<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933/X/
POST-EFFECTIVE AMENDMENT NO. 18
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940/X/
AMENDMENT NO. 19
(CHECK APPROPRIATE BOX OR BOXES)
NATIONWIDE MUTUAL FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
NATIONWIDE MID CAP GROWTH FUND
NATIONWIDE GROWTH FUND
NATIONWIDE FUND
NATIONWIDE S&P 500 INDEX 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
NATIONWIDE FOCUS FUND
NATIONWIDE VALUE OPPORTUNITIES FUND
NATIONWIDE HIGH YIELD BOND FUND
NATIONWIDE SMALL CAP INDEX FUND
NATIONWIDE MID CAP MARKET INDEX FUND
NATIONWIDE INTERNATIONAL INDEX FUND
NATIONWIDE BOND INDEX FUND
MORLEY CAPITAL ACCUMULATION FUND
MORLEY ENHANCED INCOME FUND
PRESTIGE LARGE CAP VALUE FUND
PRESTIGE LARGE CAP GROWTH FUND
PRESTIGE SMALL CAP FUND
PRESTIGE BALANCED FUND
PRESTIGE INTERNATIONAL FUND
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43216
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (614) 249-7855
SEND COPIES OF COMMUNICATIONS TO:
MS. ELIZABETH A. DAVIN
DIETRICH, REYNOLDS AND KOOGLER
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(NAME AND ADDRESS OF AGENT FOR SERVICE)
It is proposed that this filing will become effective:
[X] immediately upon filing pursuant to paragraph (b) of Rule 485.
<PAGE> 2
Explanatory Note
This filing includes Prospectus and Statement of Additional Information for the
Nationwide S&P 500 Index Fund.
The Prospectuses and Statements of Additional Information for the 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-Prime Shares, Prestige Large Cap Value Fund, Prestige Large Cap Growth
Fund, Prestige Small Cap Growth Fund, Prestige Balanced Fund, Prestige
International Fund, Morley Capital Accumulation Fund, Small Cap Index Fund,
International Index Fund, Mid Cap Market Index Fund, Bond Index Fund, Focus
Fund, High Yield Bond Fund, Morley Enhanced Income Fund, and Value Opportunities
Fund, are included in Post-Effective Amendment Nos. 15 and 17 and are
incorporated by reference into this filing of Post-Effective Amendment No. 18 to
the Registration Statement.
<PAGE> 3
PROSPECTUS
DECEMBER 29, 1999
NATIONWIDE MUTUAL FUNDS
NATIONWIDE S&P 500 INDEX FUND
(Class A, Class B and Institutional Class Shares)
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved this Fund's shares as an investment or determined
whether this prospectus is complete or accurate. To state otherwise is a crime.
<PAGE> 4
<TABLE>
TABLE OF CONTENTS
-----------------
<S> <C>
FUND SUMMARY.......................................................................................1
MORE ABOUT THE FUND................................................................................__
INVESTMENT RISKS...................................................................................__
MANAGEMENT.........................................................................................__
BUYING, SELLING AND EXCHANGING FUND SHARES.........................................................__
DISTRIBUTIONS AND TAXES............................................................................__
ADDITIONAL INFORMATION.............................................................................Back Cover
</TABLE>
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<PAGE> 5
FUND SUMMARY
This Prospectus provides information about one of the Nationwide Mutual Funds:
Nationwide S&P 500 Index Fund (the "Fund"). "You" and "your" refer to potential
investors and current shareholders of the Fund.
This section summarizes key information about the Fund. Use this summary to
compare the Fund with other mutual funds. More detailed information about the
risks and investment techniques of the Fund can be found in "MORE ABOUT THE
FUND."
A QUICK NOTE ABOUT SHARE CLASSES
The Fund has six different share classes, three of which are offered in this
Prospectus -- Class A, Class B and Institutional Class shares. The fees, sales
charges and expenses for each share class are different, but each share class of
the Fund represents an investment in the same assets.
The fees and expenses for the Fund are set forth below. For more information
about which share class offered by this Prospectus is right for you, see
"BUYING, SELLING AND EXCHANGING FUND SHARES -- Choosing a Share Class."
<PAGE> 6
OBJECTIVE AND PRINCIPAL STRATEGIES
The Fund seeks to provide investment results that correspond to the price and
yield performance of publicly traded common stocks, as represented by the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"). * The S&P 500
is a market-weighted index composed of approximately 500 common stocks chosen by
Standard & Poor's based on a number of factors including industry group
representation, market value, economic sector and operating/financial condition.
The investment objective of the Fund may not be changed without shareholder
approval. In addition to the investment strategies described below, the Fund may
also engage in securities lending.
Market-weighted index is an index in which the weighting of each security is
based on its market capitalization. In a market-weighted index, changes in the
price of a company with a large capitalization affect the level of the index
more than changes in the price of a company with smaller market capitalization.
[Inset Box]
Market capitalization is a common way to measure the size of a company based on
the price of its common stock; it is simply the number of outstanding shares of
the company multiplied by the current share price. [Inset Box]
The Fund employs a "passive" management approach, attempting to invest in a
portfolio of assets whose performance is expected to match approximately the
performance of S&P 500. The Fund will be substantially invested in securities in
the S&P 500, and will invest at least 80% of its assets in securities or other
financial instruments in, or correlated with, the S&P 500.
There is no guarantee that the Fund will achieve its objectives.
The Fund invests in a statistically selected sample of stocks included in the
S&P 500 and in derivative instruments linked to the S&P 500. The Fund may not
invest in all of the common stocks in the S&P 500, or in the same weightings as
in the S&P 500. Because the Fund seeks to invest in assets whose performance
matches the performance of the S&P, it is a non-diversified fund. The Fund
chooses investments so that the market capitalizations, industry weightings and
other fundamental characteristics of the stocks and derivative instruments
chosen are similar to the S&P 500 as a whole. The Fund may also engage in
securities lending.
- ----------
** "Standard & Poor's", "S&P", "S&P 500", "Standard & Poor's 500", and "500" are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
the Fund. The Fund is not sponsored, endorsed, sold or promoted by Standard &
Poor's and Standard & Poor's makes no representation regarding the advisability
of investing in the Fund. For further information regarding the trademark
licenses, see the Statement of Additional Information.
-2-
<PAGE> 7
PRINCIPAL RISKS
As with any mutual fund, the value of the Fund's investments -- and therefore
the value of the Fund's shares -- may go up or down. And because the value of
your investment in the Fund will fluctuate, there is the risk that you will lose
money. Individual stocks and other equity investments in the Fund - as well as
the stock market as a whole -- could lose value. Individual stocks can lose
value if investors lose confidence in a company's ability to grow or sustain
profits. Investor confidence in stocks, economic developments in the U. S. and
foreign countries, interest rate changes and other factors can also affect the
broader stock market. Typically, stocks are more volatile than bonds.
The Fund is also subject to selection risk, which is the risk that the Fund's
investments, which may not fully replicate the S&P 500, may perform differently
from the securities in S&P 500. The Fund will attempt to be fully invested at
all times and will not hold a significant portion of its assets in cash. The
Fund will generally not attempt to hedge against adverse market movements.
Therefore, the Fund might go down in value more than other mutual funds in the
event of a general market decline. In addition, an index fund has operating and
other expenses while an index does not. As a result, while the Fund will attempt
to track the S&P 500 as closely as possible, it will tend to underperform the
index to some degree over time.
The Fund is a non-diversified fund, which means that it may invest more of its
assets in fewer companies than if it were a diversified fund. By concentrating
more assets in a smaller number of investments, the Fund's risk is increased
because some investments have a greater effect on the Fund's performance. This
helps the Fund's performance when its investments are successful, but also hurts
the Fund's performance when its investments are unsuccessful.
PERFORMANCE
The following bar chart and table present the performance of the Fund. The bar
chart shows the Fund's annual total return. The table shows the Fund's average
annual total return for certain time periods compared to the returns of a
broad-based securities index. The bar chart and table provide some indication of
the risks of investing in the Fund. Remember, however, that past performance
does not guarantee similar results in the future.
Annual Returns - (1) 1/1/99-10/31/99
Local Fund Shares 11.41%
Class Y Shares 11.09%
Class R Shares 10.87%
Best Quarter: 6.72% 2nd qtr of 1999 Worst Quarter: -6.27% 3rd qtr of 1999
(1) These returns are for the Fund's Local Fund Shares Class which is not
offered in this Prospectus. The classes of shares offered by this Prospectus
would have had substantially similar returns because the shares are invested in
the same portfolio of securities, and the annual returns would have only
differed to the extent that the classes do not have the same expenses.
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<PAGE> 8
Average annual returns - as of October 31, 1999
<TABLE>
<CAPTION>
One Year Since Inception(1)
-------- ------------------
<S> <C> <C>
Class A Shares(2) 17.67% 10.90%
Class B Shares(3) 19.85% 13.16%
Institutional Class Shares(4) 24.85% 16.19%
Class Y Shares N/A 24.27%
Class R Shares N/A 24.64%
Local Fund Shares 24.85% 16.21%
S&P 500(*) 24.93% 17.97%
</TABLE>
- ------------------------
(1) The Fund's Local Fund Shares Class began operations July 24, 1998; each of
the Class R and Class Y shares began operations on November 2, 1998.
(2) Performance represents that of Local Fund shares restated to reflect Class A
Shares' maximum sales charge but not its estimated expenses. Had this class
been in existence for the time periods presented, the performance of the
class would have been lower as a result of its additional expenses.
(3) Performance represents that of Local Fund Shares restated to reflect Class B
Shares' contingent deferred sales charge but not its estimated expenses. Had
this class been in existence for the time periods presented, the performance
of the class would have been lower as a result of its additional expenses.
(4) Performance represents that of Local Fund Shares and does not reflect
Institutional Class Shares' estimated expenses.
* The S&P 500 is an unmanaged index of 500 widely held stocks of large U.S.
companies, as described above. These returns do not include the effect of
any sales charges. If sales charges and expenses were deducted, the actual
return of this Index would be lower.
FEES AND EXPENSES
THIS TABLE DESCRIBED THE FEES AND EXPENSES THAT YOU MAY PAY WHEN BUYING AND
HOLDING SHARES OF THE FUND.
<TABLE>
<CAPTION>
Shareholder Fees(1) Class A Shares Class B Shares Institutional
-------------- -------------- -------------
Class Shares
------------
<S> <C> <C> <C>
(paid directly from your investment
Maximum Sales Charge (Load) 5.75%(2) None None
imposed upon purchases
(as a percentage of offering price)
Maximum Deferred Sales Charge None(3) 5.00%(4) None
(Load) imposed on redemptions
(as a percentage of original purchase
price or sale proceeds, as applicable)
Annual Fund Operating Expenses
(deducted from Fund assets)
Management Fees 0.13% 0.13% 0.13%
Distribution and/or Service
(12b-1) Fees 0.25 1.00 None
Other Expenses(5) 0.44 0.19 0.12
Total Annual Fund
Operating Expenses(6) 0.82% 1.32% 0.25%
====
</TABLE>
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<PAGE> 9
(1)If you buy and sell shares through a broker or agent, they may also charge
you a transaction fee.
(2) as the amount of your investment increases, the sales charge imposed on the
purchase of Class A Shares decreases. For more information, see "BUYING, SELLING
AND EXCHANGE FUND SHARES -- Buying Shares -- Class A sales charges."
(3) A contingent deferred sales charge (CDSC) of up to 1% may be imposed on
certain redemptions of Class A shares purchased without a sales charge.
(4) A CDSC ranging from 5% to 1% is charged when you sell Class B shares within
the first six years of purchase. Class B shares are converted to Class A shares
after you have held them for seven years. See "Buying, Selling and Exchanging
Shares - Selling Shares - Contingent deferred sales charge (CDSC) on Class A and
Class B shares."
(5) At least through October 31, 2000, Villanova Mutual Fund Capital Trust
("VMF") has agreed to waive fees or otherwise reimburse expenses for the Fund so
that the Total Annual Operating Expenses will not exceed 0.75% for Class A
shares, 1.25% for Class B shares and 0.23% for Institutional Class shares.
EXAMPLE
THIS EXAMPLE SHOWS WHAT YOU COULD PAY IN EXPENSES OVER TIME. YOU CAN ALSO USE
THIS EXAMPLE TO COMPARE THE COSTS OF THIS FUND WITH OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED AND THEN SELL ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. IT
ASSUMES A 5% RETURN EACH YEAR AND NO CHANGES IN EXPENSES. ALTHOUGH YOUR ACTUAL
COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
1 Year 3 Years 5 years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A Shares $654 $822 $1,004 $1,530
Class B Shares $634 $718 $ 923 $1,389
Institutional Class
Shares $ 26 $ 80 $ 141 $ 318
</TABLE>
You would pay the following expenses on the same investment if you did not sell
your shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------ ------- --------
<S> <C> <C> <C> <C>
Class B Shares $134 $418 $723 $1,389
</TABLE>
-5-
<PAGE> 10
MORE ABOUT THE FUND
The Fund will not attempt to buy or sell securities based on Fund management's
economic, financial or market analysis, but will instead employ a "passive"
investment approach. This means that the Fund's subadviser will attempt to
invest in a portfolio of assets whose performance is expected to match
approximately the performance of the S&P 500 before deduction of Fund expenses.
The Fund will only buy or sell securities when Fund management believes it is
necessary to do so in order to match the performance of the S&P 500.
Accordingly, it is anticipated that the Fund's portfolio turnover and trading
costs will be lower than "actively" managed funds. However, the Fund has costs
operating and other expenses, while the S&P 500 does not. Therefore, the Fund
will tend to underperform the S&P 500 to some degree over time.
The Fund will also invest in short term money market instruments as cash
reserves to maintain liquidity. These instruments may include obligations of the
U.S. Government, its agencies or instrumentalities, highly rated bonds or
comparable unrated bonds, commercial paper, bank obligations and repurchase
agreements. To the extent the Fund invests in short term money market
instruments, it will generally also invest in options, futures or other
derivatives in order to maintain full exposure to the S&P 500. The Fund will not
invest in options, futures, other derivative instruments or short term money
market instruments in order to lessen the Fund's exposure to common stocks as a
defensive strategy, but will instead attempt to remain fully invested at all
times.
The S&P 500 is composed of 500 selected common stocks as determined by Standard
& Poor's, most of which are listed on the New York Stock Exchange. The S&P 500
is generally considered broadly representative of the performance of publicly
traded U.S. larger-capitalization stocks, although a small part of the S&P 500
is made up of foreign companies which have a large presence in the U.S. Standard
& Poor's selects a stock for the S&P 500 based on the index's criteria; it does
not evaluate whether any particular stock is an attractive investment. Standard
& Poor's updates the S&P 500 periodically, at which time there may be
substantial changes in the composition of the index (and consequently,
significant turnover in the Fund).
The Fund may invest in derivative instruments, and will normally invest a
substantial portion of its assets in options and futures contracts linked to the
performance of the S&P 500. Derivatives
-6-
<PAGE> 11
allow the Fund to increase or decrease its exposure to the S&P 500 quickly and
at less cost than buying or selling stocks. The Fund will invest in options and
futures and other derivative instruments in order to gain market exposure
quickly in the event of subscriptions to purchase shares of the Fund, to
maintain liquidity in the event of redemptions and to keep trading costs low. In
connection with the use of derivative instruments, the Fund may enter into short
sales in order to adjust the weightings of particular securities represented in
a derivative to more accurately reflect the securities' weightings in the S&P
500.
INVESTMENT RISKS
This section contains a summary discussion of the general risks of investing in
the Fund. As with any mutual fund, there can be no guarantee that the Fund will
meet its goals or that the Fund's performance will be positive for any period of
time.
STOCK MARKET RISK - Stock market risk is the risk that the stock markets will go
down in value, including the possibility that the markets will go down sharply
and unpredictably. The stock market is affected by numerous factors, including
interest rates, the outlook for corporate profits, the health of the U.S. and
global economies, national and world social and political events, and the
fluctuations of other stock markets around the world. There is also the risk
that large capitalization companies could fall out of favor and investors may
look to other types of investments.
SELECTION RISK - Selection risk is the risk that a Fund's investments, which may
not fully replicate the S&P 500, may perform differently from the securities in
the S&P 500.
DERIVATIVES - Derivatives allow the Fund to increase or decrease its risk
exposure more quickly and efficiently than other types of instruments. The Fund
may use the following types of derivative instruments including:
futures, forwards and options, options on futures, swaps and indexed securities.
Futures are exchange-traded contracts involving the obligation of the seller to
deliver, and the buyer to receive, certain assets (or a money payment based on
the change in value of certain assets or an index) at a specified time. [Inset
Box]
Forwards are private contracts involving the obligation of the seller to
deliver, and the buyer to receive, certain assets (or a money payment based on
the change in value of certain assets or an index) at a specified time. [Inset
Box]
Options are exchange-traded or private contracts involving the right of a holder
to deliver (a "put") or receive (a "call") certain assets (or a money payment
based on the change in value of certain assets or an index) from another party
at a specified price with a specified time period. [Inset Box]
Swaps are private contracts involving the obligation of each party to exchange
specified payments, which may be based on the value of an index or asset, with
the other party at specified times. [Inset Box]
-7-
<PAGE> 12
Indexed securities are debt obligations that return a variable amount of
principal or interest based on the value of an index at a specified time. [Inset
Box]
Derivatives are volatile and involve significant risks, which may include:
LEVERAGE RISK - the risk associated with certain types of investments
or trading strategies (such as borrowing money to increase the amount
of investments) that relatively small market movements may result in
large changes in the value of an investment. Certain investments or
trading strategies that involve leverage can result in losses that
greatly exceed the amount originally invested.
CREDIT RISK - the risk that the counterparty (the party on the other
side of the transaction) on a derivative transaction will be unable to
honor its financial obligation to the Fund.
LIQUIDITY RISK - the risk that certain securities may be difficult or
impossible to sell at the time that the seller would like or at the
price that the seller believes the security is currently worth.
The Fund may use derivatives for anticipatory hedging. Anticipatory hedging is a
strategy in which the Fund uses a derivative to offset the risk that securities
in which the Fund intends to invest will increase in value before the Fund has
an opportunity to purchase the securities. The Fund will use derivatives for
anticipatory hedging in order to gain exposure efficiently to the S&P 500 in the
event the Fund receives cash inflows.
BORROWING AND LEVERAGE - The Fund may borrow for temporary emergency purposes
including to meet redemptions. Borrowing may exaggerate changes in the net asset
value of Fund shares and in the yield on the Fund's portfolio. Borrowing will
cost the Fund interest expense and other fees. The cost of borrowing may reduce
the Fund's return.
Certain securities that the Fund buys may create leverage, including, for
example, options.
SECURITIES LENDING - The Fund may lend securities to financial institutions that
provide cash or government securities as collateral. Securities lending involves
the risk that the borrower may fail to return the securities in a timely manner
or at all. As a result, the Fund may lose money and there may be a delay in
recovering the loaned securities. The Fund could also lose money if it does not
recover the securities and the value of the collateral falls. These events could
trigger adverse tax consequences to the Fund.
SHORT SALES - The Fund may borrow the security sold short to make delivery to
the buyer. The Fund must then replace the security it has borrowed. If the price
of a security sold short goes up between the time of the short sale and the time
the Fund must deliver the security to the lender, the Fund will incur a loss.
The Fund must also pay the lender any interest accrued during the period of the
loan.
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<PAGE> 13
OTHER INVESTMENTS AND INVESTMENT TECHNIQUES
The Statement of Additional Information (SAI) contains additional information
about the Fund, including the Fund's other investments and investment
techniques. To obtain a copy of the SAI, see the back cover.
MANAGEMENT
INVESTMENT ADVISER
Villanova Mutual Fund Capital Trust ("VMF"), Three Nationwide Plaza, Columbus,
Ohio 43215, manages the investment of the assets and supervises the daily
business affairs of the Fund. Subject to the supervision and direction of the
Trustees, VMF allocates Fund assets among subadvisers and evaluates and monitors
the performance of subadvisers. VMF is authorized to select and place portfolio
investments on behalf of the Fund; however, VMF does not intend to do so at this
time. VMF was organized in 1999, and beginning September 1, 1999, it provides
investment advisory services to both Nationwide Mutual Funds and Nationwide
Separate Account Trust. As of September 30, 1999, it had approximately $12.65
billion in assets under management for the mutual funds it advises.
The Fund pays VMF a management fee, which, expressed as a percentage of the
Fund's average daily net assets, is 0.13% annually. The total fee payable by the
Fund for the fiscal year ended October 31, 1999 was waived by VMF.
MULTI-MANAGER STRUCTURE
VMF and Nationwide Mutual Funds (the "Trust") have received from the Securities
and Exchange Commission an exemptive order for a multi-manager structure that
allows VMF to hire, replace or terminate a subadviser without the approval of
shareholders. The order also allows VMF to revise a subadvisory agreement with
Trustee approval but without shareholder approval. If a new subadviser is hired,
shareholders will receive information about the new subadviser within 90 days of
the change. The order allows the Fund to operate more efficiently and with
greater flexibility.
VMF provides the following oversight and evaluation services to the Fund:
o performing initial due diligence on prospective subadvisers for the Fund
o monitoring the performance of the subadvisers through ongoing analysis,
as well as periodic consultations
o communicating performance expectations and evaluations to the subadvisers
o ultimately recommending to the Board of Trustees whether a subadviser's
contract should be renewed, modified or terminated
VMF does not expect to recommend frequent changes of subadvisers. VMF will
periodically provide written reports to the Board of Trustees regarding the
results of its evaluation and monitoring functions. Although VMF will monitor
the performance of the subadvisers, there is no certainty that any subadviser or
the Fund will obtain favorable results at any given time.
-9-
<PAGE> 14
THE SUBADVISER
Subject to the supervisions of VMF and the Trustees, a subadviser will manage
the Fund's assets in accordance with the Fund's investment objective and
strategies. The subadviser makes investment decisions for the Fund and, in
connection with such investment decisions, places purchase and sell orders for
securities.
Since December 29, 1999, Fund Asset Management, L.P., P.O. Box 9011, Princeton,
New Jersey 08543-9011, has been managing the Fund's investments and has the
responsibility for making all investment decisions for the Fund.
Fund Asset Management is a wholly owned indirect subsidiary of Merrill Lynch &
Co., Inc. and is part of the Merrill Lynch Asset Management Group, which had
approximately $520 billion in investment company and other portfolio assets
under management as of August 1999. This amount includes assets managed for
Merrill Lynch affiliates.
From the time the Fund began operations until December 29, 1999, The Dreyfus
Corporation, a wholly owned, indirect subsidiary of Mellon Bank Corporation,
served as the Fund's subadviser.
BUYING, SELLING AND EXCHANGING FUND SHARES
In this section, "we" and "our" refer to Nationwide Advisory Services, Inc.
("NAS"), as distributor of the Fund's shares. "You" and "your" mean potential
investors and current shareholders.
CHOOSING A SHARE CLASS
As noted in the Fund Summary, we offer three different share classes to give
investors different price and cost options. Class A and Class B shares of the
Fund are available to all investors; Institutional Class shares are available to
a limited group of institutional investors, such as certain funds of funds
offered by NAS.
With Class A shares, you pay a sales charge (known as a front-end sales charge)
when you purchase the shares. With Class B shares, you pay a sales charge (known
as a contingent deferred sales charge or CDSC) if you sell your shares within
six years after purchase. There is no such charge on Service Class shares.
Class A and Class B shares pay distribution and/or service fees under a
Distribution Plan. These fees are paid to brokers for distribution and
shareholder services. Class A and Class B shares also pay an administrative
service fee. These fees are paid to brokers and other entities that provide
administrative support services to the beneficial owners of the shares.
If you want lower annual fund expenses, Class A shares may be right for you,
particularly if you qualify for a reduction or waiver of sales charges. If you
do not want to pay an up-front sales charge, and you anticipate holding your
shares for the long term, Class B shares may be more appropriate. NAS reserves
the right to reject an order in excess of $100,000 for Class B shares
-10-
<PAGE> 15
and an order for Class B shares for Individual Retirement Accounts ("IRA
accounts") for shareholders 70 1/2 years old and older. When choosing a share
class, consider the following:
<TABLE>
<CAPTION>
Class A shares Class B shares
- -------------------------------------------------------------------------------------------------
<S> <C>
Front-end sales charge means that a portion No front-end sales charge, so your full
of your initial investment goes toward the sales investment immediately goes toward
charge, and is not invested buying shares
- -------------------------------------------------------------------------------------------------
Reductions and waivers of the sales charges No reductions of the contingent deferred
available sales charge available, but waivers
available
- -------------------------------------------------------------------------------------------------
Lower expenses than Class B shares means Higher distribution and service fees than
higher dividends per share Class A shares mean lower
dividends per share
- -------------------------------------------------------------------------------------------------
Conversion features are not applicable After seven years, Class B shares convert
into Class A shares, which reduces your
future fund expenses
- -------------------------------------------------------------------------------------------------
No sales charges when shares are sold Contingent deferred sales charges (CDSC)
back to the Fund* if shares sold within six years: 5% in the
first year, 4% in the second, 3% in the
third and fourth years, 2% in the fifth, and
1% in the sixth year
</TABLE>
- ----------
*A CDSC of up to 1% may be charged on certain redemptions of Class A shares
purchased without a sales charge.
For investors who are eligible to purchase Institutional Class shares,
the purchase of Institutional Class shares will be preferable to purchasing
Class A or Class B Shares.
WHO CAN BUY INSTITUTIONAL CLASS SHARES
The Institutional Class shares are available for purchase only by the following:
o retirement plans introduced by persons not associated with brokers or
dealers that are primarily engaged in the retail securities business and
rollover individual retirement accounts from such plans
o tax-exempt employee benefit plans of VMF, the Fund's investment adviser,
or its affiliates and securities dealer firms with selling agreements
with NAS
o institutional advisory accounts of VMF, or its affiliates and those having
client relationships with an affiliate of VMF, or its affiliates and
their corporate sponsors, as well as subsidiaries and related employee
benefit plans and rollover individual retirement accounts from such
institutional advisory accounts
o a bank, trust company or similar financial institution investing for its
own account or for the account of its trust customers for whom such
financial institution is exercising investment discretion in purchasing
Institutional Class shares, except where the investment is part of a
program that requires payment to the financial institution of a Rule
12b-1 Plan or Administrative Service fee
o registered investment advisers investing on behalf of institutions and
high net-worth individuals entrusted to the adviser for investment
purposes, but only if the adviser is not affiliated or associated with a
broker or dealer and derives compensation for its services exclusively
from its clients for such advisory services
o investments of at least $50,000
-11-
<PAGE> 16
BUYING SHARES
PURCHASE PRICE
The purchase or "offering" price of each share of the Fund is its "net asset
value" or NAV next determined after the order is received, plus any applicable
sales charge. A separate NAV is calculated for each class of the Fund. The NAV
for a class is determined by dividing the total market value of the securities
owned by the Fund, less liabilities, allocable to a class by the total number of
that class' outstanding shares. NAV is determined at the earlier of the close of
regular trading on the New York Stock Exchange or 4:00 p.m. Eastern Time on each
day the Exchange is open for trading.
MINIMUM INVESTMENTS - CLASS A AND CLASS B SHARES
<TABLE>
<S> <C>
To open an account (per Fund) $1000
Through the Automatic Asset $ 25
Accumulation plan
per transaction
Additional investments $ 100
(per Fund)
</TABLE>
If you purchase Class A or Class B shares through an account at a broker (other
than NAS), different minimum account requirements may apply. These minimum
investment requirements for Class A shares do not apply to certain retirement
plans. Call 1-800-848-0920 for more information.
The Fund does not calculate NAV on the following days:
o Christmas Day
o New Year's Day
o Martin Luther King, Jr. Day
o Presidents' Day
o Good Friday
o Memorial Day
-12-
<PAGE> 17
o Independence Day
o Labor Day
o Thanksgiving Day
o Other days when the New York Stock Exchange is not open.
The Fund reserves the right not to determine an NAV when:
o We have not received any orders to purchase, sell or exchange shares
o Changes in the value of the Fund's portfolio do not affect the NAV.
CLASS A SALES CHARGES
The charts below show the Class A sales charges, which decrease as the amount of
your investment increases.
<TABLE>
<CAPTION>
Amount of purchase Sales charge as % Sales charge as %
of offering price of amount invested
- ---------------------------------- ------------------------ --------------------------
<S> <C> <C>
Less than $50,000 5.75% 6.10%
$50,000 to $99,999 4.50 4.71
$100,000 to $249,999 3.50 3.63
$250,000 to $499,999 2.50 2.56
$500,000 to $999,999 2.00 2.04
$1 million to $24,999,999 0.50 0.50
$25 million or more 0.25 0.25
- ---------------------------------- ------------------------ --------------------------
</TABLE>
REDUCTION AND WAIVER OF CLASS A SALES CHARGES
Shareholders can reduce or eliminate Class A shares initial sales charge through
one or more of the discounts described below:
o Increase the amount of your investment. The preceding table shows how
the sales charge decreases as the amount of your investment increases.
o Family Member Discount. Members of your family who live at the same
address can combine investments, possibly reducing the sales charge.
o Lifetime Additional Discount. You can add the value of any of the
Nationwide Mutual Funds Class A shares you already own with the value
of the shares you are purchasing, which may reduce the applicable sales
charge.
o Insurance Proceeds or Benefits Discount Privilege. If you use the
proceeds of an insurance policy issued by any member of the Nationwide
Insurance Enterprise to purchase Class A shares, you will pay one-half
of the published sales charge if you make your investment 60 days after
receiving the proceeds.
