXABLE TAX-FREE
- -------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15% $24,627 $25,525 $30,324 $32,578 $45,978 $53,066 $69,713 $86,439
28% $23,869 $25,525 $28,486 $32,578 $40,572 $53,066 $57,786 $86,439
31% $23,696 $25,525 $28,076 $32,578 $39,413 $53,066 $55,328 $86,439
36% $23,412 $25,525 $27,405 $32,578 $37,551 $53,066 $51,454 $86,439
39.6% $23,208 $25,525 $26,931 $32,578 $36,263 $53,066 $48,829 $86,439
</TABLE>

** Rates are compounded daily, and taxes are assumed to be paid once a year. The
information contained in the above chart is not a projection or guarantee of the
Fund's performance. It is only a general comparison of two investments: one
taxable and one tax-exempt. The Fund's performance may not duplicate the chart
results. The percentage return figures were chosen arbitrarily and are not a
forecast of future results.

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NATIONWIDE FAMILY OF FUNDS

PERFORMANCE ADVERTISING
FOR THE FUNDS

FUND PERFORMANCE ADVERTISING

The Funds may use historical performance in advertisements, sales literature,
semi-annual and annual reports and the prospectus. Such figures will include
quotations of average annual (compound) total return for the most recent one,
five, and ten-year periods (or the life of the Fund if less). Average annual
(compound) total return represents the average annual percentage change in the
value of an investment for the specified periods assuming a redemption of the
investment at the end of such periods. It reflects the changes in share price
and assumes reinvestment of all dividends and distributions at net asset value.
Average annual (compound) total return reflects the effect of maximum sales
charges.
The Funds may also choose to show nonstandard returns including total return
and simple average total return. Nonstandard returns may or may not reflect
reinvestment of all dividends and capital gains. In addition, sales charge
assumptions will vary. Initial sales charge percentages decrease as amounts
invested increase, as outlined on page 19 of this prospectus, therefore, returns
increase as sales charges decrease.
Total return represents the cumulative percentage change in the value of an
investment over time, calculated by subtracting the original investment from the
redeemable value and dividing the result by the original amount of the
investment. The simple average total return is calculated by dividing total
return by the number of years in the period, and unlike average annual
(compound) total return, does not reflect compounding.
The Bond Funds may advertise their SEC yields. The SEC yield is based on a
30-day period. This yield takes into account the yields to maturity on all debt
instruments and all dividends accrued on equity securities, since equity
securities do not have maturity dates. The SEC yield is computed by dividing the
net investment income per share earned during the 30-day period by the maximum
offering price per share on the last day of the period.
The Money Market Fund may advertise current seven-day yield quotations
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the base period to obtain a base period return and then
multiplying the base period return by (365/7). For purposes of this calculation,
the net change in account value reflects the value of additional shares
purchased with dividends from the original share, and dividends declared on both
the original share and any such additional shares. The Money Market's effective
yield represents a compounding on an annualized basis of the current yield
quotations.

RANKINGS AND RATINGS IN FINANCIAL PUBLICATIONS
The Funds may report their performance relative to other mutual funds or
investments. The performance comparisons are made to: other mutual funds with
similar objectives; other mutual funds with different objectives; or, to other
sectors of the economy. Other investments which the Funds may be compared to
include, but are not limited to: precious metals; real estate; stocks and bonds;
closed-end funds; market indexes; fixed-rate, insured bank CDs, bank money
market deposit accounts and passbook savings; and the Consumer Price Index.
Normally these rankings and ratings are published by independent tracking
services and publications of general interest including, but not limited to:
Lipper Analytical Services, Inc., CDA/Wiesenberger, Morningstar, Donoghue's,
Schabaker Investment Management, Kanon Bloch Carre & Co.; magazines such as
Money, Fortune, Forbes, Kiplinger's Personal Finance Magazine, Smart Money,
Mutual Funds, Worth, Financial World, Consumer Reports, Business Week, Time,
Newsweek, U.S. News and World Report; and other publications such as the Wall
Street Journal, Barron's, Columbus Dispatch, Investor's Business Daily, and
Standard & Poor's Outlook.
The rankings may or may not include the effects of sales charges.

ADDITIONAL INFORMATION

DESCRIPTION OF SHARES

The assets of each Fund are segregated, and you have an interest only in the
assets of the Class D shares of the Fund which you own, except for the Money
Market Fund which offers shares without class designation. It is anticipated
that the Funds (except for the Money Market Fund) will offer two other Classes
of Shares beginning March 19, 1998. Shares of a particular class are equal in
all respects to the other shares of that class. In the event of liquidation of a
Fund, Class D shares will share pro rata in the distribution of the net assets
of such Fund with all other Class D shares. All shares are without par value and
fully paid, nonassessable, transferable, and redeemable. There are no preemptive
rights.

VOTING RIGHTS

Shareholders of each class of shares have one vote for each share held and a
proportionate fractional vote for any fractional shares held. An annual or
special meeting of shareholders to conduct necessary business is not required by
the Declaration of Trust, the 1940 Act or other authority except, under certain
circumstances, to amend the Declaration of Trust, the Investment Advisory
Agreement, fundamental investment objectives, invest-

28
<PAGE> 30

NATIONWIDE FAMILY OF FUNDS

ment policies, investment restrictions, to elect and remove Trustees, to
reorganize the Trust, or any series or class thereof and to act upon certain
other business matters. In regard to termination, sale of assets, the change of
investment objectives, policies and restrictions or the approval of an
Investment Advisory Agreement, the right to vote is limited to the holders of
shares of the particular Fund affected by the proposal.

To the extent that such a meeting is not required, the Trust does not intend
to have an annual or special meeting of shareholders. The Trust has represented
to the Commission that Trustees will call a special meeting of shareholders for
purposes of considering the removal of one or more Trustees upon written request
therefor from shareholders holding not less than 10% of the outstanding votes of
the Trust and the Trust will assist in communicating with other shareholders as
required by Section 16(c) of the 1940 Act. At such meeting, a quorum of
shareholders (constituting a majority of votes attributable to all outstanding
shares of the Trust), by majority vote, has the power to remove one or more
Trustees.

SHAREHOLDER INQUIRIES
Inquiries regarding the Funds should be directed to Nationwide Advisory
Services, Inc., Three Nationwide Plaza, P.O. Box 1492, Columbus, Ohio
43216-1492, or call 1-800-848-0920.

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<PAGE> 31

NATIONWIDE INVESTING
FOUNDATION III FUNDS:
Mid Cap Growth Fund
Growth Fund
Nationwide Fund
Bond Fund
Tax-Free Income Fund
Long-Term U.S. Government Bond Fund
Intermediate U.S. Government Bond Fund
Money Market Fund

NATIONAL DISTRIBUTOR AND
INVESTMENT MANAGER
Nationwide Advisory Services, Inc.
P.O. Box 1492
Three Nationwide Plaza
Columbus, Ohio 43216-1492

INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, Ohio 43215-2537

TRANSFER AGENT AND DIVIDEND
DISBURSING AGENT
Nationwide Advisory Services, Inc.
(Through its wholly owned subsidiary,
Nationwide Investors Services, Inc.)

LEGAL COUNSEL
Druen, Dietrich, Reynolds & Koogler
One Nationwide Plaza
Columbus, Ohio 43215-2220

CUSTODIAN
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263-0001

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<PAGE> 32

Nationwide(R) and LOGO are registered Federal
Service marks of the Nationwide Mutual Insurance
Company.
<PAGE> 33
PART B:

STATEMENT OF ADDITIONAL INFORMATION JANUARY 6, 1998

NATIONWIDE INVESTING FOUNDATION III
NATIONWIDE MID CAP GROWTH FUND
NATIONWIDE GROWTH FUND
NATIONWIDE FUND
NATIONWIDE S&P 500 INDEX FUND
(together referred to as the "Stock Funds")
NATIONWIDE BOND FUND
NATIONWIDE TAX-FREE INCOME FUND
NATIONWIDE LONG-TERM U.S. GOVERNMENT BOND FUND
NATIONWIDE INTERMEDIATE U.S. GOVERNMENT BOND FUND
(together referred to as the "Bond Funds")
NATIONWIDE MONEY MARKET FUND
(all together the "Funds")

This Statement of Additional Information is not a prospectus. It
contains information in addition to and more detailed than that set forth in the
Prospectuses for the Funds and should be read in conjunction with the
Prospectuses dated January 6, 1998. The Prospectuses may be obtained from
Nationwide Advisory Services, Inc. (NAS), P.O. Box 1492, Three Nationwide Plaza,
Columbus, Ohio 43216. Terms not defined in this Statement of Additional
Information have the meanings assigned to them in the Prospectus.

TABLE OF CONTENTS

General Information and History 1

Investment Objectives and Policies 1
Investment Restrictions 20
Trustees and Officers of the Trust 22
Investment Advisory and Other Services 24
Brokerage Allocation 28
Calculation of Net Asset Value of the Money Market Fund 28
Calculating Money Market Fund Yield 29
Calculating Yield and Total Return--
Non-Money Market Funds 29
Nonstandard Returns 29
Additional Information 30
Additional General Tax Information 31
Special Meeting 36
Financial Statement 37
Independent Auditors' Report 39
Appendix 40

GENERAL INFORMATION AND HISTORY

Nationwide Investing Foundation III (NIF III) is an open-end management
investment company, created under the laws of Ohio by a Declaration of Trust
dated as of October 30, 1997.

INVESTMENT OBJECTIVES AND POLICIES

ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES

The following information supplements the discussion of the Funds' investment
objectives and policies discussed in the prospectuses. The investment objectives
of each Fund are fundamental and may not be changed without shareholder
approval. The investment policies and types of permitted investments described
here may be changed without prior approval by the shareholders. There is no
guarantee that any of the Funds' investment objectives will be realized.

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<PAGE> 34
DEBT OBLIGATIONS. Each of the Funds (except S&P 500 Index Fund) may invest in
debt obligations. Debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on its obligations ("credit
risk") and are subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer, and
general market liquidity ("market risk"). Lower-rated securities are more likely
to react to developments affecting market and credit risk than are more highly
rated securities, which react primarily to movements in the general level of
interest rates.

RATINGS AS INVESTMENT CRITERIA. High-quality and investment grade debt
obligations are characterized as such based on their ratings by nationally
recognized statistical rating organizations ("NRSROs"). In general, the ratings
of NRSROs represent the opinions of these agencies as to the quality of
securities that they rate. Such ratings, however, are relative and subjective,
and are not absolute standards of quality and do not evaluate the market risk of
the securities. These ratings are used by a Fund as initial criteria for the
selection of portfolio securities. Among the factors that will be considered by
NAS are the long-term ability of the issuer to pay principal and interest and
general economic trends. The Appendix to this Statement of Additional
Information contains further information about the rating categories of NRSROs
and their significance.

Subsequent to its purchase by a Fund, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for purchase
by such Fund. In addition, it is possible that an NRSRO might not change its
rating of a particular issue to reflect subsequent events. None of these events
generally will require the sale of such securities, but NAS will consider such
events in determining whether the Fund should continue to hold the securities.
In addition, to the extent that the ratings change as a result of changes in
such NRSROs or their rating systems, or due to a corporate reorganization, a
Fund will attempt to use comparable ratings as standards for its investments in
accordance with its investment objective and policies.

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<PAGE> 35

MONEY MARKET INSTRUMENTS. Each Fund may invest in certain types of money market
instruments which may include the following types of instruments:
-- obligations with remaining maturities of 13 months or less issued or
guaranteed as to interest and principal by the U.S. Government, its
agencies, or instrumentalities, or any federally chartered corporation,
and for the Money Market Fund's, obligations of the Canadian
government and their provinces, their agencies and instrumentalities;

-- repurchase agreements;

-- certificates of deposit, time deposits and bankers' acceptances
issued by domestic banks (including their branches located outside the
United States (Eurodollars) and subsidiaries located in Canada),
domestic branches of foreign banks (Yankees dollars), savings and loan
associations and similar institutions;

-- commercial paper, which are short-term unsecured promissory notes
issued by corporations in order to finance their current operations.
Generally the commercial paper will be rated within the top two rating
categories by an NRSRO, or if not rated, is issued and guaranteed as to
payment of principal and interest by companies which at the date of
investment have outstanding debt issue with a high quality rating;
-- adjustable and variable rate instruments; callable notes;

-- short-term (maturing in 397 days or less) corporate obligations rated
within the top two categories by an NRSRO;

-- bank loan participation agreements representing obligations of
corporations and banks having a high quality short-term rating, at the
date of investment, and under which the Fund will look to the
creditworthiness of the lender bank, which is obligated to make payments
of principal and interest on the loan, as well as to creditworthiness of
the borrower.

MORTGAGE AND ASSET-BACKED SECURITIES - The Bond Funds may each purchase
mortgage-backed securities. In addition, the Nationwide Bond Fund may invest in
asset-backed securities. Mortgage-backed securities represent direct or indirect
participation in, or are secured by and payable from, mortgage loans secured by
real property, and include single-and multi-class pass-through securities and
collateralized mortgage obligations. Such securities may be issued or guaranteed
by U.S. Government agencies or instrumentalities or, in the case of the
Nationwide Bond Fund only, by

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<PAGE> 36

private issuers, generally originators in mortgage loans, including savings and
loan associations, mortgage bankers, commercial banks, investment bankers, and
special purpose entities (collectively, "private lenders"). Mortgage-backed
securities issued by private lenders may be supported by pools of mortgage loans
or other mortgage-backed securities that are guaranteed, directly or indirectly,
by the U.S. Government or one of its agencies or instrumentalities, or they may
be issued without any governmental guarantee of the underlying mortgage assets
but with some form of non-governmental credit enhancement. These credit
enhancements may include letters of credit, reserve funds,
overcollateralization, or guarantees by third parties.

Private lenders or government-related entities may also create mortgage
loan pools offering mortgage-backed securities where the mortgages underlying
these securities may be alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may be shorter than was previously customary. As new types of
mortgage-backed securities are developed and offered to investors, a Fund,
consistent with its investment objective and policies, may consider making
investments in such new types of securities. The market for privately issued
mortgage and asset-backed securities is smaller and less liquid than the market
for government sponsored mortgaged-backed securities.

Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first-lien
mortgage loans or interest therein, rather they include assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property and receivables from credit
card and other revolving credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may be supported by
non-governmental credit enhancements similar to those utilized in connection
with mortgage-backed securities.

The yield characteristics of mortgage and asset-backed securities
differ from those of traditional debt obligations. Among the principal
differences are that interest and principal payments are made more frequently on
mortgage and asset-backed securities, usually monthly, and that principal may be
prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. As a result, if a Fund purchases these
securities at a premium, a prepayment rate that is faster than expected will
reduce yield to maturity, while a prepayment rate that is lower than expected
will have the opposite effect of increasing the yield to maturity. Conversely,
if a Fund purchases these securities at a discount, a prepayment rate that is
faster than expected will increase yield to maturity, while a prepayment rate
that is slower than expected will reduce yield to maturity. Accelerated
prepayments on securities purchased by the Fund at a premium also pose a risk of
loss of principal because the premium may not have been fully amortized at the
time the principal is prepaid in full.

There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related securities
and among the securities that they issue. Mortgage-related securities issued by
GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") which are guaranteed as to the timely payment of principal and interest
by GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA certificates also are supported by the authority of GNMA to borrow
funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-related securities issued by FNMA include FNMA Guaranteed Mortgage
Pass-Through Certificates (also known as "Fannie Maes") which are solely the
obligations of the FNMA and are not backed by or entitled to the full faith and
credit of the United States. Fannie Maes are guaranteed as to timely payment of
the principal and interest by FNMA. Mortgage-related securities issued by the
Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC is
a corporate instrumentality of the United States, created pursuant to an Act of
Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not
constitute a debt or obligation of the United States or of any Federal Home Loan
Bank. Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. The FHLMC guarantees either ultimate

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<PAGE> 37

collection or timely payment of all principal payments on the underlying
mortgage loans. When the FHLMC does not guarantee timely payment of principal,
FHLMC may remit the amount due on account of its guarantee of ultimate payment
of principal at any time after default on an underlying mortgage, but in no
event later than one year after it becomes payable.