-13-
<PAGE> 18
o No sales charge on a repurchase. If you sell shares from your
Nationwide account, we allow you a one-time privilege to reinvest some
or all of the proceeds in shares of the same class. You will not pay a
sales charge on Class A shares that you buy within 30 days of selling
Class A shares of an equal or lesser amount if you have already paid a
sales charge. Remember, if you realize a gain or a loss on your sale of
shares, the transaction is taxable and reinvestment will not affect the
amount of capital gains tax that is due. If you realize a loss on your
sale and your reinvest, some or all of the loss may not be allowed as a
tax deduction depending on the amount you reinvest.
o Letter of Intent Discount. State in writing that during a 13-month
period you or a group of family members who live at the same address
will purchase or hold at least $50,000 in Class A shares and your sales
charge will be based on the total amount you intend to invest. The
letter may be backdated up to 90 days to include previous purchases for
determining your sales charge. Your Letter of Intent is not a binding
obligation to buy shares of a Fund; it is merely a statement of intent.
Call 1-800-0920 for more information.
WAIVER OF CLASS A SALES CHARGES
The Class A sales charges will be waived for purchases made by the following:
o Any person purchasing through an account with an unaffiliated brokerage
firm that has an agreement with NAS to waive sales charges for those
persons;
o Directors, officers, full-time employees, sales representatives and
their employees or any investment advisory clients of a broker-dealer
having a dealer/selling agreement with NAS;
o Any person who pays for the shares with the proceeds of mutual fund
shares sold from an NAS brokerage account. To qualify, you must have
paid an initial sales charge on the shares sold. You must purchase the
Class A shares within 60 days of the sale, and you must request the
waiver when you purchase the Class A shares (NAS may require evidence
that you qualify for this waiver);
o Employer-sponsored retirement plans, including pension, profit sharing
or deferred compensation plans which are qualified under sections
401(a), 403(b) or 457 of the Internal Revenue Code;
o Trustees and retired Trustees of Nationwide Mutual Funds (including its
predecessor Trusts);
o Directors, officers, full-time employees, sales representatives and
their employees, and retired directors, officers, employees, and sales
representatives, their spouses, children or immediate relatives
(including mother, father, brothers, sisters, grandparents and
grandchildren) and immediate relatives of deceased employees of any
member of Nationwide Insurance and Nationwide Financial Companies, or
any investment advisory clients of VMF, Villanova SA Capital Trust
("VSA"), NAS and their affiliates;
o Directors, officers, full-time employees, their spouses, children or
immediate relatives and immediate relatives of deceased employees of
any sponsor group which may be affiliated
-14-
<PAGE> 19
with the Nationwide Insurance Enterprise from time to time, (including
but not limited to, Farmland Insurance Industries, Inc., Maryland Farm
Bureau, Inc., Ohio Farm Bureau Federation, Inc., Pennsylvania Farmers'
Association, Ruralite Services, Inc., and Southern States Cooperative).
Additional investors eligible for sales charge waivers may be found in the
Statement of Additional Information.
CONVERSION OF CLASS B SHARES
After you have held your Class B shares for seven years, we will automatically
convert them into Class A shares (without charge), which carry the lower 12b-1
fee. We will also convert any Class B shares that you purchased with reinvested
dividends and other distributions for those shares at that time. Remember,
because the NAV of Class A shares is usually higher than the NAV of Class B
shares, you may receive fewer Class A shares than the number of Class B shares
converted, but the total dollar value will be the same. We do the conversion on
the first business day of the month following the seventh anniversary of the
date of your purchase.
HOW TO PLACE YOUR PURCHASE ORDER
If you wish to purchase shares, you may purchase the shares using one of the
methods below. Eligible entities wishing to purchase Institutional Class shares
should contact Nationwide Advisory Services, Inc. at 1-800-848-0920 for
information regarding such purchases.
BY MAIL - Complete and mail the application with a check or money order made
payable to; Nationwide Advisory Services, Inc., Three Nationwide Plaza, P.O. Box
1492, Columbus, Ohio 43216-1492. Payment must be made in U.S.
dollars only and drawn on a U.S. bank. NAS will not accept third-party checks.
BY WIRE - 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 4 p.m. Eastern Standard Time, and the wire must be received by the
custodian bank by the close of business on the day you placed your order or your
order will be cancelled. You may be liable for any loss to the Funds resulting
from the cancellation. Your bank may charge a fee to wire funds. If you choose
this method to open your account, you must call our toll-free number before you
wire your investment, and you must then complete and fax the application.
BY TELEPHONE (NAS NOW) - Call 1-800-637-0012, our automated voice-response
system, 24 hours a day, seven days a week, for easy access to mutual fund
information. You can choose from a menu of choices to conduct transactions and
hear fund price information, mailing and wiring instructions and other mutual
fund information. You must complete the appropriate section of the application
to use NAS NOW to make purchases.
THROUGH AN AUTHORIZED BROKER - NAS has relationships with certain brokers who
are authorized to accept, or designate intermediaries to accept, purchase and
redemption orders for the Fund. If you purchase through such a broker, your
order will be priced at the NAV next
-15-
<PAGE> 20
determined after your broker or its designated intermediary accepts it. Contact
your broker to determine whether it has an established relationship with NAS.
BY ON-LINE ACCESS-Log on to our website http://www.nationwidefunds.com 24 hours
a day, seven days a week, for easy access to your mutual fund accounts. Once you
have reached the website, you will be instructed on how to select a password and
perform transactions. You can choose to receive information on all of our funds
as well as your own personal accounts. You may also perform transactions, such
as purchases, redemptions and exchanges. The Funds may terminate the ability to
buy Fund shares on its website at any time, in which case you may continue to
buy shares by mail, wire or telephone pursuant to the Prospectus.
ADDITIONAL SHAREHOLDER SERVICES
Shareholders are entitled to a wide variety of services by contacting:
NAS NOW 1-800-637-0012
Our customized voice-response system, available 24 hours a day, seven days a
week
NATIONWIDE CUSTOMER SERVICE 1-800-848-0920
Representatives are available to answer questions between 8 a.m. and 5 p.m.
Eastern Standard Time
For additional information on buying shares and shareholder services, call our
customer service number or contact your Nationwide representative.
SELLING SHARES
You can sell - also known as redeeming - your shares of the Fund at any time,
subject to certain restrictions. The price you will receive when you sell your
shares will be the NAV (less any applicable sales charges) next determined after
NAS receives your properly completed order to sell in its offices in Columbus,
Ohio. Of course, the value of the shares you sell depends upon the market value
of the investments of the Fund at the time of the sale, and the value may be
more or less than you paid for the shares.
- --------------------------------------------------------------------------------
Properly completed orders contain all necessary paperwork to authorize and
complete the transaction. NAS may require all account holder signatures,
updated account registration and bank account information and depending on
circumstances, a signature guarantee.
- --------------------------------------------------------------------------------
Your order to sell shares can be made in writing or by telephone (if you
authorized telephone transactions on your application). Generally, we will pay
you for the shares that you sell within three days after receiving your order to
sell. Payment for shares you recently purchased by check may be delayed until
the check clears, which may take up to 12 calendar days from the date of your
purchase.
RESTRICTIONS ON SALES
-16-
<PAGE> 21
You may not be able to sell your shares of the Fund or we may delay paying you
the proceeds from a sale when the New York Stock Exchange is closed (other than
customary weekend and holiday closings) or if trading is restricted or if an
emergency exists.
SIGNATURE GUARANTEE - CLASS A AND CLASS B SHARES
A signature guarantee is required under the following circumstances:
- if a redemption is over $100,000,
- if your account registration has changed within the last 30 days,
- if the redemption check is made payable to anyone other than the
registered shareholder,
if the proceeds are sent to a bank account not previously designated or
changed within the past 30 days, or
- if the proceeds are mailed to an address other than the address of record
NAS reserves the right to require a signature guarantee in other circumstances,
without notice
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON CLASS A AND CLASS B SHARES
You must pay a CDSC if you sell Class B shares within six years of purchase,
unless you are entitled to a waiver. The sales charge applies if your sale
causes the value of your account to fall below the total amount of all purchases
you made during the preceding six years. The sales charge is applied to your
original purchase price, or the current market value of the shares being sold,
whichever is less. The amount of the sales charge will decrease as illustrated
in the following chart:
<TABLE>
<CAPTION>
Sale within 1 year 2 years 3 years 4 years 5 years 6 years 7 years or more
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Charge 5% 4% 3% 3% 2% 1% 0%
</TABLE>
All purchases during the month are grouped together and will be treated as if
made on the last day of the preceding month.
We do not impose a CDSC on Class B shares purchased through reinvested dividends
and distributions. If you sell your Class B shares and reinvest the proceeds in
Class B shares within 30 days, NAS will deposit an amount equal to any CDSC you
paid into your account. We will also waive the CDSC if you sell shares following
the death or disability of a shareholder, provided the sale occurs within one
year of the shareholder's death or a determination of disability and for
mandatory withdrawals from IRA accounts after age 70 1/2 years. For more
information, see the Statement of Additional Information.
Under certain circumstances, employer-sponsored retirement plans investing
without a sales charge (other than those investing in the Fund through variable
insurance products) may be charged a CDSC if shares are redeemed within three
years after purchase. The CDSC will be 1% for the first year, 0.50% for the
second year and 0.25% for the third year.
Under certain circumstances, employer-sponsored retirement plans investing in
Class A shares without a sales charge (other than those investing in the Fund
through variable insurance
-17-
<PAGE> 22
products) may be charged a CDSC if shares are redeemed within three years after
purchase. The CDSC will be 1% for the first year, 0.50% for the second year and
0.25% for the third year.
HOW TO PLACE YOUR SALE ORDER
You can request the sale of your shares in any of the ways below. A signature
guarantee may be required under certain circumstances. Please refer back to
"Signature Guarantee" on page ____. Eligible entities wishing to purchase
Institutional Class shares should contact Nationwide Advisory Services, Inc. at
1-800-848-0920 for information regarding such purchases.
BY TELEPHONE (NAS NOW) - Calling 1-800-637-0012 connects you to our automated
voice-response system, available 24 hours a day, seven days a week, for easy
access to mutual fund information. You can sell shares and have the check mailed
to your address of record, unless you declined this option on your application.
Only the following types of accounts can use NAS NOW to sell shares: Individual,
Joint, Transfer on Death, Trust, and Uniform Gift/Transfer to Minor accounts.
You can call 1-800-637-0012 after 7 p.m. Eastern Standard Time to learn the
day's closing share price.
-18-
<PAGE> 23
CAPITAL GAINS TAXES
- --------------------------------------------------------------------------------
If you sell Fund shares for more than you paid for them, you may have capital
gains, which are subject to federal (and in some cases, state) income tax. For
more information, see "Distributions and Taxes - Selling Fund Shares."
- --------------------------------------------------------------------------------
CUSTOMER SERVICE LINE - Unless you declined the telephone redemption privilege
on your application you can call and request a check payable to the shareholder
of record be mailed to the address of record. NAS can wire the funds directly to
your account at a commercial bank (a voided check must be attached to your
application) unless you declined this option on your application. (This
authorization will remain in effect until you give NAS written notice of its
termination.) You can sell shares of your IRA by telephone if we receive the
proper forms. The distribution from an IRA will be subject to a mandatory 10%
federal withholding tax, unless you inform us in writing not to withhold taxes.
For additional information or to request the forms, please call the customer
service line at 1-800-848-0920. The Fund will use procedures to confirm that
telephone instructions are genuine. If the Fund acts on instructions it
reasonably believed were genuine, it will not be liable for any loss, injury,
damage or expense that occurs as a result, and the Fund will be held harmless
for any loss, claims or liability arising from its compliance with the
instructions. NAS may record telephone instructions to sell shares. The Fund
reserves the right to revoke this privilege at any time, without notice to
shareholders, and to request the sale in writing, signed by all shareholders on
the account.
BY BANK WIRE - Your funds will be wired to your bank on the next business day
after your order to sell shares has been processed. We will deduct a $20 fee
from the proceeds of your sale for this service. Your financial institution may
also charge you a fee for receiving the wire. Funds sent outside the U.S. may be
subject to a higher fee.
BY AUTOMATED CLEARINGHOUSE ("ACH") - Your funds can be sent to your bank via ACH
on the second business day after your order to sell has been received by NAS.
Funds sent through ACH should reach your bank in two business days. There is no
fee for this service. (This authorization will remain in effect until you give
NAS written notice of its termination.)
BY MAIL OR FAX (No minimum) - Write a letter to Nationwide Advisory Services,
Inc., Three Nationwide Plaza, P.O. Box 1492, Columbus, Ohio 43216-1492 or fax it
to 614-249-8705. Please be sure your letter is signed by all account owners. Be
sure to include your account number and the Fund from which you wish to make a
redemption. For a distribution from an IRA, you must include your date of birth
and indicate whether or not you want NAS to withhold federal income tax from
your proceeds. Your sale of shares will be processed on the date NAS receives
your signed letter or fax. If your fax is received after 4 p.m. Eastern Standard
Time, it will be processed the next business day. NAS reserves the right to
require the original document
-19-
<PAGE> 24
if you fax your letter.
THROUGH AN AUTHORIZED BROKER - NAS has relationships with certain brokers who
are authorized to accept, or designate intermediaries to accept, purchase and
redemption orders for the Fund. If you have an account with such a broker, your
redemption order will be priced at the NAV next determined after your order has
been accepted by your broker or its designated intermediary. Your broker or
financial intermediary may charge a fee for this service.
BY ON-LINE ACCESS- Log on to our website http://www.nationwidefunds.com 24 hours
a day, seven days a week, for easy access to your mutual fund accounts. Once you
have reached the website, you will be instructed on how to select a password and
perform transactions. You can choose to receive information on all of our funds
as well as your own personal accounts. You may also perform transactions, such
as purchases, redemptions and exchanges. The Funds may terminate the ability to
buy Fund shares on its website at any time, in which case you may continue to
buy shares by mail, wire or telephone pursuant to the Prospectus.
ACCOUNTS WITH LOW BALANCES - CLASS A AND CLASS B SHARES
We may sell the rest of your shares and close your account if you make a sale
that reduces the value of your account to less than $250. Before the account is
closed, we will give you notice and allow you 90 days to purchase additional
shares to avoid this action. We do this because of the high cost of maintaining
small accounts. This does not apply to Automatic Asset Accumulation accounts.
For additional information on selling your shares, call our customer service
line at 1-800-848-0920 or see your Nationwide representative.
DISTRIBUTION PLAN
In addition to the sales charges which you may pay for Class A and Class B
shares, the Trust has adopted a Distribution Plan under Rule 12b-1 of the
Investment Company Act, which permits the Fund to compensate NAS - as
distributor - for expenses associated with distributing its shares and providing
shareholder services.
Under the Distribution Plan, Class A and Class B shares of the Fund pays NAS
compensation accrued daily and paid monthly. Class A shares pay an amount not
exceeding, on an annual basis, 0.25% of the Class A shares' average daily net
assets. Class B shares of the Fund pay an amount not exceeding, on an annual
basis, 1.00% of the Class B shares' average daily net assets. Because these fees
are paid out of the Fund's assets on an ongoing basis, over time these fees will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
-20-
<PAGE> 25
EXCHANGING SHARES
You can exchange the shares you own for shares of another fund within Nationwide
Mutual Funds (except the Morley Capital Accumulation Fund) as long as they are
the same class of shares, both accounts have the same owner, and your first
purchase in the new fund meets the fund's minimum investment requirement. For
example, you can not exchange Class A shares for Class B shares.
There is no sales charge for exchanges of Class A shares or Institutional Class
shares. If you exchange Prime Shares of the Nationwide Money Market Fund into
another fund, you must pay the applicable sales charge, unless it has already
been paid. If you exchange Class B shares for Prime Shares of the Nationwide
Money Market Fund, the time you hold the shares in the Money Market Fund will
not be counted for purposes of calculating any CDSC. If you then sell your Prime
Shares of the Money Market Fund, you will pay the sales charge that would have
been charged if the shares had been sold at the time they were exchanged into
the Money Market Fund. If you exchange your Prime Shares of the Money Market
Fund back into Class B shares, the time you hold Class B shares prior to the
exchange will be counted for purposes of calculating the CDSC.
CAPITAL GAINS TAXES
Exchanging shares is considered a sale and purchase of shares for federal and
state income tax purposes. Therefore, if the shares you exchange are worth more
than you paid for the, you my have to pay federal and/or state income taxes. For
more information, see "Distribution and Taxes - Exchanging Fund Shares."
HOW TO PLACE YOUR EXCHANGE ORDER
You can request an exchange of shares in writing, by fax, by phone or by on-line
access (see "Buying Shares - How to place your purchase order" or the back cover
for contact information). If you make your request in writing, please be sure
all account owners sign the letter Your exchange will processed on the date NAS
receives your signed letter or fax. If your fax is received after 4 p.m. Eastern
Standard Time, it will be processed the next day. If you fax your request, we
reserve the right to ask for the original. You can automatically request an
exchange 24 hours a day, seven days a week, by calling NAS NOW, our automated
voice-response system or on our website. You will have automatic exchange
privileges unless you request not to on your application. The Trust reserves the
right to amend or discontinue these exchange privileges upon 60 days written
notice to shareholders.
EXCESSIVE TRADING
The Trust reserves the right to reject any exchange request it believes will
increase transaction costs, or otherwise adversely affect other shareholders.
Specifically, exchange activity may be limited to ____ exchanges within a one
year period. The Fund may delay forwarding redemption proceeds for up to seven
days if the investor redeeming shares is engaged in excessive trading, or if the
amount of the redemption request otherwise would be disruptive to efficient
portfolio management, or would adversely affect the Fund.
-21-
<PAGE> 26
YEAR 2000 [MAY BE DELETED AFTER 1/1/00.]
VMF, VSA and NAS have developed and implemented a plan to address issues related
to the Year 2000. The problem relates to many existing computer systems using
only two digits to identify a year in a date field. These systems were designed
and developed without considering the impact of the upcoming change in the
century. If not corrected, many computer systems could fail or create erroneous
results when processing information dated after December 31, 1999. VMF, VSA and
NAS have completed an inventory and assessment of all computer systems and have
implemented a plan to renovate or replace all applications that were identified
as not Year 2000 compliant. VMF, VSA and NAS have also tested each application
for its Year 2000 compliance.
Systems supporting the Fund's infrastructure, such as telecommunications, voice
and networks, have also been tested, renovated or replaced, and are compliant.
VMF's, VSA's and NAS' assessment of Year 2000 issues has included
non-information technology systems with embedded computer chips. VMF's, VSA's
and NAS' building systems such as fire, security, elevators and escalators
supporting facilities in Columbus, Ohio, have been tested and are Year 2000
compliant.
In addition to resolving internal 2000 readiness issues, VMF, VSA and NAS are
surveying significant external organizations (business partners) to assess if
they will be Year 2000 compliant. VMF, VSA, and NAS continue their efforts to
identify external risk factors and have developed contingency plans as part of
their ongoing risk-management strategy.
DISTRIBUTIONS AND TAXES
The following information is provided to help you understand the income and
capital gains you can earn from owning Fund shares, as well as the federal taxes
you may have to pay on this income. For up-to-date tax advice, please speak with
your tax adviser. In this section, "we" and "our" refer to "NAS". "You" and
"your" mean shareholders and potential investors.
DISTRIBUTIONS OF INCOME DIVIDENDS
The Fund distributes any available income dividends to shareholders at least
quarterly. Income dividends are taxable to you as ordinary income for federal
income tax purposes, unless you hold your shares in a qualified tax-deferred
plan or account, or are otherwise not subject to federal income tax. The amount
of income dividends distributed to you will be reported in a Form 1099, which we
will send to you during the tax season each year (unless you hold your shares in
a qualified tax-deferred plan or account). For corporate shareholders, a portion
of each year's distributions may be eligible for the corporate dividend-received
deduction.
-22-
<PAGE> 27
DISTRIBUTIONS OF CAPITAL GAINS
If the Fund has net realized capital gains at the end of the calendar year
(meaning the gains from sales of securities exceed any losses from sales), it
will distribute this capital gain to shareholders annually. You must pay federal
income taxes on any capital gains distributed to you, unless you hold your
shares in a qualified tax-deferred plan or account or are otherwise not subject
to federal income tax. On Form 1099, we will report the amount of net short-term
capital gains and net long-term capital gains distributed to you during the
year. Currently, for individuals, long-term capital gains are taxed at a maximum
rate of 20%; short-term capital gains are taxed as ordinary income, such as
interest or dividends. For the current capital gains tax rates, speak with your
tax adviser.
REINVESTING DISTRIBUTIONS
All income and capital gains distributions will be reinvested in shares of the
Fund. You may request a payment in cash if distributions are in excess of $5.
You are subject to tax on reinvested distributions. If distribution checks (1)
are returned and marked as "undeliverable" or (2) remain uncashed for six
months, your account will be changed automatically so that all future
distributions are reinvested in your account. Checks that remain uncashed for
six months will be canceled and the money reinvested in the Fund as of the
cancellation date. No interest is paid during the time the check is outstanding.
You may be subject to federal backup withholding at a rate of 31% of each
distribution unless you certify that the taxpayer identification number you gave
us is correct, and that you are not subject to withholding. (We will, however,
withhold taxes if the Internal Revenue Service notifies us that such
certificates are not accurate, or as may otherwise be required under the
Internal Revenue Code.)
CHANGING YOUR DISTRIBUTION OPTION
If you want to change your distribution option, you must notify us by the record
date for a dividend or distribution in order for it to be effective for that
dividend or distribution.
STATE AND LOCAL TAXES
Distributions may be subject to state and local taxes, even if not subject to
federal income taxes. State and local tax laws vary; please consult your tax
adviser.
SELLING FUND SHARES
Selling Fund shares for more than you paid for them gives you a capital gain,
which is subject to federal income tax. The amount of tax depends on how long
you held your shares. For individuals, long-term capital gains are currently
taxed at a maximum rate of 20%; and short-term capital gains are taxed as
ordinary income, such as interest or dividends. Capital gains from your sale of
Fund shares is not reported on Form 1099; you or your tax adviser should keep
track
-23-
<PAGE> 28
of your purchases, sales, and any resulting gain or loss. If you do sell Fund
shares for a loss, you may be able to use this capital loss to offset any
capital gains you have.
EXCHANGING FUND SHARES
Exchanging your shares of the Fund for another fund is considered a sale for
income tax purposes. Therefore, if the shares you exchange are worth more than
you paid for them, you have capital gains, which are subject to the federal
income taxes described above. If you exchange Fund shares for a loss, you may be
able to use this capital loss to offset any capital gains you have.
-24-
<PAGE> 29
[BACK COVER]
INFORMATION FROM NATIONWIDE
Please read this Prospectus before you invest, and keep it with your records.
The following document contains additional information about the Fund. To obtain
a document free of charge, contact us at the address or number listed below.
o Statement of Additional Information (SAI) (incorporated by reference into
this Prospectus)
o Annual Report
o Semi-Annual Report
FOR ADDITIONAL INFORMATION CONTACT:
Nationwide Advisory Services, Inc.
P.O. Box 1492
Three Nationwide Plaza
Columbus, OH 43216-1492
(614) 249-8705 (fax)
FOR INFORMATION, ASSISTANCE AND WIRE ORDERS:
1-800-848-0920 (toll free, 8 a.m. - 5 p.m. Eastern Standard Time)
FOR 24-HOUR ACCOUNT ACCESS:
1-800-637-0012 (toll free)
Also, visit the Nationwide Funds Web site at www.nationwidefunds.com
INFORMATION FROM THE SECURITIES AND EXCHANGE COMMISSION
You can obtain copies of the Fund's documents from the SEC as follows:
IN PERSON:
Public Reference Room in Washington, D.C. (for their hours of operation, call
1-(202) 942-8090)
BY MAIL:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-6009
(The SEC charges a fee to copy any documents.)
ON THE EDGAR DATABASE VIA THE INTERNET:
http://www.sec.gov
BY ELECTRONIC REQUEST:
[email protected]
Investment Company Act File No. 811-08495
Nationwide Mutual Funds
Three Nationwide Plaza
Columbus, Ohio 43215-2220
-25-
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***
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STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 29, 1999
NATIONWIDE MUTUAL FUNDS
NATIONWIDE S & P 500 INDEX FUND
(CLASS A, B AND INSTITUTIONAL CLASS SHARES ONLY)
Nationwide Mutual Funds (the "Trust") is a registered open-end
investment company consisting of 24 series as of the date hereof. This Statement
of Additional Information relates to only the Class A, B and Institutional Class
Shares of the Nationwide S&P 500 Index Fund of the Trust (the "Fund").
This Statement of Additional Information is not a prospectus but the
Statement of Additional Information is incorporated by reference into the
Prospectus for the Class A, B and Institutional Class Shares of the Fund. It
contains information in addition to and more detailed than that set forth in the
Prospectus dated December 29, 1999, and should be read in conjunction with the
Prospectus. Terms not defined in this Statement of Additional Information have
the meanings assigned to them in the Prospectus. The Prospectus may be obtained
from Nationwide Advisory Services, Inc., P.O. Box 1492, Three Nationwide Plaza,
Columbus, Ohio 43216-1492, or by calling toll free 1-800-848-0920.
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<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
- ----------------- ----
<S> <C>
General Information and History.......................................................1
Additional Information on Portfolio Instruments and Investment Policies...............1
Investment Restrictions..............................................................15
Trustees and Officers of the Trust...................................................17
Investment Advisory and Other Services...............................................20
Brokerage Allocation.................................................................36
Additional Information on Purchases and Sales........................................38
Valuation of Shares..................................................................43
Investor Strategies..................................................................44
Investor Privileges..................................................................45
Investor Services....................................................................48
Fund Performance Advertising.........................................................49
Additional Information...............................................................50
Additional General Tax Information...................................................52
Major Shareholders...................................................................55
Financial Statements.................................................................55
Appendix A - Bond Ratings............................................................56
</TABLE>
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GENERAL INFORMATION AND HISTORY
Nationwide Mutual Funds (the "Trust"), formerly Nationwide Investing
Foundation III, is an open-end management investment company organized under the
laws of Ohio by a Declaration of Trust, dated as of October 30, 1997, as
subsequently amended. The Trust currently offers shares in twenty-four (_24___)
separate series, each with its own investment objective. This Statement of
Additional Information relates to the S&P 500 Index Fund, one series of the
Trust, which is a non-diversified fund as defined in the Investment Company Act
of 1940.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES
The Fund invests in a variety of securities and employs a number of
investment techniques that involve certain risks. The Prospectus for the Fund
highlights the principal investment strategies, investment techniques and risks.
The following provides additional information concerning permissible investments
and techniques for the Fund.
INVESTMENTS IN INDEXES
About Indexing. The Fund is not managed according to traditional
methods of "active" investment management, which involve the buying and selling
of securities based upon economic, financial, and market analyses and investment
judgment. Instead, the Fund, utilizing essentially a "passive" or "indexing"
investment approach, seeks to replicate, before the Fund's expenses (which can
be expected to reduce the total return of the Fund), the total return of the S&P
500.
Indexing and Managing the Fund. The Fund will be substantially invested
in securities in the S&P 500, and will invest at least 80% of its assets in
securities or other financial instruments which are contained in or correlated
with securities in the S&P 500.
Because the Fund seeks to replicate the total return of the S&P 500,
generally the Fund's subadviser will not attempt to judge the merits of any
particular security as an investment but will seek only to replicate the total
return of the securities in the relevant index. However, the subadviser may omit
or remove a security which is included in an index from the portfolio of the
Fund if, following objective criteria, the subadviser judges the security to be
insufficiently liquid or believes the merit of the investment has been
substantially impaired by extraordinary events or financial conditions.
The subadviser may acquire certain financial instruments based upon
individual securities or based upon or consisting of one or more baskets of
securities (which basket may be based upon a target index). Certain of these
instruments may represent an indirect ownership interest in such securities or
baskets. Others may provide for the payment to the Fund or by the Fund of
amounts based upon the performance (positive, negative or both) of a particular
security or basket. The subadviser will select such instruments when it believes
that the use of the instrument will correlate substantially with the expected
total return of a target security or index. In connection with the use
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of such instruments, the subadviser may enter into short sales in an effort to
adjust the weightings of particular securities represented in the basket to more
accurately reflect such securities, weightings in the target index.
The ability of the Fund to satisfy its investment objective depends to
some extent on the subadviser's ability to manage cash flow (primarily from
purchases and redemptions and distributions from the Fund's investments). The
subadviser will make investment changes to the Fund's portfolio to accommodate
cash flow while continuing to seek to replicate the total return of the S&P 500.
Investors should also be aware that the investment performance of each index is
a hypothetical number which does not take into account brokerage commissions and
other transaction costs, custody and other costs of investing, and any
incremental operating costs (e.g., transfer agency, accounting) that will be
borne by the Fund. Finally, since the Fund seeks to replicate the total return
of its target index, the subadviser generally will not attempt to judge the
merits of any particular security as an investment.
The Fund's ability to replicate the total return of its respective
index may be affected by, among other things, transaction costs, administration
and other expenses incurred by the Fund, taxes, changes in either the
composition of the index or the assets of the Fund, and the timing and amount of
investor contributions and withdrawals, if any. In addition, the Fund's total
return will be affected by incremental operating costs (e.g., transfer agency,
accounting) that will be borne by the Fund. Under normal circumstances, it is
anticipated that the Fund's total return over periods of one year and longer
will, on a gross basis and before taking into account expenses be within 10
basis points (a basis point is one one-hundredth of one percent (0.01%), of the
total return of the S&P 500. There can be no assurance, however, that these
levels of correlation will be achieved. In the event that this correlation is
not achieved over time, the Trustees will consider alternative strategies for
the Funds. Information regarding correlation of an Index Fund's performance to
that of a target index will be reported in the Funds' annual report.
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. Lower-rated securities are more likely to react to developments
affecting these risks than are more highly rated securities, which react
primarily to movements in the general level of interest rates. Although the
fluctuation in the price of debt securities 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 debt
securities in general and have caused the effective maturity of securities with
prepayment features to be extended, thus effectively converting short or
intermediate securities (which tend to be less volatile in price) into long term
securities (which tend to be more volatile in price).
Ratings as Investment Criteria. High-quality debt obligations are
characterized as such based on their ratings by nationally recognized
statistical rating organizations ("NRSROs"), such
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as Standard & Poor's Rating Group ("Standard & Poor's") or Moody's Investor
Services ("Moody's"). 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 value risk of the securities. These ratings are
used by the Fund as initial criteria for the selection of portfolio securities,
but the Fund also relies upon the independent advice of its adviser or
subadviser to evaluate potential investments. Among the factors that will be
considered are the long-term ability of the issuer to pay principal and interest
and general economic trends, as well as an issuer's capital structure, existing
debt and earnings history. 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 the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the 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 sale of such securities, but the Fund's adviser or
subadviser will consider such events in its determination of 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 organizations or their rating
systems, or due to a corporate reorganization, the Fund will attempt to use
comparable ratings as standards for its investments in accordance with its
investment objective and policies.
U.S. Government Securities. U.S. government securities are issued or
guaranteed by the U.S. government or its agencies or instrumentalities.
Securities issued by the U.S. government include U.S. Treasury obligations, such
as Treasury bills, notes, and bonds. Securities issued by government agencies or
instrumentalities include 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 whose securities are supported by the right
of the agency to borrow from the U.S. Treasury;
- - the Federal National Mortgage Association, whose securities are
supported by the discretionary authority of the U.S. government to
purchase certain obligations of the agency or instrumentality; and
- - the Student Loan Marketing Association and the Federal Home Loan
Mortgage Corporation ("FHLMC"), whose securities are supported only by
the credit of such agencies.
Although the U.S. government provides financial support to such U.S.
government-sponsored agencies or instrumentalities, no assurance can be given
that it will always do so. 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.
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MONEY MARKET INSTRUMENTS
Money market instruments may include the following types of
instruments:
-- obligations issued or guaranteed as to interest and principal by the
U.S. Government, its agencies, or instrumentalities, or any federally
chartered corporation, with remaining maturities of 397 days or less;
-- 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 (Yankee dollars), savings and loan
associations and similar institutions, and such obligations issued by
foreign branches of foreign banks and financial institutions;
-- commercial paper (including asset-backed 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 a high
quality outstanding debt issue;
-- high quality short-term (maturity in 397 days or less) corporate
obligations, these obligations will be rated within the top two rating
categories by an NRSRO or if not rated, of comparable quality.
REPURCHASE AGREEMENTS
In connection with the purchase of a repurchase agreement from member
banks of the Federal Reserve System or certain non-bank dealers by the 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 the Fund.
Repurchase agreements may be entered into with respect to securities of the type
in which it may invest or government securities regardless of their remaining
maturities, and will require that additional securities be deposited with it 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
the Fund's ability to dispose of the underlying securities, the risk of a
possible decline in the value of the underlying securities during the period in
which the Fund seeks to assert its rights to them, 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. The Fund's adviser or
subadviser reviews the
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creditworthiness of those banks and non-bank dealers with which the Fund enters
into repurchase agreements to evaluate these risks.
LENDING PORTFOLIO SECURITIES
The 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 collateral consisting of cash, 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) the Fund must receive at least
100% cash collateral of the type discussed in the preceding paragraph from the
borrower; (2) the borrower must increase such collateral whenever the market
value of the securities loaned rises above the level of such collateral; (3) the
Fund must be able to terminate the loan at any time; (4) the 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) the 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 Fund'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.
FOREIGN SECURITIES
Investing in foreign securities (including through the use of
depository receipts) involves certain special considerations which are not
typically associated with investing in United States securities. 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 the Fund, may be
subject to foreign government taxes, and higher brokerage costs and dividend
collection fees which could reduce the yield on such securities.
Foreign economies may differ favorably or unfavorably from the U.S.
economy in various respects, including growth of gross domestic product, rates
of inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance of payments positions. Many foreign
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securities are less liquid and their prices more volatile than comparable U.S.
securities. From time to time, foreign securities may be difficult to liquidate
rapidly without adverse price effects.
Depository Receipts. The Fund may invest in foreign securities by
purchasing depository receipts, including American Depository Receipts ("ADRs").
Generally, ADRs, in registered form, are denominated in U.S. dollars and are
designed for use in the U.S. securities markets. ADRs are receipts typically
issued by a U.S. Bank or trust company evidencing ownership of the underlying
securities. For purposes of the Fund's investment policies, ADRs are deemed to
have the same classification as the underlying securities they represent. Thus,
an ADR representing ownership of common stock will be treated as common stock.
PREFERRED STOCK
Preferred stocks, like debt obligations, are generally fixed-income
securities. Shareholders of preferred stocks normally have the right to receive
dividends at a fixed rate when and as declared by the issuer's board of
directors, but do not participate in other amounts available for distribution by
the issuing corporation. Dividends on the preferred stock may be cumulative, and
all cumulative dividends usually must be paid prior to common shareholders
receiving any dividends. Because preferred stock dividends must be paid before
common stock dividends, preferred stocks generally entail less risk than common
stocks. Upon liquidation, preferred stocks are entitled to a specified
liquidation preference, which is generally the same as the par or stated value,
and are senior in right of payment to common stock. Preferred stocks are,
however, equity securities in the sense that they do not represent a liability
of the issuer and, therefore, do not offer as great a degree of protection of
capital or assurance of continued income as investments in corporate debt
securities. Preferred stocks are generally subordinated in right of payment to
all debt obligations and creditors of the issuer, and convertible preferred
stocks may be subordinated to other preferred stock of the same issuer.
SHORT SELLING OF SECURITIES
In a short sale of securities, the Fund sells stock which it does not
own, making delivery with securities "borrowed" from a broker. The Fund is then
obligated to replace the security borrowed by purchasing it at the market price
at the time of replacement. This price may or may not be less than the price at
which the security was sold by the Fund. Until the security is replaced, the
Fund is required to pay the lender any dividends or interest which accrue during
the period of the loan. In order to borrow the security, the Fund may also have
to pay a fee which would increase the cost of the security sold. The proceeds of
the short sale will be retained by the broker, to the extent necessary to meet
margin requirements, until the short position is closed out.
The Fund will incur a loss as a result of the short sale if the price
of the security increases between the date of the short sale and the date on
which the Fund replaces the borrowed security. The Fund will realize a gain if
the security declines in price between those two dates. The amount of any gain
will be decreased and the amount of any loss will be increased by any interest
the Fund may be required to pay in connection with the short sale.
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In a short sale, the seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. The Fund must deposit in a segregated account an amount of cash or
liquid assets equal to the difference between (a) the market value of securities
sold short at the time that they were sold short and (b) the value of the
collateral deposited with the broker in connection with the short sale (not
including the proceeds from the short sale). While the short position is open,
the Fund must maintain on a daily basis the segregated account at such a level
that (1) the amount deposited in it plus the amount deposited with the broker as
collateral equals the current market value of the securities sold short and (2)
the amount deposited in it plus the amount deposited with the broker as
collateral is not less than the market value of the securities at the time they
were sold short.
The Fund may engage in short sales if at the time of the short sale the
Fund owns or has the right to obtain without additional cost an equal amount of
the security being sold short. This investment technique is known as a short
sale "against the box." The Fund does not intend to engage in short sales
against the box for investment purposes. The Fund may, however, make a short
sale as a hedge, when it believes that the price of a security may decline,
causing a decline in the value of a security owned by the Fund (or a security
convertible or exchangeable for such security), or when the Fund wants to sell
the security at an attractive current price, but also wishes to defer
recognition of gain or loss for U.S. federal income tax purposes and for
purposes of satisfying certain tests applicable to regulated investment
companies under the Code. In such case, any future losses in the Fund's long
position should be offset by a gain in the short position and, conversely, any
gain in the long position should be reduced by a loss in the short position. The
extent to which such gains or losses are reduced will depend upon the amount of
the security sold short relative to the amount the Fund owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Fund will endeavor to offset these costs with the income from the
investment of the cash proceeds of short sales.
RESTRICTED, NON-PUBLICLY TRADED AND ILLIQUID SECURITIES
The Fund may not invest more than 15% 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. 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. Unless subsequently registered for sale, these securities can
only be sold in privately negotiated transactions or pursuant to an exemption
from registration. Investment companies do not typically hold a significant
amount of
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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 an investment
company 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. An investment company 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.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, 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 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.
Any such restricted securities will be considered to be illiquid for
purposes of the Fund's limitations on investments in illiquid securities unless,
pursuant to procedures adopted by the Board of Trustees of the Trust, the Fund's
adviser or subadviser 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, the Fund's level of illiquidity
may increase.
The Fund may 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 the
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.
The Fund's subadviser or adviser will monitor the liquidity of
restricted securities in the Fund. In reaching liquidity decisions, the
following factors are considered: (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).
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BORROWING
The 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), and may engage in mortgage dollar roll and reverse repurchase
agreements which may be considered a form of borrowing. In addition, the Fund
may borrow up to an additional 5% of its total assets from banks for temporary
or emergency purposes. The Fund will not purchase securities when bank
borrowings exceed 5% of such Fund's total assets.
The 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 include the lender. The Fund has established a line-of-credit ("LOC")
with its custodian by which it may borrow for temporary or emergency purposes.
The Fund intends to use the LOC to meet large or unexpected redemptions that
would otherwise force the Fund to liquidate securities under circumstances which
are unfavorable to the Fund's remaining shareholders.
DERIVATIVE INSTRUMENTS
The Fund's adviser or subadviser may use a variety of derivative
instruments, including options, futures contracts (sometimes referred to as
"futures"), options on futures contracts, and stock index options, to hedge the
Fund's portfolio or for risk management or for any other permissible purposes
consistent with the Fund's investment objective. Derivative instruments are
securities or agreements whose value is based on the value of some underlying
asset (e.g., a security, currency or index) or the level of a reference index.
Derivatives generally have investment characteristics that are based
upon either forward contracts (under which one party is obligated to buy and the
other party is obligated to sell an underlying asset at a specific price on a
specified date) or option contracts (under which the holder of the option has
the right but not the obligation to buy or sell an underlying asset at a
specified price on or before a specified date). Consequently, the change in
value of a forward-based derivative generally is roughly proportional to the
change in value of the underlying asset. In contrast, the buyer of an
option-based derivative generally will benefit from favorable movements in the
price of the underlying asset but is not exposed to the corresponding losses
that result from adverse movements in the value of the underlying asset. The
seller (writer) of an option-based derivative generally will receive fees or
premiums but generally is exposed to losses resulting from changes in the value
of the underlying asset. Derivative transactions may include elements of
leverage and, accordingly, the fluctuation of the value of the derivative
transaction in relation to the underlying asset may be magnified.
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"). In addition, the
Fund's ability to use these instruments will be limited by tax considerations.
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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 the Fund's
adviser's or subadviser's ability to predict movements of the overall securities
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 the Fund entered into a
short hedge because the Fund's adviser or 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,
the Fund could suffer a loss.
(4) As described below, the 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 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.
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For a discussion of the federal income tax treatment of the Fund's
derivative instruments, see "ADDITIONAL GENERAL TAX INFORMATION" below.
Options. The Fund may purchase or write put and call options on
securities and indices and enter into closing transactions with respect to such
options to terminate an existing position. 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 the 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 the Fund would be considered illiquid to the
extent described under "Restricted, Non-Publicly Traded 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.
The Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, the 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, the 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.
The 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
12
<PAGE> 44
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.
The Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. The Fund
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 the Fund
will enter into OTC options only with counterparties that are expected to be
capable of entering into closing transactions with the Fund, there is no
assurance that the 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, the Fund might be unable to close out an OTC option position at any time
prior to its expiration.
If the 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 the 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.
The 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.
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 (other than purchased options) expose
the Fund to counter party risk. To the extent required by SEC guidelines, the
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 extent not covered as provided in (1) above. The
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 Fund may enter into futures contracts, including
index 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
13
<PAGE> 45
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. The Fund's hedging may include purchases of futures as an
offset against the effect of expected increases in securities prices and sales
of futures as an offset against the effect of expected declines in securities
prices. The 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. The Fund will engage in this strategy only
when the Fund's adviser or subadviser believes it is more advantageous to the
Fund than is purchasing the futures contract.
To the extent required by regulatory authorities, the Fund will only
enter into futures contracts that are traded on U.S. 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 the Fund to trade in
futures contracts may be limited by the requirements of the Code applicable to a
regulated investment company.
The 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 the Fund's exposure to market fluctuations, the 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, the Fund
realizes a gain; if it is more, the Fund realizes a loss. Conversely, if the
offsetting sale price is more than the original purchase price, the Fund
realizes a gain; if it is less, the Fund realizes a loss. The transaction costs
must also be included in these
14
<PAGE> 46
calculations. There can be no assurance, however, that the Fund will be able to
enter into an offsetting transaction with respect to a particular futures
contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain the
margin deposits on the futures contract.
No price is paid by the 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 the Fund
at the termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, the
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 the Fund's obligations to or from a futures
broker. When the Fund purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when the 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 the 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 Fund intends 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 the 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
15
<PAGE> 47
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.
Swap Agreements. The Fund may enter into securities index or security
swap agreements for any lawful purpose consistent with such Fund's investment
objective, such as for the purpose of attempting to obtain or preserve a
particular desired return or spread at a lower cost to the Fund than if the Fund
had invested directly in an instrument that yielded that desired return or
spread. The Fund also may enter into swaps in order to protect against an
increase in the price of, or the currency exchange rate applicable to,
securities that the Fund anticipates purchasing at a later date. Swap agreements
are two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to several years. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index.
The "notional amount" of the swap agreement is the agreed upon basis
for calculating the obligations that the parties to a swap agreement have agreed
to exchange. Under most swap agreements entered into by the Fund, the
obligations of the parties would be exchanged on a "net basis." Consequently,
the Fund's obligation (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). The Fund's obligation under a swap agreement will be accrued daily
(offset against amounts owed to the Fund) and any accrued but unpaid net amounts
owed to a swap counterparty will be covered by the maintenance of a segregated
account consisting of cash or liquid assets.
Whether the Fund's use of swap agreements will be successful in
furthering its investment objective will depend, in part, on the Fund's
adviser's or subadviser's ability to predict correctly whether certain types of
investments are likely to produce greater returns than other investments.
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<PAGE> 48
Swap agreements may be considered to be illiquid. Moreover, the Fund bears the
risk of loss of the amount expected to be received under a swap agreement in the
event of the default or bankruptcy of a swap agreement counterparty. Certain
restrictions imposed on the Fund by the Internal Revenue Code may limit the
Fund's ability to use swap agreements. The swaps market is largely unregulated.
The Fund will enter swap agreements only with counterparties that the
Fund's adviser or subadviser reasonably believes are capable of performing under
the swap agreements. If there is a default by the other party to such a
transaction, the Fund will have to rely on its contractual remedies (which may
be limited by bankruptcy, insolvency or similar laws) pursuant to the agreements
related to the transaction.
SECURITIES OF INVESTMENT COMPANIES
As permitted by the Investment Company Act of 1940, the Fund may invest
up to 10% of its total assets, calculated at the time of investment, in the
securities of other open-end or closed-end investment companies. No more than 5%
of the 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. The Fund will indirectly bear its proportionate
share of any management fees paid by an investment company in which it invests
in addition to the advisory fee paid by the Fund.
STANDARD AND POOR'S DEPOSITORY RECEIPTS
The Fund may invest in Standard & Poor's Depository Receipts ("SPDRs").
SPDRs are interests in unit investment trusts. Such investment trusts invest in
a securities portfolio that includes substantially all of the common stocks (in
substantially the same weights) as the common stocks included in a particular
Standard & Poor's Index such as the S&P 500. SPDRs are traded on the American
Stock Exchange, but may not be redeemed. The results of SPDRs will not match the
performance of the designated S&P Index due to reductions in the SPDRs'
performance attributable to transaction and other expenses, including fees paid
by the SPDR to service providers. SPDRs distribute dividends on a quarterly
basis.
SPDRs are not actively managed. Rather, a SPDR's objective is to track
the performance of a specified index. Therefore, securities may be purchased,
retained and sold by SPDRs at times when an actively managed trust would not do
so. As a result, you can expect greater risk of loss (and a correspondingly
greater prospect of gain) from changes in the value of the securities that are
heavily weighted in the index than would be the case if SPDR was not fully
invested in such securities. Because of this, a SPDRs price can be volatile, the
Fund may sustain sudden, and sometimes substantial, fluctuations in the value of
its investment in SPDRs.
OTHER INDEXED SECURITIES
The Fund may invest in securities the potential return of which is
based on the change in particular index. As an illustration, the Fund may invest
in a debt security that pays interest and
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<PAGE> 49
returns principal based on the change in the value of a securities index or
basket of securities. If the Fund invests in such securities, it may be subject
to reduced or eliminated interest payments or loss of principal in the event of
an adverse movement in the index.
BANK OBLIGATIONS
Bank obligations that may be purchased by the 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.
INVESTMENT RESTRICTIONS
The following are fundamental investment restrictions of the Fund which
cannot be changed without the authorization of the majority of the outstanding
shares of the Fund. The vote of the majority of the outstanding securities means
the vote of (A) 67% or more of the voting securities present at such meeting, if
the holders of more than 50% of the outstanding voting securities are present or
represented by proxy or (B) a majority of the outstanding securities, whichever
is less.
The Fund:
o May not borrow money or issue senior securities, except that the Fund
may enter into reverse repurchase agreements and may otherwise borrow
money and issue senior securities as and to the extent permitted by the
Investment Company Act of 1940 or any rule, order or interpretation
thereunder.
o 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.
o May not purchase or sell commodities or commodities contracts, except
to the extent disclosed in the current Prospectus of the Fund.
o May not purchase the securities of any issuer if, as a result, 25% or
more than (taken at current value) of the Fund's total assets would be
invested in the securities of issuers, the principal activities
18
<PAGE> 50
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, and telephone utilities, captive borrowing conduit,
equipment finance, premium finance, leasing finance, consumer finance
and other finance.
o May not purchase or sell real estate, except that the 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).
o May not lend any security or make any other loan, except that the 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.
o 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 Fund
which may be changed by the Board of Trustees of the Trust without shareholder
approval:
The Fund may not:
o 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.
o 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.
o Purchase or otherwise acquire any security if, as a result, more than
15% of its net assets would be invested in securities that are
illiquid.
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o Purchase securities of other investment companies except (a) in
connection with a merger, consolidation, acquisition, reorganization or
offer of exchange, or (b) to the extent permitted by the 1940 Act or
any rules or regulations thereunder or pursuant to any exemptions
therefrom.
o 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
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, and directs the officers to perform the
daily functions of the Trust.
The principal occupation of the Trustees and Officers during the last
five years, their ages, their addresses and their affiliations are:
JOHN C. BRYANT, Trustee*, Age 64
411 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 59
North Walnut and West College Avenue, Westerville, Ohio
Dr. DeVore is President of Otterbein College.
SUE A. DOODY, Trustee, Age 65
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 72
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.
THOMAS J. KERR, IV, Trustee*, Age 66
4890 Smoketalk Lane, Westerville, Ohio
Dr. Kerr is President Emeritus of Kendall College. He was formerly President of
Grant Hospital Development Foundation.
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<PAGE> 52
DOUGLAS F. KRIDLER, Trustee, Age 44
55 E. State Street, Columbus, Ohio
Mr. Kridler is President of the Columbus Association of Performing Arts.
DIMON R. MCFERSON, Trustee*+, Age 62
One Nationwide Plaza, Columbus, Ohio
Mr. McFerson is President and Chief Executive Officer of the Nationwide
Insurance Enterprise and is Chairman and Chief Executive Officer of Nationwide
Advisory Services, Inc.
NANCY C. THOMAS, Trustee+, Age 65
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.
DAVID C. WETMORE, Trustee, Age 51
11495 Sunset Hills Rd - Suite #210, Reston, Virginia
Mr. Wetmore is the Managing Director of The Updata Capital, a venture capital
firm.
JAMES F. LAIRD, JR., Treasurer, Age 43
Three Nationwide Plaza, Columbus, Ohio
Mr. Laird is Vice President and General Manager of Nationwide Advisory Services,
Inc., the Distributor.
ELIZABETH A. DAVIN, Secretary, age 35
Three Nationwide Plaza, Columbus, Ohio
Ms. Davin is a member of 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. 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.
Bryant, Doody, DeVore, Duncan, Kerr, Kridler and Wetmore are also
Trustees, and Laird and Davin are also Officers of Nationwide Separate Account
Trust and Nationwide Asset Allocation Trust, registered investment companies in
the Nationwide Fund Complex.
All Trustees and Officers of the Trust own less than 1% of its
outstanding shares.
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<PAGE> 53
The Trustees receive fees and reimbursement for expenses of attending
board meetings from the Trust. VMF reimburses the Trust for fees and expenses
paid to Trustees who are interested persons of the Trust. The Compensation Table
below sets forth the total compensation to be paid to the Trustees of the Trust,
before reimbursement, for the fiscal period ended October 31, 1999. In addition,
the table sets forth the total compensation to be paid to the Trustees from all
funds in the Nationwide Fund Complex for the fiscal year ended October 31, 1999.
Trust officers receive no compensation from the Trust in their capacity as
officers.
<TABLE>
COMPENSATION TABLE
<CAPTION>
PENSION
RETIREMENT
AGGREGATE BENEFITS ANNUAL TOTAL
COMPENSATION ACCURED AS BENEFITS COMPENSATION
NAME OF PERSON, FROM PART OF TRUST UPON FROM THE FUND
POSITION THE TRUST EXPENSES RETIREMENT COMPLEX**
<S> <C> <C> <C> <C>
John C. Bryant, Trustee $9,167 --0-- --0-- $18,167
C. Brent DeVore, Trustee 9,167 --0-- --0-- 18,167
Sue A. Doody, Trustee 9,167 --0-- --0-- 18,167
Robert M Duncan, Trustee 9,167 --0-- --0-- 18,167
Thomas J. Kerr, IV, Trustee 9,167 --0-- --0-- 18,167
Douglas F. Kridler, Trustee 9,167 --0-- --0-- 18,167
Dimon R. McFerson, Trustee --0-- --0-- --0-- --0--
Nancy C. Thomas, Trustee --0-- --0-- --0-- --0--
David C. Wetmore, Trustee 9,167 --0-- --0-- 18,167
</TABLE>
**The Fund Complex includes three trusts comprised of 65 investment company
funds or series.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER
Under the terms of the Investment Advisory Agreement dated May 9, 1998
as amended as of September 1, 1999, Villanova Mutual Fund Capital Trust ("VMF")
manages the investment of the assets of the Fund, as well as the other funds of
the Trust (except for Morley Capital Accumulation Fund, Morley Enhanced Income
Fund and the Index Funds), in accordance with the policies and procedures
established by the Trustees. With respect to the 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,
Nationwide Focus Fund, the Aggressive Fund, the Moderately Aggressive Fund, the
Moderate Fund, the Moderately Conservative Fund, the Conservative Fund, and High
Yield Bond Fund, VMF manages the day-to-day investments of the assets of such
funds. With respect to the Fund and each of the Prestige Advisor series of the
Trust, VMF provides investment management evaluation services in initially
selecting and
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<PAGE> 54
monitoring on an ongoing basis the performance of the subadvisers, who each
manage the investment portfolio of a particular Fund. VMF is also authorized to
select and place portfolio investments on behalf of the Funds which engage
subadvisers; however VMF does not intend to do so at this time.
VMF pays the compensation of the Trustees and officers affiliated with
VMF. VMF 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 VMF,
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 Investment Company Act of 1940. It may be terminated as to
the Fund without penalty by vote of a majority of the outstanding voting
securities of the Fund, or by either party, on not less than 60 days written
notice. The Agreement further provides that VMF may render similar services to
others.
The Trust pays the compensation of the Trustees who are not interested
persons of VMF and all expenses (other than those assumed by VMF), 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; 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. VMF reimburses the Trust for fees and expenses paid to Trustees
who are interested persons of the Trust.
VMF, a Delaware business trust, is a wholly owned subsidiary of
Villonova Capital, Inc., 97% of the common stock of which is held 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. All of the
23
<PAGE> 55
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.
Prior to September 1, 1999, Nationwide Advisory Services, Inc. ("NAS")
served as the investment adviser to the Fund. Effective September 1, 1999, the
investment advisory services previously performed for the Fund by NAS were
transferred to VMF, an affiliate of NAS and an indirect subsidiary of NFS. After
the transfer, there was no change in the fees charged for investment advisory
services to the Fund.
For services provided under the Investment Advisory Agreement, VMF
receives an annual fee paid monthly based on average daily net assets of certain
funds according to the following schedule:
<TABLE>
<CAPTION>
FUND ASSETS FEE
<S> <C> <C>
Nationwide Mid Cap Growth Fund, $0 up to $250 million 0.60%
Nationwide Growth Fund, Nationwide $250 million up to $1 billion 0.575%
Fund and Nationwide Focus Fund $1 billion up to $2 billion 0.55%
$2 billion up to $5 billion 0.525%
$5 Billion and more 0.50%
Nationwide Bond Fund, $0 up to $250 million 0.50%
Nationwide Tax-Free Income Fund, $250 million up to $1 billion 0.475%
Nationwide Long-Term U.S. Government $1 billion up to $2 billion 0.45%
Bond Fund, and Nationwide Intermediate $2 billion up to $5 billion 0.425%
U.S. Government Bond Fund $5 Billion and more 0.40%
Nationwide Money Market Fund $0 up to $1 billion 0.40%
$1 billion up to $2 billion 0.38%
$2 billion up to $5 billion 0.36%
$5 billion and more 0.34%
Nationwide S&P 500 Index Fund $0 up to $1.5 billion 0.13%
$1.5 billion up to $3 billion 0.12%
$3 billion and more 0.11%
Prestige Large Cap Value Fund up to $100 million 0.75%
$100 million or more 0.70%
Prestige Large Cap Growth Fund up to $150 million 0.80%
$150 million or more 0.70%
</TABLE>
24
<PAGE> 56
<TABLE>
<S> <C> <C>
Prestige Balanced Fund up to $100 million 0.75%
$100 million or more 0.70%
Prestige Small Cap Fund up to $100 million 0.95%
$100 million or more 0.80%
Prestige International Fund up to $200 million 0.85%
$200 million or more 0.80%
Nationwide Value Opportunities $0 up to $250 million 0.70%
$250 million up to $1 billion 0.675%
$1 billion up to $2 billion 0.65%
$2 billion up to $5 billion 0.625%
$5 billion and more 0.60%
Nationwide High Yield $0 up to $250 million 0.55%
Bond Fund $250 million up to $1 billion 0.525%
$1 billion up to $2 billion 0.50%
$2 billion up to $5 billion 0.475%
$5 billion and more 0.45%
</TABLE>
VMF has also agreed to waive advisory fees, and if necessary, reimburse
expenses in order to limit annual fund operating expenses for certain of the
funds of the Trust as follows:
o Nationwide Mid Cap Growth Fund to 1.25% for Class A shares, 2.00% for
Class B shares and 1.00% for Class D shares
o Nationwide Long-Term U.S. Government Bond Fund and Nationwide
Intermediate U.S. Government Bond Fund to 1.04% for Class A shares,
1.64% for Class B shares and 0.79% for Class D shares
25
<PAGE> 57
- - Prestige Large Cap Value Fund to 1.15% for Class A shares, 1.90% for
Class B shares and 1.00% for Class Y shares
- - Prestige Large Cap Growth Fund to 1.20% for Class A shares, 1.95% for
Class B shares and 1.05% for Class Y shares
- - Prestige Balanced Fund to 1.10% for Class A shares, 1.85% for Class B
shares and 0.95% for Class Y shares
- - Prestige Small Cap Fund to 1.35% for Class A shares, 2.10% for Class B
shares and 1.20% for Class Y shares
- - Prestige Large Cap Value Fund to 1.30% for Class A shares, 2.05% for
Class B shares and 1.25% for Class Y shares
- - Nationwide S&P 500 Index Fund to 0.75% for Class A shares, 1.25% for
Class B shares, 0.48% for Class Y shares, 0.63% for Class R shares,
0.23% for Institutional Class shares and 0.35% for Local Fund shares
- - Nationwide Focus Fund to 1.20% for Class A shares, 1.70% for Class B
shares and 0.75% for Institutional Class shares
- - Nationwide Value Opportunities Fund to 1.35% for Class A shares, 1.85%
for Class B shares and 1.00% for Institutional Class shares
- - Nationwide High Yield Bond Fund to 1.20% for Class A shares, 1.80% for
Class B shares and 0.85% for Institutional Class shares
In the interest of limiting the expenses of each of the funds listed
above (except the Nationwide MidCap Growth Fund, the Nationwide Long-Term U.S.