STRIPPED MORTGAGE-BACKED SECURITIES. Each of the Bond Funds (other
than the Tax-Free Income Fund) may invest in stripped mortgage-backed
securities. Stripped mortgage-backed securities ("SMBS") are derivative
multiclass mortgage securities. SMBS may be issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose entities of the
foregoing. SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on an underlying pool
of mortgage assets. A common type of SMBS will have one class receiving some of
the interest and most of the principal from the mortgage assets, while the
other class will receive most of the interest and the remainder of the
principal. In the most extreme case, one class will receive all of the interest
(the interest-only or "IO" class), while the other class will receive all of
the principal (the principal-only or "PO" class). The yield to maturity on an
IO class is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on a Fund's yield to
maturity from these securities. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, a Fund may fail to fully
recoup its initial investment in these securities even if the security is in
one of the highest rating categories.

Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
"illiquid" and subject to a Fund's limitations on investment in illiquid
securities.

The market value of such securities generally is more
sensitive to changes in prepayment and interest rates than is the case with
traditional mortgage- and asset-backed securities, and in some cases the market
value may be extremely volatile.

REPURCHASE AGREEMENTS. All of the Funds may enter into repurchase agreements
with certain banks or non-bank dealers. In connection with the purchase of a
repurchase agreement by a Fund, the Fund's custodian, or a subcustodian, will
have custody of, and will hold in a segregated account, securities acquired by
the Fund under a repurchase agreement. Repurchase agreements are contracts under
which the buyer of a security simultaneously commits to resell the security to
the seller at an agreed-upon price and date. Repurchase agreements are
considered by the staff of the Securities and Exchange Commission (the "SEC") to
be loans by a Fund. Repurchase agreements may be entered into with respect to
securities of the type in which a Fund may invest or government securities
regardless of their remaining maturities. A Fund will require that additional
securities be deposited with its custodian if the value of the securities
purchased should decrease below resale price. Repurchase agreements involve
certain risks in the event of default or insolvency by the other party,
including possible delays or restrictions upon a Fund's ability to dispose of
the underlying securities, the risk of a possible decline in the value of

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<PAGE> 38
the underlying securities during the period in which a Fund seeks to assert its
rights to the securities, the risk of incurring expenses associated with
asserting those rights and the risk of losing all or part of the income from the
repurchase agreement.

WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. Each of the Funds
(except the S&P 500 Index Fund) may purchase securities on a "when-issued" or
"delayed delivery" basis (i.e., payment or delivery occurs beyond the normal
settlement date at a stated price and yield). When-issued transactions normally
settle within 45 days. The payment obligation and the interest rate, if
applicable, that will be received on when-issued securities are fixed at the
time the fund enters into the commitment to buy such securities. Due to
fluctuations in the value of securities purchased or sold on a when-issued or
delayed-delivery basis, the yields obtained on or prices of such securities may
be higher or lower than the yields or prices available in the market on the
dates when the investments are actually delivered to the buyers.

When a Fund agrees to purchase when-issued or delayed-delivery
securities, to the extent required by the SEC, the Funds custodian will set
aside permissible liquid assets equal to the amount of the commitment in a
segregated account. Normally, the custodian will set aside portfolio securities
to satisfy a purchase commitment, and in such a case a Fund may be required
subsequently to place additional assets in the segregated account in order to
ensure that the value of the account remains equal to the amount of such Fund's
commitment. It may be expected that the Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because a Fund will set
aside cash or liquid portfolio securities to satisfy its purchase commitments in
the manner described above, such Fund's liquidity and the ability of NAS to
manage it might be affected in the event its commitments to purchase
"when-issued" securities ever exceeded 25% of the value of its total assets.
Under normal market conditions, however, a Fund's commitment to purchase
"when-issued" or "delayed-delivery" securities will not exceed 25% of the value
of its total assets. When the Fund engages in when-issued or delayed-delivery
transactions, it relies on the other party to consummate the trade. Failure of
the seller to do so may result in a Fund incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.

The Funds will engage in "when-issued" or "delayed delivery" transactions only
for the purpose of acquiring portfolio securities consistent with the Funds'
investment objectives and policies and not for investment leverage. If the
Tax-Free Income Fund sells a "when-issued" or "delayed-delivery" security before
delivery, any gain would not be tax-exempt.

LENDING PORTFOLIO SECURITIES. Each Fund (except the Tax-Free Income Fund) may
lend its portfolio securities to brokers, dealers and other financial
institutions, provided it receives cash collateral which at all times is
maintained in an amount equal to at least 100% of the current market value of
the securities loaned. By lending its portfolio securities, the Fund can
increase its income through the investment of the cash collateral. For the
purposes of this policy, the Fund considers U.S. Government securities or
letters of credit issued by banks whose securities meet the standards for
investment by the Fund to be the equivalent of cash. From time to time, the Fund
may return to the borrower or a third party which is unaffiliated with it, and
which is acting as a "placing broker," a part of the interest earned from the
investment of collateral received for securities loaned.

The SEC currently requires that the following conditions must be met
whenever portfolio securities are loaned: (1) a Fund must receive from the
borrower at least

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<PAGE> 39

100% cash collateral of the type discussed in the preceding paragraph; (2) the
borrower must increase such collateral whenever the market value of the
securities loaned rises above the level of such collateral; (3) a Fund must be
able to terminate the loan at any time; (4) a Fund must receive reasonable
interest on the loan, as well as any dividends, interest or other distributions
payable on the loaned securities, and any increase in market value; (5) a Fund
may pay only reasonable custodian fees in connection with the loan; and (6)
while any voting rights on the loaned securities may pass to the borrower,
the Trust's Board of Trustees must be able to terminate the loan and regain the
right to vote the securities if a material event adversely affecting the
investment occurs. These conditions may be subject to future modification. Loan
agreements involve certain risks in the event of default or insolvency of the
other party including possible delays or restrictions upon the Fund's ability
to recover the loaned securities or dispose of the collateral for the loan.

SPECIAL SITUATION COMPANIES. The Mid Cap Growth Fund may invest in the
securities of "special situation companies," which include those involved in an
actual or prospective acquisition or consolidation; reorganization;
recapitalization; merger, liquidation or distribution of cash, securities or
other assets; a tender or exchange offer; a breakup or workout of a holding
company; or litigation which, if resolved favorably, would improve the value of
the company's stock. If the actual or prospective situation does not materialize
as anticipated, the market price of the securities of a "special situation
company" may decline significantly. The Mid Cap Growth Fund believes, however,
that if NAS analyzes "special situation companies" carefully and invests in the
securities of these companies at the appropriate time, such Fund may achieve
capital growth. There can be no assurance however, that a special situation that
exists at the time the Mid Cap Growth Fund makes its investment will be
consummated under the terms and within the time period contemplated, if it is
consummated at all.

FOREIGN SECURITIES. The Mid Cap Growth Fund, Growth Fund and Nationwide Fund may
invest, directly or indirectly through the use of depository receipts, in
foreign securities. Investors in such Funds should recognize that investing in
foreign securities involves certain special considerations which are not
typically associated with investing in domestic securities. Since investments in
foreign companies will frequently involve currencies of foreign countries, and
since a Fund may hold securities and funds in foreign currencies, a Fund may be
affected favorably or unfavorably by changes in currency rates and in exchange
control regulations, if any, and may incur costs in connection with conversions
between various currencies. Most foreign stock markets, while growing in volume
of trading activity, have less volume than the New York Stock Exchange, and
securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies. As non-U.S. companies are not
generally subject to uniform accounting, auditing and financial reporting
standards and practices comparable to those applicable to domestic issuers,
there may be less publicly available information about certain foreign
securities than about domestic securities. Fixed commissions on foreign
securities exchanges are generally higher than negotiated commissions on United
States exchanges, although each such Fund endeavors to achieve the most
favorable net results on its portfolio transactions. There is generally less
government supervision and regulation of securities exchanges, brokers and
listed companies in foreign countries than in the United States. In addition,
with respect to certain foreign countries, there is the possibility of exchange
control restrictions, expropriation or confiscatory taxation, and political,
economic or social instability, which could affect investments in those
countries. Foreign securities, such as those purchased by a Fund, may be subject
to foreign government

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<PAGE> 40

taxes, higher custodian fees and dividend collection fees which could reduce the
yield on such securities.

Certain foreign governments levy withholding taxes against dividend and
interest income. Although in some countries a portion of these taxes are
recoverable, the non-recovered portion of foreign withholding taxes will reduce
the income received from investments in such countries. However, these foreign
withholding taxes are not expected to have a significant impact on those Funds
for which the investment objective is to seek long-term capital appreciation and
any income should be considered incidental.

DEPOSITORY RECEIPTS. As indicated in the Funds' Prospectus, the Stock
Funds (except the S&P Index Fund) may invest in foreign securities indirectly
by purchasing depository receipts, including American Depository Receipts
("ADRs") and European Depository Receipts ("EDRs") or other securities
convertible into securities of issuers based in foreign countries. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted. Generally, ADRs, in registered
form, are denominated in U.S. dollars and are designed for use in the U.S.
securities markets, while EDRs (also referred to as Continental Depository
Receipts ("CDRs")), in bearer form, may be denominated in other currencies and
are designed for use in European securities markets. ADRs are receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying securities. EDRs are European receipts evidencing a similar
arrangement. For purposes of a Fund's investment policies, ADRs and EDRs are
deemed to have the same classification as the underlying securities they
represent. Thus, an ADR or EDR representing ownership of common stock will be
treated as common stock.

The Stock Funds (except the S&P 500 Index Fund) may invest in
depository receipts through "sponsored" or "unsponsored" facilities. While ADRs
and EDRs issued under these two types of facilities are in some respects
similar, there are distinctions between them relating to the rights and
obligations of ADR and EDR holders and the practices of market participants.

A depository may establish an unsponsored facility without
participation by (or even necessarily the acquiescence of) the issuer of the
deposited securities, although typically the depository requests a letter of
non-objection from such issuer prior to the establishment of the facility.
Holders of unsponsored ADRs and EDRs generally bear all the costs of such
facilities. The depository usually charges fees upon the deposit and withdrawal
of the deposited securities, the conversion of dividends into U.S. dollars, the
disposition of non-cash distributions, and the performance of other services.
The depository of an unsponsored facility frequently is under no obligation to
pass through voting rights to ADR and EDR holders in respect of the deposited
securities. In addition, an unsponsored facility is generally not obligated to
distribute communications received from the issuer of the deposited securities
or to disclose material information about such issuer in the U.S. and thus there
may not be a correlation between such information and the market value of the
depository receipts. Unsponsored ADRs and EDRs tend to be less liquid than
sponsored ADRs and EDRs, respectively.

Sponsored ADR and EDR facilities are created in generally the same
manner as unsponsored facilities, except that the issuer of the deposited
securities enters into a deposit agreement with the depository. The deposit
agreement sets out the rights and responsibilities of the issuer, the
depository, and the ADR and EDR holders. With sponsored facilities, the issuer
of the deposited securities generally will bear some of the costs relating to
the facility (such as dividend payment fees of the depository), although ADR and
EDR holders continue to bear

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<PAGE> 41

certain other costs (such as deposit and withdrawal fees). Under the terms of
most sponsored arrangements, depositories agree to distribute notices of
shareholder meetings and voting instructions, and to provide shareholder
communications and other information to the ADR holders at the request of the
issuer of the deposited securities.

EURODOLLAR AND YANKEE OBLIGATIONS. Eurodollar bank obligations are
dollar-denominated certificates of deposit and time deposits issued outside the
U.S. capital markets by foreign branches of U.S. banks and by foreign banks.
Yankee bank obligations are dollar-denominated obligations issued in the U.S.
capital markets by foreign banks.

Eurodollar and Yankee bank obligations are subject to the same risks
that pertain to domestic issues, notably credit risk, market risk and liquidity
risk. Additionally, Eurodollar (and to a limited extent, Yankee) bank
obligations are subject to certain sovereign risks. One such risk is the
possibility that a sovereign country might prevent capital, in the form of
dollars, from flowing across their borders. Other risks include: adverse
political and economic developments; the extent and quality of government
regulation of financial markets and institutions; the imposition of foreign
withholding taxes, and the expropriation or nationalization of foreign issuers.
However, Eurodollar and Yankee bank obligations held in the Money Market Fund
will undergo the same credit analysis as domestic issues in which the Money
Market Fund invests, and will have at least the same financial strength as the
domestic issuers approved for the Money Market Fund.

MUNICIPAL SECURITIES. As stated in the prospectus, the assets of the
Tax-Free Income Fund will be primarily invested in municipal securities.
Municipal securities include debt obligations issued by governmental entities to
obtain funds for various public purposes, such as the construction of a wide
range of public facilities, the refunding of outstanding obligations, the
payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term municipal securities if the interest paid thereon
is exempt from federal taxes including the federal alternative minimum tax.

Among other types of municipal securities, the Tax-Free Income Fund may
purchase short-term General Obligation Notes, Tax Anticipation Notes, Bond
Anticipation Notes, Revenue Anticipation Notes, Project Notes, Tax-Exempt
Commercial Paper, Construction Loan Notes and other forms of short-term
tax-exempt loans. Such instruments are issued with a short-term maturity in
anticipation of the receipt of tax funds, the proceeds of bond placements or
other revenues. In addition, the Tax-Free Income Fund may invest in other types
of tax-exempt instruments, such as municipal bonds, private activity bonds, and
pollution control bonds.

Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing

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<PAGE> 42

authority which provide that, if required, the federal government will lend the
issuer an amount equal to the principal of and interest on the Project Notes.

As described in the prospectus, the two principal classifications of
municipal securities consist of "general obligation" and "revenue" issues. The
Tax-Free Income Fund may also acquire "moral obligation" issues, which are
normally issued by special purpose authorities. There are, of course, variations
in the quality of municipal securities, both within a particular classification
and between classifications, and the yields on municipal securities depend upon
a variety of factors, including the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. Ratings represent the
opinions of an NRSRO as to the quality of municipal securities. It should be
emphasized, however, that ratings are general and are not absolute standards of
quality, and municipal securities with the same maturity, interest rate and
rating may have different yields, while municipal securities of the same
maturity and interest rate with different ratings may have the same yield.
Subsequent to purchase, an issue of municipal securities may cease to be rated
or its rating may be reduced below the minimum rating required for purchase. NAS
will consider such an event in determining whether the Tax-Free Income Fund
should continue to hold the obligation.

An issuer's obligations under its municipal securities are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the federal bankruptcy code, and laws, if
any, which may be enacted by Congress or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon the enforcement of such obligations or upon the ability of municipalities
to levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its municipal securities may be
materially adversely affected by litigation or other conditions.

The Tax-Free Income Fund may invest in AMT bonds. An AMT bond is an
otherwise tax-exempt municipal bond whose interest is treated as a preference
item for purposes of computing the alternative minimum tax imposed on
individuals and corporations. Specifically, private activity bonds, other than
501(c)(3) bonds issued on or after August 8, 1986 that are not current
refundings of pre-1986 industrial development bonds are AMT bonds. A municipal
bond is considered to be a private activity bond if more than either 5% or $5
million of the proceeds is used to finance a loan to any person other than
a governmental unit, or 10% or more of the proceeds of the issue is used in a
trade or business of any person other than a governmental entity and more than
10% of the issue is secured by property or payments used in a private business.