Government Bond Fund, the Nationwide Intermediate U.S. Government Bond Fund and
the Fund, VMF has entered into an expense limitation agreement with the Fund
("Expense Limitation Agreement"). Pursuant to the Expense Limitation Agreement,
VMF has agreed to waive or limit its fees and to assume other expenses (except
for Rule 12b-1 Fees and Administrative Service Fees) to the extent necessary to
limit the total annual operating expenses of each Class of a fund to the limits
described above. Reimbursement by the fund of the advisory fees waived or
limited and other expenses reimbursed by VMF pursuant to the Expense Limitation
Agreement may be made at a later date when the fund has reached a sufficient
asset size to permit reimbursement to be made without causing the total annual
operating expense ratio of the fund to exceed the limits set forth above. No
reimbursement will be made unless: (i) the fund's assets exceed $100 million;
(ii) the total annual expense ratio of the Class making such reimbursement is
less than the limit set forth above; and (iii) the payment of such reimbursement
is approved by the Board of Trustees on a quarterly basis. Except as provided
for in the Expense Limitation Agreement, reimbursement of amounts previously
waived or assumed by VMF is not permitted.
VMF may from time to time waive some or all of its investment advisory
fee or other fees for any of the fund of the Trust. The waiver of such fees will
cause the total return and yield of a fund to be higher than they would
otherwise be in the absence of such a waiver.
26
<PAGE> 58
During the fiscal years ended October 31, 1999, 1998 and 1997, VMF/NAS
received the following fees for investment advisory services*:
<TABLE>
<CAPTION>
Years Ended October 31,
Fund 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Mid Cap Growth $ 66,283 $ 61,706 $ 63,883
Growth 5,873,926 4,894,110 3,750,599
Nationwide Fund 13,888,390 9,977,231 5,938,011
Bond 674,918 647,809 629,068
Tax-Free Income 1,263,813 1,505,626 1,810,070
Long Term U.S. Government 198,048 254,928 343,259
Intermediate U.S. Government 314,314 266,473 256,016
Money Market** 4,709,925 3,857,898 3,519,727
S&P 500 Index 79,372 7,315(1) --
Large Cap Value 62,525(2) -- --
Large Cap Growth 89,668(2) -- --
Balanced 48,069(2) -- --
Small Cap 64,998(2) -- --
International 45,208(2) -- --
</TABLE>
(1) Commenced operations July 24, 1998. All such fees were waived by NAS.
(2) Commenced operations November 2, 1998.
* As of May 9, 1998, the Mid Cap Growth, Growth, Nationwide, Bond, Tax-Free
Income, Long Term U.S. Government Bond, Intermediate U.S. Government Bond and
Money Market Funds acquired all of the assets of one or more series of
Nationwide Investing Foundation, Nationwide Investing Foundation II and
Financial Horizons Investment Trust (collectively, the "Acquired Funds"), in
exchange for the assumption of the stated liabilities of the Acquired Funds and
a number of full and fractional Class D shares of the applicable Fund (the Money
Market Fund issued shares without class designation) having an aggregate net
asset value equal to the net assets of the Acquired Funds as applicable (the
"Reorganization").
** Net of waivers prior to the Reorganization of $221,174 and $389,150 for the
fiscal years ended October 31, 1998 and 1997, respectively.
The other funds of the Trust for which VMF serves as investment adviser
had not yet begun operations as of October 31, 1999.
27
<PAGE> 59
The subadvisers ("Subadvisers") for certain of the funds, including the
Fund, are as follows:
<TABLE>
<CAPTION>
FUND SUBADVISER
<S> <C>
Large Cap Value Brinson Partners, Inc. ("Brinson Partners")
Large Cap Growth Goldman Sachs Asset Management ("GSAM")
Balanced J.P. Morgan Investment Management, Inc. ("J.P. Morgan")
Small Cap INVESCO Management & Research, Inc. ("IMR")
International Lazard Asset Management ("Lazard")
S&P 500 Index Fund Asset Management L.P. ("FAM")
Value Opportunities Villanova Value Investors, LLC ("VVI")
</TABLE>
Brinson Partners, a Delaware corporation and an investment management
firm, is an indirect wholly-owned subsidiary of UBS AG, an internationally
diversified organization headquartered in Zurich, Switzerland, with operations
in many aspects of the financial services industry. GSAM is a separate operating
division of Goldman Sachs & Co., an investment banking firm whose headquarters
are in New York, New York. J.P. Morgan is a directly wholly owned subsidiary of
J.P. Morgan & Co. Incorporated, a bank holding company organized under the laws
of Delaware. J.P. Morgan offers a wide range investment management services and
acts as investment adviser to corporate and institutional clients. IMR is part
of a global investment organization, AMVESCAP plc. AMVESCAP plc is a
publicly-traded holding company that, through its subsidiaries, engages in the
business of investment management on an international basis. Lazard is a New
York-based division of Lazard Freres & Co. LLC, a limited liability company
registered as an investment adviser and providing investment management services
to client discretionary accounts. FAM, P.O. Box 9011, Princeton, New Jersey
08543-9011, is a limited partnership, the partners of which are ML & Co. and
Princeton Services. ML & Co. and Princeton Services are "controlling persons" of
FAM as defined under the Investment Company Act of 1940 because of their
ownership of its voting securities or their power to exercise a controlling
influence over its management or policies.
Villanova Value Investors, Inc. is a subsidiary of Villanova Capital,
Inc. which is also the parent of VMF. VVI is located at 56767 Mt. Vernon, Shelby
Township, Michigan 48316 and was formed in 1999.
Prior to December 29, 1999, The Dreyfus Corporation ("Dreyfus") served
as Subadviser for the Fund. Dreyfus, 200 Park Avenue, New York, N.Y. 10166,
which was formed in 1947, is registered under the Investment Advisers Act of
1940. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A., which is a
wholly-owned subsidiary of Mellon Bank Corporation.
Subject to the supervision of the VMF and the Trustees, each of the
Subadvisers manages the assets of the fund listed above in accordance with the
fund's investment objectives and policies.
28
<PAGE> 60
Each Subadviser makes investment decisions for the fund and in connection with
such investment decisions places purchase and sell orders for securities. For
the investment management services they provide to the funds, the Subadvisers
receive annual fees from VMF, calculated at an annual rate based on the average
daily net assets of the funds, in the following amounts:
29
<PAGE> 61
<TABLE>
<CAPTION>
FUND ASSETS FEE
<S> <C> <C>
Large Cap Value Fund up to $100 million 0.35%
$100 million or more 0.30%
Large Cap Growth Fund up to $150 million 0.40%
$150 million or more 0.30%
Balanced Fund up to $100 million 0.35%
$100 million or more 0.30%
Small Cap Fund up to $100 million 0.55%
$100 million or more 0.40%
International Fund up to $200 million 0.45%
$200 million or more 0.40%
S&P 500 Index Fund up to $200 million 0.05%
next $800 million 0.04%
$1 billion or more 0.02%
Value Opportunities Fund $0 up to $250 million 0.70%
$250 million up to $1 billion 0.675%
$1 billion up to $2 billion 0.65%
$2 billion up to $5 billion 0.625%
$5 billion and more 0.60%
</TABLE>
The following table sets forth the amount NAS/VMF paid to the
Subadvisers for the fiscal periods ended October 31, 1999 and 1998:
<TABLE>
<CAPTION>
Years Ended October 31,
SUBADVISER 1999 1998
---------- ---- ----
<S> <C> <C>
Brinson Partners $29,182(1) --
GSAM 44,853(1) --
J.P. Morgan 22,437(1) --
IMR 37,636(1) --
Lazard 23,934(1) --
Dreyfus 36,609 $3,939(2)
</TABLE>
(1) The Fund began operations on November 2, 1998.
(2) The Fund began operation on July 24, 1998.
30
<PAGE> 62
The Trust has received from the SEC an exemptive order for the
multi-manager structure which allows VMF to hire, replace or terminate
subadvisers without the approval of shareholders; the order also allows VMF to
revise a subadvisory agreement without shareholder approval. If a new subadviser
is hired, the change will be communicated to shareholders within 90 days of such
changes, and all changes will be approved by the Trust's Board of Trustees,
including a majority of the Trustees who are not interested persons of the Trust
or VMF. The order is intended to facilitate the efficient operation of the funds
and afford the Trust increased management flexibility.
VMF provides to the funds 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. VMF 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, VMF
does not expect to recommend frequent changes of subadvisers. VMF will regularly
provide written reports to the Trust's Board of Trustees regarding the results
of its evaluation and monitoring functions. Although VMF 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.
UNION BOND & TRUST COMPANY
Under the terms of the Trust's investment advisory agreement with Union
Bond & Trust Company ("UBT") (the "UBT Advisory Agreement"), UBT manages the
Morley Capital Accumulation Fund and the Morley Enhanced Income Fund, two other
funds of the Trust (the "Morley Funds"), subject to the supervision and
direction of the Board of Trustees. UBT will: (i) act in strict conformity with
the Declaration of Trust and the Investment Company Act of 1940, as the same may
from time to time be amended; (ii) manage the Morley Funds in accordance with
their investment objectives, restrictions and policies; (iii) make investment
decisions for the Morley Funds; and (iv) place purchase and sale orders for
securities and other financial instruments on behalf of the Morley Funds. Under
the terms of the UBT Advisory Agreement, UBT pays the Morley Funds' pro rata
share of the compensation of the Trustees who are interested persons of the
Trust and officers and employees of UBT. UBT also furnishes, at its own expense,
all necessary administrative services, office space, equipment, and clerical
personnel for servicing the investments of the Morley Funds and maintaining its
investment advisory facilities, and executive and supervisory personnel for
managing the investments and effecting the portfolio transactions of the Morley
Funds.
As of October 31, 1999, the Morley Capital Accumulation Fund had
incurred investment advisory fees in the amount of $14,495. The Morley Enhanced
Income Fund had not begun operations as of October 31, 1999. UBT has informed
the Morley Funds that, in making its investment decisions, it does not obtain or
use material inside information in its possession or in the possession of any of
its affiliates. In making investment recommendations for the Morley Funds, UBT
will not inquire or take into consideration whether an issuer of securities
proposed for purchase
31
<PAGE> 63
or sale by the Morley Funds is a customer of UBT, its parent or its affiliates
and, in dealing with its customers, UBT, its parent and affiliates will not
inquire or take into consideration whether securities of such customers are held
by any fund managed by UBT or any such affiliate.
Morley Financial Services, Inc. ("MFS") owns 100% of the issued and
outstanding voting securities of UBT. MFS, an Oregon corporation, is a wholly
owned subsidiary of NFS.
UBT is a state bank and trust company chartered in 1913 and reorganized
under the laws of the state of Oregon in 1992. UBT provides a range of
investment and fiduciary services to institutional clients. UBT maintains and
manages common and pooled trust funds invested primarily in fixed income assets
whose principal value is relatively stable. UBT currently has approximately $1.0
billion under management. UBT also acts as custodian with respect to similar
fixed income assets.
The UBT Advisory Agreement also specifically provides that UBT,
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
Morley Funds, 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 UBT Advisory Agreement will
continue in effect for an initial period of two years and thereafter shall
continue automatically for successive annual periods as to each Morley Fund
provided such continuance is specifically approved at least annually by the
Trustees, or by vote of a majority of the outstanding voting securities of that
Morley Fund, 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 UBT
Advisory Agreement terminates automatically in the event of its "assignment", as
defined under the Investment Company Act of 1940. It may be terminated as to a
Morley Fund without penalty by vote of a majority of the outstanding voting
securities of the Fund, or by either party, on not less than 60 days written
notice. The UBT Advisory Agreement further provides that UBT may render similar
services to others.
Subject to the Funds' Expense Limitation Agreements the Trust pays the
compensation of the Trustees who are not interested persons of the Trust and all
expenses (other than those assumed by UBT), 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.
As compensation for UBT's services, the Morley Capital Accumulation
Fund is obligated to pay UBT a fee computed and accrued daily and paid monthly
at an annual rate of 0.35% of the
32
<PAGE> 64
average daily net assets of the Fund. UBT has agreed voluntarily to waive 0.10%
of that fee until further written notice to shareholders. In addition, in the
interest of limiting the expenses of the Fund, UBT has entered into an expense
limitation agreement with the Fund ("Expense Limitation Agreement"). Pursuant to
the Expense Limitation Agreement, UBT has agreed to waive or limit its fees and
to assume other expenses (except for Rule 12b-1 Fees) to the extent necessary to
limit the total annual operating expenses of each Class of the Fund (expressed
as a percentage of average daily net assets and excluding Rule 12b-1 Fees) to no
more than 0.70% for ISC Shares, 0.55% for IC Shares and 0.70% for IRA Shares of
the Fund. Reimbursement by the Morley Capital Accumulation Fund of the advisory
fees waived or limited and other expenses reimbursed by UBT pursuant to the
Expense Limitation Agreement may be made at a later date when the Fund has
reached a sufficient asset size to permit reimbursement to be made without
causing the total annual operating expense ratio of the Fund to exceed the
limits set forth above. No reimbursement will be made unless: (i) the Fund's
assets exceed $50 million; (ii) the total annual expense ratio of the Class
making such reimbursement is less than the limit set forth above; and (iii) the
payment of such reimbursement is approved by the Board of Trustees on a
quarterly basis. Except as provided for in the Expense Limitation Agreement,
reimbursement of amounts previously waived or assumed by UBT is not permitted.
As compensation for UBT's services to the Morley Enhanced Income Fund,
such Fund is obligated to pay UBT a fee computed and accrued daily and paid
monthly at an annual rate of 0.35% of the average daily net assets of the Fund.
In the interest of limiting the expenses of the Fund, UBT has entered into an
expense limitation agreement with the Fund ("Expense Limitation Agreement").
Pursuant to the Expense Limitation Agreement, UBT has agreed to waive or limit
its fees and to assume other expenses (except for Rule 12b-1 Fees and
Administrative Service Fees) to the extent necessary to limit the total annual
operating expenses of each Class of the Fund to 0.90% for Class A, 0.70% for
Class Y and 0.45% for Institutional Class shares. Reimbursement by the Morley
Enhanced Income Fund of the advisory fees waived or limited and other expenses
reimbursed by UBT pursuant to the Expense Limitation Agreement may be made at a
later date when the Fund has reached a sufficient asset size to permit
reimbursement to be made without causing the total annual operating expense
ratio of the Fund to exceed the limits set forth above. No reimbursement will be
made unless: (i) the Fund's assets exceed $100 million; (ii) the total annual
expense ratio of the Class making such reimbursement is less than the limit set
forth above; and (iii) the payment of such reimbursement is approved by the
Board of Trustees on a quarterly basis. Except as provided for in the Expense
Limitation Agreement, reimbursement of amounts previously waived or assumed by
UBT is not permitted.
THE INDEX FUNDS
With respect to the Small Cap Index Fund, the Mid Cap Market Index
Fund, the International Index Fund and the Bond Index Fund, three other funds of
the Trust (the "Index Funds"), each Index Fund invests all of its assets in
shares of the corresponding Series of the Quantitative Master Series Trust.
Accordingly, the Index Funds do not invest directly in portfolio securities and
do not require investment advisory services. All portfolio management occurs at
the level of the Quantitative Master Series Trust. Quantitative Master Series
Trust has entered into a management agreement ("Management Agreement") with Fund
Asset Management L.P. ("FAM").
33
<PAGE> 65
FAM provides the Quantitative Master Series Trust with investment
advisory and management services. Subject to the supervision of the Board of
Trustees of the Quantitative Master Series Trust, FAM is responsible for the
actual management of each Series' portfolio and constantly reviews the Series'
holdings in light of its own research analysis and that from other relevant
sources. The responsibility for making decisions to buy, sell or hold a
particular security rests with FAM. FAM performs certain of the other
administrative services and provides all the office space, facilities, equipment
and necessary personnel for management of the Series.
Securities held by the Series of the Quantitative Master Series Trust
may also be held by, or be appropriate investments for, other funds or
investment advisory clients for which FAM or its affiliates act as an adviser.
Because of different objectives or other factors, a particular security may be
bought for one or more clients when one or more clients are selling the same
security. If purchases or sales of securities by FAM for the Series or other
funds for which it acts as investment adviser or for its advisory clients arise
for consideration at or about the same time, transactions in such securities
will be made, insofar as feasible, for the respective funds and clients in a
manner deemed equitable to all. To the extent that transactions on behalf of
more than one client of FAM or its affiliates during the same period may
increase the demand for securities being purchased or the supply of securities
being sold there may be an adverse effect on price.
As discussed in the Prospectus for the Index Funds, FAM receives for
its services to the Series monthly compensation at the annual rates of the
average daily net assets of each Series as follows:
<TABLE>
<CAPTION>
Name of Series Management Fee
-------------- --------------
<S> <C>
Master Small Cap Series.......................................... 0.08%
Master Mid Cap Series............................................ 0.06%
Master Aggregate Bond Series..................................... 0.06%
Master International (Capitalization Weighted)Series............. 0.11%
</TABLE>
The table below sets forth information about the total investment
advisory fees paid by the Series to FAM, and any amount voluntarily waived by
FAM.
<TABLE>
<CAPTION>
Small Cap Aggregate Bond International
Series Series Series
------ ------ ------
<S> <C> <C> <C>
December 31, 1997*
Contractual amount.............................. $ 36,425 $ 88,609 $100,102
Amount waived (if applicable)................... $ 36,425 $ 37,562 $ 35,546
December 31, 1998
Contractual amount.............................. $ 61,476 $238,378 $142,489
Amount waived (if applicable)................... $ 61,476 $ 2,537 $ 87,182
</TABLE>
* Period is from commencement of operations (April 3, 1997 for the
Aggregate Bond Series, and April 9, 1997 for the Small Cap Series and
the International Index Series).
34
<PAGE> 66
The Master Mid Cap Series did not commence operations until
___________, 1999.
The Management Agreement obligates FAM to provide investment advisory
services and to pay all compensation of and furnish office space for officers
and employees of Quantitative Master Series Trust connected with investment and
economic research, trading and investment management of the Quantitative Master
Series Trust, as well as the fees of all Trustees who are affiliated persons of
FAM or any of their affiliates. Each Series pays all other expenses incurred in
the operation of the Series (except to the extent paid by Merrill Lynch Funds
Distributor), including, among other things, taxes, expenses for legal and
auditing services, costs of printing proxies, stock certificates, shareholder
reports, copies of the registration statements, charges of the custodian, any
sub-custodian and transfer agent, expenses of portfolio transactions, expenses
of redemption of shares, Securities and Exchange Commission fees, expenses of
registering the shares under federal, state or foreign laws, fees and
out-of-pocket expenses of unaffiliated Trustees, accounting and pricing costs
(including the daily calculation of net asset value), insurance, interest,
brokerage costs, litigation and other extraordinary or non-recurring expenses,
and other expenses properly payable by Quantitative Master Series Trust or the
Series. Merrill Lynch Funds Distributor will pay certain of the expenses of the
Quantitative Master Series Trust incurred in connection with the offering of its
shares of beneficial interest of each of the Series.
FAM is a limited partnership, the partners of which are ML & Co. and
Princeton Services. ML & Co. and Princeton Services are "controlling persons" of
FAM as defined under the 1940 Act because of their ownership of its voting
securities or their power to exercise a controlling influence over its
management or policies.
Unless earlier terminated as described below, the Management Agreement
will remain in effect from year to year with respect to each Series if approved
annually (a) by the Board of Trustees of Quantitative Master Series Trust or by
a majority of the outstanding shares of the Series and (b) by a majority of the
Trustees who are not parties to such contract or interested persons (as defined
in the 1940 Act) of any such party. Such contract is not assignable and may be
terminated without penalty on 60 days' written notice at the option of either
party thereto or by the vote of the shareholders of the Series.
DISTRIBUTOR
NAS serves as underwriter for the Fund in the continuous distribution
of its shares pursuant to a Underwriting Agreement dated as of May 9, 1998, as
amended as of November 2, 1998 (the "Underwriting Agreement"). Unless otherwise
terminated, the Underwriting Agreement will continue in effect until May 9,
2000, and year to year thereafter for successive annual periods, if, as to the
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 the 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
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<PAGE> 67
defined in the Investment Company Act of 1940) 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 Investment Company Act of 1940.
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, if any, imposed upon sales of shares of the Fund.
During the fiscal periods ended October 31, 1999 and 1998, NAS did not
receive any amounts as commissions from the sale or redemption of shares of the
Fund.
NAS reallows to dealers 4.75% of sales charges on Class A shares and
4.00% on Class B shares of the Fund.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") under Rule 12b-1
of the 1940 Act. The Plan permits the Fund to compensate NAS, as the Fund's
Distributor, for expenses associated with the distribution of shares of the
Fund. Although actual distribution expenses may be more or less, under the Plan
the Fund pays NAS an annual fee in an amount that will not exceed the following
amounts:
o 0.25% of the average daily net assets of Class A shares;
o 1.00% of the average daily net assets of Class B shares;
o 0.15% of the average daily net assets of Class R shares; and
o 0.07% of the average daily net assets of Local Class shares of the
Fund.
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 well as
payments to broker-dealers for shareholder services.
During the fiscal year ended October 31, 1999, NAS received $38,403 and
$19,387. respectively, of distribution fees for the Fund's Class R shares and
Local Class shares.
As required by Rule 12b-1, the Plan was approved 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 initially approved by the
Board of Trustees on March 5, 1998, and is amended from time to time
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<PAGE> 68
upon approval by the Board of Trustees. The Plan may be terminated as to a Class
of the Fund by vote of a majority of the Independent Trustees, or by vote of
majority of the outstanding shares of the Class. Any change in the Plan that
would materially increase the distribution cost to a Class 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 applicable Class. 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 as to the Fund must determine that there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders.
The Board of Trustees of the Trust believes that the Plan is in the
best interests of the 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 the Fund's shares including, but not limited
to, those discussed above. At this time NAS has entered into a Rule 12b-1
Agreement with Nationwide Investment Services Corporation with respect to the
Local Fund shares.
ADMINISTRATIVE SERVICES PLAN
Under the terms of an Administrative Services Plan, the Fund is
permitted to enter into Servicing Agreements with servicing organizations, such
as NAS, who agree to provide certain administrative support services in
connection with the Class A, Class R and Class Y shares of the Fund. Such
administrative support services include but are not limited to the following:
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
sub-accounting, answering inquiries regarding the Fund, providing periodic
statements showing the account balance for beneficial owners or for plan
participants or contract holders of insurance company separate accounts,
transmitting proxy statements, periodic reports, updated prospectuses and other
communications to shareholders and, with respect to meetings of shareholders,
collecting, tabulating and forwarding to the Trust executed proxies and
obtaining such other information and performing such other services as may
reasonably be required.
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<PAGE> 69
As authorized by the Administrative Services Plan, the Trust has
entered into a Servicing Agreement effective July 1, 1999 pursuant to which
Nationwide Financial Services, Inc. has agreed to provide certain administrative
support services in connection with Class R and Class Y shares of the Fund held
beneficially by its customers. In consideration for providing administrative
support services, NFS and other entities with which the Trust may enter into
Servicing Agreements (which may include NAS) will receive a fee, computed at the
annual rate of up to 0.25% of the average daily net assets of the Class A, Class
R, and Class Y shares of the Fund held by customers of NFS or such other entity.
FUND ADMINISTRATION
Under the terms of a Fund Administration Agreement, Villanova SA
Capital Trust ("VSA"), a wholly owned subsidiary of Villanova Capital, Inc.,
provides for various administrative and accounting services, including daily
valuation of the Fund's shares, preparation of financial statements, tax
returns, and regulatory reports, and presentation of quarterly reports to the
Board of Trustees. For these services, the Fund pays VSA an annual fee based on
the Fund's average daily net assets at the following rates: 0.05% for assets of
$0 to $1 billion and 0.04% for assets of $1 billion or more.
Prior to September 1, 1999, NAS provided fund administration services
to the Fund. Effective September 1, 1999, the fund administration services
previously performed for the Fund by NAS were transferred to VSA, an affiliate
of NAS and an indirect subsidiary of NFS. In addition, BISYS Fund Services Ohio,
Inc. began performing certain fund administration services pursuant to a
Sub-Administration Agreement also effective September 1, 1999. After these
changes were implemented, there was no change in the fees charged for fund
administration services for the Fund.
During the fiscal year ended October 31, 1999 and the period from July
24, 1998 (commencement of operations) through October 31, 1998, NAS/VSA received
$30,506 and $2,814, respectively, in fund administration fees from the Fund.
TRANSFER AGENT
Nationwide Investors Services, Inc. ("NISI"), a wholly owned subsidiary
of VSA, Three Nationwide Plaza, Columbus, Ohio 43215, serves as transfer agent
and dividend disbursing agent for the Fund. For these services, NISI receives an
annual fee of 0.01% of the Fund's average daily net assets for Class R, Class Y,
Institutional Class and Local Fund shares. For Class A and Class B shares, NISI
receives an annual account based fee of $18 per account.
During the fiscal year ended October 31, 1999 and the period from July
24, 1998 (commencement of operations) through October 31, 1998, NISI received
$6,101 and $563, respectively, as transfer agent fees from the Fund.
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<PAGE> 70
CUSTODIAN
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 Fund.
LEGAL COUNSEL
Dietrich, Reynolds & Koogler, One Nationwide Plaza, Columbus, OH 43215,
serves as the Trust's legal counsel.
AUDITORS
KPMG LLP, Two Nationwide Plaza, Columbus, OH 43215, serves as the
independent auditors for the Trust.
OTHERS
The Trust, on behalf of the Fund, has entered into a licensing
agreement which authorizes the Fund to use the trademarks of the McGraw-Hill
Companies, Inc. Standard & Poor's 500 and S&P 500(R) are trademarks of The
McGraw-Hill Companies, Inc. The Fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's, a division of The McGraw-Hill Companies, Inc.
("S&P"). S&P makes no representation or warranty, expressed or implied, to the
shareholders of the Fund or any member of the public regarding the advisability
of investing in securities generally or in the Fund particularly or the ability
of the S&P 500 Index to track general stock market performance. S&P's only
relationship to the Fund or VMF is the licensing of certain trademarks and trade
names of S&P and of the S&P 500 index which is determined, composed and
calculated by S&P without regard to the Fund. S&P has no obligation to take the
needs of the Fund or its shareholders into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for or has
not participated in the determination of the prices and amount of the Fund
shares or the timing of the issuance or sale of Fund shares or in the
determination or calculation of the equation by which Fund shares are redeemed.
S&P has no obligation or liability in connection with the administration,
marketing or trading of the Fund. S&P does not guarantee the accuracy makes no
warranty, expressed or implied as to the results to be obtained by the Fund,
shareholders of the Fund, or any other person or entity from the use of the S&P
500 Index or any data included therein. Without limiting any of the foregoing,
in no event shall S&P 500 Index have any liability for any special, punitive,
indirect, or consequential damages, including lost profits even if notified of
the possibility of such damages.
BROKERAGE ALLOCATION
FAM is responsible for decisions to buy and sell securities and other
investments for the Fund, the selection of brokers and dealers to effect the
transactions and the negotiation of brokerage commissions, if any. In
transactions on stock and commodity exchanges
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<PAGE> 71
in the United States, these commissions are negotiated, whereas on foreign stock
and commodity exchanges these commissions are generally fixed and are generally
higher than brokerage commissions in the United States. In the case of
securities traded on the over-the-counter markets or for securities traded on a
principal basis, there is generally no commission, but the price includes a
spread between the dealer's purchase and sale price. This spread is the dealer's
profit. In underwritten offerings, the price includes a disclosed, fixed
commission or discount. Most short term obligations are normally traded on a
"principal" rather than agency basis. This may be done through a dealer (e.g., a
securities firm or bank) who buys or sells for its own account rather than as an
agent for another client, or directly with the issuer.
The primary consideration in portfolio security transactions is "best
price - best execution," i.e., execution at the most favorable prices and in the
most effective manner possible. Except as described below, FAM always attempts
to achieve best price - best execution, and FAM has complete freedom as to the
markets in and the broker-dealers through which it seek this result. In
selecting broker-dealers, FAM will consider various relevant factors, including
but not limited to the size and type of the transaction, the nature and
character of the markets for the security or asset to be purchased or sold, the
execution efficiency, settlement capability, and financial condition of the
broker-dealer's firm, the broker-dealer's execution services (rendered on a
continuing basis), and the reasonableness of any commissions. In allocating
orders among brokers for execution on an agency basis, in addition to price and
execution considerations, the usefuless of the brokers' overall services is also
considered. Services provided by brokerage firms include efficient handling of
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.
Subject to the requirement of seeking best execution, securities may be
bought from or sold to broker-dealers who have furnished statistical, research,
and other information or services to FAM. In placing orders with such
broker-dealers, FAM will, where possible, take into account the comparative
usefulness of such information. Such information is useful to FAM even though
its dollar value may be indeterminable, and its receipt or availability
generally does not reduce FAM's normal research activities or expenses.
Fund portfolio transactions may be effected with broker-dealers who
have assisted investors in the purchase of variable annuity contracts or
variable insurance policies issued by Nationwide Life Insurance Company or
Nationwide Life & Annuity Insurance Company. However, neither such assistance
nor sale of other investment company shares is a qualifying or disqualifying
factor in a broker-dealer's selection, nor is the selection of any broker-dealer
based on the volume of shares sold.
There may be occasions when portfolio transactions for the Fund are
executed as part of concurrent authorizations to purchase or sell the same
security for trusts or other accounts (including other mutual funds) served by
FAM or by an affiliated company thereof. Although such
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<PAGE> 72
concurrent authorizations potentially could be either advantageous or
disadvantageous to the Fund, they are effected only when FAM believes that to do
so is in the interest of the Fund. When such concurrent authorizations occur,
the executions will be allocated in an equitable manner.
The Trustees periodically review FAM's performance of its
responsibilities in connection with the placement of portfolio transactions on
behalf of the Fund and review the commissions paid by the Fund over
representative periods of time to determine if they are reasonable in relation
to the benefits to the Fund.
FAM may cause the Fund to pay a broker-dealer who furnishes brokerage
and/or research services a commission that is in excess of the commission
another broker-dealer would have received for executing the transaction if it is
determined, pursuant to the requirements of Section 28(e) of the Securities
Exchange Act of 1934, that such commission is reasonable in relation to the
value of the brokerage and/or research services provided. Such research services
may include, among other things, analyses and reports concerning issuers,
industries, securities, economic factors and trends, and portfolio strategy. Any
such research and other information provided by brokers to FAM is considered to
be in addition to and not in lieu of services required to be performed by FAM
under its subadvisory agreement with VMF. The fees paid to FAM pursuant to its
subadvisory agreement with VMF are not reduced by reason of its receiving any
brokerage and research services. The research services provided by
broker-dealers can be useful to FAM in serving its other clients or clients of
FAM's affiliates. Subject to the policy of FAM to obtain best execution at the
most favorable prices through responsible broker-dealers, FAM also may consider
the broker-dealer's sale of shares of any fund for which FAM serves as
investment adviser, subadviser or administrator.
During the fiscal year ended October 31, 1999 and the period from July
24, 1998 (commencement of operations) through October 31, 1998, $42,996 and
$10,523, respectively, in brokerage commissions were paid by the Fund.
As of October 31, 1999, the Fund held investments in securities of its
regular broker-dealers as follows:
-Morgan Stanley Dean Witter & Co.
-Merrill Lynch & Co., Inc.
-J.P. Morgan & Co.
-Lehman Brothers, Inc.
-Bear Stearns & Co, Inc.
Under the Investment Company Act of 1940, "affiliated persons" of the
Fund are prohibited from dealing with it as a principal in the purchase and sale
of securities unless an exemptive order allowing such transactions is obtained
from the SEC. However, the Fund may purchase securities from underwriting
syndicates of which FAM or any of its affiliates, as defined in the Investment
Company Act of 1940, is a member under certain conditions, in accordance with
Rule 10f-3 under the Investment Company Act of 1940.
The Fund contemplates that, consistent with the policy of obtaining
best results, brokerage transactions may be conducted through "affiliated
brokers or dealers," as defined in the Investment Company Act of 1940. Under the
Investment Company Act of 1940, commissions paid by the Fund to an "affiliated
broker or dealer" in connection with a purchase or sale of securities offered on
a
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<PAGE> 73
securities exchange may not exceed the usual and customary broker's commission.
Accordingly, it is the Fund's policy that the commissions to be paid to an
affiliated broker-dealer must, in the judgment of VMF or FAM, be (1) at least as
favorable as those that would be charged by other brokers having comparable
execution capability and (2) at least as favorable as commissions
contemporaneously charged by such broker or dealer on comparable transactions
for the broker's or dealer's most favored unaffiliated customers, except for
accounts for which the affiliated broker or dealer acts as a clearing broker for
another brokerage firm and customers of an affiliated broker or dealer that, in
the opinion of a majority of the independent trustees, are not comparable to the
Fund. The Fund does not deem it practicable or in its best interests to solicit
competitive bids for commissions on each transaction. However, consideration
regularly is given to information concerning the prevailing level of commissions
charged on comparable transactions by other brokers during comparable periods of
time.
ADDITIONAL INFORMATION ON PURCHASES AND SALES
CLASS A SALES CHARGES
The charts below show the Class A sales charges, which decrease as the
amount of your investment increases.
CLASS A SHARES
<TABLE>
<CAPTION>
Sales charge as % Sales charge as % Sales Commission as
Amount of purchase of offering price of amount invested a % of Offering Price
- ------------------ ----------------- ------------------ ---------------------
<S> <C> <C> <C>
less than $50,000 5.75% 6.10% 5.00%
$50,000 to $99,999 4.50 4.71 3.75
$100,000 to $249,999 3.50 3.63 2.75
$250,000 to $499,999 2.50 2.56 1.75
$500,000 to $999,999 2.00 2.04 1.25
$1 million to $24,999,999 0.50 0.50 0.25
$25 million or more 0.25 0.25
</TABLE>
NET ASSET VALUE PURCHASE PRIVILEGE (CLASS A SHARES ONLY)
The sales charge applicable to Class A shares may be waived for the
following purchases due to the reduced marketing effort required by NAS:
(1) shares sold to other registered investment companies affiliated with
VMF,
(2) shares sold:
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<PAGE> 74
(a) to any pension, profit sharing, or other employee benefit plan
for the employees of VMF, any of its affiliated companies, or
investment advisory clients and their affiliates;
(b) to any endowment or non-profit organization;
(c) to any pension, profit sharing, or deferred compensation plan
which is qualified under Sections 401(a), 403(b) or 457 of the
Internal Revenue Code of 1986 as amended, dealing directly
with NAS with no sales representative involved upon written
assurance of the purchaser that the shares are acquired for
investment purposes and will not be resold except to the
Trust;
(d) to any life insurance company separate account registered as a
unit investment trust;
(e) to Trustees and retired Trustees of the Trust (including its
predecessor Trusts);
(f) to directors, officers, full-time employees, sales
representatives and their employees, and retired directors,
officers, employees, and sale representatives, their spouses,
children or immediate relatives (immediate relatives include
mother, father, brothers, sisters, grandparents,
grandchildren, ("Immediate Relatives")), and Immediate
Relatives of deceased employees of any member of the
Nationwide Insurance Enterprise, or any investment advisory
clients of VMF and their affiliates;
(g) to directors, officers, and full-time employees, their
spouses, children or Immediate Relatives and Immediate
Relatives of deceased employees 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
Insurance Industries, Inc., Maryland Farm Bureau, Inc., Ohio
Farm Bureau Federation, Inc., Pennsylvania Farmers'
Association, Ruralite Services, Inc., and Southern States
Cooperative;
(h) to any qualified pension or profit sharing plan established by
a Nationwide sales representative for himself/herself and
his/her employees;
(i) to any person purchasing through an account with an
unaffiliated brokerage firm having an agreement with NAS to
waive sales charges for those persons;
(j) to any directors, officers, full-time employees, sales
representatives and their employees or any investment advisory
clients of a broker-dealer having a dealer/selling agreement
with NAS;
(k) to any person who pays for such shares with the proceeds of
mutual fund shares redeemed from an NAS brokerage account; to
qualify, the person must have paid an initial sales charge or
CDSC on the redeemed shares and the purchase of Class A shares
must be made within 60 days of the redemption. This waiver
must be
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<PAGE> 75
requested when the purchase order is placed, and NAS may
require evidence of qualification for this waiver;
(l) to any person who pays for such shares with the proceeds of
mutual funds shares redeemed from an account in the NEA
Valuebuilder Mutual Fund Program. This waiver is only
available for the initial purchase if shares were made with
such proceeds. NAS may require evidence of qualification for
such waiver; and
(m) to certain employer-sponsored retirement plan including
pension, profit sharing or deferred compensation plans which
are qualified under Sections 401(a), 403(b) or 457 of the
Code.
CLASS B SHARES OF THE FUND AND CDSC
A CDSC, payable to NAS, will be imposed on any redemption of Class B
shares which causes the current value of your account to fall below the total
amount of all purchases made during the preceding six years. THE CDSC IS NEVER
IMPOSED ON DIVIDENDS, WHETHER PAID IN CASH OR REINVESTED, OR ON APPRECIATION
OVER THE INITIAL PURCHASE PRICE. The CDSC applies only to the lesser of the
original investment or current market value. NAS pays brokers 4% of the value of
purchases of class B shares.
Where the CDSC is imposed, the amount of the CDSC will depend on the
number of years since you made the purchase payment from which an amount is
being redeemed, according to the following table:
<TABLE>
<CAPTION>
YEAR OF REDEMPTION CONTINGENT DEFERRED
AFTER PURCHASE SALES CHARGE
- -------------- ------------
<S> <C>
First 5.00%
Second 4.00%
Third 3.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh and following 0.00%
</TABLE>
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<PAGE> 76
For purposes of calculating the CDSC, it is assumed that the oldest
Class B shares remaining in your account will be sold first. All payments during
a month will be aggregated and deemed to have been made on the last day of the
preceding month.
THE CDSC WILL BE WAIVED IN THE CASE OF A TOTAL OR PARTIAL REDEMPTION
FOLLOWING THE DEATH OR DISABILITY (WITHIN THE MEANING OF SECTION 72(M)(7) OF THE
CODE) OF A SHAREHOLDER (ACCOUNTS OWNED BY AN INDIVIDUAL OR AN INDIVIDUAL JOINTLY
WITH SPOUSE) IF REDEMPTION OCCURS WITHIN ONE YEAR OF DEATH OR INITIAL
DETERMINATION OF DISABILITY.
CDSC APPLICABLE FOR CLASS A SHARES
Employer sponsored retirement plans which purchase Class A shares at
net asset value (other than those investing in the Fund through a variable
insurance product) are subject to a CDSC, payable to NAS, of 1.00% if a finder's
fee (as described below) was paid on the purchase of the shares and the shares
are redeemed within the first year after purchase, 0.50% if redeemed within the
second year and 0.25% if redeemed within the third year. The sales charge is
applied to the original purchase price, or the current market value of the
shares being sold, whichever is less. A CDSC will be charged on redemptions of
$1 million or more within a 12 month period.
NAS will pay a finder's fee at the plan sponsor level at the time of
purchase to the dealer of record at the time of purchase at the following rates:
1.00% for sales of the Fund of $1 million up to $3 million
0.50% for sales of the Fund of $3 million up to $50 million
0.25% for sales of the Fund of $50 million or more
The finder's fee is paid on the aggregate assets of the Fund held at
the plan sponsor level.
CONVERSION FEATURES FOR CLASS B SHARES
Class B shares which have been outstanding for seven years will
automatically convert to Class A shares on the first business day of the next
month following the seventh anniversary of the date on which such Class B shares
were purchased. Such conversion will be on the basis of the relative net asset
values of the two classes, without the imposition of a sales charge or other
charge except that the lower 12b-1 fee applicable to Class A shares shall
thereafter be applied to such converted shares. Because the per share net asset
value of the Class A shares may be higher than that of the Class B shares at the
time of the conversion, a shareholder may receive fewer Class A shares than the
number of Class B shares converted, although the dollar value of the amount
converted will be the same. Reinvestments of dividends and distributions in
Class B shares will not be considered a new purchase for purposes of the
conversion feature and will convert to Class A shares in the same proportion as
the number of the shareholder's Class B shares converting to Class A shares
bears to the shareholder's total Class B shares not acquired through dividends
and distributions.
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<PAGE> 77
If you effect one or more exchanges among Class B shares of the Fund
during the seven-year period, the holding period for shares so exchanged will be
counted toward such period. If you exchange Class B shares into the Prime Shares
of the Money Market Fund for a period of time, the conversion aging period will
be stopped during the time period when shares are exchanged into the Money
Market Fund.
FACTORS TO CONSIDER WHEN CHOOSING A CLASS OF SHARES
Before purchasing Class A shares or Class B shares of the Fund,
investors should consider whether, during the anticipated life of their
investment in the Fund, the accumulated 12b-1 fee and potential CDSC on Class B
shares prior to conversion (as described above) would be less than the initial
sales charge and accumulated 12b-1 fee on Class A shares purchased at the same
time, and to what extent such differential would be offset by the higher yield
of Class A shares as a result of the lower expenses. In this regard, to the
extent that the sales charge for the Class A shares is waived or reduced
investments in Class A shares become more desirable. NAS may refuse a purchase
order for Class B shares of over $100,000.
Although Class A shares are subject to a 12b-1 fee, they are not
subject to the higher 12b-1 fee applicable to Class B shares. For this reason,
Class A shares can be expected to pay correspondingly higher dividends per
shares. However, because initial sales charges are deducted at the time of
purchase, purchasers of Class A shares who do not qualify for waivers of or
reductions in the initial sales charge would have less of their purchase price
initially invested in the Fund than purchasers of Class B shares.
As described above, purchasers of Class B shares will have more of
their initial purchase price invested. Any positive investment return on this
additional invested amount may partially or wholly offset the expected higher
annual expenses borne by Class B shares. Because the Fund's future returns
cannot be predicted, there can be no assurance that this will be the case.
Investors in Class B shares would, however, own shares that are subject to
higher annual expenses and, for a six-year period, such shares would be subject
to a CDSC ranging from 5.00% to 1.00% upon redemption. Investors expecting to
redeem during this six-year period should compare the cost of the CDSC plus the
aggregate annual Class B shares' 12b-1 fees to the cost of the initial sales
charge and 12b-1 fee on the Class A shares. Over time the expense of the annual
12b-1 fee on the Class B shares may be equal to or exceed the initial sales
charge and annual 12b-1 fee applicable to Class A shares.
For example, if the Fund's net asset value remains constant and
assuming no waiver of any 12b-1 fees, the aggregate 12b-1 fee with respect to
Class B shares of the Fund would equal or exceed the initial sales charge and
aggregate 12b-1 fee of Class A shares approximately eight years after the
purchase. In order to reduce such fees for Class B Shareholders, Class B shares
will be automatically converted to Class A shares, as described above, at the
end of a seven-year period. This example assumes that the initial purchase of
Class A shares would be subject to the maximum initial sales charge of 5.75% for
the Fund. This example does not take into account the time value of money which
reduces the impact of the Class B shares' 12b-1 fee on the investment, the
benefit of having
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<PAGE> 78
the additional initial purchase price invested during the period before it is
effectively paid out as a 12b-1 fee, fluctuations in net asset value, any waiver
of 12b-1 fees or the effect of different performance assumptions.
For investors who are eligible to purchase Institutional Class Shares,
the purchase of Institutional Class Shares will be preferable to purchasing
Class A or Class B shares.
SIGNATURE GUARANTEE
A signature guarantee is required if the redemption is over $100,000,
or if your account registration has changed within the last 30 days, if the
redemption check is made payable to anyone other than the registered
shareholder, or if the proceeds are sent to a bank account not previously
designated or are mailed to an address other than the address of record. NAS
reserves the right to require a signature guarantee in other circumstances,
without notice. 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 includes, but is not limited to, certain
banks, credit unions, savings associations, and member firms of national
securities 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.
VALUATION OF SHARES
The net asset value per share for the Fund is determined as of the
earlier of the close of regular trading on the New York Stock Exchange or 4 P.M.
Eastern Time on 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 the Fund to materially affect the net asset value of
that Fund (the "Valuation Time").
The Fund 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 class is computed by adding the
value of all securities and other assets in the Fund's portfolio allocable to
such class, deducting any liabilities allocable to such class and any other
liabilities charged directly to that class and dividing by the number of shares
outstanding in such class.
In determining net asset value, portfolio securities listed on national
exchanges are valued at the last quoted sale price on the principal exchange, or
if there is no sale on that day at the quoted bid price, or if the securities
are traded in the over-the-counter market, at the last quoted sale price,
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<PAGE> 79
or if no sale price, at the quoted bid prices; U.S. Government securities are
valued at the quoted bid price; all prices obtained from an independent pricing
organization. Money market obligations with remaining maturities of 10 days or
less are valued at amortized cost in accordance with provisions contained in
Rule 2a-7 of the Investment Company Act of 1940. Securities for which market
quotations are not available, or for which an independent pricing agent does not
provide a value or provides a value that does not represent fair value in the
judgment of VMF or its designee are valued at fair value in accordance with
procedures adopted by the Board of Trustees.
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 in one of the
Stock Funds.
An initial investment of $5,000 or more is made in the Prime Shares of
the Money Market Fund, 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 Fund's stable share price, and its portfolio of high
quality, short-term money market investments. And the Money Market Fund offers
fast 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 Prime Shares of
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, Money Market Fund dividends
usually also rise. At the same time, share prices of the Bond Funds generally
decrease. So, with Money Market Plus Income, when you earn higher Money Market
Fund dividends, you can generally purchase more shares of one of the Bond Funds
at lower prices. Conversely, when interest rates and Money Market Fund 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. The
Prime Shares of the Money Market Fund provides investors with stability of
principal, fast liquidity through unlimited free checking ($500 minimum),
telephone redemption, or NAS NOW. 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
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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 in a 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 TRANSFER--This systematic investment plan allows you to
transfer $25 or more to one Fund from another Fund systematically, monthly or
quarterly, after Fund minimums have been met. The money is transferred on the
25th day of the month as selected or on the preceding business day. Dividends of
any amount can be moved automatically from one Fund to another at the time they
are paid. 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 Fund to
any other 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. For
transfers from the Prime Shares of the Money Market Fund to another fund, sales
charges may apply if not already paid.
5 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 you are withdrawing more shares than your account receives in
dividends, you will be decreasing your total shares owned, which will reduce
your future dividend potential. In addition, an Automatic Withdrawal Plan for
Class B shares will be subject to the applicable CDSC.
INVESTOR PRIVILEGES
The Fund offers 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 free of charge in the form of additional shares
within the Fund and class or another specifically requested fund (but the same
class) 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.
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<PAGE> 81
2 EXCHANGE PRIVILEGE--The exchange privilege is a convenient way to
exchange shares from one fund to another fund of the Trust in order to respond
to changes in your goals or in market conditions. HOWEVER, AN EXCHANGE IS A SALE
AND PURCHASE OF SHARES AND, FOR FEDERAL AND STATE INCOME TAX 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.
Exchanges Among Funds
Exchanges may be made among any of the funds (except Morley Capital
Accumulation Fund) within the same class or among any class in any of the funds
and Prime Shares of the Money Market Fund. For certain exchanges of Class A
shares among the funds, you may pay the difference between the sales charges, if
a higher sales charge is applicable. Exchanges within Class B or Institutional
Class shares may be made without incurring a sales charge.
An exchange from the Prime Shares of the Money Market Fund into another
fund will be subject to the applicable sales charge unless already paid. For an
exchange into the Prime Shares of the Money Market Fund, the CDSC aging period
for Class B shares will be stopped during the time period such Money Market Fund
shares are held. If the Money Market Fund shares are subsequently sold, a CDSC
will be charged at the level that would have been charged had the shares been
sold at the time when they were exchanged into the Money Market Fund. If the
Money Market Fund shares are exchanged back into Class B shares, the CDSC aging
period will continue from the point in time when the shares were originally
exchanged into the Money Market Fund.
There is no administrative fee or exchange fee. The Trust reserves the
right to reject any exchange request it believes will result in excessive
transaction costs, or otherwise adversely affect other shareholders. For a
description of CDSC see "Class B Shares of the Fund and CDSC." The Trust
reserves the right to change the exchange privilege upon at least 60 days'
written notice to shareholders.
EXCHANGES MAY BE MADE FOUR 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. You must call
our toll-free number by the Valuation Time to receive that day's
closing share price. The Valuation Time is the close of regular trading
of the New York Stock Exchange, which is usually 4:00 p.m. Eastern
Time.
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CUSTOMER SERVICE LINE--By calling 1-800-848-0920, you may exchange
shares by telephone. Requests may be made only by the account owner(s).
You must call our toll-free number by the Valuation Time to receive
that day's closing share price. The Valuation Time is the close of
regular trading of the New York Stock Exchange, which is usually 4:00
p.m. Eastern Time.
NAS may record all instructions to exchange shares. 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 Fund will employ the same procedure described under "Buying,
Selling and Exchanging Fund Shares" in the Prospectus to confirm that
the instructions are genuine.
The Fund 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 Fund 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 the Prospectus and all telephone transaction
calls may be tape recorded. The Fund reserves the right to revoke this
privilege at any time without notice to shareholders and request the
redemption in writing, signed by all shareholders.
BY MAIL OR FAX-- 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 exchange 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 exchange request. The exchange 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 ONLINE ACCESS--Log on to our website http://www.nationwidefunds.com
24 hours a day, seven days a week, for easy access to your mutual fund accounts.
Once you have reached the website, you will be instructed on how to select a
password and perform transactions. You can choose to receive information on all
of our funds as well as your own personal accounts. You may also perform
transactions, such as purchases, redemptions and exchanges. The Fund may
terminate the ability to buy Fund shares on its website at any time, in which
case you may continue to exchange shares by mail, wire or telephone pursuant to
the Prospectus.
3 NO SALES CHARGE ON A REPURCHASE--If you redeem all or part of your
Class A shares on which you paid a front-end sales charge, you have a one-time
privilege to reinvest all or part of the
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redemption proceeds in any shares of the same class, without a sales charge,
within 30 days after the effective date of the redemption. If you redeem Class B
shares, and then reinvest the proceeds in Class B shares within 30 days, NAS
will reinvest an amount equal to any CDSC you paid on 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.
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.
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 Fund 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--Shares of the Fund may be purchased for Self-Employed
Retirement Plans, Individual Retirement Accounts (IRAs), Roth IRAs, Educational
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 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.
5 CONSOLIDATED STATEMENTS--Shareholders of the Fund receive quarterly
statements as of the end of March, June, September and December. 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 Fund. 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 of the Trust 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.
6 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,
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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 average cost information will not be provided to the IRS. If you
have any questions, contact one of our service representatives at
1-800-848-0920.
7 SHAREHOLDER REPORTS--All shareholders will receive reports
semi-annually detailing the financial operations of the Fund.
8 PROSPECTUS--An updated prospectus will be mailed to you annually.
9 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.
FUND PERFORMANCE ADVERTISING
Standardized total return quotations will be compared separately for
each class of shares. Because of differences in the fees and/or expenses borne
by the various Classes of the Fund, the net yields and total returns on such
class shares can be expected, at any given time, to differ from class to class
for the same period.
CALCULATING TOTAL RETURN
The Fund 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 the 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. In
calculating the standard total returns for Class A shares, the
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current maximum applicable sales charge is deducted from the initial investment.
For Class B shares, the payment of the applicable CDSC is applied to the
investment result for the period shown. 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.
The uniformly calculated average annual (compound) total returns for
each class of shares for the periods ended October 31, 1999 were as follows:
<TABLE>
<CAPTION>
1 YEAR SINCE INCEPTION(1)
------ ------------------
LOCAL LOCAL
CLASS Y CLASS R FUND CLASS Y CLASS R FUND
------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C>
N/A% N/A% 24.85% 24.27% 24.64% 16.21%
</TABLE>
Class A, B and Institutional Class shares were not available to the
public prior to October 31, 1999, and therefore no performance information is
included for such Classes.
NONSTANDARD RETURNS
The Fund 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 years in the period, and unlike average annual
(compound) total return, does not reflect compounding.
RANKINGS AND RATINGS IN FINANCIAL PUBLICATIONS
The Fund may report its 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 Fund 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,
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<PAGE> 86
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 Trust presently offers the following series of shares of beneficial
interest, without par value and with the various classes listed; one of these
series is the Fund:
<TABLE>
<CAPTION>
Series Share Classes
- ------ -------------
<S> <C>
Nationwide Mid Cap Growth Fund Class A, Class B, Class D
Nationwide Growth Fund Class A, Class B, Class D
Nationwide Fund Class A, Class B, Class D
Nationwide Bond Fund Class A, Class B, Class D
Nationwide Tax-Free Income Fund Class A, Class B, Class D
Nationwide Long-Term U.S. Government Bond Fund Class A, Class B, Class D
Nationwide Intermediate U.S. Government Bond Fund Class A, Class B, Class D
Nationwide Money Market Fund Class R, Prime Shares
Nationwide S&P 500 Index Fund Class A, Class B, Class R,
Class Y, Local Fund Shares,
Institutional Class
Morley Capital Accumulation Fund ISC Shares, IC Shares,
IRA Shares
Morley Enhanced Income Fund Class A, Class Y,
Institutional Class
Prestige Large Cap Value Fund Class A, Class B, Class Y
Prestige Large Cap Growth Fund Class A, Class B, Class Y
Prestige Small Cap Fund Class A, Class B, Class Y
Prestige Balanced Fund Class A, Class B, Class Y
Prestige International Fund Class A, Class B, Class Y Nationwide Small
Cap Index Fund Class A, Class B, Institutional Class
Nationwide Mid Cap Market Index Fund Class A, Class B, Institutional Class
Nationwide International Index Fund Class A, Class B, Institutional Class
Nationwide Bond Index Fund Class A, Class B, Institutional Class
</TABLE>
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<TABLE>
<S> <C>
Nationwide Focus Fund Class A, Class B, Institutional Class
Nationwide Value Opportunities Fund Class A, Class B, Institutional Class
Nationwide High Yield Bond Fund Class A, Class B, Institutional Class
</TABLE>
You have an interest only in the assets of the shares of the Fund which
you own. Shares of a particular class are equal in all respects to the other
shares of that class. In the event of liquidation of the Fund, shares of the
same class will share pro rata in the distribution of the net assets of the Fund
with all other shares of that class. All shares are without par value and when
issued and paid for, are fully paid and nonassessable by the Trust. Shares may
be exchanged or converted as described in this Statement of Additional
Information and in the Prospectus but will have no other preference, conversion,
exchange or 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 share held. An annual or
special meeting of shareholders to conduct necessary business is not required by
the Declaration of Trust, the Investment Company Act of 1940 or other authority
except, under certain circumstances, to amend the Declaration of Trust, the
Investment Advisory Agreement, fundamental investment objectives, investment
policies and 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
fundamental 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. In addition, holders of
Class A, Class B, Class R or Local Fund Institutional Classshares will vote as a
class and not with holders of any other class with respect to the approval of
the Distribution Plan.
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
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<PAGE> 88
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 Investment Company Act of 1940. 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> 89
ADDITIONAL GENERAL TAX INFORMATION
The Fund 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 the Fund's
shareholders. In order to qualify as a regulated investment company, the 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.
In addition, to utilize the tax provisions specially applicable to regulated
investment companies, the 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 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 the 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, the Fund
may be subject to the tax laws of such states or localities. In addition, if for
any taxable year the 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 the Fund will distribute annually to shareholders
all or substantially all of the Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal income
tax purposes, even if paid in additional shares of the Fund and not in cash.
Distribution by the Fund of the excess of net long-term capital gain
over net short-term capital loss, if any, is taxable to shareholders as
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.
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<PAGE> 90
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).
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 long-term capital gains is more than one year.
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. The 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 the
Fund for its taxable year that qualifies for the dividends received deduction.
Foreign taxes may be imposed on the Fund by foreign countries with
respect to its income from foreign securities. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. It is
impossible to determine the effective rate of foreign tax in advance since the
amount of the Fund's assets to be invested in various countries is not known.
Since less than 50% in value of the Fund's total assets at the end of
its fiscal year will be invested in stocks or securities of foreign
corporations, the Fund will not be entitled under the Code to pass through to
its shareholders their pro rata share of the foreign taxes paid by the Fund.
These taxes will be taken as a deduction by the Fund. Under Section 1256 of the
Code, gain or loss realized by the 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
Fund's taxable year will be treated as sold for their then fair market value,
resulting in additional gain or loss to the Fund characterized in the manner
described above.
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Offsetting positions held by the 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 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 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 Fund,
losses realized by the 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.
The 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 Prospectus 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 Fund. No attempt has been made to present a detailed
explanation of the Federal income tax treatment of the Fund or its shareholders
and this discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of shares of the Fund are urged to consult
their tax advisers with specific reference to their own tax situation. In
addition, the tax discussion in the Prospectus and this Statement of Additional
Information is based on tax laws and regulations which are in effect on the date
of the Prospectus 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.
60
<PAGE> 92
MAJOR SHAREHOLDERS
As of November 30, 1999, the following shareholders held five percent
or greater of shares of the Funds:
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
NATIONWIDE INTERMEDIATE GOVERNMENT
INCOME FUND-CLASS D
Nationwide Life Insurance Co. 1,876,702.1360 34.93%
QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
GROWTH FUND-CLASS D
Nationwide Life Insurance Co. 15,652,683.9010 28.59%
QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
NATIONWIDE FUND-CLASS D
5,692,321.2750 7.69%
Nationwide Life Insurance Co.
QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Life Insurance Co. 11,850,522.8360 16.01%
QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Life Insurance Co. 6,402,955.1040 8.65%
QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
</TABLE>
61
<PAGE> 93
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
Nationwide Life Insurance Co. 4,026,810.5620 5.44%
QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
NATIONWIDE BOND FUND - CLASS D
Nationwide Life Insurance Co. 3,467,912.2760 25.18%
QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
NATIONWIDE MONEY MARKET FUND - CLASS D
Nationwide Life Insurance Co. 77,876,161.0380 6.01%
QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Life Insurance Co. 634,058,390.6000 48.92%
QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Life Insurance Co. 82,840,667.6000 6.39%
QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
NATIONWIDE CLR MONEY MARKET - CLASS R
Nationwide Trust Company, FSB 27,324,009.8800 58.07%
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
</TABLE>
62
<PAGE> 94
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
Nationwide Pensions Managed 8,611,753.3500 18.30%
Variable Account
Personal Portfolio Series #1
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Life Insurance Co. 6,916,290.3500 14.70%
QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
NW S&P 500 INDEX FUND
Nationwide Life Co 2,025,344.2330 78.61%
Attn. Gary Berndt
1 Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Asset Allocation Trust 177,525.0240 6.89%
c/o Nationwide Advisory Services Inc 3-26-04
Portfolio
3 Nationwide Plaza
Columbus, Ohio 43215-2410
Nationwide Asset Allocation Trust 130,022.1570 5.05%
c/o Nationwide Advisory Services Inc 3-26-04
Aggressive Portfolio
3 Nationwide Plaza
Columbus, Ohio 43215-2410
NATIONWIDE INTERMEDIATE US GOVERNMENT BOND -
CLASS A
Nationwide Pensions Managed 525,134.6410 10.10%
Variable Account
Personal Portfolio Series #1
One Nationwide Plaza
Columbus, Ohio 43215-2239
</TABLE>
63
<PAGE> 95
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
Nationwide Pensions Managed 546,864.8340 10.52%
Variable Account
Personal Portfolio Series #2
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 1,036,284.1280 19.93%
Variable Account
Personal Portfolio Series #3
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 1,415,984.3380 27.24%
Variable Account
Personal Portfolio Series #4
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 1,158,948.4610 22.29%
Variable Account
Personal Portfolio Series #5
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 343,643.0980 6.61%
Variable Account
Personal Portfolio Series #6
One Nationwide Plaza
Columbus, Ohio 43215-2239
NATIONWIDE INTERMEDIATE US GOVERNMENT
BOND - CLASS B
Wanda Fay Whitley
51 Lakeshore Ln 9,817.8270 8.93%
Chattanooga, TN 37415-7015
Vernie M. Weaver 6,659.7270 6.06%
T/O/D
3708 Cyrus Creek Rd
Darrdoursville, WV 25504
Norma Louise Bugg 7,682.6280 6.99%
T/O/D
RR 4 Box 51
Tangier, IN 47952-9019
</TABLE>
64
<PAGE> 96
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
NATIONWIDE MONEY MARKET FUND -
CLASS B
Audrey J. Anthor 10,154.3330 5.38%
T/O/D
27 Ladera DR
Bethel Park, PA 15102-1119
Lynn G. Schroeder & 11,315.1800 5.99%
Suzanne Schroeder JT WROS
T/O/D
901 Stonegate Ct
York, PA 17404-1036
Denise A. Ivni & 11,302.2500 5.98%
Alessandro V. Ivni JT WROS
745 Southcrest Dr
Pittsburgh, PA 15226-1238
Denise A. Ivni 12,048.6200 6.38%
T/O/D
745 Southcrest Dr
Pittsburgh, PA 15226-1238
NAS as Custodian for IRA Plan 13,965.1600 7.40%
R. Duane Gross
662 Brookland Rd
Coudersport, PA 16915-8028
NAS as Custodian for IRA Plan 11,383.2500 6.03%
Thomas L. Storr
4330 Lower Fords Rd
Drofind, ID 8.544
NAS as Custodian for IRA Plan 22,190.3500 11.75%
Loree W. Sowell
Rollover Account
6708 Lovington Dr
Dallas, TX 75252-2545
</TABLE>
65
<PAGE> 97
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
NAS as Custodian for IRA Plan 26,291.1500 13.92%
Claude D. Johnson, Jr.
NC 69 Box 1340
Bigfoot, TX 78005-9303
Frank Floria & 9,996.0100 5.29%
Angelina Floria JT WROS
460 Salisbury Park Dr., Apt. 2G
Westbury, NY 11590-6565
NATIONWIDE BOND FUND - CLASS A
NAS as Custodian For IRA Plan 20,988.7350 5.88%
Lacy E. Jones
Rollover Account
581 Moores Landing Rd
Hampstead, NC 2844-8619
I Know I Can Fund Of the Columbus Foundation 39,499.7710 11.06%
1234 E. Broad St
Columbus, Ohio 43205-1405
NATIONWIDE BOND FUND - CLASS D
Joan C. Edwards 21,933.2090 12.12%
114 Hunter Pkwy
Cuyahoga Fls, Ohio 4223-3750
NATIONWIDE TAX-FREE INCOME - CLASS A
Geraldine H. Zerphey 18,933.8240 8.02%
T/O/D
232 N. Locust St
Elizabethtown, PA 17022-1929
</TABLE>
66
<PAGE> 98
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
Larry K. Brinton and 12,585.1180 5.33%
Garry L. Brinton JTWROS
T/O/D
9 Nelson Manor LN
Middletown, PA 17057-4905
Mary M. Dais & 36,866.3590 15.61%
William F. Dais JT WROS
910 Buckeye St.
Genoa, OH 43430-1523
Richard C. Stansbury 20,253.8030 8.58%
T/O/D
201 St Mark Way, Apt.404
Westminster, MD 21158-4195
NATIONWIDE TAX-FREE INCOME - CLASS D
Lenville F. Shelley and 19,687.2540 5.10%
Lois Shelley As JT WROS
4723 Alpine Ave.
Cincinnati, Ohio 45242-7403
NATIONWIDE MID CAP GROWTH FUND - CLASS D
Nationwide Life Ins Co 30,028.1160 5.99%
Attn: Pamela Smith
1/32/05
One Nationwide Plaza
Columbus, Ohio 43215-2239
MORLEY CAPITAL ACCUMULATION FUND ISC
Nationwide Life Ins. Co. 104,028.7590 98.10%
Attn: Pamela Smith
One Nationwide Plaza
Columbus, Ohio 43215-2239
</TABLE>
67
<PAGE> 99
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
MORLEY CAPITAL ACCUMULATION FUND IC
Morley Capital Management 202,231.2170 39.24%
5665 SW Meadows Rd, Ste. 400
Lake Oswego, OR 97035-3193
Nationwide Life Ins. Co. 313,125.6380 60.75%
Attn: Pam Smith
One Nationwide Plaza
Columbus, Ohio 43215-2239
MORLEY CAPITAL ACCUMULATION FUND IRA
Nationwide Life Co. 104,027.4000 56.65%
Attn: Pam Smith
1 Nationwide Plaza
Columbus, Ohio 43215-2239
NAS As Cust for IRA Plan 70,677.6720 38.49%
Harold N. Morley
Rollover Account
18016 Skyland Cir
Lake Oswego, OR 97034-6452
PRESTIGE LARGE CAP VALUE FUND - CLASS A
Nationwide Pensions Managed 167,923.9930 6.42%
Variable Account
Personal Portfolio Series #1
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 198,651.3120 7.60%
Variable Account
Personal Portfolio Series #3
One Nationwide Plaza
Columbus, Ohio 43215-2239
</TABLE>
68
<PAGE> 100
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
Nationwide Pensions Managed 678,599.9810 25.95%
Variable Account
Personal Portfolio Series #4
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 740,531.4720 28.32%
Variable Account
Personal Portfolio Series #5
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 658,753.9040 25.19%
Variable Account
Personal Portfolio Series #6
One Nationwide Plaza
Columbus, Ohio 43215-2239
PRESTIGE LARGE CAP VALUE FUND - CLASS B
NAS as Cust for IRA Plan 1,211.1750 6.46%
Jeffrey V. Medema
Rollover Account
1728 Kilgore Road
Dayton, TX 77520-3923
NAS as Cust for IRA Plan 963.2160 5.14%
Wendy L. Morris
Rollover Account
406 19th St.
Mendota, IL 61342-1240
Mary R. Brown 1,257.5450 6.71%
1869 Prospect Road
Lawrenceville, GA 30043-2758
Doug L. Brown & 2,460.4640 13.12%
Jackie Lynn Brown JT WROS
1839 Prospect Road
Lawrenceville, GA 30043-2758
</TABLE>
69
<PAGE> 101
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
PRESTIGE LARGE CAP VALUE FUND - CLASS Y
Nationwide Life Insurance Co. 10,506.5050 13.74%
GPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Life Insurance 46,008.9120 60.18%
NACO
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Life Insurance 19,941.3360 26.08%
DCVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
PRESTIGE LARGE CAP GROWTH FUND - CLASS A
Nationwide Pensions Managed 117,823.8320 5.04%
Variable Account
Personal Portfolio Series #1
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 147,200.0480 6.30%
Variable Account
Personal Portfolio Series #2
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 278,957.0450 11.94%
Variable Account
Personal Portfolio Series #3
One Nationwide Plaza
Columbus, Ohio 43215-2239
</TABLE>
70
<PAGE> 102
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
Nationwide Pensions Managed 476,461.9850 20.39%
Variable Account
Personal Portfolio Series #4
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 519,948.3510 22.25%
Variable Account
Personal Portfolio Series #5
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 693,796.2310 29.69%
Variable Account
Personal Portfolio Series #6
One Nationwide Plaza
Columbus, Ohio 43215-2239
PRESTIGE LARGE CAP GROWTH FUND - CLASS B
Ron Finnell 7,358.3520 7.23%
T/O/D
P.O. Box 141
Sedalia, MD 65302-0141
PRESTIGE LARGE CAP GROWTH FUND - CLASS Y
Nationwide Life Insurance Co. 85,783.7860 23.12%
GPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Life Insurance Co. 141,217.2530 38.06%
NACO
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
</TABLE>
71
<PAGE> 103
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
Nationwide Life Insurance Co. 144,042.8810 38.82%
DCVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
PRESTIGE BALANCED FUND - CLASS A
Nationwide Life Insurance Co. 19,086.2470 8.18%
QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Life Co. 169,922.1830 72.79%
Attn: Pam Smith
1 Nationwide Plaza
Columbus, Ohio 43215-2239
PRESTIGE BALANCED FUND - CLASS B
Nationwide Life Co. 167,469.7720 87.70%
Attn: Pam Smith
1 Nationwide Plaza
Columbus, Ohio 43215-2239
PRESTIGE BALANCED FUND - CLASS Y
Nationwide Life Insurance Co. 58,301.9510 20.57%
NACO
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Life Insurance Co. 48,449.8900 17.10%
DCVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
</TABLE>
72
<PAGE> 104
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
Nationwide Life Co. 170,137.5400 60.03%
Attn: Pam Smith
1 Nationwide Plaza
Columbus, Ohio 43215-2239
PRESTIGE SMALL CAP FUND - CLASS A
Nationwide Pensions Managed 173,692.4600 10.01%
Variable Account
Personal Portfolio Series #3
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 296,688.0690 17.10%
Variable Account
Personal Portfolio Series #4
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 647,492.7210 37.33%
Variable Account
Personal Portfolio Series #5
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 575.989.7790 33.21%
Variable Account
Personal Portfolio Series #6
One Nationwide Plaza
Columbus, Ohio 43215-2239
PRESTIGE SMALL CAP FUND - CLASS B
Doug L. Brown & 2,220.0790 9.96%
Jackie Lynn Brown JT WROS
1839 Prospect Road
Lawrenceville, GA 30043-2753
NAS as Cust of IRA Plan 3,342.9570 15.00%
John F. Carlin
694 Jenney Mill Ct
Marietta, GA 30068-2221
</TABLE>
73
<PAGE> 105
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
PRESTIGE SMALL CAP FUND - CLASS Y
Nationwide Life Insurance Co. 24,586.0680 14.16%
GPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Life Insurance Co. 61,335.0170 35.31%
NACO
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
Nationwide Life Insurance Co. 87,767.4640 50.53%
DCVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, Ohio 43218-2029
PRESTIGE INTERNATIONAL FUND - CLASS A
Nationwide Pensions Managed 290,704.2310 24.51%
Variable Account
Personal Portfolio Series #4
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 317,239.2660 26.75%
Variable Account
Personal Portfolio Series #5
One Nationwide Plaza
Columbus, Ohio 43215-2239
Nationwide Pensions Managed 564,412.9800 47.59%
Variable Account
Personal Portfolio Series #6
One Nationwide Plaza
Columbus, Ohio 43215-2239
</TABLE>
74
<PAGE> 106
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
PRESTIGE INTERNATIONAL FUND - CLASS B
Scott William Stilwell 442.0870 8.68%
10471 Manoning Ave.
Brooksville, Fl 34614-3078
Paulette S. Novak 259.0670 5.09%
T/O/D
3785 Grafton Road
Brunswick, Ohio 44212-2131
NAS as Cust for IRA Plan 283.9830 5.58%
Jeffrey V. Medema
Rollover Account
1728 Kilgore Road
Daytown, TX 77520-3923
Gerald Lamendola 272.8600 5.36%
6365 E. Bethany Leroy Road
Stafford, NY 14143-9535
NAS as Cust for IRA Plan 395.0540 7.76%
Robert H. Thompson
Rollover Account
3309 Marian Cove Cir.
Elk Grove, CA 95758-4676
NAS as Cust for IRS Plan 283.1710 5.56%
James A Haut
635 Hall St. Apt. 8
Susanville, CA 96130-3744
John S. Uzzo 533.7210 10.48%
T/O/D
12744 Forrest Dr.
Edinboro, PA 16412-1282
NAS as Cust for IRA Plan 319.0520 6.26%
Suzanne M. Walter
Rollover Account
164 Mystic CV SW
Lilburn, GA 30047-3936
</TABLE>
75
<PAGE> 107
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
NAS as Cust for IRA Plan 474.2300 9.31%
Richard Dean Cira
Rollover Account
10 Little Acorn Circle
Pittsford, NY 14534-3312
PRESTIGE INTERNATIONAL FUND - CLASS Y
Nationwide Life Insurance Co. 5,174.7620 8.59%
GPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co. 26,057.4930 43.08%
NACO
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Nationwide Life Insurance Co. 29,205.2070 48.29%
DCVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
NW S&P 500 INDEX FUND - CLASS R
Nationwide Life Insurance Co. 6,427,882.4100 97.95%
QPVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
NW S&P 500 INDEX FUND - CLASS Y
Nationwide Life Insurance Co. 603,400.7230 39.23%
NACO
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
</TABLE>
76
<PAGE> 108
<TABLE>
<CAPTION>
PERCENTAGE OF FUND'S
FUND/CLASS NO. OF SHARES TOTAL ASSETS
---------- ------------- ------------
<S> <C> <C>
Nationwide Life Insurance Co. 878,373.5100 57.11%
DCVA
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
</TABLE>
As of October 31, 1999, the Trustees and Officers of the Trust as a
group owned beneficially less than 1% of the shares of the Trust.
As of October 31, 1999, Nationwide Life Insurance Company directly
owned, controlled and held power to vote 90.55% of the outstanding shares of the
Fund.
Nationwide Life Insurance Company, One Nationwide Plaza, Columbus, Ohio
43215 is wholly-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 Insurance 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.
FINANCIAL STATEMENTS
The Report of Independent Auditors and Financial Statements of the Fund
for the period ended October 31, 1999 are incorporated by reference to the
Trust's Annual Report for the Fund. Copies of the Annual Report are available
without charge upon request by writing the Trust or by calling toll-free
1-800-848-0920.
77
<PAGE> 109
APPENDIX A
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.
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<PAGE> 110
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.
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.
79
<PAGE> 111
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.
FITCH'S SHORT-TERM RATINGS
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of 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.
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
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<PAGE> 112
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.
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.
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<PAGE> 113
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.
TBW-4 the lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
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<PAGE> 114
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Amended Declaration of Trust previously filed with the Trust's
Registration Statement on January 5, 1999, and is hereby incorporated
by reference.
(b) Amended Bylaws previously filed with the Trust's Registration
Statement on August 7, 1998, and is hereby incorporated by reference.
(c) Certificates for shares are not issued. Articles V, VI, VII, and VIII
of the Declaration of Trust, incorporated by reference to Exhibit (1)
hereto, define rights of holders of shares.
(d)(1)(a) Investment Advisory Agreement (except for the Morley Capital
Accumulation Fund) previously filed with the Trust's Registration
Statement on January 5, 1999, and is hereby incorporated by reference.
(b) Amendment to Investment Advisory Agreement.
(c) Proposed Amended Exhibit A to the Investment Advisory Agreement.
(2)(a) Investment Advisory Agreement for the Morley Capital Accumulation Fund
previously filed with the Trust's Registration Statement on January 5,
1999, and is hereby incorporated by reference.
(b) Proposed Amended Exhibit A to the Investment Advisory Agreement for
the Morley Capital Accumulation Fund and the Morley Enhanced Income
Fund.
(3) Subadvisory Agreements.
(a)Subadvisory Agreement with Fund Asset Management, L.P. for
S & P 500 Index Fund report for October 29,1999, previously
filed with the Trust's Registration Statement on October 29,
1999, and is hereby incorporated by reference.
(b)(1) Subadvisory Agreement for the Prestige Large Cap Value Fund
January 5, 1999, and is hereby incorporated by reference.
(2) Amendment to Subadvisory Agreement.
(c)(1) Subadvisory Agreement for the Prestige Large Cap Growth Fund
previously filed with the Trust's Registration Statement on
January 5, 1999, and is hereby incorporated by reference.
(2) Amendment to Subadvisory Agreement.
(d)(1) Subadvisory Agreement for the Prestige Small Cap Fund
previously filed with the Trust's Registration Statement on
January 5, 1999, and is hereby incorporated by reference.
(2) Amendment to Subadvisory Agreement.
(e)(1) Subadvisory Agreement for the Prestige International Fund
previously filed with the Trust's Registration Statement on
January 5, 1999, and is hereby incorporated by reference.
(2) Amendment to Subadvisory Agreement.
(f)(1) Subadvisory Agreement for the Prestige Balanced Fund
previously filed with the Trust's Registration Statement on
January 5, 1999, and is hereby incorporated by reference.
(2) Amendment to Subadvisory Agreement.
(e)(1) Underwriting Agreement previously filed with the Trust's Registration
Statement on January 5, 1999, and is hereby incorporated by reference.
(2) Model Dealer Agreement previously filed with the Trust's Registration
Statement on January 5, 1999, and is hereby incorporated by reference.
(f) Not applicable.
(g) Custody Agreement previously filed with the Trust's original
Registration Statement on November 18, 1997, and is hereby incorporated
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by reference.
(h)(1)(a) Fund Administration Agreement previously filed with the Trust's
Registration Statement on January 5, 1999, and is hereby incorporated
by reference.
(b) Amendment to Fund Administration Agreement.
(c) Proposed Amended Exhibit A to Fund Administration Agreement.
(2) Transfer and Dividend Disbursing Agent. previously filed with the
Trust's Registration Statement on January 5, 1999, and is hereby
incorporated by reference.
(3) Agreement and Plan of Reorganization between Nationwide Investing
Foundation and the Trust previously filed with the Trust's
Registration Statement on form N-14 ('33 Act File No. 333-41175) on
November 24, 1997, and is hereby incorporated by reference.
(4) Agreement and Plan of Reorganization between Nationwide Investing
Foundation II and the Trust Previously filed with the Trust's
Registration Statement on Form N-14 ('33 Act File No.333-41175) on
November 24, 1997, and is hereby incorporated by reference.
(5) Agreement and Plan of Reorganization between Financial Horizons
Investment Trust and the Trust previously filed with the Trust's
Registration Statement on Form N-14 ('33 Act File No. 333-41175) on
November 24, 1997 and is hereby incorporated by reference.
(6) Administrative Services Plan and Services Agreement previously filed
on January 5, 1999, and is hereby incorporated by reference.
(i) Opinion of Counsel previously filed and is hereby incorporated by
reference.
(j) Consent of KPMG LLP, Independent Auditors.
(k) Not applicable.
(l) Purchase Agreement previously filed with Trust's Registration
Statement on January 2, 1998, and hereby incorporated by reference.
(m)(1) Amended Distribution Plan previously filed with the Trust's
Registration Statement on January 5, 1999, and is hereby incorporated
by reference.
(2) Dealer Agreement (see Exhibit 6(b)) previously filed with the Trust's
Registration Statement on January 5, 1999, and is hereby incorporated
by reference.
(3) Rule 12b-1 Agreement previously filed with the Trust's Registration
Statement on January 5, 1999, and is hereby incorporated by reference.
(n) Financial Data Schedule.
(o) Amended 18f-3 Plan previously filed with the Trust's Registration
Statement on January 5, 1999, and is hereby incorporated by reference.
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Power of Attorney dated November 7, 1997 previously filed in the Trust's
Pre-Effective Amendment and is hereby incorporated by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
WITH REGISTRANT
No person is presently controlled by or under common control with
Registrant.
ITEM 25. INDEMNIFICATION
Indemnification provisions for officers, directors and employees of
Registrant are set forth in Article V, Section 5.2 of the Declaration
of Trust. In addition, Section 1743.13 of the Ohio Revised Code
provides that no liability to third persons for any act, omission or
obligation shall attach to the trustees, officers, employees or
agents of a business trust organized under Ohio statutes. The
trustees are also covered by an errors and omissions policy provided
by the Trust covering actions taken by the trustees in their capacity
as trustee. See Item 24(b)1 above.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
(a) Villanova Mutual Fund Capital Trust, ("VMF"), the investment
adviser of the Trust, also serves as investment adviser to the
Nationwide Separate Account Trust.
The Directors of Villanova Capital, Inc., VMF's managing unitholder
and the officers of VMF are as follows:
Joseph J. Gasper Director and President and Chief Operating Officer
--------------------------------------------------
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance
Company
Nationwide Financial Services, Inc.
Director and Chairman of the Board
----------------------------------
National Deferred Compensation, Inc.
Nationwide Investment Services Corp
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Director and Vice Chairman
--------------------------
ALLIED Group Merchant Banking Corp
ALLIED Life Brokerage Agency, Inc.
ALLIED Life Financial Corporation
ALLIED Life Insurance Company
Nationwide Financial Institution
Distributors Agency, Inc.
Nationwide Global Funds
Nationwide Global Holdings, Inc.
Nationwide Retirement Solutions, Inc.
Neckura Life Insurance Company
NFS Distributors, Inc.
Pension Associates, Inc.
Villanova Capital, Inc.
Vice Chairman
-------------
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust
Director and President
----------------------
Employers Life Insurance Company of
Wausau
Nationwide Advisory Services, Inc.
Nationwide Investor Services, Inc.
Nationwide Financial Services (Bermuda)
Ltd.
Wausau Preferred Health Insurance
Company
Director
--------
Affiliate Agency, Inc.
Affiliate Agency of Ohio, Inc.
Financial Horizons Distributors Agency
Of Alabama, Inc.
Financial Horizons Distributors Agency
of Ohio, Inc.
Financial Horizons Distributors Agency
of Oklahoma, Inc.
Financial Horizons Securities,
Corp.,Inc
Landmark Financial Services of New
York,
Leben Direkt Insurance Company
Morley Financial Services, Inc.
Nationwide Indemnity Company
Neckura Holding Company
NGH Luxembourg, S.A.
PanEurolife
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Trustee and Chairman
--------------------
Nationwide Asset Allocation Trust
Nationwide Separate Account Trust
Trustee and President
---------------------
Nationwide Insurance Golf Charities,
Inc.
Board of Managers
-----------------
Nationwide Services Company, LLC.
Dennis W. Click Vice President and Secretary
------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance
Company
Nationwide Property and Casualty
Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity
Insurance Company
Nationwide Financial Services, Inc.
Nationwide Services Company, LLC.
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
Nationwide Financial Institution
Distributors Agency, Inc.
Nationwide International Underwriters
AID Finance Services, Inc.
ALLIED General Agency Company
ALLIED Group, Inc.
ALLIED Group Insurance Marketing Company
ALLIED Group Mortgage Company
ALLIED Life Brokerage Agency, Inc.
ALLIED Life Financial Corporation
ALLIED Life Insurance Company
ALLIED Property and Casualty Insurance
Company
AMCO Insurance Company
American Marine Underwriters, Inc.
Cal-Ag Insurance Services, Inc.
CalFarm Insurance Agency
CalFarm Insurance Company
Colonial County Mutual Insurance Company
Colonial Insurance Company of Wisconsin
Depositors Insurance Company
Midwest Printing Services, Ltd.
Premier Agency, Inc.
Western Heritage Insurance Company
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Gates McDonald & Company
GatesMcDonald Health Plus Inc.
Gates, McDonald & Company of Nevada
Gates, McDonald & Company of New York,
Inc.
National Casualty Company
National Deferred Compensation, Inc.
Nationwide Global Holdings, Inc.
Nationwide Cash Management Company
Nationwide Indemnity Company
Nationwide Community Urban
Redevelopment Corporation
Nevada Independent Companies-
Construction
Nevada Independent Companies-Health
and Nonprofit
Nevada Independent Companies-Hospitality
and Entertainment
Nevada Independent Companies-
Manufacturing,
Transportation and Distribution
NFS Distributors, Inc.
Farmland Mutual Insurance Company
Lone Star General Agency, Inc.
Nationwide Agribusiness Insurance
Company
Employers Life Insurance Company of
Wausau
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.
Nationwide Corporation
Nationwide Insurance Enterprise
Foundation
Nationwide Investment Services
Corporation
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance
Company
Affiliate Agency, Inc.
Affiliate Agency of Ohio, Inc.
Financial Horizons Distributors
Agency of Alabama, Inc.
Financial Horizons Distributors
Agency of Ohio, Inc.
Financial Horizons Distributors
Agency of Oklahoma, Inc.
Financial Horizons Securities
Corporation
Landmark Financial Services of New
York, Inc.
Nationwide Retirement Solutions, Inc.
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Nationwide Retirement Solutions, Inc.
of Alabama
Nationwide Retirement Solutions, Inc.
of Arizona
Nationwide Retirement Solutions, Inc.
of Arkansas
Nationwide Retirement Solutions, Inc.
of Montana
Nationwide Retirement Solutions, Inc.
of Nevada
Nationwide Retirement Solutions, Inc.
of New Mexico
Nationwide Retirement Solutions, Inc.
of Ohio
Nationwide Retirement Solutions, Inc.
of Oklahoma
Nationwide Retirement Solutions, Inc.
of South Dakota
Nationwide Retirement Solutions, Inc.
of Wyoming
Nationwide Agency, Inc.
Nationwide Health Plans, Inc.
Nationwide Management Systems, Inc.
MRM Investments, Inc.
National Premium and Benefit
Administration Company
Nationwide Insurance Company of America
Nationwide Insurance Company of Florida
Morley Financial Services, Inc.
Pension Associates, Inc.
Villanova Capital, Inc.
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust
Wausau Preferred Health Insurance
Company
Assistant Secretary
-------------------
Nationwide Financial Services
(Bermuda) Ltd.
Vice President and Assistant Secretary
--------------------------------------
ALLIED Group Merchant Banking
Corporation
Vice President and Clerk
------------------------
Healthcare First, Inc.
Nationwide Retirement Solutions
Insurance Agency, Inc.
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Paul J. Hondros Director
--------
President and Chief Executive Officer
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.
Villanova Capital, Inc.
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust
Dimon R. McFerson Chairman and Chief Executive Officer
Nationwide Insurance
------------------------------------
Enterprise and Director
-----------------------
ALLIED Group, Inc.
ALLIED Life Financial Corporation
Farmland Mutual Insurance Company
GatesMcDonald Health Plus, Inc.
Nationwide Agribusiness Insurance
Company
National Casualty Company
Nationwide Financial Services, Inc.
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance
Company
Chairman and Chief Executive Officer and
Director
----------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide General Insurance Company
Nationwide Property and Casualty
Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance
Company
Colonial Insurance Company of Wisconsin
National Deferred Compensation, Inc.
Nationwide Cash Management Company
Nationwide Global Holdings, Inc.
Nationwide Indemnity Company
Nationwide Insurance Company of America
Nationwide Investment Services
Corporation
Chairman and Chief Executive Officer,
President and Director
-------------------------------------
Nationwide Corporation
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Chairman of the Board, Chairman and
Chief Executive
-----------------------------------
Officer and Director
--------------------
American Marine Underwriters, Inc.
Employers Life Insurance Company of
Wausau
Nationwide Advisory Services, Inc.
Nationwide Financial Institution
Distributors Agency, Inc
Nationwide International Underwriters
Nationwide Investor Services, Inc.
Nationwide Retirement Solutions, Inc.
NFS Distributors, Inc.
Pension Associates, Inc.
Wausau Preferred Health Insurance
Company
Chairman of the Board, Chairman and
Chief Executive
-----------------------------------
Officer-Nationwide Insurance Enterprise
and Director
---------------------------------------
AID Finance Services, Inc.
ALLIED General Agency Company
ALLIED Group Insurance Marketing Company
ALLIED Group Merchant Banking
Corporation
ALLIED Group Mortgage Company
ALLIED Life Brokerage Agency, Inc.
ALLIED Life Insurance Company
ALLIED Property and Casualty
Insurance Company
AMCO Insurance Company
Depositors Insurance Company
Midwest Printing Services, Ltd.
Premier Agency, Inc.
Western Heritage Insurance Company
Gates, McDonald and Company
Nationwide Retirement Solutions, Inc.
Nationwide Insurance Enterprise
Services, Ltd.
Villanova Capital, Inc.
Trustee and Chairman
--------------------
Financial Horizons Investment Trust
Nationwide Investing Foundation
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Nationwide Investing Foundation II
Nationwide Mutual Funds
Chairman of the Board
---------------------
Nationwide Insurance Golf Charities,
Inc.
Chairman of the Board and Director
----------------------------------
Cal-Ag Insurance Services, Inc.
CalFarm Insurance Agency
CalFarm Insurance Company
Lone Star General Agency, Inc.
Nationwide Community Urban
Redevelopment Corporation
Colonial County Mutual Insurance Company
Director
--------
Gates, McDonald & Company of Nevada
Gates, McDonald & Company of New York
Healthcare First, Inc.
MRM Investments, Inc.
Morley Financial Services, Inc.
Nationwide Agency, Inc.
Nationwide Health Plans, Inc.
Nationwide Management Systems, Inc.
Nevada Independent Companies-
Construction
Nevada Independent Companies-Health
and Nonprofit
Nevada Independent Companies-
Hospitality and Entertainment
Nevada Independent Companies-
Manufacturing,
Transportation and Distribution
PanEurolife
Chairman of the Board, Chairman and
Chief Executive
-----------------------------------
Officer and Trustee
-------------------
Nationwide Insurance Enterprise
Foundation
Member-Board of Managers, Chairman of
the Board,
-------------------------------------
Chairman and Chief Executive Officer
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------------------------------------
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
Nationwide Services Company, LLC.