Municipal bonds that are private activity bonds will not be tax-exempt
unless they fall within the category of "qualified bonds" defined in the Tax
Code. Qualified bonds include issues for certain facilities such as airport
bonds, water and sewer service bonds, qualified single and multifamily housing
bonds, certain "small" industrial development bonds and bonds for local
furnishing of gas and electricity. Qualified bonds are also bonds for water,
solid waste facility bonds, docks and wharves issues and "enterprise zone"
bonds.

In addition to the normal risks associated with bonds, there is a
slight risk of less active secondary market for AMT bonds. In general, a larger
secondary market will exist for AM bonds when the supply of municipal bonds is
tight.

PUTS. The Tax-Free Income Fund may also acquire "puts" with respect to
municipal securities held in its portfolio. A put is a right to sell a
specified security (or securities) within a specified period of time at a
specified exercise price. The Tax-Free Income Fund may sell, transfer, or
assign a put only in conjunction with the sale, transfer, or assignment of the
underlying security or securities.

The amount payable to the Tax-Free Income Fund upon its exercise of a
"put" is normally (i) the Tax-Free Income Fund's acquisition cost of the
municipal securities (excluding any accrued interest which the Tax-Free Income
Fund paid on the acquisition), less any amortized market premium or plus any
amortized market or original issue discount during the period the Tax-Free
Income Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.

Puts may be acquired by the Tax-Free Income Fund to facilitate the
liquidity of its portfolio assets. Puts may also be used to facilitate the
reinvestment of the Tax-Free Income Fund's assets at a rate of return more
favorable than that of the underlying security. Puts may, under certain
circumstances, also be used to shorten the maturity of underlying variable rate
or floating rate securities for purposes of calculating the remaining maturity
of those securities.

The Tax-Free Income Fund expects that it will generally acquire puts
only where the puts are available without the payment of any direct or indirect
consideration. However, if necessary or advisable, the Tax-Free Income Fund
may pay for puts either separately in cash or by paying a higher price for
portfolio securities which are acquired subject to the puts (thus reducing
the yield to maturity otherwise available for the same securities).

The Tax-Free Income Fund intends to enter into puts only with dealers,
banks, and broker-dealers which, in NAS's opinion, present minimal credit
risks.

CONVERTIBLE SECURITIES. The Mid Cap Growth Fund, Growth Fund and Nationwide Fund
may invest in convertible securities to the extent described in its Prospectus.
Convertible securities are bonds, debentures, notes, preferred stocks, or other
securities that may be converted into or exchanged for a specified amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest normally paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed,
converted, or exchanged. Convertible securities have unique investment
characteristics in that they generally (i) have higher yields than common stocks
but lower yields than comparable non-convertible securities, (ii) are less
subject to fluctuation in value than the underlying stock since they have fixed
income characteristics, and (iii) provide the potential for capital appreciation
if the market price of the underlying common stock increases. Most convertible
securities currently are issued by U.S. companies, although a substantial
Eurodollar convertible securities market has developed, and the markets for
convertible securities denominated in local currencies are increasing.

The value of a convertible security is a function of its "investment
value" (determined by its yield in comparison with the yields of other
securities of comparable maturity and quality that do not have a conversion
privilege) and its "conversion value" (the security's worth, at market value, if
converted into the underlying common stock). The investment value of a
convertible security is influenced by changes in interest rates, with investment
value declining as interest rates increase and increasing as interest rates
decline. The credit standing of the issuer and other factors also may have an
effect on the convertible security's

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<PAGE> 43

investment value. The conversion value of a convertible security is determined
by the market price of the underlying common stock. If the conversion value is
low relative to the investment value, the price of the convertible security is
governed principally by its investment value. Generally, the conversion value
decreases as the convertible security approaches maturity. To the extent the
market price of the underlying common stock approaches or exceeds the conversion
price, the price of the convertible security will be increasingly influenced by
its conversion value. A convertible security generally will sell at a premium
over its conversion value by the extent to which investors place value on the
right to acquire the underlying common stock while holding a fixed income
security.

A convertible security may be subject to redemption at the option of
the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by a Fund is called for redemption, a
Fund will be required to permit the issuer to redeem the security, convert it
into the underlying common stock, or sell it to a third party.

WARRANTS. The Mid Cap Growth Fund, Growth Fund, and Nationwide Fund may acquire
warrants. Warrants are securities giving the holder the right, but not the
obligation, to buy the stock of an issuer at a given price (generally higher
than the value of the stock at the time of issuance), on a specified date,
during a specified period, or perpetually. Warrants may be acquired separately
or in connection with the acquisition of securities.

Warrants do not carry with them the right to dividends or voting rights
with respect to the securities that they entitle their holder to purchase, and
they do not represent any rights in the assets of the issuer. As a result,
warrants may be considered more speculative than certain other types of
investments. In addition, the value of a warrant does not necessarily change
with the value of the underlying securities, and a warrant ceases to have value
if it is not exercised prior to its expiration date.

RESTRICTED, NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. Each Fund may not
invest more than 15% (10% for the Money Market Fund) of its net assets, in the
aggregate, in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits maturing in more than seven
days and securities that are illiquid because of the absence of a readily
available market or legal or contractual restrictions on resale. At this time
none of the Funds intends to invest more than 5% of its net assets in illiquid
securities. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.

Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or
restricted securities and are purchased directly from the issuer or in the
secondary market. Investment companies do not typically hold a significant
amount of these restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations on resale may
have an adverse effect on the marketability of portfolio securities, and a Fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A Fund might also have to register such
restricted securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a public offering
of securities.

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<PAGE> 44

In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including foreign securities, municipal securities and corporate bonds and
notes. Institutional investors depend on an efficient institutional market in
which the unregistered security can be readily resold or on an issuer's ability
to honor a demand for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain institutions may not
be indicative of the liquidity of such investments.

The SEC has adopted Rule 144A under the Securities Act which allows
for a broader institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A establishes a "safe
harbor" from the registration requirements of the Securities Act for resales of
certain securities to qualified institutional buyers. It is anticipated that
the market for certain restricted securities such as institutional commercial
paper will expand further as a result of this regulation and use of automated
systems for the trading, clearance and settlement of unregistered securities of
domestic and foreign issuers, such as the PORTAL System sponsored by the
National Association of Securities Dealers, Inc.

Any such restricted securities will be considered to be illiquid for
purposes of such a Fund's limitations on investments in illiquid securities
unless, pursuant to procedures adopted by the Board of Trustees of the Trust,
NAS has determined such securities to be liquid because such securities are
eligible for resale pursuant to Rule 144A and are readily saleable. To the
extent that qualified institutional buyers may become uninterested in
purchasing Rule 144A securities, a Fund's level of illiquidity may increase.

A Stock Fund may buy or sell over-the-counter ("OTC") options and, in
connection therewith, segregate assets or cover its obligations with respect to
OTC options written by the Fund. The assets used as cover for OTC options
written by a Fund will be considered illiquid unless the OTC options are sold to
qualified dealers who agree that the Fund may repurchase any OTC option it
writes at a maximum price to be calculated by a formula set forth in the option
agreement. The cover for an OTC option written subject to this procedure would
be considered illiquid only to the extent that the maximum repurchase price
under the formula exceeds the intrinsic value of the option.

NAS will monitor the liquidity of restricted securities in a Fund. In
reaching liquidity decisions, NAS may consider the following factors: (A) the
unregistered nature of the security; (B) the frequency of trades and quotes for
the security; (C) the number of dealers wishing to purchase or sell the security
and the number of other potential purchasers; (D) dealer undertakings to make a
market in the security and (E) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of the transfer).

BORROWING. Each Fund may borrow money from banks, limited by the Fund's
fundamental investment restriction to 33-1/3% of its total assets (including the
amount borrowed). In addition, a Fund may borrow up to an additional 5% of its
total assets from banks for temporary or emergency purposes. Each Fund will not
purchase securities when bank borrowings exceed 5% of such Fund's total assets.

Each Fund expects that its borrowings will be on a secured basis. In
such situations, either the custodian will segregate the pledged assets for the
benefit of the lender or arrangements will be made with a suitable subcustodian,
which may

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<PAGE> 45

include the lender. The Funds have established a line-of-credit ("LOC") with
their custodian by which they may borrow for temporary or emergency purposes.
The Funds intend to use the LOC to meet large or unexpected redemptions that
would otherwise force a Fund to liquidate securities under circumstances which
are unfavorable to a Fund's remaining shareholders.

DERIVATIVE INSTRUMENTS. As discussed in the Prospectuses, NAS or a Subadviser
may use a variety of derivative instruments, including options, futures
contracts (sometimes referred to as "futures"), options on futures contracts,
stock index options and forward currency contracts to hedge a Fund's portfolio
or for risk management. Derivations are financial instruments whose value and
performance are based on the value and performance of another security,
financial instrument or index. Except for the S&P 500 Index Fund, at this time,
none of the Funds intends to invest more than 5% of its net assets in
derivative instruments.

The use of these instruments is subject to applicable regulations of
the SEC, the several options and futures exchanges upon which they may be
traded, and the Commodity Futures Trading Commission ("CFTC").

Special Risks Of Derivative Instruments. The use of derivative
instruments involves special considerations and risks as described below. Risks
pertaining to particular instruments are described in the sections that follow.

(1) Successful use of most of these instruments depends upon NAS's
ability to predict movements of the overall securities and currency markets,
which requires different skills than predicting changes in the prices of
individual securities. There can be no assurance that any particular strategy
adopted will succeed.

(2) There might be imperfect correlation, or even no correlation,
between price movements of an instrument and price movements of investments
being hedged. For example, if the value of an instrument used in a short hedge
(such as writing a call option, buying a put option, or selling a futures
contract) increased by less than the decline in value of the hedged investment,
the hedge would not be fully successful. Such a lack of correlation might occur
due to factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which these instruments are
traded. The effectiveness of hedges using instruments on indices will depend on
the degree of correlation between price movements in the index and price
movements in the investments being hedged, as well as how similar the index is
to the portion of the Fund's assets being hedged in terms of securities
composition.

(3) Hedging strategies, if successful, can reduce the risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Fund entered into a short
hedge because NAS or the Subadviser projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the instrument. Moreover, if the price of the instrument
declined by more than the increase in the price of the security, a Fund could
suffer a loss.

(4) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts, or make margin payments when it takes
positions in these instruments involving obligations to third parties (i.e.,
instruments other than purchased options). If the Fund were unable to close out
its positions in such instruments, it might be required to continue to maintain
such

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<PAGE> 46

assets or accounts or make such payments until the position expired or matured.
The requirements might impair the Fund's ability to sell a portfolio security or
make an investment at a time when it would otherwise be favorable to do so, or
require that the Fund sell a portfolio security at a disadvantageous time. The
Fund's ability to close out a position in an instrument prior to expiration or
maturity depends on the existence of a liquid secondary market or, in the
absence of such a market, the ability and willingness of the other party to the
transaction ("counter party") to enter into a transaction closing out the
position. Therefore, there is no assurance that any hedging position can be
closed out at a time and price that is favorable to the Fund.

For a discussion of the federal income tax treatment of a Fund's
derivative instruments, see "Additional General Tax Information".

OPTIONS. Each of the Stock Funds may purchase or write put and call
options on securities and indices, and may purchase options on foreign
currencies, and enter into closing transactions with respect to such options to
terminate an existing position. A call option gives the purchaser the right to
buy, and the writer the obligation to sell, the underlying security at the
agreed upon exercise (or "strike") price during the option period. A put option
gives the purchaser the right to sell, and the writer the obligation to buy, the
underlying security at the strike price during the option period. Purchasers of
options pay an amount, known as a premium, to the option writer in exchange for
the right under the option contract. Option contracts may be written with terms
which would permit the holder of the option to purchase or sell the underlying
security only upon the expiration date of the option. The initial purchase or
sale of an option contract is an "opening transaction". In order to close out an
option position, a Fund may enter into a "closing transaction", the sale or
purchase, as the case may be, of an option contract on the same security with
the same exercise price and expiration date as the option contract originally
opened. The purchase of call options serves as a long hedge, and the purchase of
put options serves as a short hedge. Writing put or call options can enable a
Fund to enhance income by reason of the premiums paid by the purchaser of such
options. Writing call options serves as a limited short hedge because declines
in the value of the hedged investment would be offset to the extent of the
premium received for writing the option. However, if the security appreciates to
a price higher than the exercise price of the call option, it can be expected
that the option will be exercised, and the Fund will be obligated to sell the
security at less than its market value or will be obligated to purchase the
security at a price greater than that at which the security must be sold under
the option. All or a portion of any assets used as cover for OTC options written
by a Fund would be considered illiquid to the extent described under "Restricted
and Illiquid Securities" above. Writing put options serves as a limited long
hedge because increases in the value of the hedged investment would be offset to
the extent of the premium received for writing the option. However, if the
security depreciates to a price lower than the exercise price of the put option,
it can be expected that the put option will be exercised, and the Fund will be
obligated to purchase the security at more than its market value.

The value of an option position will reflect, among other things, the
historical price volatility of the underlying investment, the current market
value of the underlying investment, the time remaining until expiration of the
option, the relationship of the exercise price to the market price of the
underlying investment, and general market conditions. Options that expire
unexercised have no value. Options used by the Fund may include European-style
options, which can only be exercised at expiration. This is in contrast to
American-style options which can be exercised at any time prior to the
expiration date of the option.

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<PAGE> 47

A Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, a Fund may terminate
its obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit the Fund to realize the profit or
limit the loss on an option position prior to its exercise or expiration.

A Fund may purchase or write both OTC options and options traded on
foreign and U.S. exchanges. Exchange-traded options are issued by a clearing
organization affiliated with the exchange on which the option is listed that, in
effect, guarantees completion of every exchange-traded option transaction. OTC
options are contracts between the Fund and the counterparty (usually a
securities dealer or a bank) with no clearing organization guarantee. Thus, when
the Fund purchases or writes an OTC option, it relies on the counter party to
make or take delivery of the underlying investment upon exercise of the option.
Failure by the counter party to do so would result in the loss of any premium
paid by the fund as well as the loss of any expected benefit of the transaction.

Each Stock Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. Each of the
Stock Funds intends to purchase or write only those exchange-traded options for
which there appears to be a liquid secondary market. However, there can be no
assurance that such a market will exist at any particular time. Closing
transactions can be made for OTC options only by negotiating directly with the
counterparty, or by a transaction in the secondary market if any such market
exists. Although a Fund will enter into OTC options only with counterparties
that are expected to be capable of entering into closing transactions with a
Fund, there is no assurance that such Fund will in fact be able to close out an
OTC option at a favorable price prior to expiration. In the event of insolvency
of the counter party, a Fund might be unable to close out an OTC option position
at any time prior to its expiration.

If a Fund is unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by a Fund could cause material losses because the Fund would be unable
to sell the investment used as a cover for the written option until the option
expires or is exercised.

Each Stock Fund may engage in options transactions on indices in much
the same manner as the options on securities discussed above, except that index
options may serve as a hedge against overall fluctuations in the securities
markets in general. Index options (or options on securities indices) are similar
in many respects to options on securities except that an index option gives the
holder the right to receive, upon exercise, cash instead of securities, if the
closing level of the securities index upon which the option is based is greater
than, in the case of a call, or less than, in the case of a put, the exercise
price of the option. Price movements in securities in which a Fund owns or
intends to purchase probably will not correlate perfectly with movements in the
level of an index and, therefore, a Fund bears the risk of a loss on an index
option that is not completely offset by movements in the price of such
securities. Because index options are settled in cash, a call writer cannot
determine the amount of its settlement obligations in advance and, unlike call
writing on specific securities, cannot provide in advance for, or cover, its
potential settlement obligations acquiring and holding the underlying
securities. A Fund will be required to segregate assets and/or provide an
initial margin to cover index options that would require it to pay cash upon
exercise.

The writing and purchasing of options is a highly specialized activity
that involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions. Imperfect correlation between
the options and securities markets may detract from the effectiveness of
attempted hedging.

Transactions using OTC options expose a Fund to certain risks. To the
extent required by SEC guidelines, a Fund will not enter into any such
transactions unless it owns either (1) an offsetting ("covered") position in
securities, other options, or futures or (2) cash and liquid obligations with a
value sufficient at all times to cover its potential obligations to the

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<PAGE> 48

extent not covered as provided in (1) above. A Fund will also set aside cash
and/or appropriate liquid assets in a segregated custodial account if required
to do so by the SEC and CFTC regulations. Assets used as cover or held in a
segregated account cannot be sold while the position in the corresponding option
or futures contract is open, unless they are replaced with similar assets. As a
result, the commitment of a large portion of the Fund's assets to segregated
accounts as a cover could impede portfolio management or the Fund's ability to
meet redemption requests or other current obligations.

FUTURES CONTRACTS. The Stock Funds may enter into futures contracts,
including interest rate, index, and currency futures and purchase and write
(sell) related options. The purchase of futures or call options thereon can
serve as a long hedge, and the sale of futures or the purchase of put options
thereon can serve as a short hedge. Writing covered call options on futures
contracts can serve as a limited short hedge, and writing covered put options on
futures contracts can serve as a limited long hedge, using a strategy similar to
that used for writing covered options in securities. A Fund's hedging may
include purchases of futures as an offset against the effect of expected
increases in securities prices or currency exchange rates and sales of futures
as an offset against the effect of expected declines in securities prices or
currency exchange rates. A Fund may write put options on futures contracts while
at the same time purchasing call options on the same futures contracts in order
to create synthetically a long futures contract position. Such options would
have the same strike prices and expiration dates. A Fund will engage in this
strategy only when NAS or a Subadviser believes it is more advantageous to a
Fund than is purchasing the futures contract.

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<PAGE> 49

To the extent required by regulatory authorities, a Fund will only
enter into futures contracts that are traded on U.S. or foreign exchanges or
boards of trade approved by the CFTC and are standardized as to maturity date
and underlying financial instrument. These transactions may be entered into for
"bona fide hedging" purposes as defined in CFTC regulations and other
permissible purposes including increasing return and hedging against changes in
the value of portfolio securities due to anticipated changes in interest rates,
currency values and/or market conditions. The ability of a Fund to trade in
futures contracts may be limited by the requirements of the Code applicable to a
regulated investment company.

A Fund will not enter into futures contracts and related options for
other than "bona fide hedging" purposes for which the aggregate initial margin
and premiums required to establish positions exceed 5% of the Fund's net asset
value after taking into account unrealized profits and unrealized losses on any
such contracts it has entered into. There is no overall limit on the percentage
of a Fund's assets that may be at risk with respect to futures activities.
Although techniques other than sales and purchases of futures contracts could be
used to reduce a Fund's exposure to market, currency, or interest rate
fluctuations, such Fund may be able to hedge its exposure more effectively and
perhaps at a lower cost through using futures contracts.

A futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (e.g., debt security) or currency for a specified price at a
designated date, time, and place. An index futures contract is an agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to a specified multiplier times the difference between the value of
the index at the close of the last trading day of the contract and the price at
which the index futures contract was originally written. Transactions costs are
incurred when a futures contract is bought or sold and margin deposits must be
maintained. A futures contract may be satisfied by delivery or purchase, as the
case may be, of the instrument, the currency, or by payment of the change in the
cash value of the index. More commonly, futures contracts are closed out prior
to delivery by entering into an offsetting transaction in a matching futures
contract. Although the value of an index might be a function of the value of
certain specified securities, no physical delivery of those securities is made.
If the offsetting purchase price is less than the original sale price, a Fund
realizes a gain; if it is more, a Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, a Fund realizes
a gain; if it is less, a Fund realizes a loss. The transaction costs must also
be included in these calculations. There can be no assurance, however, that a
Fund will be able to enter into an offsetting transaction with respect to a
particular futures contract at a particular time. If a Fund is not able to enter
into an offsetting transaction, that Fund will continue to be required to
maintain the margin deposits on the futures contract.

No price is paid by a Fund upon entering into a futures contract.
Instead, at the inception of a futures contract, the Fund is required to deposit
in a segregated account with its custodian, in the name of the futures broker
through whom the transaction was effected, "initial margin" consisting of cash,
U.S. Government securities or other liquid obligations, in an amount generally
equal to 10% or less of the contract value. Margin must also be deposited when
writing a call or put option on a futures contract, in accordance with
applicable exchange rules. Unlike margin in securities transactions, initial
margin on futures contracts does not represent a borrowing, but rather is in the
nature of a performance bond or good-faith deposit that is returned to a Fund at
the termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances,

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<PAGE> 50

such as periods of high volatility, a Fund may be required by an exchange to
increase the level of its initial margin payment, and initial margin
requirements might be increased generally in the future by regulatory action.

Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking to market." Variation margin does not involve borrowing, but rather
represents a daily settlement of a Fund's obligations to or from a futures
broker. When a Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Fund purchases or
sells a futures contract or writes a call or put option thereon, it is subject
to daily variation margin calls that could be substantial in the event of
adverse price movements. If a Fund has insufficient cash to meet daily variation
margin requirements, it might need to sell securities at a time when such sales
are disadvantageous. Purchasers and sellers of futures positions and options on
futures can enter into offsetting closing transactions by selling or purchasing,
respectively, an instrument identical to the instrument held or written.
Positions in futures and options on futures may be closed only on an exchange or
board of trade on which they were entered into (or through a linked exchange).
Although the Funds intend to enter into futures transactions only on exchanges
or boards of trade where there appears to be an active market, there can be no
assurance that such a market will exist for a particular contract at a
particular time.

Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a future or option on a futures contract
can vary from the previous day's settlement price; once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.

If a Fund were unable to liquidate a futures or option on a futures
contract position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses, because it would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to maintain the
position being hedged by the future or option or to maintain cash or securities
in a segregated account.

Certain characteristics of the futures market might increase the risk
that movements in the prices of futures contracts or options on futures
contracts might not correlate perfectly with movements in the prices of the
investments being hedged. For example, all participants in the futures and
options on futures contracts markets are subject to daily variation margin calls
and might be compelled to liquidate futures or options on futures contracts
positions whose prices are moving unfavorably to avoid being subject to further
calls. These liquidations could increase price volatility of the instruments and
distort the normal price relationship between the futures or options and the
investments being hedged. Also, because initial margin deposit requirements in
the futures markets are less onerous than margin requirements in the securities
markets, there might be increased participation by speculators in the future
markets. This participation also might cause temporary price distortions. In
addition, activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.

18
<PAGE> 51

FORWARD CURRENCY CONTRACTS. The Mid Cap Growth Fund, Growth Fund and Nationwide
Fund may enter into forward currency contracts. A forward currency contract
involves an obligation to purchase or sell a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. These contracts are
entered into in the interbank market conducted directly between currency traders
(usually large commercial banks) and their customers.

At or before the maturity of a forward contract, a Fund may either sell
a portfolio security and make delivery of the currency, or retain the security
and fully or partially offset its contractual obligation to deliver the currency
by purchasing a second contract. If a Fund retains the portfolio security and
engages in an offsetting transaction, the Fund, at the time of execution of the
offsetting transaction, will incur a gain or a loss to the extent that movement
has occurred in forward contract prices.

The precise matching of forward currency contract amounts and the value
of the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, the Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.

SECURITIES OF OTHER NON-AFFILIATED INVESTMENT COMPANIES. Some of the countries
in which a Fund may invest may not permit direct investment by outside
investors. Investments in such countries may only be permitted through foreign
government-approved or government-authorized investment vehicles, which may
include other investment companies. The Funds may also invest in shares of other
non-affiliated investment companies registered under the 1940 Act. Investing
through such vehicles may involve frequent or layered fees or expenses and may
also be subject to limitation under the 1940 Act. Under the 1940 Act, a Fund may
invest up to 10% of its assets in shares of investment companies and up to 5% of
its assets in any one investment company as long as the investment does not
represent more than 3% of the voting stock of the acquired investment company.

BANK OBLIGATIONS. As stated in a Fund's Prospectus, bank obligations that may be
purchased by a Fund include certificates of deposit, banker's acceptances and
fixed time deposits. A certificate of deposit is a short-term negotiable
certificate issued by a commercial bank against funds deposited in the bank and
is either interest-bearing or purchased on a discount basis. A bankers'
acceptance is a short-term draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction. The borrower
is liable for payment as is the bank, which unconditionally guarantees to pay
the draft at its face amount on the maturity date. Fixed time deposits are
obligations of branches of U.S. banks or foreign banks which are payable at a
stated maturity date and bear a fixed rate of interest. Although fixed time
deposits do not have a market, there are no contractual restrictions on the
right to transfer a beneficial interest in the deposit to a third party.

Bank obligations may be general obligations of the parent bank or may
be limited to the issuing branch by the terms of the specific obligations or by
government regulation.

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<PAGE> 52

FLOATING AND VARIABLE RATE INSTRUMENTS. The Nationwide Bond, Tax-Free Income and
Money Market Fund may invest in floating and variable rate instruments. Certain
of the floating or variable rate obligations that may be purchased by these
Funds may carry a demand feature that would permit the holder to tender them
back to the issuer of the instrument or to a third party at par value prior to
maturity. Some of the demand instruments purchased by a Fund are not traded in a
secondary market and derive their liquidity solely from the ability of the
holder to demand repayment from the issuer or third party providing credit
support. If a demand instrument is not traded in a secondary market, the Fund
will nonetheless treat the instrument as "readily marketable" for the purposes
of its investment restriction limiting investments in illiquid securities unless
the demand feature has a notice period of more than seven days in which case the
instrument will be characterized as "not readily marketable" and therefore
illiquid.

The Fund's right to obtain payment at par on a demand instrument could
be affected by events occurring between the date the Fund elects to demand
payment and the date payment is due that may affect the ability of the issuer of
the instrument or third party providing credit support to make payment when due,
except when such demand instruments permit same day settlement. To facilitate
settlement, these same day demand instruments may be held in book entry form at
a bank other than a Fund's custodian subject to a subcustodian agreement
approved by the Fund between that bank and the Fund's custodian.

ZERO COUPON SECURITIES. The Bond Funds may invest in zero coupon
securities in accordance with investment policies described in the Prospectus.

Zero coupon securities are debt securities that pay no cash income but
are sold at substantial discounts from their value at maturity. When a zero
coupon security is held to maturity, its entire return, which consists of the
amortization of discount, comes from the difference between its purchase price
and its maturity value. This difference is known at the time of purchase, so
that investors holding zero coupon securities until maturity know at the time of
their investment what the expected return on their investment will be. Zero
coupon securities may have conversion features.

Zero coupon securities tend to be subject to greater price fluctuations
in response to changes in interest rates than are ordinary interest-paying debt
securities with similar maturities. The value of zero coupon securities
appreciates more during periods of declining interest rates and depreciates more
during periods of rising interest rates than ordinary interest-paying debt
securities with similar maturities. Zero coupon securities may be issued by a
wide variety of corporate and governmental issuers. Although these instruments
are generally not traded on a national securities exchange, they are widely
traded by brokers and dealers and, to such extent, will not be considered
illiquid for the purposes of the Fund's limitation on investments in illiquid
securities.

Current federal income tax law requires the holder of a zero coupon
security acquired at a discount to accrue income with respect to these
securities prior to the receipt of cash payments. Accordingly, to avoid
liability for federal income and excise taxes, the Fund may be required to
distribute income accrued with respect to these securities and may have to
dispose of portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements.

20
<PAGE> 53

INVESTMENT RESTRICTIONS

The following are fundamental investment restrictions of each Fund which cannot
be changed without the authorization of the majority of the outstanding shares
of the Fund for which a change is proposed.

EACH OF THE FUNDS:

- Except for the S&P 500 Index Fund, may not purchase securities of any
one issuer, other than obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, if, immediately after
such purchase, more than 5% of the Fund's total assets would be
invested in such issuer or the Fund would hold more than 10% of the
outstanding voting securities of the issuer, except that 25% or less
of the Fund's total assets may be invested without regard to such
limitations. There is no limit to the percentage of assets that may be
invested in U.S. Treasury bills, notes, or other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
The Money Market Fund will be deemed to be in compliance with this
restriction so long as it is in compliance with Rule 2a-7 under the
1940 Act, as such Rule may be amended from time to time.

- May not borrow money or issue senior securities, except that each Fund
may enter into reverse repurchase agreements and may otherwise borrow
money and issue senior securities as and to the extent permitted by
the 1940 Act or any rule, order or interpretation thereunder.

- May not act as an underwriter of another issuer's securities, except
to the extent that the Fund may be deemed an underwriter within the
meaning of the Securities Act in connection with the purchase and sale
of portfolio securities.

- May not purchase or sell real estate except that each Fund may acquire
real estate through ownership of securities or instruments and may
purchase or sell securities issued by entities or investment vehicles
that own or deal in real estate (including interests therein) or
instruments secured by real estate (including interests therein).

- May not purchase or sell commodities or commodities contracts, except
to the extent disclosed in the current Prospectus of such Fund.

- May not lend any security or make any other loan except that each
Fund may purchase or hold debt securities and lend portfolio
securities in accordance with its investment objective and policies,
make time deposits with financial institutions and enter into
repurchase agreements.

21
<PAGE> 54

- May not purchase the securities of any issuer if, as a result, 25% or
more (taken at current value) of the Fund's total assets would be
invested in the securities of issuers the principal activities of
which are in the same industry. This limitation does not apply to
securities issued by the U.S. Government or its agencies or
instrumentalities and obligations issued by state, county or municipal
governments. The following industries are considered separate
industries for purposes of this investment restriction: electric,
natural gas distribution, natural gas pipeline, combined electric and
natural gas, telephone utilities, captive borrowing conduit, equipment
finance, premium finance, leasing finance, consumer finance and other
finance.

In addition, the S&P 500 Index Fund may not purchase securities of one issuer,
other than obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, if at the end of each fiscal quarter, (a) more
than 5% of the Fund's total assets (taken at current value) would be invested
in such issuer (except that up to 50% of the Fund's total assets may be
invested without regard to such 5% limitation), and (b) more than 25% of its
total assets (taken at current value) would be invested in securities of a
single issuer. There is no limit to the percentage of assets that may be
invested in U.S. Treasury bills, notes, or other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.

The following are the non-fundamental operating policies of the Funds which may
be changed by the Board of Trustees of the Trust without shareholder approval:

Each Fund may not:

- Sell securities short, unless the Fund owns or has the right to obtain
securities equivalent in kind and amount to the securities sold short
or unless it covers such short sales as required by the current rules
and positions of the SEC or its staff, and provided that short
positions in forward currency contracts, options, futures contracts,
options on futures contracts, or other derivative instruments are not
deemed to constitute selling securities short.

- Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions;
and provided that margin deposits in connection with options, futures
contracts, options on futures contracts, transactions in currencies or
other derivative instruments shall not constitute purchasing
securities on margin.

- Purchase or otherwise acquire any security if, as a result, more than
15% (10% with respect to the Money Market Fund) of its net assets
would be invested in securities that are illiquid.

- Purchase securities of other investment companies except in connection
with a merger, consolidation, acquisition, reorganization or offer of
exchange, or as otherwise permitted under the 1940 Act.

- Pledge, mortgage or hypothecate any assets owned by the Fund in excess
of 33 1/3% of the Fund's total assets at the time of such pledging,
mortgaging or hypothecating.