Chairman and Chief Executive Officer
------------------------------------
Nationwide Insurance Company of
Florida
Chairman and Chief Executive Officer-
Nationwide Insurance
-------------------------------------
Enterprise
----------
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust
Robert A. Oakley
Executive Vice President-Chief Financial
Officer
----------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance
Company
Nationwide General Insurance Company
Nationwide Property and Casualty
Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity
Insurance Company
ALLIED Group. Inc.
ALLIED Life Financial Corporation
CalFarm Insurance Company
Employers Life Insurance Company
of Wausau
National Casualty Company
National Premium and Benefit
Administration Company
Farmland Mutual Insurance Company
Nationwide Financial Institution
Distributors Agency, Inc.
Lone Star General Agency, Inc.
Nationwide Agribusiness Insurance
Company
Nationwide Corporation
Nationwide Financial Services, Inc.
Nationwide Investment Services
Corporation
Nationwide Investor Services, Inc.
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Nationwide Insurance Enterprise
Foundation
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
Nationwide Retirement Solutions, Inc.
Colonial County Mutual Insurance
Company
Pension Associates, Inc.
Nationwide Retirement Solutions, Inc.
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance
Company
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust
Wausau Preferred Health Insurance
Company
Director and Chairman of the Board
----------------------------------
Neckura Holding Company
Neckura Insurance Company
Neckura Life Insurance Company
Executive Vice President-Chief
Financial Officer and
------------------------------
Director
AID Finance Services, Inc.
ALLIED General Agency Company
ALLIED Group Insurance Marketing
Company
ALLIED Group Merchant Banking
Corporation
ALLIED Group Mortgage Company
ALLIED Life Brokerage Agency, Inc.
ALLIED Life Insurance Company
ALLIED Property and Casualty
Insurance Company
AMCO Insurance Company
American Marine Underwriters, Inc.
Cal-Ag Insurance Services, Inc.
CalFarm Insurance Agency
Depositors Insurance Company
Midwest Printing Services, Ltd.
Premier Agency, Inc.
Western Heritage Insurance Company
Colonial Insurance Company of
Wisconsin
Nationwide Cash Management Company
Nationwide Community Urban
Redevelopment Corporation
National Deferred Compensation, Inc.
Nationwide Global Holdings, Inc.
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Nationwide Services Company, LLC.
NFS Distributors, Inc.
MRM Investments, Inc.
Nationwide Advisory Services, Inc.
Nationwide Indemnity Company
Nationwide Insurance Company of
America
Nationwide Insurance Company of
Florida
Nationwide International Underwriters
Villanova Capital, Inc.
Director and Vice Chairman
--------------------------
Leben Direkt Insurance Company
Neckura General Insurance Company
Auto Direkt Insurance Company
Director
--------
Gates, McDonald & Company
GatesMcDonald Health Plus Inc.
Healthcare First, Inc.
Morley Financial Services, Inc.
NGH Luxembourg, S.A.
PanEurolife
Board of Managers, Executive Vice
Pres.-Chief Financial Officer
---------------------------------
Nationwide Insurance Enterprise
Services, Ltd.
Susan A. Wolken
Senior Vice President - Life Company
Operations
------------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide Property and Casualty
Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance
Company
Nationwide Financial Services, Inc.
Senior Vice President - Life Company
Operations and Director
------------------------------------
Nationwide Financial Services
(Bermuda) Ltd.
Chairman of the Board and Director
----------------------------------
Nationwide Trust Company, FSB
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Senior Vice President and Director
----------------------------------
Employers Life Insurance Company of
Wausau
Pension Associates, Inc.
Wausau Preferred Health Insurance
Company
Director
--------
Affiliate Agency, Inc.
Affiliate Agency of Ohio, Inc.
Financial Horizons Distributors
Agency of Alabama, Inc.
Financial Horizons Distributors
Agency of Ohio, Inc.
Financial Horizons Distributors Agency
of Oklahoma, Inc.
Financial Horizons Securities
Corporation
Landmark Financial Services of New
York, Inc.
Nationwide Advisory Services, Inc.
----------------------------------
Nationwide Financial Institution
Distributors Agency, Inc.
Nationwide Global Funds
Nationwide Investment Services
Corporation
Nationwide Retirement Solutions, Inc.
Nationwide Retirement Solutions
Insurance Agency, Inc.
Nationwide Retirement Solutions, Inc.
of Alabama
Nationwide Retirement Solutions, Inc.
of Arizona
Nationwide Retirement Solutions, Inc.
of Arkansas
Nationwide Retirement Solutions, Inc.
of Montana
Nationwide Retirement Solutions, Inc.
of Nevada
Nationwide Retirement Solutions, Inc.
of New Mexico
Nationwide Retirement Solutions, Inc.
of Ohio
Nationwide Retirement Solutions, Inc.
of Oklahoma
Nationwide Retirement Solutions, Inc.
of South Dakota
Nationwide Retirement Solutions, Inc.
of Wyoming
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Villanova Capital, Inc.
Robert J. Woodward, Jr. Executive Vice President-Chief
Investment Officer
------------------------------
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance
Company
Nationwide General Insurance
Company
Nationwide Property and Casualty
Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance
Company
AID Finance Services, Inc.
ALLIED General Agency Company
ALLIED Group, Inc.
ALLIED Group Insurance Marketing
Company
ALLIED Group Merchant Banking Corp.
ALLIED Life Brokerage Agency, Inc.
ALLIED Life Financial Corporation
ALLIED Life Insurance Company
ALLIED Property and Casualty
Insurance Company
AMCO Insurance Company
Cal-Ag Insurance Services, Inc.
CalFarm Insurance Agency
CalFarm Insurance Company
Depositors Insurance Company
Midwest Printing Services, Ltd.
Premier Agency, Inc.
Western Heritage Insurance Company
Colonial County Mutual Insurance
Company
Colonial Insurance Company of Wisconsin
Employers Insurance of Wausau A Mutual
Company
Employers Life Insurance Company of
Wausau
Farmland Mutual Insurance Company
Gates, McDonald & Company
GatesMcDonald Health Plus, Inc.
Lone Star General Agency, Inc.
National Casualty Company
Nationwide Financial Services, Inc.
Nationwide Financial Services (Bermuda)
Ltd.
Nationwide Agribusiness Insurance
Company
Nationwide Insurance Company of
America
Nationwide Insurance Company of Florida
Nationwide Corporation
Nationwide Insurance Enterprise
Foundation
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Nationwide Insurance Enterprise Serv Ltd
Nationwide Investment Services
Corporation
Nationwide Retirement Solutions, Inc.
NFS Distributors, Inc.
Pension Associates, Inc.
Nationwide Retirement Solutions, Inc.
Scottsdale Indemnity Company
Scottsdale Insurance Company
Scottsdale Surplus Lines Insurance
Company
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust
Wausau Preferred Health Insurance
Company
Director
--------
Healthcare First, Inc.
Morley Financial Services, Inc.
Nationwide Global Holdings, Inc.
Nationwide Investors Services, Inc.
Member-Board of Managers and Vice Chairman
------------------------------------------
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
Member-Board of Managers and Executive
Vice President-Chief
-----------------------------------------
Investment Officer
------------------
Nationwide Services Company, LLC.
Director and President
----------------------
MRM Investments, Inc.
Nationwide Cash Management Company
Nationwide Community Urban
Redevelopment Corporation
Director and Executive Vice President-
Chief Investment Officer
----------------------------------------
Gates, McDonald & Company
GatesMcDonald Health Plus, Inc.
National Deferred Compensation, Inc.
Nationwide Indemnity Company
Nationwide Advisory Services, Inc.
Villanova Capital, Inc.
C-16
<PAGE> 130
Director, Vice Chairman and Executive Vice
President-Chief
--------------------------------------
Investment Officer
------------------
ALLIED Group Mortgage Company
Trustee and Vice Chairman
-------------------------
Nationwide Asset Allocation Trust
Nationwide Separate Account Trust
Except as otherwise noted, the principal business address of any company with
which any person specified above is connected in the capacity of director,
officer, employee, partner or trustee is One Nationwide Plaza, Columbus, Ohio
43215, except for the following companies:
Farmland Mutual Insurance Company
Nationwide Agribusiness Insurance Company
1963 Bell Avenue
Des Moines, Iowa 50315-1000
Colonial Insurance Company of Wisconsin
One Nationwide Plaza
Columbus, Ohio 43215
Scottsdale Insurance Company
8877 North Gainey Center Drive
P.O. Box 4110
Scottsdale, Arizona 85261-4110
National Casualty Company
P.O. Box 4110
Scottsdale, Arizona 85261-4110
Lone Star General Agency, Inc.
P.O. Box 14700
Austin, Texas 78761
C-17
<PAGE> 131
Auto Direkt Insurance Company
Columbus Insurance Brokerage and Service, GMBH
Leben Direkt Insurance Company
Neckura Holding Company
Neckura Insurance Company
Neckura Life Insurance Company
John E. Fisher Str. 1
61440 Oberursel/Ts.
Germany
Nationwide Retirement Solutions, Inc.
Two Nationwide Plaza
Columbus, Ohio 43215
Morley Financial Services, Inc.
5665 S. W. Meadows Rd. , Suite 400
Lake Oswego, Oregon 97035
(b) UBT serves as investment adviser to the Morley Capital
Accumulation Fund. UBT, a trust company organized under the laws
of the State of Oregon, is a wholly owned subsidiary of
Nationwide Life Insurance Company. UBT conducts a variety of
trust activities.
To the knowledge of the Trust, none of the directors or officers
of UBT, except as set forth below, is or has been at any time
during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature,
except that certain directors and officers also hold various
positions with and engage in business for Morley Financial
Services, Inc. The directors except as noted below may be
contacted C/O UBT, 5665 SW Meadows Rd., Suite 400, Lake Oswego,
Oregon 97035.
Donald C. Burdick, 434 Ridgeway Road, Lake Oswego, OR 97034 Mr.
Burdick has been an independent consultant and investor for the
past 10 years. Prior to that he was President of Investcorp
Financial Services.
Harold H. Morley, President, CEO and Director of UBT. Mr. Morley
is Chairman and Chief Executive Officer of Morley Financial
Services, Inc.
Joan K. Hall, Senior Vice President, Corporate Secretary,
Financial Officer and Director of UBT. Ms. Hall is Senior Vice
President and Financial Officer of Morley Financial Services.
Greg E. Ellis, Senior Vice President/ Managing Director. Mr.
Ellis is also Senior Vice President/ Managing Director of Morley
Capital Management, Inc.
C-18
<PAGE> 132
Peter DeGraff, Vice President and Assistant General Manager.
Taylor E. Drake, Vice President.
Frederick F. Fletcher VI, Vice President and Corporate
Controller.
Barbara Salisbury, Vice President.
(c) Information for the Subadviser of the S&P 500 Index Fund
(1) Fund Asset Management, L.P.
Fund Asset Management, L.P. ("FAM") acts as subadviser to
the S&P 500 Index Fund and as adviser or subadviser to a
number of other registered investment companies. The list
required by this Item 28 of officers and directors of FAM,
together with information as to their other business,
profession, vocation or employment of a substantial nature
during the past two fiscal years, is incorporated by
reference to Schedule A and D of Form ADV filed by FAM (SEC
file No. 801-12485).
(d) Information for the Subadviser of the Prestige Large Cap Value
Fund
(1) Brinson Partners, Inc.
Brinson Partners, Inc. ("Brinson") acts as a subadviser to
the Prestige Large Cap Value Fund and as adviser or
subadviser to a number of other registered investment
companies. The list required by this Item 28 of officers
and directors of Brinson, together with information as to
their other business, profession, vocation or employment of
a substantial nature during the past two fiscal years, is
incorporated by reference to Schedule A and D of Form ADV
filed by Brinson (SEC file No. 801-34910.)
(e) Information for the Subadviser of the Prestige Large Cap Growth
Fund
(1) Goldman Sachs Asset Management
Goldman Sachs Asset Management ("Goldman") acts as a
subadviser to the Large Cap Growth Fund and as adviser or
subadviser to a number of other registered investment
companies. The list required by this Item 28 of officers and
C-19
<PAGE> 133
directors of Goldman, together with information as to their
other business, profession, vocation or employment of a
substantial nature during the past two fiscal years, is
incorporated by reference to Schedule A and D of Form ADV
filed by Goldman (SEC file No. 801-16048.)
(f) Information for the Subadviser of the Prestige Balanced Fund
(1) J. P. Morgan Investment Management
J. P. Morgan Investment Management, Inc. ("JPMIM"), a
registered investment adviser, is a wholly owned subsidiary
of J. P. Morgan & Co. Incorporated. JPMIM manages employee
benefit plans for corporations and unions. JPMIM also
provides investment management services for a broad spectrum
of other institutional investors, including foundations,
endowments, sovereign governments, and insurance companies.
To the knowledge of the Registrant, none of the directors or
executive officers of JPMIM is or has been in the past two
fiscal years engaged in any other business or profession,
vocation or employment of a substantial nature, except that
certain officers and directors of JPMIM also hold various
positions with, and engage in business for, J.P. Morgan &
Co. Incorporated or Morgan Guaranty Trust Company of New
York, a New York trust company which is also a wholly owned
subsidiary of J. P. Morgan & Co. Incorporated.
(g) Information for the Subadviser of the Prestige Small Cap Fund
(1) Invesco Management & Research, Inc.
Invesco Management & Research, Inc. ("INVESCO") acts as a
subadviser to the Small Cap Fund and as adviser or
subadviser to a number of other registered investment
companies. The list required by this Item 28 of officers and
directors of INVESCO, together with information as to their
other business, profession, vocation or employment of a
substantial nature during the past two fiscal years, is
incorporated by reference to Schedule A and D of Form ADV
filed by INVESCO (SEC file No. 801-01596.)
(h) Information for the Subadviser of the Prestige International Fund
(1) Lazard Asset Management
Lazard Asset Management ("Lazard") acts as subadviser to the
International Fund and as adviser or subadviser to a number
of other registered investment companies as well as to
separate institutional investors. The list required by this
Item 26 of officers and directors of Lazard, together with
information as to their other business, profession, vocation
or employment of a substantial nature during the past 2
years, is incorporated by reference to Schedules A and D of
Form ADV filed by Lazard (SEC File No. 801-6568).
C-20
<PAGE> 134
(i) Information for the Subadviser of the Nationwide Small Cap Value
Fund II
(1) Villanova Value Investors, LLC is in the process of being
formed. Information required by this item will be added in a
subsequent post-effective amendment.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) See Item 26 above.
(b) Nationwide Advisory Services, Inc.
<TABLE>
<CAPTION>
Position with Position with
Name Business Address Underwriter Registrant
- ---- -------------- -------------- -------------
<S> <C> <C> <C>
Dimon R. McFerson One Nationwide Plaza Chairman and CEO Chairman of Board of
Columbus OH 43215 Trustees
Joseph J. Gasper One Nationwide Plaza President and Director Vice Chairman of
Columbus OH 43215 of Trustees
Robert A. Oakley One Nationwide Plaza Exec. VP - Chief Financial N/A
Columbus OH 43215 Officer and Director
Robert J. Woodward, Jr. One Nationwide Plaza Exec. VP - Chief Investment Trustee
Columbus OH 43215 Officer and Director
James F. Laird, Jr. Three Nationwide Plaza VP - General Manager Treasurer
Columbus OH 43215
Edwin P. McCausland One Nationwide Plaza Senior VP - Fixed Income Assistant Treasurer
Columbus OH 43215 Securities
Joseph P. Rath One Nationwide Plaza VP - Compliance N/A
Columbus OH 43215
William G. Goslee One Nationwide Plaza Vice President N/A
Columbus OH 43215
Susan A. Wolken Three Nationwide Plaza Director N/A
Columbus OH 43215
Dennis W. Click One Nationwide Plaza Vice President and Secretary N/A
Columbus OH 43215
Patricia J. Smith Three Nationwide Plaza Assistant Secretary Assistant Secretary
Columbus OH 43215
Elizabeth A. Davin One Nationwide Plaza Assistant Secretary Assistant Secretary
Columbus OH 43215
</TABLE>
C-21
<PAGE> 135
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
James F. Laird, Jr.
Nationwide Advisory Services, Inc.
Three Nationwide Plaza
Columbus, OH 43215
ITEM 29. MANAGEMENT SERVICES
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable
C-22
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933, as amended and has duly caused this
Post-Effective Amendment No. 18 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Columbus, and State of Ohio, on this 29th day of December, 1999.
NATIONWIDE MUTUAL FUNDS
By: JAMES F. LAIRD, JR.
-------------------
James F. Laird, Jr., Treasurer
PURSUANT TO THE REQUIREMENT OF THE SECURITIES ACT OF 1933, THE REGISTRATION
STATEMENT OF NATIONWIDE MUTUAL FUNDS HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED ON THE 29th DAY OF DECEMBER, 1999.
Signature & Title
- -----------------
Principal Executive Officer
DIMON R. MCFERSON*
- -------------------
Dimon R. McFerson, Trustee and Chairman
Principal Accounting and Financial Officer
JAMES F. LAIRD, JR.
- --------------------
James F. Laird, Jr., Treasurer
JOHN C. BRYANT*
- ----------------
John C. Bryant, Trustee
C. BRENT DEVORE*
- ----------------
C. Brent Devore, Trustee
SUE A. DOODY*
- --------------
Sue A. Doody, Trustee
ROBERT M. DUNCAN*
- ------------------
Robert M. Duncan, Trustee
THOMAS J. KERR, IV*
- --------------------
Thomas J. Kerr, IV, Trustee
DOUGLAS F. KRIDLER*
- --------------------
Douglas F. Kridler, Trustee
NANCY C. THOMAS*
- -----------------
Nancy C. Thomas, Trustee
DAVID C. WETMORE*
- ------------------
David C. Wetmore, Trustee
*BY: JAMES F. LAIRD, JR.
-------------------
James F. Laird, Jr., Attorney-In Fact
<PAGE> 1
Exhibit (d)(1)(b)
AMENDMENT TO INVESTMENT ADVISORY AGREEMENT
EFFECTIVE AS OF September 1, 1999
This AMENDMENT is made part of the INVESTMENT ADVISORY AGREEMENT (the
"Agreement") dated as of May 9, 1998, as amended, among Nationwide Mutual Funds
(formerly, Nationwide Investing Foundation III) (the "Trust") and Nationwide
Advisory Services, Inc., an Ohio corporation (the "Adviser") and is consented to
by Villanova Mutual Fund Capital Trust, a Delaware business trust ("Villanova
MF").
WHEREAS, the Adviser wishes to transfer its mutual fund investment advisory
business to Villanova MF and is asking the Trust to agree to amend the Agreement
so that Adviser's rights and responsibilities are transferred to Villanova MF
(the "Transfer");
WHEREAS, the Trust is registered with the Securities and Exchange Commission as
an investment company under the Investment Company Act of 1940 (the "1940 Act");
WHEREAS, Villanova MF is wholly owned by Villanova Capital, Inc., a Delaware
corporation, under the majority ownership of Nationwide Financial Services,
Inc., a Delaware corporation which through its wholly owned subsidiary,
Nationwide Life Insurance Corporation, wholly owns the Adviser, and thus
Villanova MF and the Adviser are under common control;
WHEREAS, all of the persons who will serve as the directors of Villanova
Capital, Inc. immediately after the Transfer are persons who have served as
directors of the Adviser prior to the Transfer;
WHEREAS, substantially all of the persons who will serve as officers of
Villanova MF immediately after the Transfer are persons who have served as
officers of the Adviser prior to the Transfer;
WHEREAS, the personnel who perform the services required of the Adviser under
the Agreement will continue to perform the same services after the Transfer;
WHEREAS, with respect to the services provided under the Agreement, the business
and operations of Villanova MF after the Transfer will be substantially the same
as the business and operations of the Adviser prior to the Transfer;
WHEREAS, the Transfer will not result in any reduction in the nature or quality
of the services which have been provided under the Agreement by the Adviser;
WHEREAS, the Transfer in and of itself will not result in a change in the fees
or reimbursements required to be paid under the Agreement;
WHEREAS, in view of the foregoing, the Transfer should not constitute an
assignment of the Agreement within the meaning of the 1940 Act; and
WHEREAS, the Trust's Board of Trustees has approved this amendment to the
Agreement pursuant to Section 10 of the Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants set forth
herein, the parties hereby agree as follows:
<PAGE> 2
1. Effective September 1, 1999 (the "Effective Date"), the Adviser will
transfer to Villanova MF all of its rights and responsibilities under the
Agreement.
2. On the Effective Date, Villanova MF will assume such rights and
responsibilities of the Adviser, subject to the terms of the Agreement.
3. On the Effective Date, Adviser shall be relieved of all of its rights and
responsibilities under the Agreement.
4. All other provisions of the Agreement shall remain in full force and
effect.
5. The Trust represents and warrants that it possesses the requisite power and
authority to enter into and perform its obligations under this amendment.
6. The Adviser represents and warrants that it possesses the requisite power
and authority to enter into and perform its obligations under this
amendment.
7. Villanova MF represents and warrants that it possesses the requisite power
and authority to enter into and perform its obligations under this
amendment, and that it is registered with the U.S. Securities and Exchange
Commission as an investment adviser pursuant to the Investment Advisers Act
of 1940.
8. The Adviser and Villanova MF together represent and warrant that the
transfer of the Agreement will not constitute an assignment of the
Agreement within the meaning of the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be duly executed as of the day and year first written above.
NATIONWIDE ADVISORY SERVICES, INC. NATIONWIDE MUTUAL FUNDS
By: By:
------------------------------- -----------------------------------
Title: Title:
---------------------------- --------------------------------
Agreed and Consented to by:
VILLANOVA MUTUAL FUND CAPITAL TRUST
By:
---------------------------------
Title:
------------------------------
<PAGE> 1
Exhibit (d)(1)(c)
EXHIBIT A
Investment Advisory Agreement
Between Nationwide Mutual Funds and
Villanova Mutual Fund Capital Trust
Effective December __, 1999
FUNDS OF THE TRUST ADVISORY FEES
- ------------------ -------------
- --------------------------------------------------------------------------------
FOR CERTAIN NATIONWIDE EQUITY FUNDS
-----------------------------------
Nationwide Mid Cap Growth Fund 0.60% on assets up to $250 million
Nationwide Growth Fund 0.575% on assets of $250 million and
Nationwide Fund more but less than $1 billion
Nationwide Focus Fund 0.55% on assets of $1 billion and more
but less than $2 billion
0.525% on assets of $2 billion and more
but less than $5 billion
0.50% for assets of $5 billion and more
- --------------------------------------------------------------------------------
FOR CERTAIN NATIONWIDE FIXED INCOME FUNDS
-----------------------------------------
Nationwide Bond Fund 0.50% on assets up to $250 million
Nationwide Tax Free Income Fund 0.475% on assets of $250 million and
Nationwide Long-term U.S. more but less than $1 billion
Government Bond Fund 0.45% on assets of $1 billion and more
Nationwide Intermediate U.S. but less than $2 billion
Government Bond Fund 0.425% on assets of $2 billion and more
but less than $5 billion
0.40% for assets of $5 billion and more
- --------------------------------------------------------------------------------
FOR THE NATIONWIDE MONEY MARKET FUND
------------------------------------
Nationwide Money Market Fund 0.40% on assets up to $1 billion
0.38% on assets of $1 billion and
more but less than $2 billion
0.36% on assets of $2 billion and
more but less than $5 billion
0.34% for assets of $5 billion and
more
- --------------------------------------------------------------------------------
<PAGE> 2
EXHIBIT A (continued)
Investment Advisory Agreement
Between Nationwide Mutual Funds and
Villanova Mutual Fund Capital Trust
Effective December __, 1999
FUNDS OF THE TRUST ADVISORY FEES
- ------------------ -------------
- --------------------------------------------------------------------------------
FOR OTHER FUNDS
---------------
Nationwide S&P 500 0.13% on assets up to $1.5 billion
Index Fund 0.12% on assets of $1.5 billion and more but
less than $3 billion
0.11% on assets of $3 billion and more
Prestige Large Cap Value Fund 0.75% on assets up to $100 million
0.70% on assets of $100 million and more
Prestige Large Cap Growth Fund 0.80% on assets up to $150 million
0.70% on assets of $150 million and more
Prestige Small Cap Fund 0.95% on assets up to $100 million
0.80% on assets of $100 million and more
Prestige Balanced Fund 0.75% on assets up to $100 million
0.70% on assets of $100 million and more
Prestige International Fund 0.85% on assets up to $200 million
0.80% on assets of $200 million and more
Nationwide High Yield Bond Fund 0.55% on assets up to $250 million
0.525% on assets of $250 million and more but
less than $1 billion
0.50% on assets of $1 billion and more but
less than $2 billion
0.475% on assets of $2 billion and more but
less than $5 billion
0.45% for assets of $5 billion and more
Nationwide Small Cap Value 0.70% on assets up to $250 million
Fund II 0.675% on assets of $250 million and more but
less than $1 billion
0.65% on assets of $1 billion and more but
less than $2 billion
0.625% on assets of $2 billion and more but
less than $5 billion
0.60% for assets of $5 billion and more
- --------------------------------------------------------------------------------
<PAGE> 3
EXHIBIT A (continued)
Investment Advisory Agreement
Between Nationwide Mutual Funds and
Villanova Mutual Fund Capital Trust
Effective December __, 1999
FUNDS OF THE TRUST ADVISORY FEES
- ------------------ -------------
- --------------------------------------------------------------------------------
ASSET ALLOCATION FUNDS
----------------------
The Aggressive Fund 0.13% of average daily net assets
The Moderately Aggressive Fund
The Moderate Fund
The Moderately Conservative Fund
The Conservative Fund
VILLANOVA MUTUAL FUND CAPITAL TRUST NATIONWIDE MUTUAL FUNDS
By: By:
-------------------------------- -------------------------------
Title: Title:
----------------------------- ----------------------------
<PAGE> 1
Exhibit (d)(2)(b)
EXHIBIT A
Investment Advisory Agreement
Between NATIONWIDE MUTUAL FUNDS (formerly Nationwide Investing Foundation III)
And Union Bond & Trust Company
Effective December __, 1999
Funds of the Trust Advisory Fees (applicable for each Fund)
- ------------------ ----------------------------------------
Morley Capital Accumulation Fund 0.35% of the average daily net assets of
Morley Enhanced Income Fund the Fund
ADVISER
UNION BOND & TRUST COMPANY
By:
-------------------------------------
Name:
Title:
TRUST
NATIONWIDE MUTUAL FUNDS
By:
-------------------------------------
Name:
Title:
<PAGE> 1
Exhibit (d)(3)(b)(2)
AMENDMENT TO SUBADVISORY AGREEMENT
EFFECTIVE AS OF September 1, 1999
This AMENDMENT is made part of SUBADVISORY AGREEMENT (the "Agreement") dated as
of 2nd day of November, 1998 among Nationwide Mutual Funds, an Ohio business
trust (the "Trust") (formerly, Nationwide Investing Foundation III), Nationwide
Advisory Services, Inc., an Ohio corporation (the "Adviser") and Brinson
Partners, Inc., a Delaware corporation (the "Subadviser") and is consented to by
Villanova Mutual Fund Capital Trust, a Delaware business trust ("Villanova MF").
WHEREAS, the Adviser wishes to transfer its mutual fund investment advisory
business to Villanova MF and is asking the Trust and the Subadviser to agree to
amend the Agreement so that Adviser's rights and responsibilities are
transferred to Villanova MF (the "Transfer");
WHEREAS, the Trust is registered with the Securities and Exchange Commission as
an investment company under the Investment Company Act of 1940 (the "1940 Act");
WHEREAS, Villanova MF is wholly owned by Villanova Capital, Inc., a Delaware
corporation, under the majority ownership of Nationwide Financial Services,
Inc., a Delaware corporation which through its wholly owned subsidiary,
Nationwide Life Insurance Corporation, wholly owns the Adviser, and thus
Villanova MF and the Adviser are under common control;
WHEREAS, all of the persons who will serve as the directors of Villanova
Capital, Inc. immediately after the Transfer are persons who have served as
directors of the Adviser prior to the Transfer;
WHEREAS, substantially all of the persons who will serve as officers of
Villanova MF immediately after the Transfer are persons who have served as
officers of the Adviser prior to the Transfer;
WHEREAS, the personnel who perform the services required of the Adviser under
the Agreement will continue to perform the same services after the Transfer;
WHEREAS, with respect to the services provided under the Agreement, the business
and operations of Villanova MF after the Transfer will be substantially the same
as the business and operations of the Adviser prior to the Transfer;
WHEREAS, the Transfer will not result in any reduction in the nature or quality
of the services which have been provided under the Agreement by the Adviser;
WHEREAS, the Transfer in and of itself will not result in a change in the fees
or reimbursements required to be paid under the Agreement;
WHEREAS, the Transfer will not affect the business or operations of the
Subadviser, or the nature or quality of the services provided under the
Agreement by the Subadviser;
WHEREAS, in view of the foregoing, the Transfer should not constitute an
assignment of the Agreement within the meaning of the 1940 Act; and
WHEREAS, the Trust's Board of Trustees has approved this amendment to the
Agreement pursuant to Section 14 of the Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants set forth
herein, the parties hereby agree as follows:
1. Effective September 1, 1999 (the "Effective Date"), the Adviser will
transfer to Villanova MF all of its rights and responsibilities under the
Agreement, including but not limited to, such rights and responsibilities
relating to the supervision of the Subadviser's activities with respect to
the Trust's portfolios and to the obtaining of information from, and
provision of information to, the Subadviser.
<PAGE> 2
2. On the Effective Date, Villanova MF will assume such rights and
responsibilities of the Adviser, subject to the terms of the Agreement.
3. On the Effective Date, Adviser shall be relieved of all of its rights and
responsibilities under the Agreement.