TRUSTEES AND OFFICERS
OF THE TRUST

TRUSTEES AND OFFICERS
The principal occupation of the Trustees and Officers during the last five
years, their ages and their affiliations are:

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<PAGE> 55

JOHN C. BRYANT, Trustee*, Age -- 61
11 Oak St., Suite 306, Cincinnati, Ohio 45219
Dr. Bryant is Executive Director, Cincinnati Youth Collaborative, a partnership
of business, government, schools and social service agencies to address the
educational needs of students. He was formerly Professor of Education,
Wilmington College.

C. BRENT DEVORE, Trustee, Age -- 57
North Walnut and West College Avenue, Westerville, Ohio
Dr. DeVore is President of Otterbein College.

SUE A. DOODY, Trustee, Age -- 63
169 East Beck Street, Columbus, Ohio
Ms. Doody is President of Lindey's Restaurant, Columbus, Ohio. She is an active
member of the Greater Columbus Area Chamber of Commerce Board of Trustees.

ROBERT M. DUNCAN, Trustee*, Age -- 70
1397 Haddon Road, Columbus, Ohio
Mr. Duncan is a member of the Ohio Elections Commission. He was formerly
Secretary to the Board of Trustees of The Ohio State University. Prior to that,
he was Vice President and General Counsel of The Ohio State University

CHARLES L. FUELLGRAF, JR., Trustee*+, Age -- 66
600 South Washington Street, Butler, Pennsylvania
Mr. Fuellgraf is Chief Executive Officer of Fuellgraf Electric Company, an
electrical construction and engineering company. He is a Director of the
Nationwide Insurance Companies and associated companies.

THOMAS J. KERR, IV, Trustee*, Age -- 64
4890 Smoketalk Lane, Westerville, Ohio
Dr. Kerr is President Emeritus of Kendall College. He was formerly President of
Grant Hospital Development Foundation.

DOUGLAS F. KRIDLER, Trustee, Age -- 42
55 E. State Street, Columbus, Ohio
Mr. Kridler is President of the Columbus Association of Performing Arts.

DIMON R. MCFERSON, Trustee*+, Age -- 60
One Nationwide Plaza, Columbus, Ohio
Mr. McFerson is President and Chief Executive Officer of the Nationwide
Insurance Enterprise.

NANCY C. THOMAS, Trustee+, Age -- 63
10835 Georgetown Road, NE, Louisville, Ohio
Ms. Thomas is a farm owner and operator. She is also a Director of the
Nationwide Insurance Companies and associated companies.

HAROLD W. WEIHL, Trustee+, Age -- 65
14282 King Road, Bowling Green, Ohio
Mr. Weihl is a owner and operator of Weihl Farms. He is also a Director of the
Nationwide Insurance Companies and associated companies.

DAVID C. WETMORE, Trustee, Age -- 49
11495 Sunset Hills Rd - Suite #210, Reston, Virginia
Mr. Wetmore is the Managing Director of The Updata Capital, a venture capital
firm.

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<PAGE> 56

JAMES F. LAIRD, JR., Treasurer
Three Nationwide Plaza, Columbus, Ohio
Mr. Laird is Vice President and General Manager of Nationwide Advisory Services,
Inc., the Distributor and Investment Manager.

CHRISTOPHER A. CRAY, Assistant Treasurer
Three Nationwide Plaza, Columbus, Ohio
Mr. Cray is Treasurer of Nationwide Advisory Services, Inc., the Distributor and
Investment Manager. Prior to that he was Director - Corporate Accounting of
Nationwide Insurance Enterprise.

DAVID E. SIMAITIS, Secretary
Three Nationwide Plaza, Columbus, Ohio
Mr. Simaitis is Counsel of Druen, Dietrich, Reynolds & Koogler, the Trust's
legal counsel.

+ A Trustee who is an "interested person" of the Trust as defined in the
Investment Company Act.

*Members of the Executive Committee. Mr. McFerson is Chairman. Mr. Fuellgraf is
the Alternate Member. The Executive Committee has the authority to act for the
Board of Trustees except as provided by law and except as specified in the
Trust's Bylaws.

All Trustees and Officers of the Trust own less than 1% of its outstanding
shares.

The Trustees receive fees and reimbursement for expenses of attending board
meetings from the Trust. NAS reimburses the Trust for fees and expenses paid to
Trustees who are interested persons of the Trust. The Compensation Table below
sets forth the estimated total compensation to be paid to the Trustees of the
Trust, before reimbursement, for the fiscal period ending October 31, 1998. In
addition, the table sets forth the total compensation to be paid to the Trustees
from all funds in the Nationwide Fund Complex, included the predecessor
investment companies to the Trust, for the fiscal year ended October 31, 1998.
Trust officers receive no compensation from the Trust in their capacity as
officers.

<TABLE>
<CAPTION>
COMPENSATION TABLE

PENSION
ESTIMATED RETIREMENT ESTIMATED ESTIMATED
AGGREGATE BENEFITS ANNUAL TOTAL
COMPENSATION ACCRUED AS BENEFITS COMPENSATION
NAME OF PERSON, FROM PART OF FUND UPON FROM THE FUND
POSITION THE TRUST EXPENSES RETIREMENT COMPLEX**

<S> <C> <C> <C> <C>
John C. Bryant, Trustee $10,000 --0-- --0-- $21,000
C. Brent DeVore, Trustee 10,000 --0-- --0-- 10,000
Sue A. Doody, Trustee 10,000 --0-- --0-- 21,000
Robert M Duncan, Trustee 10,000 --0-- --0-- 21,000
Charles L. Fuellgraf, Jr, Trustee 10,000 --0-- --0-- 10,000
Thomas J. Kerr, IV, Trustee 10,000 --0-- --0-- 21,000
Douglas F. Kridler, Trustee 10,000 --0-- --0-- 21,000
Dimon R. McFerson, Trustee --0-- --0-- --0-- --0--
</TABLE>

24
<PAGE> 57
<TABLE>

<S> <C> <C> <C> <C>
Nancy C. Thomas, Trustee 10,000 --0-- --0-- 10,000
Harold W. Weihl, Trustee 10,000 --0-- --0-- 10,000
David C. Wetmore, Trustee 10,000 --0-- --0-- 10,000

<FN>
**The Fund Complex includes Trusts comprised of twenty nine investment company
portfolios.
</TABLE>

INVESTMENT ADVISORY AND OTHER SERVICES

Under the terms of the Investment Advisory Agreement dated _________1997,
Nationwide Advisory Services, Inc. ("NAS") manages the investment of the assets
of the Funds in accordance with the policies and procedures established by the
Trustees.

The Adviser pays the compensation of the Trustees and officers affiliated with
the Adviser. The Adviser also furnishes, at its own expense, all necessary
administrative services, office space, equipment, and clerical personnel for
servicing the investments of the Trust and maintaining its investment advisory
facilities, and executive and supervisory personnel for managing the investments
and effecting the portfolio transactions of the Trust.

The Investment Advisory Agreement also specifically provides that the Adviser,
including its directors, officers, and employees, shall not be liable for any
error of judgment, or mistake of law, or for any loss arising out of any
investment, or for any act or omission in the execution and management of the
Trust, except for willful misfeasance, bad faith, or gross negligence in the
performance of its duties, or by reason of reckless disregard of its obligations
and duties under the Agreement. The Agreement will continue in effect for an
initial period of two years and thereafter shall continue automatically for
successive annual periods provided such continuance is specifically approved at
least annually by the Trustees, or by vote of a majority of the outstanding
voting securities of the Trust, and, in either case, by a majority of the
Trustees who are not parties to the Agreement or interested persons of any such
party. The Agreement terminates automatically in the event of its "assignment",
as defined under the 1940 Act. It may be terminated as to a Fund without penalty
by vote of a majority of the outstanding voting securities of that Fund, or by
either party, on not less than 60 days written notice. The Agreement further
provides that the Adviser may render similar services to others.

The Trust pays the compensation of the Trustees who are not affiliated with the
Adviser and all expenses (other than those assumed by the Adviser), including
governmental fees, interest charges, taxes, membership dues in the Investment
Company Institute allocable to the Trust; fees under the Trust's Fund
Administration Agreement; fees and expenses of independent certified public
accountants, legal counsel, and any transfer agent, registrar, and dividend
disbursing agent of the Trust; expenses of preparing, printing, and mailing
shareholders' reports, notices, proxy statements, and reports to governmental
offices and commissions; expenses connected with the execution, recording, and
settlement of portfolio security transactions, insurance premiums, fees and
expenses of the custodian for all services to the Trust; and expenses of
calculating the net asset value of shares of the Trust, expenses of
shareholders' meetings, and expenses relating to the issuance, registration, and
qualification of shares of the Trust.

NAS, an Ohio corporation, is a wholly owned subsidiary of Nationwide Life
Insurance Company, which is owned by Nationwide Financial Services, Inc. (NFS).
NFS, a holding company, has two classes of common stock outstanding with
different voting rights enabling Nationwide Corporation (the holder of all of
the outstanding Class B common stock) to control NFS. Nationwide Corporation, is
also a holding company in the Nationwide Insurance Enterprise.

25
<PAGE> 58
For services provided under the Investment Management Agreement, NAS receives an
annual fee paid monthly based on average daily net assets of each Fund (except
the S&P 500 Index Fund) according to the following schedule:

FUND ASSETS FEE
---- ------ ---

<S> <C> <C>
Nationwide Mid Cap Growth, Nationwide $0 up to $250 million .60%
Growth and Nationwide Fund $250 million up to $1 billion .575%
$1 billion up to $2 billion .55%
$2 billion up to $5 billion .525%
$5 Billion and more .50%

Nationwide Bond, Nationwide Tax-Free, $0 up to $250 million .50%
Nationwide Intermediate U.S. Government $250 million up to $1 billion .475%

Bond, and Nationwide Long-Term U.S.
$1 billion up to $2 billion .45%
Government Bond Funds $2 billion up to $5 billion .425%
$5 Billion and more .40%

Nationwide Money Market Fund $0 up to $1 billion .40%
$1 billion up to $2 billion .38%
$2 billion up to $5 billion .36%
$5 Billion and more .34%
</TABLE>

ADVISORY SERVICES FOR THE S&P 500 INDEX FUND

Under the terms of the Investment Advisory Agreement, NAS oversees the
investment of the assets for the S&P 500 Index Fund. Subject to the supervision
and direction of the Trustees, the Adviser also evaluates and monitors the
performance of the subadviser. The Adviser is also authorized to select and
place portfolio investments on behalf of the Fund, however the Adviser does not
intend to do so at this time.

The Adviser provides to the Fund investment management evaluation services
principally by performing initial due diligence on prospective Subadvisers for
the Fund and thereafter monitoring the performance of the Subadviser through
quantitative and qualitative analysis as well as periodic in-person, telephonic
and written consultations with the Subadviser. The Adviser has responsibility
for communicating performance expectations and evaluations to the Subadviser and
ultimately recommending to the Trust's Board of Trustees whether the
Subadviser's contract should be renewed, modified or terminated; however, the
Adviser does not expect to recommend frequent changes of subadvisers. The
Adviser will regularly provide written reports to the Board of Trustees
regarding the results of its evaluation and monitoring functions. Although the
Adviser will monitor the performance of the Subadvisers, there is no certainty
that the Subadviser or the Fund will obtain favorable results at any given time.

The S&P 500 Index Fund pays the Adviser a fee at the annual rate of .13% of the
Fund's average daily net assets for investment advisory services.

The Adviser may from time to time waive some or all of its investment advisory
fee or other fees. The waiver of such fees will cause the total return and yield
of the Fund to be higher than they would otherwise be in the absence of such a
waiver.

The Subadviser - Subject to the supervision of the Adviser and the Trust's
Board of Trustees, The Dreyfus Corporation manages the S&P 500 Index Fund's
assets in accordance with such Fund's investment objective and policies. The
Subadviser shall make investment decisions for the S&P 500 Index Fund, and in
connection with such investment decisions

26
<PAGE> 59
shall place purchase and sell orders for securities. For the investment
management services it provides to the Fund, the Subadviser receives an annual
fee from the Adviser in the following amounts:

.07% on assets up to $250 million
.06% on assets of $250 million up to $500 million
.05% on assets of $500 million up to $1 billion
.04% on assets of $1 billion and more.

Below is a brief description of the Subadviser.

The Dreyfus Corporation ("Dreyfus"), 200 Park Avenue, New York, N.Y. 10166, was
formed in 1947 and registered under the Investment Advisers Act of 1940, serves
as subadviser to the Fund pursuant to a Subadvisory Agreement
dated_____________. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A.,
which is a wholly-owned subsidiary of Mellon Bank Corporation.

DISTRIBUTOR
- -----------

NAS serves as agent for each of the Funds in the distribution of its Shares
pursuant to a Underwriting Agreement dated as of ________, 1998 (the
"Underwriting Agreement"). Unless otherwise terminated, the Underwriting
Agreement will continue in effect until _________, 2000, and year to year
thereafter for successive annual periods, if, as to each Fund, such continuance
is approved at least annually by (i) the Trust's Board of Trustees or by the
vote of a majority of the outstanding shares of that Fund, and (ii) the vote of
a majority of the Trustees of the Trust who are not parties to the Underwriting
Agreement or interested persons (as defined in the 1940 Act) of any party to the
Underwriting Agreement, cast in person at a meeting called for the purpose of
voting on such approval. The Underwriting Agreement may be terminated in the
event of any assignment, as defined in the 1940 Act.

In its capacity as Distributor, NAS solicits orders for the sale of Shares,
advertises and pays the costs of advertising, office space and the personnel
involved in such activities. NAS receives no compensation under the Underwriting
Agreement with the Trust, but may retain all or a portion of the sales charge
imposed upon sales of Shares of each of the Funds.

DISTRIBUTION PLAN FOR THE S&P 500 INDEX FUND

The S&P 500 Index Fund has adopted a Distribution Plan (the "Plan") under Rule
12b-1 of the 1940 Act which permits the Fund to compensate NAS as such Fund's
Distributor, for expenses associated with distribution of its shares. Although
actual distribution expenses may be more or less, under the Plan, the S&P 500
Index Fund pays NAS compensation accrued daily and paid monthly at a maximum
rate of .07% of the Fund's average daily net assets. Distribution expenses paid
by NAS may include the costs of marketing, printing and mailing prospectuses and
sales literature to prospective investors, advertising, and compensation to
sales personnel and broker-dealers.

As required by Rule 12b-1, the Plan was approved by the initial Shareholder of
each of the S&P 500 Index Fund and by the Board of Trustees, including a
majority of the Trustees who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plan (the
"Independent Trustees"). The Plan was approved by the Board of Trustees on
November 7, 1997. The Plan may be terminated as to the Fund by vote of a
majority of the Independent Trustees, or by vote of majority of the outstanding
Shares of the Fund. Any change in the Plan that would materially increase the
distribution cost to the Fund requires Shareholder approval. The Trustees review
quarterly a written report of such costs and the purposes for which such costs
have been incurred. The Plan may be amended by vote of the Trustees including a
majority of the Independent Trustees, cast in person at a meeting called for
that purpose. For so long as the Plan is in effect, selection and nomination of
those Trustees who are not interested persons of the Trust shall be committed to
the discretion of such disinterested persons. All agreements with any person
relating to the implementation of the Plan may be terminated at any time on 60
days' written notice without payment of any penalty, by vote of a majority of
the Independent Trustees or by a vote of the majority of the outstanding Shares
of the Fund. The Plan will continue in effect for successive one-year periods,
provided that each such continuance is specifically approved (i) by the vote of
a majority of the Independent Trustees, and (ii) by a vote of a majority of the
entire Board of Trustees cast in person at a meeting called for that purpose.
The Board of Trustees has a duty to request and evaluate such information as may
be reasonably necessary for them to make an informed determination of whether
the Plan should be implemented or continued. In addition the Trustees in
approving the Plan must determine that there is a reasonable likelihood that the
Plan will benefit each Fund and its Shareholders.