4. All other provisions of the Agreement shall remain in full force and
effect.
5. The Trust represents and warrants that it possesses the requisite power and
authority to enter into and perform its obligations under this amendment.
6. The Adviser represents and warrants that it possesses the requisite power
and authority to enter into and perform its obligations under this
amendment.
7. The Subadviser represents and warrants that it possesses the requisite
power and authority to enter into and perform its obligations under this
amendment.
8. Villanova MF represents and warrants that it possesses the requisite power
and authority to enter into and perform its obligations under this
amendment, and that it is registered with the U.S. Securities and Exchange
Commission as an investment adviser pursuant to the Investment Advisers Act
of 1940.
9. The Adviser and Villanova MF together represent and warrant that the
transfer of the Agreement will not constitute an assignment of the
Agreement within the meaning of the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be duly executed as of the day and year first written above.
NATIONWIDE ADVISORY SERVICES, INC. BRINSON PARTNERS, INC.
By: By:
--------------------------------- --------------------------------
Title: Title:
------------------------------ -----------------------------
Date: Date:
------------------------------- ------------------------------
Agreed and Consented to by:
NATIONWIDE MUTUAL FUNDS VILLANOVA MUTUAL FUND CAPITAL TRUST
By: By:
--------------------------------- --------------------------------
Title: Title:
------------------------------ -----------------------------
Date: Date:
------------------------------- ------------------------------
<PAGE> 1
Exhibit (d)(3)(c)(2)
AMENDMENT TO SUBADVISORY AGREEMENT
EFFECTIVE AS OF September 1, 1999
This AMENDMENT is made part of SUBADVISORY AGREEMENT (the "Agreement") dated as
of 2nd day of November, 1998 among Nationwide Mutual Funds, an Ohio business
trust (the "Trust") (formerly, Nationwide Investing Foundation III), Nationwide
Advisory Services, Inc., an Ohio corporation (the "Adviser") and Goldman Sachs
Asset Management, a New York limited partnership (the "Subadviser") and is
consented to by Villanova Mutual Fund Capital Trust, a Delaware business trust
("Villanova MF").
WHEREAS, the Adviser wishes to transfer its mutual fund investment advisory
business to Villanova MF and is asking the Trust and the Subadviser to agree to
amend the Agreement so that Adviser's rights and responsibilities are
transferred to Villanova MF (the "Transfer");
WHEREAS, the Trust is registered with the Securities and Exchange Commission as
an investment company under the Investment Company Act of 1940 (the "1940 Act");
WHEREAS, Villanova MF is wholly owned by Villanova Capital, Inc., a Delaware
corporation, under the majority ownership of Nationwide Financial Services,
Inc., a Delaware corporation which through its wholly owned subsidiary,
Nationwide Life Insurance Corporation, wholly owns the Adviser, and thus
Villanova MF and the Adviser are under common control;
WHEREAS, all of the persons who will serve as the directors of Villanova
Capital, Inc. immediately after the Transfer are persons who have served as
directors of the Adviser prior to the Transfer;
WHEREAS, substantially all of the persons who will serve as officers of
Villanova MF immediately after the Transfer are persons who have served as
officers of the Adviser prior to the Transfer;
WHEREAS, the personnel who perform the services required of the Adviser under
the Agreement will continue to perform the same services after the Transfer;
WHEREAS, with respect to the services provided under the Agreement, the business
and operations of Villanova MF after the Transfer will be substantially the same
as the business and operations of the Adviser prior to the Transfer;
WHEREAS, the Transfer will not result in any reduction in the nature or quality
of the services which have been provided under the Agreement by the Adviser;
WHEREAS, the Transfer in and of itself will not result in a change in the fees
or reimbursements required to be paid under the Agreement;
WHEREAS, the Transfer will not affect the business or operations of the
Subadviser, or the nature or quality of the services provided under the
Agreement by the Subadviser;
WHEREAS, in view of the foregoing, the Transfer should not constitute an
assignment of the Agreement within the meaning of the 1940 Act; and
WHEREAS, the Trust's Board of Trustees has approved this amendment to the
Agreement pursuant to Section 14 of the Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants set forth
herein, the parties hereby agree as follows:
1. Effective September 1, 1999 (the "Effective Date"), the Adviser will
transfer to Villanova MF all of its rights and responsibilities under the
Agreement, including but not limited to, such rights and responsibilities
relating to the supervision of the Subadviser's activities with respect to
the Trust's portfolios and to the obtaining of information from, and
provision of information to, the Subadviser.
<PAGE> 2
2. On the Effective Date, Villanova MF will assume such rights and
responsibilities of the Adviser, subject to the terms of the Agreement.
3. On the Effective Date, Adviser shall be relieved of all of its rights and
responsibilities under the Agreement.
4. All other provisions of the Agreement shall remain in full force and
effect.
5. The Trust represents and warrants that it possesses the requisite power and
authority to enter into and perform its obligations under this amendment.
6. The Adviser represents and warrants that it possesses the requisite power
and authority to enter into and perform its obligations under this
amendment.
7. The Subadviser represents and warrants that it possesses the requisite
power and authority to enter into and perform its obligations under this
amendment.
8. Villanova MF represents and warrants that it possesses the requisite power
and authority to enter into and perform its obligations under this
amendment, and that it is registered with the U.S. Securities and Exchange
Commission as an investment adviser pursuant to the Investment Advisers Act
of 1940.
9. The Adviser and Villanova MF together represent and warrant that the
transfer of the Agreement will not constitute an assignment of the
Agreement within the meaning of the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be duly executed as of the day and year first written above.
NATIONWIDE ADVISORY SERVICES, INC. GOLDMAN SACHS ASSET MANAGEMENT
By: By:
--------------------------------- --------------------------------
Title: Title:
------------------------------ -----------------------------
Date: Date:
------------------------------- ------------------------------
Agreed and Consented to by:
NATIONWIDE MUTUAL FUNDS VILLANOVA MUTUAL FUND CAPITAL TRUST
By: By:
--------------------------------- --------------------------------
Title: Title:
------------------------------ -----------------------------
Date: Date:
------------------------------- ------------------------------
<PAGE> 1
Exhibit (d)(3)(d)(2)
AMENDMENT TO SUBADVISORY AGREEMENT
EFFECTIVE AS OF September 1, 1999
This AMENDMENT is made part of SUBADVISORY AGREEMENT (the "Agreement") dated as
of 9th day of November, 1998 among Nationwide Mutual Funds, an Ohio business
trust (the "Trust") (formerly, Nationwide Investing Foundation III), Nationwide
Advisory Services, Inc., an Ohio corporation (the "Adviser") and INVESCO
Management and Research, Inc., a Massachusetts corporation (the "Subadviser")
and is consented to by Villanova Mutual Fund Capital Trust, a Delaware business
trust ("Villanova MF").
WHEREAS, the Adviser wishes to transfer its mutual fund investment advisory
business to Villanova MF and is asking the Trust and the Subadviser to agree to
amend the Agreement so that Adviser's rights and responsibilities are
transferred to Villanova MF (the "Transfer");
WHEREAS, the Trust is registered with the Securities and Exchange Commission as
an investment company under the Investment Company Act of 1940 (the "1940 Act");
WHEREAS, Villanova MF is wholly owned by Villanova Capital, Inc., a Delaware
corporation, under the majority ownership of Nationwide Financial Services,
Inc., a Delaware corporation which through its wholly owned subsidiary,
Nationwide Life Insurance Corporation, wholly owns the Adviser, and thus
Villanova MF and the Adviser are under common control;
WHEREAS, all of the persons who will serve as the directors of Villanova
Capital, Inc. immediately after the Transfer are persons who have served as
directors of the Adviser prior to the Transfer;
WHEREAS, substantially all of the persons who will serve as officers of
Villanova MF immediately after the Transfer are persons who have served as
officers of the Adviser prior to the Transfer;
WHEREAS, the personnel who perform the services required of the Adviser under
the Agreement will continue to perform the same services after the Transfer;
WHEREAS, with respect to the services provided under the Agreement, the business
and operations of Villanova MF after the Transfer will be substantially the same
as the business and operations of the Adviser prior to the Transfer;
WHEREAS, the Transfer will not result in any reduction in the nature or quality
of the services which have been provided under the Agreement by the Adviser;
WHEREAS, the Transfer in and of itself will not result in a change in the fees
or reimbursements required to be paid under the Agreement;
WHEREAS, the Transfer will not affect the business or operations of the
Subadviser, or the nature or quality of the services provided under the
Agreement by the Subadviser;
WHEREAS, in view of the foregoing, the Transfer should not constitute an
assignment of the Agreement within the meaning of the 1940 Act; and
WHEREAS, the Trust's Board of Trustees has approved this amendment to the
Agreement pursuant to Section 14 of the Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants set forth
herein, the parties hereby agree as follows:
1. Effective September 1, 1999 (the "Effective Date"), the Adviser will
transfer to Villanova MF all of its rights and responsibilities under the
Agreement, including but not limited to, such rights and
<PAGE> 2
responsibilities relating to the supervision of the Subadviser's activities with
respect to the Trust's portfolios and to the obtaining of information from, and
provision of information to, the Subadviser.
2. On the Effective Date, Villanova MF will assume such rights and
responsibilities of the Adviser, subject to the terms of the Agreement.
3. On the Effective Date, Adviser shall be relieved of all of its rights and
responsibilities under the Agreement.
4. All other provisions of the Agreement shall remain in full force and
effect.
5. The Trust represents and warrants that it possesses the requisite power and
authority to enter into and perform its obligations under this amendment.
6. The Adviser represents and warrants that it possesses the requisite power
and authority to enter into and perform its obligations under this
amendment.
7. The Subadviser represents and warrants that it possesses the requisite
power and authority to enter into and perform its obligations under this
amendment.
8. Villanova MF represents and warrants that it possesses the requisite power
and authority to enter into and perform its obligations under this
amendment, and that it is registered with the U.S. Securities and Exchange
Commission as an investment adviser pursuant to the Investment Advisers Act
of 1940.
9. The Adviser and Villanova MF together represent and warrant that the
transfer of the Agreement will not constitute an assignment of the
Agreement within the meaning of the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be duly executed as of the day and year first written above.
NATIONWIDE ADVISORY SERVICES, INC. INVESCO MANAGEMENT AND RESEARCH, INC.
By: By:
-------------------------------- -------------------------------------
Title: Title:
----------------------------- ----------------------------------
Date: Date:
------------------------------ -----------------------------------
Agreed and Consented to by:
NATIONWIDE MUTUAL FUNDS VILLANOVA MUTUAL FUND CAPITAL TRUST
By: By:
-------------------------------- -------------------------------------
Title: Title:
----------------------------- ----------------------------------
Date: Date:
------------------------------ -----------------------------------
<PAGE> 1
Exhibit (d)(3)(e)(2)
AMENDMENT TO SUBADVISORY AGREEMENT
EFFECTIVE AS OF September 1, 1999
This AMENDMENT is made part of SUBADVISORY AGREEMENT (the "Agreement") dated as
of 2nd day of November, 1998 among Nationwide Mutual Funds, an Ohio business
trust (the "Trust") (formerly, Nationwide Investing Foundation III), Nationwide
Advisory Services, Inc., an Ohio corporation (the "Adviser") and Lazard Asset
Management, a division of Lazard Freres & Co., LLC, a New York limited liability
company (the "Subadviser") and is consented to by Villanova Mutual Fund Capital
Trust, a Delaware business trust ("Villanova MF").
WHEREAS, the Adviser wishes to transfer its mutual fund investment advisory
business to Villanova MF and is asking the Trust and the Subadviser to agree to
amend the Agreement so that Adviser's rights and responsibilities are
transferred to Villanova MF (the "Transfer");
WHEREAS, the Trust is registered with the Securities and Exchange Commission as
an investment company under the Investment Company Act of 1940 (the "1940 Act");
WHEREAS, Villanova MF is wholly owned by Villanova Capital, Inc., a Delaware
corporation, under the majority ownership of Nationwide Financial Services,
Inc., a Delaware corporation which through its wholly owned subsidiary,
Nationwide Life Insurance Corporation, wholly owns the Adviser, and thus
Villanova MF and the Adviser are under common control;
WHEREAS, all of the persons who will serve as the directors of Villanova
Capital, Inc. immediately after the Transfer are persons who have served as
directors of the Adviser prior to the Transfer;
WHEREAS, substantially all of the persons who will serve as officers of
Villanova MF immediately after the Transfer are persons who have served as
officers of the Adviser prior to the Transfer;
WHEREAS, the personnel who perform the services required of the Adviser under
the Agreement will continue to perform the same services after the Transfer;
WHEREAS, with respect to the services provided under the Agreement, the business
and operations of Villanova MF after the Transfer will be substantially the same
as the business and operations of the Adviser prior to the Transfer;
WHEREAS, the Transfer will not result in any reduction in the nature or quality
of the services which have been provided under the Agreement by the Adviser;
WHEREAS, the Transfer in and of itself will not result in a change in the fees
or reimbursements required to be paid under the Agreement;
WHEREAS, the Transfer will not affect the business or operations of the
Subadviser, or the nature or quality of the services provided under the
Agreement by the Subadviser;
WHEREAS, in view of the foregoing, the Transfer should not constitute an
assignment of the Agreement within the meaning of the 1940 Act; and
WHEREAS, the Trust's Board of Trustees has approved this amendment to the
Agreement pursuant to Section 14 of the Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants set forth
herein, the parties hereby agree as follows:
1. Effective September 1, 1999 (the "Effective Date"), the Adviser will
transfer to Villanova MF all of its rights and responsibilities under the
Agreement, including but not limited to, such rights and
<PAGE> 2
responsibilities relating to the supervision of the Subadviser's activities with
respect to the Trust's portfolios and to the obtaining of information from, and
provision of information to, the Subadviser.
2. On the Effective Date, Villanova MF will assume such rights and
responsibilities of the Adviser, subject to the terms of the Agreement.
3. On the Effective Date, Adviser shall be relieved of all of its rights and
responsibilities under the Agreement.
4. All other provisions of the Agreement shall remain in full force and
effect.
5. The Trust represents and warrants that it possesses the requisite power and
authority to enter into and perform its obligations under this amendment.
6. The Adviser represents and warrants that it possesses the requisite power
and authority to enter into and perform its obligations under this
amendment.
7. The Subadviser represents and warrants that it possesses the requisite
power and authority to enter into and perform its obligations under this
amendment.
8. Villanova MF represents and warrants that it possesses the requisite power
and authority to enter into and perform its obligations under this
amendment, and that it is registered with the U.S. Securities and Exchange
Commission as an investment adviser pursuant to the Investment Advisers Act
of 1940.
9. The Adviser and Villanova MF together represent and warrant that the
transfer of the Agreement will not constitute an assignment of the
Agreement within the meaning of the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be duly executed as of the day and year first written above.
NATIONWIDE ADVISORY SERVICES, INC. LAZARD ASSET MANAGEMENT
By: By:
---------------------------------- --------------------------------
Title: Title:
------------------------------- -----------------------------
Date: Date:
-------------------------------- ------------------------------
Agreed and Consented to by:
NATIONWIDE MUTUAL FUNDS VILLANOVA MUTUAL FUND CAPITAL TRUST
By: By:
---------------------------------- --------------------------------
Title: Title:
------------------------------- -----------------------------
Date: Date:
-------------------------------- ------------------------------
<PAGE> 1
Exhibit (d)(3)(f)(2)
AMENDMENT TO SUBADVISORY AGREEMENT
EFFECTIVE AS OF September 1, 1999
This AMENDMENT is made part of SUBADVISORY AGREEMENT (the "Agreement") dated as
of 2nd day of November, 1998 among Nationwide Mutual Funds, an Ohio business
trust (the "Trust") (formerly, Nationwide Investing Foundation III), Nationwide
Advisory Services, Inc., an Ohio corporation (the "Adviser") and J.P. Morgan
Investment Management Inc., a Delaware corporation (the "Subadviser") and is
consented to by Villanova Mutual Fund Capital Trust, a Delaware business trust
("Villanova MF").
WHEREAS, the Adviser wishes to transfer its mutual fund investment advisory
business to Villanova MF and is asking the Trust and the Subadviser to agree to
amend the Agreement so that Adviser's rights and responsibilities are
transferred to Villanova MF (the "Transfer");
WHEREAS, the Trust is registered with the Securities and Exchange Commission as
an investment company under the Investment Company Act of 1940 (the "1940 Act");
WHEREAS, Villanova MF is wholly owned by Villanova Capital, Inc., a Delaware
corporation, under the majority ownership of Nationwide Financial Services,
Inc., a Delaware corporation which through its wholly owned subsidiary,
Nationwide Life Insurance Corporation, wholly owns the Adviser, and thus
Villanova MF and the Adviser are under common control;
WHEREAS, all of the persons who will serve as the directors of Villanova
Capital, Inc. immediately after the Transfer are persons who have served as
directors of the Adviser prior to the Transfer;
WHEREAS, substantially all of the persons who will serve as officers of
Villanova MF immediately after the Transfer are persons who have served as
officers of the Adviser prior to the Transfer;
WHEREAS, the personnel who perform the services required of the Adviser under
the Agreement will continue to perform the same services after the Transfer;
WHEREAS, with respect to the services provided under the Agreement, the business
and operations of Villanova MF after the Transfer will be substantially the same
as the business and operations of the Adviser prior to the Transfer;
WHEREAS, the Transfer will not result in any reduction in the nature or quality
of the services which have been provided under the Agreement by the Adviser;
WHEREAS, the Transfer in and of itself will not result in a change in the fees
or reimbursements required to be paid under the Agreement;
WHEREAS, the Transfer will not affect the business or operations of the
Subadviser, or the nature or quality of the services provided under the
Agreement by the Subadviser;
WHEREAS, in view of the foregoing, the Transfer should not constitute an
assignment of the Agreement within the meaning of the 1940 Act; and
WHEREAS, the Trust's Board of Trustees has approved this amendment to the
Agreement pursuant to Section 14 of the Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants set forth
herein, the parties hereby agree as follows:
1. Effective September 1, 1999 (the "Effective Date"), the Adviser will
transfer to Villanova MF all of its rights and responsibilities under the
Agreement, including but not limited to, such rights and responsibilities
relating to the supervision of the Subadviser's activities with respect to
the Trust's portfolios and to the obtaining of information from, and
provision of information to, the Subadviser.
<PAGE> 2
2. On the Effective Date, Villanova MF will assume such rights and
responsibilities of the Adviser, subject to the terms of the Agreement.
3. On the Effective Date, Adviser shall be relieved of all of its rights and
responsibilities under the Agreement.
4. All other provisions of the Agreement shall remain in full force and
effect.
5. The Trust represents and warrants that it possesses the requisite power and
authority to enter into and perform its obligations under this amendment.
6. The Adviser represents and warrants that it possesses the requisite power
and authority to enter into and perform its obligations under this
amendment.
7. The Subadviser represents and warrants that it possesses the requisite
power and authority to enter into and perform its obligations under this
amendment.
8. Villanova MF represents and warrants that it possesses the requisite power
and authority to enter into and perform its obligations under this
amendment, and that it is registered with the U.S. Securities and Exchange
Commission as an investment adviser pursuant to the Investment Advisers Act
of 1940.
9. The Adviser and Villanova MF together represent and warrant that the
transfer of the Agreement will not constitute an assignment of the
Agreement within the meaning of the 1940 Act.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be duly executed as of the day and year first written above.
NATIONWIDE ADVISORY SERVICES, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
By: By:
-------------------------------- -------------------------------------
Title: Title:
----------------------------- ----------------------------------
Date: Date:
------------------------------ -----------------------------------
Agreed and Consented to by:
NATIONWIDE MUTUAL FUNDS VILLANOVA MUTUAL FUND CAPITAL TRUST
By: By:
-------------------------------- -------------------------------------
Title: Title:
----------------------------- ----------------------------------
Date: Date:
------------------------------ -----------------------------------
<PAGE> 1
Exhibit (h)(1)(b)
AMENDMENT TO FUND ADMINISTRATION AGREEMENT
EFFECTIVE AS OF September 1, 1999
This AMENDMENT is made part of FUND ADMINISTRATION AGREEMENT (the "Agreement")
dated as of May 9, 1998, as amended, between Nationwide Advisory Services, Inc.
(the "Administrator") and Nationwide Mutual Funds (the "Trust") and is consented
to by Villanova SA Capital Trust ("Villanova SA").
WHEREAS, the Administrator wishes to transfer its fund administration business
to Villanova SA and is asking the Trust to amend the Agreement so that the
Administrator's rights and responsibilities are transferred to Villanova SA (the
"Transfer");
WHEREAS, the Transfer will not result in any reduction in the nature or quality
of the services which have been provided under the Agreement by the
Administrator;
WHEREAS, the Transfer in and of itself will not result in a change in the fees
or reimbursements required to be paid under the Agreement;
WHEREAS, the Trust's Board of Trustees has approved this amendment to the
Agreement pursuant to Section 7 of the Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants set forth
herein, the parties hereby agree as follows:
1. Effective September 1, 1999 (the "Effective Date"), the Administrator will
assign all of its rights and responsibilities under the Agreement to
Villanova SA.
2. On the Effective Date, Villanova SA will assume such rights and
responsibilities, subject to the terms of the Agreement.
3. On the Effective Date, Administrator shall be relieved of all of its rights
and responsibilities under the Agreement.
4. Section 2, Services and Duties, is hereby amended to add the following as
the last paragraph of such section:
Villanova SA is authorized to appoint one or more qualified
subadministrators to provide the Trust with certain Administrative
Services provided under the Agreement.
5. All other provisions of the Agreement shall remain in full force and
effect.
6. Villanova SA represents and warrants that it possesses the requisite power
and authority to enter into and perform its obligations under this
amendment.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be duly
executed as of the day and year first written above.
NATIONWIDE ADVISORY SERVICES, INC. NATIONWIDE MUTUAL FUNDS
By: By:
----------------------------------- --------------------------------
Title: Title:
-------------------------------- -----------------------------
Agreed and Consented to by:
VILLANOVA MUTUAL FUND CAPITAL TRUST
By:
-----------------------------------
Title:
--------------------------------
<PAGE> 1
Exhibit (h)(1)(c)
AMENDED EXHIBIT A
NATIONWIDE MUTUAL FUNDS
Fund Administration Agreement
<TABLE>
<CAPTION>
Funds of the Trust Fund Administration Fees
- ------------------ ------------------------
<S> <C>
Nationwide Fund For each of the Nationwide Funds
Nationwide Growth Fund and the Morley Capital Accumulation
Nationwide Mid Cap Growth Fund Fund,
Nationwide Bond Fund 0.07% on assets up to $250 million
Nationwide Tax-Free Income Fund 0.05% on assets of $250 million and
Nationwide Long-Term U.S. Government Bond Fund more but less than $1 billion
Nationwide Intermediate U.S. Government Bond Fund 0.04% on assets of $1 billion and more
Nationwide Money Market Fund
Nationwide Small Cap Value Fund II*
Nationwide High Yield Bond Fund*
Nationwide Focus Fund*
Morley Capital Accumulation Fund**
Morley Enhanced Income Fund*
Nationwide S&P 500 Stock Index Fund For the S&P 500 Index Fund,
(the "S&P 500 Index") 0.05% on assets up to $1 billion
0.04% on assets of $1 billion and more
Prestige Large Cap Value Fund For each of the Prestige Funds,*
Prestige Large Growth Fund 0.10% on assets up to $250 million
Prestige Small Cap Fund 0.06% on assets of $250 million
Prestige Balanced Fund and more but less than $1 billion
Prestige International Fund 0.04% on assets of $1 billion and more
(the "Prestige Funds")
The Aggressive Fund For the Asset Allocation Funds,*
The Moderately Aggressive Fund 0.07% on assets up to $250 million
The Moderate Fund 0.05% on assets of $250 million and more
The Moderately Conservative Fund
The Conservative Fund
(the "Asset Allocation Funds")
Nationwide Small Cap Index Fund*** 0.27% on assets up to $250 million
0.24% on assets of $250 million and more
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Nationwide International Index Fund*** 0.34% on assets up to $250 million
0.31% on assets of $250 million and
more
Nationwide Bond Index Fund*** 0.29% on assets up to $250 million
Nationwide Mid Cap Index Fund II*** 0.26% on assets up of $250 million
and more
*Subject to a $75,000 annual minimum fee.
**Subject to a $50,000 annual minimum fee.
*** Subject to a $75,000 annual minimum fee.
</TABLE>
NATIONWIDE MUTUAL FUNDS
By:
---------------------------------
Title:
------------------------------
VILLANOVA SA CAPITAL TRUST
By:
---------------------------------
Title:
------------------------------
<PAGE> 1
The Board of Trustees
Nationwide Mutual Funds:
We consent to the use of our report dated December 17, 1999 on the financial
statements of Nationwide S&P 500 Index Fund as incorporated herein by reference
and to the reference to our firm under the heading "Auditors" in the statement
of additional information.
Columbus, Ohio
December 29, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001048702
<NAME> NATIONWIDE S&P 500 INDEX CLASS R SHARES
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-02-1998
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 112,690,796
<INVESTMENTS-AT-VALUE> 120,761,810
<RECEIVABLES> 1,407,208
<ASSETS-OTHER> 23,235
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122,192,253
<PAYABLE-FOR-SECURITIES> 1,892,886
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 188,144
<TOTAL-LIABILITIES> 2,081,030
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 111,909,893
<SHARES-COMMON-STOCK> 6,049,124
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 62,424
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 67,892
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,071,014
<NET-ASSETS> 120,111,223
<DIVIDEND-INCOME> 775,359
<INTEREST-INCOME> 56,308
<OTHER-INCOME> 0
<EXPENSES-NET> 297,162
<NET-INVESTMENT-INCOME> 534,505
<REALIZED-GAINS-CURRENT> 76,827
<APPREC-INCREASE-CURRENT> 8,790,010
<NET-CHANGE-FROM-OPS> 9,401,342
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 179,657
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,068,255
<NUMBER-OF-SHARES-REDEEMED> 35,005
<SHARES-REINVESTED> 15,874
<NET-CHANGE-IN-ASSETS> 97,785,838
<ACCUMULATED-NII-PRIOR> 18,610
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 8,935
<GROSS-ADVISORY-FEES> 79,372
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 408,563
<AVERAGE-NET-ASSETS> 25,826,736
<PER-SHARE-NAV-BEGIN> 9.66
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 2.25
<PER-SHARE-DIVIDEND> 0.09
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.91
<EXPENSE-RATIO> 0.63
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001048702
<NAME> NATIONWIDE S&P INDEX FUND CLASS Y SHARES
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-02-1998
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 112,690,796
<INVESTMENTS-AT-VALUE> 120,761,810
<RECEIVABLES> 1,407,208
<ASSETS-OTHER> 23,235
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122,192,253
<PAYABLE-FOR-SECURITIES> 1,892,886
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 188,144
<TOTAL-LIABILITIES> 2,081,030
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 111,909,893
<SHARES-COMMON-STOCK> 1,456,079
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 62,424
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 67,892
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,071,014
<NET-ASSETS> 120,111,223
<DIVIDEND-INCOME> 775,359
<INTEREST-INCOME> 56,308
<OTHER-INCOME> 0
<EXPENSES-NET> 297,162
<NET-INVESTMENT-INCOME> 534,505
<REALIZED-GAINS-CURRENT> 76,827
<APPREC-INCREASE-CURRENT> 8,790,010
<NET-CHANGE-FROM-OPS> 9,401,342
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 59,524
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,862,525
<NUMBER-OF-SHARES-REDEEMED> 411,712
<SHARES-REINVESTED> 5,266
<NET-CHANGE-IN-ASSETS> 97,785,838
<ACCUMULATED-NII-PRIOR> 18,610
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 8,935
<GROSS-ADVISORY-FEES> 79,372
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 408,563
<AVERAGE-NET-ASSETS> 7,801,438
<PER-SHARE-NAV-BEGIN> 9.66
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 2.27
<PER-SHARE-DIVIDEND> 0.09
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.94
<EXPENSE-RATIO> 0.48
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001048702
<NAME> NATIONWIDE S&P 500 INDEX FUND LOCAL FUND SHARES
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 112,690,796
<INVESTMENTS-AT-VALUE> 120,761,810
<RECEIVABLES> 1,407,208
<ASSETS-OTHER> 23,235
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 122,192,253
<PAYABLE-FOR-SECURITIES> 1,892,886
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 188,144
<TOTAL-LIABILITIES> 2,081,030
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 111,909,893
<SHARES-COMMON-STOCK> 2,567,843
<SHARES-COMMON-PRIOR> 2,311,331
<ACCUMULATED-NII-CURRENT> 62,424
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 67,892
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,071,014
<NET-ASSETS> 120,111,223
<DIVIDEND-INCOME> 775,359
<INTEREST-INCOME> 56,308
<OTHER-INCOME> 0
<EXPENSES-NET> 297,162
<NET-INVESTMENT-INCOME> 534,505
<REALIZED-GAINS-CURRENT> 76,827
<APPREC-INCREASE-CURRENT> 8,790,010
<NET-CHANGE-FROM-OPS> 9,401,342
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 251,510
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 403,295
<NUMBER-OF-SHARES-REDEEMED> 169,513
<SHARES-REINVESTED> 22,730
<NET-CHANGE-IN-ASSETS> 97,785,838
<ACCUMULATED-NII-PRIOR> 18,610
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> NATIONWIDE S&P INDEX FUND CLASS R SHARES
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<NAME> NATIONWIDE S&P 500 INDEX FUND CLASS Y SHARES
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<NAME> NATIONWIDE S&P 500 INDEX FUND LOCAL FUND SHARES
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