The Board of Trustees of the Trust believes that the Plan is in the best
interests of the S&P 500 Index Fund since it encourages Fund growth and
maintenance of Fund assets. As the Fund grows in size, certain expenses, and
therefore total expenses per Share, may be reduced and overall performance per
Share may be improved.

NAS may enter into, from time to time, Rule 12b-1 Agreements with selected
dealers pursuant to which such dealers will provide certain services in
connection with the distribution of a Fund's Shares including, but not limited
to, those discussed above.

OTHER SERVICES FOR ALL THE FUNDS

Under a separate Fund Administration Agreement dated ____________ 1997, NAS also
provides various administrative and accounting services, including daily
valuation of each Fund's shares and preparation of financial statements, tax
returns and regulatory reports. For these services, each Fund (except the S&P
500 Index Fund) pays NAS an annual fee in the amount of 0.07% on assets up to
$250 million of average daily net assets, 0.05% on the next $750 million and
0.04% on assets of $1 billion and more. The S&P 500 Index Fund pays NAS an
annual fee in the amount of 0.05% on assets up to $1 billion and 0.04% on assets
of $1 billion and more. The S&P 500 Index Fund pays NAS an annual fee in the
amount of 0.05% on assets up to $1 billion and 0.04% on assets of $1 billion
and more.

Nationwide Investors Services, Inc. ("NISI") is the Transfer and Dividend
Disbursing Agent for all Nationwide Funds. NISI, a wholly-owned subsidiary of
NAS will receive fees for transfer agent services in the following amounts: $16
per Stock Fund account in Class D shares per annum; $18 per Bond Fund account
in Class D shares per annum; $27 per Money Market Fund account per annum and
.01% annually of average daily net assets of the S&P 500 Index Fund. Management
believes the charges for the services performed are comparable to fees charged
by other companies performing similar services.

The Fifth Third Bank ("Fifth Third"), 38 Fountain Square Plaza, Cincinnati, OH
45263, is the custodian for the Funds and makes all receipts and disbursements
under a Custody Agreement. Fifth Third performs no managerial or
policy-making functions for the Funds.

KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, OH 43215, serves as the
independent auditors for the Trust.

BROKERAGE ALLOCATION

ALLOCATION OF PORTFOLIO BROKERAGE--There is no commitment by NAS to place
orders with any particular broker/dealer or group of broker/dealers. Orders for
the purchases and sales of portfolio securities of the Funds are placed where,
in the judgment of NAS or the Subadviser, the best executions can be obtained.
None of the firms with whom orders are placed are engaged in the sale of shares
of the Funds. In allocating orders among brokers for execution on an agency
basis, in addition to price considerations, the usefulness of the brokers'
overall services is also considered. Services provided by brokerage firms
include efficient handling of

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<PAGE> 60

orders, useful analyses of corporations, industries and the economy,
statistical reports and other related services for which no charge is made by
the broker above the negotiated brokerage commissions. The Funds and NAS
believe that these services and information, which in many cases would be
otherwise unavailable to NAS, are of significant value to NAS, but it is not
possible to place an exact dollar value thereon. NAS does not believe that the
receipt of such services and information tends to reduce materially NAS's
expense.

In the case of securities traded in the over-the-counter market, the Funds will
normally deal with the market makers for such securities unless better prices
can be obtained through brokers.

CALCULATION OF NET ASSET VALUE OF THE
MONEY MARKET FUND

The Nationwide Money Market Fund's net asset value per share is
calculated by adding the value of all securities and other assets of the Fund,
deducting its liabilities, and dividing by the number of shares outstanding.

The value of portfolio securities is determined on the basis of the
amortized cost, method of valuation in accordance with Rule 2a-7 of the 1940
Act. This involves valuing a security at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price the Fund would receive if it sold the instrument.

The Trustees have adopted procedures whereby the extent of deviation,
if any, of the current net asset value per share calculated using available
market quotations from the Money Market Fund's amortized cost price per share,
will be determined at such intervals as the Trustees deem appropriate and are
reasonable in light of current market conditions. In the event such deviation
from the Money Market Fund's amortized cost price per share exceeds 1/2 of 1
percent, the Trustees will consider appropriate action which might include a
revaluation of all or an appropriate portion of the Money Market Fund's assets
based upon current market factors.

The Trustees, in supervising the Fund's operations and delegating
special responsibilities involving portfolio management to NAS, have undertaken
as a particular responsibility within their overall duty of care owed to the
Fund's shareholders to assure to the extent reasonably practicable, taking into
account current market conditions affecting the Fund's investment objectives,
that the Fund's net asset value per share, rounded to the nearest one cent, will
not deviate from $1.

Pursuant to its objective of maintaining a stable net asset value per
share, the Money Market Fund will only purchase investments with a remaining
maturity of 397 days or less and will maintain a dollar weighted average
portfolio maturity of 90 days or less.

CALCULATING MONEY MARKET FUND YIELD

Any current Money Market Fund yield quotations, subject to Rule 482 under the
Securities Act, shall consist of a seven calendar day historical yield,
carried at least to the nearest hundredth of a percent. The yield shall be
calculated by determining the change, excluding realized and unrealized gains
and losses, in the value of a

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hypothetical pre-existing account having a balance of one share at the beginning
of the period, dividing the net change in account value by the value of the
account at the beginning of the base period to obtain the base period return,
and multiplying the base period return by 365/7 (or 366/7 during a leap year).
For purposes of this calculation , the net change in account value reflects the
value of additional shares purchased with dividends declared on both the
original share and any such additional shares. The Fund's effective yield
represents an annualization of the current seven day return with all dividends
reinvested.

The Money Market Fund's yield will fluctuate daily. Actual yields will
depend on factors such as the type of instruments in the Money Market Fund's
portfolio, portfolio quality and average maturity, changes in interest rates,
and the Money Market Fund's expenses.

Although the Fund determines its yield on the basis of a seven calendar
day period, it may use a different time span on occasion.

There is no assurance that the yields quoted on any given occasion will
remain in effect for any period of time and there is no guarantee that the net
asset values will remain constant. It should be noted that a shareholder's
investment in the Fund is not guaranteed or insured. Yields of other money
market funds may not be comparable if a different base period or another method
of calculation is used.

CALCULATING YIELD AND TOTAL RETURN--
NON-MONEY MARKET FUNDS

The Funds may from time to time advertise historical performance, subject to
Rule 482 under the Securities Act. An investor should keep in mind that any
return or yield quoted represents past performance and is not a guarantee of
future results. The investment return and principal value of investments will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. All performance advertisements shall include
average annual (compound) total return quotations for the most recent one,
five, and ten-year periods (or life if a Fund has been in operation less than
one of the prescribed periods). Average annual (compound) total return
represents redeemable value at the end of the quoted period. It is calculated
in a uniform manner by dividing the ending redeemable value of a hypothetical
initial payment of $1,000 minus the maximum sales charge, for a specified
period of time, by the amount of the initial payment, assuming reinvestment of
all dividends and distributions. The one, five, and ten-year periods are
calculated based on periods that end on the last day of the calendar quarter
preceding the date on which an advertisement is submitted for publication.

NONSTANDARD RETURNS

The Funds may also choose to show nonstandard returns including total return,
and simple average total return. Nonstandard returns may or may not reflect
reinvestment of all dividends and capital gains; in addition, sales charge
assumptions will vary. Sales charge percentages decrease as amounts invested
increase as outlined in the prospectus; therefore, returns increase as sales
charges decrease.

Total return represents the cumulative percentage change in the value of an
investment over time, calculated by subtracting the initial investment from the
redeemable value and dividing the result by the amount of the initial
investment. The simple average total return is calculated by dividing total
return by the number of

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<PAGE> 62

years in the period, and unlike average annual (compound) total return, does not
reflect compounding.

The Nationwide Bond Fund, Nationwide Tax-Free Income Fund, Nationwide
Intermediate U.S. Government Bond Fund and Nationwide Long-Term U.S. Government
Bond Fund may also from time to time advertise a uniformly calculated yield
quotation. This yield is calculated by dividing the net investment income per
share earned during a 30-day base period by the maximum offering price per share
on the last day of the period, assuming reinvestment of all dividends and
distributions. This yield formula uses the average number of shares entitled to
receive dividends, provides for semi-annual compounding of interest, and
includes a modified market value method for determining amortization. The yield
will fluctuate, and there is no assurance that the yield quoted on any given
occasion will remain in effect for any period of time.

ADDITIONAL INFORMATION

DESCRIPTION OF SHARES--The assets of each Fund are segregated and a shareholder
has an interest in only the assets of the Fund in which he owns shares. Shares
of a particular Fund are equal in all respects to the other shares of that Fund
and in the event of liquidation of a Fund will share pro rata in the
distribution of the net assets of such Fund. All shares are without par value
and fully paid, nonassessable, transferable and redeemable. There are no
pre-emptive rights.

VOTING RIGHTS--Shareholders of each class of shares have one vote for each share
held and a proportionate fractional vote for any fractional share held. An
annual or special meeting of shareholders to conduct necessary business is not
required by the Declaration of Trust, the 1940 Act or other authority except,
under certain circumstances, to amend the Declaration of Trust, the Investment
Advisory Agreement, fundamental investment objectives, investment policies,
investment restrictions, to elect and remove Trustees, to reorganize the Trust
or any series or class thereof and to act upon certain other business matters.
In regard to termination, sale of assets, the change of investment objectives,
policies and restrictions or the approval of an Investment Advisory Agreement,
the right to vote is limited to the holders of shares of the particular class
fund affected by the proposal. To the extent that such a meeting is not
required, the Trust does not intend to have an annual or special meeting of
shareholders.

The Trust has represented to the Commission that the Trustees will call a
special meeting of shareholders for purposes of considering the removal of one
or more Trustees upon written request therefor from shareholders holding not
less than 10% of the outstanding votes of the Trust and the Trust will assist
in communicating with other shareholders as required by Section 16(c) of the
1940 Act. At such meeting, a quorum of shareholders (constituting a majority
of votes attributable to all outstanding shares of the Trust), by majority vote,
has the power to remove one or more Trustees.

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<PAGE> 63

INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS--Substantially all of the net
investment income, if any, of each Fund will be paid to shareholders of the
Stock Funds as dividends in March, June, September and December and to
shareholders of the Bond and Money Market Funds at each month end.

In those years in which sales of a Fund's portfolio securities result in net
realized capital gains, the Fund will declare and cause to be paid such gains to
its shareholders in December.

ADDITIONAL GENERAL TAX INFORMATION

Each of the nine Funds of the Trust is treated as a separate entity for
Federal income tax purposes and intends to qualify as a "regulated investment
company" under the Code, for so long as such qualification is in the best
interest of that Fund's shareholders. In order to qualify as a regulated
investment company, a Fund must, among other things: diversify its investments
within certain prescribed limits; derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains from
the sale or other disposition of securities or foreign currencies, or other
income derived with respect to its business of investing in such stock,
securities, or currencies; and, in taxable years beginning on or before August
5, 1997, derive less than 30% of its gross income from the sale or other
disposition of stock, securities, options, future contracts or foreign
currencies held less than three months. In addition, to utilize the tax
provisions specially applicable to regulated investment companies, a Fund must
distribute to its shareholders at least 90% of its investment company taxable
income for the year. In general, the Fund's investment company taxable income
will be its taxable income subject to certain adjustments and excluding the
excess of any net mid-term or net long-term capital gain for the taxable year
over the net short-term capital loss, if any, for such year.

A non-deductible 4% excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they otherwise have a non-calendar taxable year) an amount equal to 98% of their
ordinary income for the calendar year plus 98% of their capital gain net income
for the one-year period ending on October 31 of such calendar year. The balance
of such income must be distributed during the next calendar year. If
distributions during a calendar year were less than the required amount, the
Fund would be subject to a non-deductible excise tax equal to 4% of the
deficiency.

Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located, or in which it is otherwise deemed to be conducting business, a Fund
may be subject to the tax laws of such states or localities. In addition, if for
any taxable year a Fund does not qualify for the special tax treatment afforded
regulated investment companies, all of its taxable income will be subject to
federal tax at regular corporate rates (without any deduction for distributions
to its shareholders). In such event, dividend distributions would be taxable to
shareholders to the extent of earnings and profits, and would be eligible for
the dividends received deduction for corporations.

It is expected that each Fund will distribute annually to shareholders
all or substantially all of that Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital

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<PAGE> 64

gains will be taxable income to shareholders for federal income tax purposes,
even if paid in additional shares of that Fund and not in cash.

Distribution by a Fund of the excess of net mid-term or net long-term
capital gain over net short-term capital loss, if any, is taxable to
shareholders as mid-term or long-term capital gain, respectively, in the year in
which it is received, regardless of how long the shareholder has held the
shares. Such distributions are not eligible for the dividends-received
deduction.

Federal taxable income of individuals is subject to graduated tax rates
of 15%, 28%, 31%, 36% and 39.6%. Further, the effective marginal tax rate may be
in excess of 39.6%, because adjustments reduce or eliminate the benefit of the
personal exemption and itemized deductions for individuals with gross income in
excess of certain threshold amounts.

Long-term capital gains of individuals are subject to a maximum tax
rate of 20% (10% for individuals in the 15% ordinary income tax bracket).
Mid-term capital gains of individuals are subject to tax at the same rates
applicable to ordinary income; however, the tax rate on mid-term capital gains
of individuals cannot exceed 28%. Capital losses may be used to offset capital
gains. In addition, individuals may deduct up to $3,000 of net capital loss each
year to offset ordinary income. Excess net capital loss may be carried forward
and deducted in future years. The holding period for mid-term capital gains is
more than one year but not more than eighteen months; the holding period for
long-term capital gains is more than eighteen months.

Federal taxable income of corporations in excess of $75,000 up to $10
million is subject to a 34% tax rate; however, because the benefit of lower tax
rates on a corporation's taxable income of less than $75,000 is phased out for
corporations with income in excess of $100,000 but lower than $335,000, a
maximum marginal tax rate of 39% may result. Federal taxable income of
corporations in excess of $10 million is subject to a tax rate of 35%. Further,
a corporation's federal taxable income in excess of $15 million is subject to an
additional tax equal to 3% of taxable income over $15 million, but not more than
$100,000.

Capital gains of corporations are subject to tax at the same rates
applicable to ordinary income. Capital losses may be used only to offset capital
gains and excess net capital loss may be carried back three years and forward
five years.

Certain corporations are entitled to a 70% dividends received deduction
for distributions from certain domestic corporations. Each Fund will designate
the portion of any distributions which qualify for the 70% dividends received
deduction. The amount so designated may not exceed the amount received by that
Fund for its taxable year that qualifies for the dividends received deduction.
Because all of the Money Market Fund's and each of the Bond Fund's net
investment income is expected to be derived from earned interest and short term
capital gains, it is anticipated that no distributions from such Funds will
qualify for the 70% dividends received deduction.

Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities. Since less than 50% in value of
any Fund's total assets at the end of its fiscal year are expected to be
invested in stocks or securities of foreign corporations, such Fund will not be
entitled under the Code to pass through to its Shareholders their pro rata share
of the foreign taxes paid by that Fund. These taxes will be taken as a deduction
by the Fund.

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Under Section 1256 of the Code, gain or loss realized by a Fund from
certain financial futures and options transactions will be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss. Gain or
loss will arise upon exercise or lapse of such futures and options as well as
from closing transactions. In addition, any such futures and options remaining
unexercised at the end of a Fund's taxable year will be treated as sold for
their then fair market value, resulting in additional gain or loss to such Fund
characterized in the manner described above.

Offsetting positions held by a Fund involving certain futures contracts
or options transactions may be considered, for tax purposes, to constitute
"straddles." Straddles are defined to include "offsetting positions" in actively
traded personal property. The tax treatment of straddles is governed by Sections
1092 and 1258 of the Code, which, in certain circumstances, overrides or
modifies the provisions of Section 1256. As such, all or a portion of any short
or long-term capital gain from certain straddle and/or conversion transactions
may be recharacterized as ordinary income.

If a Fund were treated as entering into straddles by reason of its
engaging in futures or options transactions, such straddles would be
characterized as "mixed straddles" if the futures or options comprising a part
of such straddles were governed by Section 1256 of the Code. A Fund may make one
or more elections with respect to mixed straddles. If no election is made, to
the extent the straddle rules apply to positions established by a Fund, losses
realized by such Fund will be deferred to the extent of unrealized gain in any
offsetting positions. Moreover, as a result of the straddle and conversion
transaction rules, short-term capital losses on straddle positions may be
recharacterized as long-term capital losses and long-term capital gains may be
recharacterized as short-term capital gain or ordinary income.

Investment by a Fund in securities issued at a discount or providing
for deferred interest or for payment of interest in the form of additional
obligations could, under special tax rules, affect the amount, timing and
character of distributions to Shareholders. For example, a Fund could be
required to take into account annually a portion of the discount (or deemed
discount) at which such securities were issued and to distribute such portion in
order to maintain its qualification as a regulated investment company. In that
case, that Fund may have to dispose of securities which it might otherwise have
continued to hold in order to generate cash to satisfy these distribution
requirements.

Each Fund may be required by federal law to withhold and remit to the
U.S. Treasury 31% of taxable dividends, if any, and capital gain distributions
to any Shareholder, and the proceeds of redemption or the values of any
exchanges of Shares of the Fund, if such Shareholder (1) fails to furnish the
Fund with a correct taxpayer identification number, (2) under-reports dividend
or interest income, or (3) fails to certify to the Fund that he or she is not
subject to such withholding. An individual's taxpayer identification number is
his or her Social Security number.

Information set forth in the prospectuses and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations generally affecting purchasers
of shares of the Funds. No attempt has been made to present a detailed
explanation of the Federal income tax treatment of the Funds or their
shareholders and this discussion is not intended as a substitute for careful tax
planning. Accordingly, potential purchasers of shares of a Fund are urged to
consult their tax advisers with specific reference to their own tax situation.
In addition, the tax discussion in the

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<PAGE> 66

prospectuses and this Statement of Additional Information is based on tax laws
and regulations which are in effect on the date of the prospectuses and this
Statement of Additional Information; such laws and regulations may be changed by
legislative or administrative action.

Information as to the federal income tax status of all distributions
will be mailed annually to each shareholder.

ADDITIONAL TAX INFORMATION WITH RESPECT TO THE TAX-FREE INCOME FUND

The Tax-Free Income Fund is not intended to constitute a balanced
investment program and is not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Tax-Free Income Fund would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans qualified
under Section 401 of the Code, H.R. 10 plans, and individual retirement
accounts, since such plans and accounts are generally tax-exempt and, therefore,
would not gain any additional benefit from all or a portion of the Tax-Free
Income Fund's dividends being tax-exempt and such dividends would be ultimately
taxable to the beneficiaries when distributed to them. In addition, the Tax-Free
Income Fund may not be an appropriate investment for entities which are
"substantial users," or "related persons" thereof, of facilities financed by
private activity bonds held by the Tax-Free Income Fund.

The Code permits a regulated investment company which invests in
municipal securities to pay to its shareholders "exempt-interest dividends,"
which are excluded from gross income for federal income tax purposes, if at the
close of each quarter of its taxable year at least 50% of its total assets
consist of municipal securities.

An exempt-interest dividend is any dividend or part thereof (other than
a capital gain dividend) paid by the Tax-Free Income Fund that is derived from
interest received by the Tax-Free Income Fund that is excluded from gross
income for federal income tax purposes, net of certain deductions, provided the
dividend is designated as an exempt-interest dividend in a written notice
mailed to shareholders not later than sixty days after the close of the
Tax-Free Income Fund's taxable year. The percentage of the total dividends paid
by the Tax-Free Income Fund during any taxable year that qualifies as
exempt-interest dividends will be the same for all shareholders of the Tax-Free
Income Fund receiving dividends during such year. Exempt-interest dividends
shall be treated by the Tax-Free Income Fund's shareholders as items of
interest excludable from their gross income for Federal income tax purposes
under Section 103(a) of the Code. However, a shareholder is advised to consult
his or her tax adviser with respect to whether exempt-interest dividends
retain the exclusion under Section 103(a) of the Code if such shareholder is a
"substantial user" or a "related person" to such user under Section 147(a) of
the Code with respect to any of the municipal securities held by the Tax-Free
Income Fund. If a shareholder receives an exempt-interest dividend with respect
to any share and such share is held by the shareholder for six months or less,
any loss on the sale or exchange of such share shall be disallowed to the
extent of the amount of such exempt-interest dividend.

In general, interest on indebtedness incurred or continued by a
shareholder to purchase or carry shares is not deductible for federal income tax
purposes if the Tax-Free Income Fund distributes exempt-interest dividends
during the shareholder's taxable year. A shareholder of the Tax-Free Income Fund
that is a financial institution may not deduct interest expense attributable to
indebtedness incurred or

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<PAGE> 67

continued to purchase or carry shares of the Tax-Free Income Fund if the
Tax-Free Income Fund distributes exempt-interest dividends during the
shareholder's taxable year. Certain federal income tax deductions of property
and casualty insurance companies holding shares of the Tax-Free Income Fund and
receiving exempt-interest dividends may also be adversely affected. In certain
limited instances, the portion of Social Security benefits received by a
shareholder which may be subject to federal income tax may be affected by the
amount of tax-exempt interest income, including exempt-interest dividends
received by shareholders of the Tax-Free Income Fund.

In the event the Tax-Free Income Fund realizes mid-term or long-term
capital gains, the Tax-Free Income Fund intends to distribute any realized net
mid-term or net long-term capital gains annually. If the Tax-Free Income Fund
distributes such gains, the Tax-Free Income Fund will have no tax liability with
respect to such gains, and the distributions will be taxable to shareholders as
mid-term or long-term capital gains, respectively, regardless of how long the
shareholders have held their shares. Any such distributions will be designated
as a capital gain dividend in a written notice mailed by the Tax-Free Income
Fund to the shareholders not later than sixty days after the close of the
Tax-Free Income Fund's taxable year. It should be noted, however, that long-term
capital gains of individuals are subject to a maximum tax rate of 20% (or 10%
for individuals in the 15% ordinary income tax bracket) and mid-term capital
gains are taxed like ordinary income except that net capital gains of
individuals are subject to a maximum federal income tax rate of 28%. Any net
short-term capital gains are taxed at ordinary income tax rates. If a
shareholder receives a capital gain dividend with respect to any share and then
sells the share before he has held it for more than six months, any loss on the
sale of the share is treated as long-term capital loss to the extent of the
capital gain dividend received.

Interest earned on certain municipal obligations issued on or after
August 8, 1986, to finance certain private activities will be treated as a tax
preference item in computing the alternative minimum tax. Since the Tax-Free
Income Fund may invest up to 20% of its net assets in municipal securities the
interest on which may be treated as a tax preference item, a portion of the
exempt-interest dividends received by shareholders from the Tax-Free Income Fund
may be treated as tax preference items in computing the alternative minimum tax
to the extent that distributions by the Tax-Free Income Fund are attributable to
such obligations. Also, a portion of all other interest excluded from gross
income for federal income tax purposes earned by a corporation may be subject to
the alternative minimum tax as a result of the inclusion in alternative minimum
taxable income of 75% of the excess of adjusted current earnings and profits
over pre-book alternative minimum taxable income. Adjusted current earnings and
profits would include exempt-interest dividends distributed by the Tax-Free
Income Fund to corporate shareholders. For individuals the alternative minimum
tax rate is 26% on alternative minimum taxable income up to $175,000 and 28% on
the excess of $175,000; for corporations the alternative minimum tax rate is
20%.

For taxable years of corporations beginning before 1996, the Superfund
Revenue Act of 1986 imposes an additional tax (which is deductible for federal
income tax purposes) on a corporation at a rate of 0.12 of one percent on the
excess over $2,000,000 of such corporation's "modified alternative minimum
taxable income", which would include a portion of the exempt-interest dividends
distributed by the Tax-Free Income Fund to such corporation. In addition,
exempt-interest dividends distributed to certain foreign corporations doing
business in the United States could be subject to a branch profits tax imposed
by Section 884 of the Code.

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<PAGE> 68

Distributions of exempt-interest dividends by the Tax-Free Income Fund
may be subject to state and local taxes even though a substantial portion of
such distributions may be derived from interest on obligations which, if
received directly, would be exempt from such taxes. The Tax-Free Income Fund
will report to its shareholders annually after the close of its taxable year the
percentage and source, on a state-by-state basis, of interest income earned on
municipal obligations held by the Tax-Free Income Fund during the preceding
year. Shareholders are advised to consult their tax advisers concerning the
application of state and local taxes.

As indicated in the Prospectus, the Tax-Free Income Fund may acquire
rights regarding specified portfolio securities under puts. See "INVESTMENT
OBJECTIVES AND POLICIES -- Additional Information on Portfolio Instruments -
Puts" in this Statement of Additional Information. The policy of the Tax-Free
Income Fund is to limit its acquisition of puts to those under which it will be
treated for federal income tax purposes as the owner of the Exempt Securities
acquired subject to the put and the interest on the Exempt Securities will be
tax-exempt to it. Although the Internal Revenue Service has issued a published
ruling that provides some guidance regarding the tax consequences of the
purchase of puts, there is currently no guidance available from the Internal
Revenue Service that definitively establishes the tax consequences of many of
the types of puts that the Tax-Free Income Fund could acquire under the 1940
Act. Therefore, although the Tax-Free Income Fund will only acquire a put after
concluding that it will have the tax consequences described above, the Internal
Revenue Service could reach a different conclusion.

Under Section 1256 of the Code, gain or loss realized by the Tax-Free
Income Fund from certain financial futures and options transactions will be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. Gain or loss will arise upon exercise or lapse of such futures and options
as well as from closing transactions. In addition, any such futures and options
remaining unexercised at the end of the Tax-Free Income Fund's taxable year will
be treated as sold for their then fair market value, resulting in additional
gain or loss to the Tax-Free Income Fund characterized in the manner described
above.

Offsetting positions held by the Tax-Free Income Fund involving certain
futures contracts or options transactions may be considered, for tax purposes,
to constitute "straddles." Straddles are defined to include "offsetting
positions" in actively traded personal property. The tax treatment of straddles
is governed by Sections 1092 and 1258 of the Code, which, in certain
circumstances, overrides or modifies the provisions of Section 1256. As such,
all or a portion of any short or long-term capital gain from certain straddle
and/or conversion transactions may be recharacterized as ordinary income.

If the Tax-Free Income Fund were treated as entering into straddles by
reason of its engaging in futures or options transactions, such straddles would
be characterized as "mixed straddles" if the futures or options comprising a
part of such straddles were governed by Section 1256 of the Code. The Tax-Free
Income Fund may make one or more elections with respect to mixed straddles. If
no election is made, to the extent the straddle rules apply to positions
established by the Tax-Free Income Fund, losses realized by the Tax-Free Income
Fund will be deferred to the extent of unrealized gain in any offsetting
positions. Moreover, as a result of the straddle and conversion transaction
rules, short-term capital losses on straddle positions may be recharacterized as
long-term capital losses and long-term capital gains may be recharacterized as
short-term capital gain or ordinary income.

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<PAGE> 69

Investment by the Tax-Free Income Fund in securities issued at a
discount or providing for deferred interest or for payment of interest in the
form of additional obligations could, under special tax rules, affect the
amount, timing and character of distributions to shareholders. For example, the
Tax-Free Income Fund could be required to take into account annually a portion
of the discount (or deemed discount) at which such securities were issued and to
distribute such portion in order to maintain its qualification as a regulated
investment company. In that case, the Tax-Free Income Fund may have to dispose
of securities which it might otherwise have continued to hold in order to
generate cash to satisfy these distribution requirements.

Income itself exempt from Federal income taxation may be considered in
addition to taxable income when determining whether Social Security payments
received by a shareholder are subject to federal income taxation.

SPECIAL MEETING

The Declaration of Trust provides that a Special Meeting of Shareholders
may be called by the Trustees or shareholders for the purpose of taking action
on any matter requiring the vote of shareholders as provided for in the
Declaration of Trust.

37
<PAGE> 70
NATIONWIDE INVESTING FOUNDATION III
NATIONWIDE S&P 500 INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 23, 1997

<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash $ 100,000

---------
NET ASSETS $ 100,000
=========

REPRESENTED BY:
Capital $ 100,000
---------

NET ASSETS $ 100,000
=========

Shares outstanding (unlimited number of
shares outstanding) 10,000
=========

Net asset value per share $ 10.00
=========
</TABLE>

See accompanying notes to financial statements.

38
<PAGE> 71

NATIONWIDE INVESTING FOUNDATION III
NATIONWIDE S&P 500 INDEX FUND
NOTES TO FINANCIAL STATEMENTS
DECEMBER 23, 1997

1. ORGANIZATION

The Nationwide S&P 500 Index Fund (the "Fund") is a non-diversified portfolio of
Nationwide Investing Foundation III (the "Trust"). The Trust is an open-end
management investment company organized as a business trust under the laws of
the State of Ohio, by a Declaration of Trust dated as of October 30, 1997. The
Trust offers nine separate portfolios or series, each with its own investment
objectives and each are registered under the Investment Company Act of 1940, as
amended. The accompanying financial statements relate only to the Nationwide S&P
500 Index Fund. The Fund had no operations other than those actions relating to
organizational matters and the initial purchase of 10,000 units of beneficial
interest in the Fund. As of December 23, 1997, all outstanding shares of the
Fund are owned by Nationwide Advisory Services, Inc. (NAS), an Ohio corporation.

2. RELATED PARTY TRANSACTIONS

Nationwide Advisory Services, Inc., an affiliated company, serves as the Fund's
investment advisor. Under the terms of the Investment Advisory Agreement, NAS
oversees the investment of the assets for the Fund and supervises its daily
business affairs. As the Fund's adviser, NAS receives fees at an annual rate of
.13% of the Fund's average daily net assets.

The Dreyfus Corporation ("Dreyfus") serves as investment sub-adviser. For its
services, Dreyfus receives an annual fee from NAS in the following amounts:
.07% on average daily net assets up to $250 million
.06% on average daily net assets of $250 million up to $500 million
.05% on average daily net assets of $500 million up to $1 billion
.04% on average daily net assets of $1 billion and more

NAS also receives fees for distribution pursuant to a Rule 12b-1 Distribution
Plan approved by the Board of Trustees. The Fund pays NAS an annual rate of .07%
of the Fund's average daily net assets, accrued daily and paid monthly. NAS will
use these fees for the distribution and marketing of the Fund.

Under the terms of the Fund Administration Agreement, NAS also provides various
administrative and accounting services. For these services, the Fund pays NAS
based on the Fund's average daily net assets in the amount of .05% on assets up
to $1 billion and .04% on assets of $1 billion and more.

Nationwide Investors Services, Inc. (NISI) acts as transfer and dividend
disbursing agent for the funds. For these services, the Fund pays NISI at an
annual rate of .01% of the Fund's average daily net assets. NISI is a wholly
owned subsidiary of NAS.

Except as otherwise provided below, all fees and expenses incurred by a party in
connection with the Agreement and Plan of Reorganization will be paid by the
party directly incurring such costs. NAS will pay 50% of the costs associated
with the Reorganization. Each Acquiring Fund will bear its own organizational
costs.

39
<PAGE> 72
Independent Auditors' Report

The Shareholder and Trustees
of Nationwide Investing Foundation III:

We have audited the accompanying statement of assets and liabilities of the
Nationwide Investing Foundation III Nationwide S&P 500 Index Fund (the Fund) as
of December 23, 1997. This financial statement is the responsibility of the
Fund's management. Our responsibility is to express an opinion on this financial
statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of the Fund as of December 23,
1997 in conformity with generally accepted accounting principles.

KPMG Peat Marwick LLP

Columbus, Ohio
December 23, 1997

40
<PAGE> 73

APPENDIX A

BOND RATINGS

STANDARD & POOR'S DEBT RATINGS

A Standard & Poor's corporate or municipal debt rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment may take into consideration obligors such as
guarantors, insurers, or lessees.

The debt rating is not a recommendation to purchase, sell, or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor. The ratings are based on current information furnished by
the issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended, or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.

The ratings are based, in varying degrees, on the following
considerations:

1. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation.

2. Nature of and provisions of the obligation.

3. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization, or other
arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.

INVESTMENT GRADE

AAA - Debt rated 'AAA' has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.

AA - Debt rated 'AA' has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in small degree.

A - Debt rated 'A' has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.

BBB - Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

SPECULATIVE GRADE

Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. 'BB' indicates the least degree of speculation and
'C' the highest. While

45
<PAGE> 74

such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.

BB - Debt rated 'BB' has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The 'BB'
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied 'BBB-' rating.

B - Debt rated 'B' has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The 'B' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'BB' or 'BB-' rating.

CCC - Debt rated 'CCC' has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The 'CCC' rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied 'B' or 'B-' rating.

CC - Debt rated 'CC' typically is applied to debt subordinated to senior
debt that is assigned an actual or implied 'CCC' rating.

C - Debt rated 'C' typically is applied to debt subordinated to senior
debt which is assigned an actual or implied 'CCC-' debt rating. The 'C' rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.

CI - The rating 'CI' is reserved for income bonds on which no interest
is being paid.

D - Debt rated 'D' is in payment default. The 'D' rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grade period. The 'D'
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.

MOODY'S LONG-TERM DEBT RATINGS

Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risk appear somewhat larger than in Aaa securities.

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<PAGE> 75

A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment some time in the future.

Baa - Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

MUNICIPAL BOND

Excerpts from Moody's Investors Service Inc., description of its three highest
bond ratings: Aaa--judged to be the best quality. They carry the smallest degree
of investment risk; Aa--judged to be of high quality by all standards;
A--possess favorable attributes and are considered "upper medium" grade
obligations. Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's
believes possess the strongest investment attributes are designated by the
symbol Aa 1, A 1, Ba 1 and B 1.

Excerpts from Standard & Poor's Corporation description of its three highest
bond ratings: AAA--highest grade obligations; AA--also qualify as highgrade
obligations, and, in the majority of instances, differ from AAA issues only in
small degree; A--strong ability to pay interest and repay principle although
more susceptible to change in circumstances.

STATE AND MUNICIPAL NOTES

Excerpts from Moody's Investors Service, Inc., description of state and
municipal note ratings:

MIG-1--Notes bearing this designation are of the best quality, enjoying strong
protection from established cash flows of funds for their servicing from
established and board-based access to the market for refinancing, or both.

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<PAGE> 76

MIG-2--Notes bearing this designation are of high quality, with margins of
protection ample although not so large as in the preceding group.

MIG-3--Notes bearing this designation are of favorable quality, with all
security elements accounted for but lacking the strength of the preceding grade.
Market access for refinancing, in particular, is likely to be less well
established.

FITCH INVESTORS SERVICE, INC. BOND RATINGS

Fitch investment grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
represent Fitch's assessment of the issuer's ability to meet the obligations of
a specific debt issue or class of debt in a timely manner.

The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.

Fitch ratings do not reflect any credit enhancement that may be provided
by insurance policies or financial guaranties unless otherwise indicated.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories do not fully reflect small
differences in the degrees of credit risk.

Fitch ratings are not recommendations to buy, sell, or hold any
security. ratings do not comment on the adequacy of market price, the
suitability of any security for a particular investor, or the tax-exempt nature
or taxability of payments made in respect of any security.

Fitch ratings are based on information obtained from issuers, other
obligors, underwriters, their experts, and other sources Fitch believes to be
reliable. Fitch does not audit or verify the truth or accuracy of such
information. Ratings may be changed, suspended, or withdrawn as a result of
changes in, or the unavailability of, information or for other reasons.

AAA Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.

AA Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated 'AAA'. Because
bonds rated in the 'AAA' and 'AA' categories are not significantly
vulnerable to foreseeable future developments, short-term debt of the
issuers is generally rated 'F-1+'.

A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.

BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are

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<PAGE> 77

more likely to have adverse impact on these bonds, and therefore,
impair timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with higher
ratings.

Fitch speculative grade bond ratings provide a guide to investors in
determining the credit risk associated with a particular security. The ratings
('BB' to 'C') represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating ('DDD' to 'D') is an
assessment of the ultimate recovery value through reorganization or liquidation.

Bonds that have the same rating are of similar but not necessarily
identical credit quality since the rating categories cannot fully reflect the
differences in the degrees of credit risk.

BB Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified
which could assist the obligor in satisfying its debt service
requirements.

B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of
continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business
and economic activity throughout the life of the issue.

CCC Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.

CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.

C Bonds are in imminent default in payment of interest or principal.

DDD Bonds are in default on interest and/or principal payments. Such bonds
are extremely speculative,

DD and should be valued on the basis of their ultimate recovery value in
liquidation or reorganization of &D the obligor. `DDD' represents the
highest potential for recovery of these bonds, and 'D' represents the
lowest potential for recovery.

DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS

These ratings represent a summary opinion of the issuer's long-term
fundamental quality. Rating determination is based on qualitative and
quantitative factors which may vary according to the basic economic and
financial characteristics of each industry and each issuer. Important
considerations are vulnerability to economic cycles as well as risks related to
such factors as competition, government action,

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<PAGE> 78

regulation, technological obsolescence, demand shifts, cost structure, and
management depth and expertise. The projected viability of the obligor at the
trough of the cycle is a critical determination.

Each rating also takes into account the legal form of the security,
(e.g., first mortgage bonds, subordinated debt, preferred stock, etc.). The
extent of rating dispersion among the various classes of securities is
determined by several factors including relative weightings of the different
security classes in the capital structure, the overall credit strength of the
issuer, and the nature of covenant protection. Review of indenture restrictions
is important to the analysis of a company's operating and financial constraints.

The Credit Rating Committee formally reviews all ratings once per
quarter (more frequently, if necessary). Ratings of 'BBB-' and higher fall
within the definition of investment grade securities, as defined by bank and
insurance supervisory authorities.

RATING
SCALE DEFINITION
- ----- ----------

AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.

AA+ High credit quality. Protection factors are
AA strong. Risk is modest, but may vary slightly
AA- from time to time because of economic conditions.

A+ Protection factors are average but adequate.
A However, risk factors are more variable and
A- greater in periods of economic stress.

BBB+ Below average protection factors but still considered sufficient
BBB for prudent investment. Considerable variability in risk during
BBB- economic cycles.

BB+ Below investment grade but deemed likely to meet
BB obligations when due. Present or prospective
BB- financial protection factors fluctuate according to
industry conditions or company fortunes. Overall
quality may move up or down frequently within this category.

B+ Below investment grade and possessing risk that
B obligations will not be met when due. Financial
B- protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent Changes in the rating within this
category or into a higher or lower rating grade.

CCC Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal, interest
or preferred dividends. Protection factors are narrow and
risk can be substantial with unfavorable economic/industry
conditions, and/or with unfavorable company developments.

DD Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.

DP Preferred stock with dividend arrearages.

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SHORT-TERM RATINGS

STANDARD & POOR'S COMMERCIAL PAPER RATINGS

A Standard & Poor's commercial paper rating is a current assessment of
the likelihood of timely payment of debt considered short-term in the relevant
market.

Ratings are graded into several categories, ranging from 'A-1' for the
highest quality obligations to 'D' for the lowest. These categories are as
follows:

A-1 This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.

A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated 'A-1'.

A-3 Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes in
circumstances than obligations carrying the higher designations.

B Issues rated 'B' are regarded as having only speculative capacity for
timely payment.

C This rating is assigned to short-term debt obligations with doubtful
capacity for payment.

D Debt rated 'D' is in payment default. the 'D' rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless Standard & Poor's
believes that such payments will be made during such grade period.

STANDARD & POOR'S NOTE RATINGS

An S&P note rating reflects the liquidity factors and market-access
risks unique to notes. Notes maturing in three years or less will likely receive
a note rating. Notes maturing beyond three years will most likely receive a
long-term debt rating.

The following criteria will be used in making the assessment:

1. Amortization schedule - the larger the final maturity relative to
other maturities, the more likely the issue is to be treated as a
note.

2. Source of payment - the more the issue depends on the market for
its refinancing, the more likely it is to be considered a note.

Note rating symbols and definitions are as follows:

SP-1 Strong capacity to pay principal and interest. Issues determined to
possess very strong characteristics are given a plus (+) designation.

SP-2 Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.

SP-3 Speculative capacity to pay principal and interest.

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<PAGE> 80

MOODY'S SHORT-TERM RATINGS

Moody's short-term debt ratings are opinions on the ability of issuers
to repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's employs the
following three designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:

Issuers rated Prime-1 (or supporting institutions) have a superior
capacity for repayment of senior short-term debt obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: (I)
leading market positions in well established industries, (II) high rates of
return on funds employed, (III) conservative capitalization structures with
moderate reliance on debt and ample asset protection, (IV) broad margins in
earnings coverage of fixed financial charges and high internal cash generation,
and (V) well established access to a range of financial markets and assured
sources of alternative liquidity.

Issuers rated Prime-2 (or supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

Issuers rated Prime-3 (or supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations. The effect of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

Issuers rated Not Prime do not fall within any of the prime rating
categories.

MOODY'S NOTE RATINGS

MIG 1/VMIG 1 This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad based access to the market for refinancing.

MIG 2/VMIG 2 This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.

MIG 3/VMIG 3 This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.

MIG 4/VMIG 4 This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.

SG This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.

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FITCH'S SHORT-TERM RATINGS

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes.

The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.

F-1+ Exceptionally strong credit quality. Issues assigned
this rating are regarded as having the strongest degree of
assurance for timely payment.

F-1 Very strong credit quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in
degree than issues rated 'f-1+'.

F-2 Good credit quality. Issues assigned this rating have a
satisfactory degree of assurance for timely payment but the
margin of safety is not as great as for issues assigned 'F-1+'
and 'F-1' ratings.

F-3 Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for
timely payment is adequate, however, near-term adverse changes
could cause these securities to be rated below investment grade.

F-S Weak credit quality. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for
timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.

D Default. Issues assigned this rating are in actual or
imminent payment default.

LOC The symbol LOC indicates that the rating is based on a
letter of credit issued by a commercial bank.

DUFF & PHELPS SHORT-TERM DEBT RATINGS

Duff & Phelps' short-term ratings are consistent with the rating
criteria utilized by money market participants. The ratings apply to all
obligations with maturities under one year, including commercial paper, the
uninsured portion of certificates of deposit, unsecured bank loans, master
notes, bankers acceptances, irrevocable letters of credit, and current
maturities of long-term debt.
Asset-backed commercial paper is also rated according to this scale.

Emphasis is placed on liquidity which is defined as not only cash from
operations, but also access to alternative sources of funds including trade
credit, bank lines, and the capital markets. An important consideration is the
level of an obligor's reliance on short-term funds on an ongoing basis.

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RATING SCALE DEFINITION
- ------------ ----------

HIGH GRADE
----------

D-1+ Highest certainty of timely payment. short-term liquidity,
including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.

D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.

D-1- High certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk
factors are very small.

GOOD GRADE
----------

D-2 Good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs
may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.

SATISFACTORY GRADE
------------------

D-3 Satisfactory liquidity and other protection factors qualify
issue as to investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.

NON-INVESTMENT GRADE
--------------------

D-4 Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service.
Operating factors and market access may be subject to a high
degree of variation.

DEFAULT
-------

D-5 Issuer failed to meet scheduled principal and/or interest
payments.

THOMSON'S SHORT-TERM RATINGS

The Thomson Short-Term Ratings apply, unless otherwise noted, to
specific debt instruments of the rated entities with a maturity of one year or
less. Thomson short-term ratings are intended to assess the likelihood of an
untimely or incomplete payments of principal or interest.

TBW-1 the highest category, indicates a very high likelihood that
principal and interest will be paid on a timely basis.

TBW-2 the second highest category, while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".

TBW-3 the lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal and
external) than those with higher ratings, the capacity to service principal and
interest in a timely fashion is considered adequate.

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<PAGE> 83

TBW-4 the lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.

IBCA SHORT-TERM RATINGS

IBCA short-term ratings assess the borrowing characteristics of banks
and corporations, and the capacity for timely repayment of debt obligations. The
short-term ratings relate to debt which has a maturity of less than one year.

IBCA issues ratings and reports on the largest U.S. and international
bank holding companies, as well as major investment banks. IBCA's short-term
rating system utilizes a dual system--Individual Ratings and Legal Ratings. The
Individual Rating addresses 1) the current strength of consolidated banking
companies and their principal bank subsidiaries. A consolidated bank holding
company/bank with an "A" rating has a strong balance sheet, and a favorable
credit profile without significant problems. A "B" rating indicates sound credit
profile without significant problems. Performance is generally in line with or
better than that of its peers. The legal rating addresses the question of
whether an institution would receive support if it ran into difficulties. Issues
rated "A-1" are obligations supported by a very strong capacity for timely
repayment. Issues rated "A-2" have a very strong capacity for timely repayment
although such capacity may be susceptible to adverse changes in business,
economic or financial conditions.

A1+ Obligations supported by the highest capacity for timely
repayment and possess a particularly strong credit feature.

A1 Obligations supported by the highest capacity for timely
repayment.

A2 Obligations supported by a good capacity for timely
repayment.

A3 Obligations supported by a satisfactory capacity for timely
repayment.

B Obligations for which there is an uncertainty as to the
capacity to ensure timely repayment.

C Obligations for which there is a high risk of default or
which are currently in default.

D Obligations which are currently in default.

BOND RATINGS

Bonds rated AA or AAA by D&P are deemed to be high quality. Protection factors
are strong. Risk is modest but may vary slightly from time to time because of
economic conditions.

Bonds rated AA or AAA by Fitch are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong.

Moody's three highest bond ratings are: Aaa - judged to be the best quality -
carry the smallest degree of investment risk; Aa - judged to be high quality by
all standards; A possess favorable attributes and are considered "upper medium"
grade obligations.

S&P's three highest bond ratings are: AAA - highest grade obligations - possess
the ultimate degree of protection and indicates an extremely strong capacity to
pay

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principal and interest; AA - also qualify as high grade obligations, and in
the majority of instances differ only in small degrees from issues rated AAA; A
- - strong ability to pay interest and repay principal although more susceptible
to change in circumstances.

Bonds rated AA or AAA by IBCA indicates a very strong capacity for timely
repayment of debt. Margins of protection may not be as large as for AAA issues.

Bonds rated AA or AAA by Thomson indicates ability to repay principal and
interest on a timely basis. Bonds rated AA may have limited incremental risk
versus AAA issues.

Bonds BBB are regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity to repay principal for debt in this category than in higher
rated categories.