NATIONWIDE MUTUAL FUNDS, 485APOS, 1999-11-30

NATIONWIDE MUTUAL FUNDS
485APOS, 1999-11-30

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<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 30, 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. 15
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940/X/
AMENDMENT NO. 16
(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 SMALL CAP VALUE FUND II
NATIONWIDE HIGH YIELD BOND FUND
NATIONWIDE SMALL CAP 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
THE AGGRESSIVE FUND
THE MODERATELY AGGRESSIVE FUND
THE MODERATE FUND
THE MODERATELY CONSERVATIVE FUND
THE CONSERVATIVE 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] On February 10, 1999 pursuant to paragraph (a) (1) of Rule 485.

<PAGE> 2

Explanatory Note

This filing includes Prospectuses and Statements of Additional Information for
Prestige Large Cap Value Fund, Prestige Large Cap Growth Fund, Prestige Small
Cap Growth Fund, Prestige Balanced Fund, Prestige International Fund, Nationwide
S & P 500 Index Fund (Local Fund Shares, Class Y & R Shares), Morley Capital
Accumulation Fund, and Nationwide Money Market Funds (Class R shares).

The Prospectus as well as the Statement 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, and
Money Market Fund-Prime Shares are incorporated by reference into this filing of
Post-Effective Amendment No. 15 to the Registration Statement. The Prospectuses
and Statements of Additional Information for the Class A, B, and Service shares
of the S&P 500 Index Fund, and for the Morley Enhanced Income Fund, the Small
Cap Index Fund, International Index Fund, Bond Index Fund, The Aggressive Fund,
The Moderately Aggressive Fund, The Moderate Fund, The Moderately Conservative
Fund, The Conservative Fund, High Yield Bond Fund, Focus Fund, Small Cap Value
Fund II, are included in Post-Effective Amendment Nos. 13 and 14 and are
incorporated by reference into this filing of Post-Effective Amendment No. 15 to
the Registration Statement.

<PAGE> 3

Nationwide(R) Mutual Funds

- Nationwide Money Market Fund -- Class R Shares

, 2000

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 OF CONTENTS

FUND SUMMARY

NATIONWIDE MONEY MARKET FUND...................................................3
Objective
Principal Strategies
Principal Risks
Performance
Fees and Expenses

MORE ABOUT THE NATIONWIDE MONEY MARKET FUND.....................................
.
Principal Risks
5
Principal Investment Techniques
MANAGEMENT.....................................................................6

BUYING AND SELLING FUND SHARES.................................................7
Who Can Buy Shares of the Fund
Purchase Price
Selling Shares
Restrictions on Sales
Year 2000
Dividends and Distributions
Tax Status

FINANCIAL HIGHLIGHTS...........................................................9

ADDITIONAL INFORMATION................................................BACK COVER

2
<PAGE> 5

FUND SUMMARY
This prospectus provides information about the Nationwide Money Market Fund and
its Class R shares offered by Nationwide Mutual Funds.

Nationwide(R) Money Market Fund

OBJECTIVE

The Fund seeks as high a level of current income as is consistent with the
preservation of capital and maintenance of liquidity.

PRINCIPAL STRATEGIES

The Fund seeks to achieve its investment objective by investing in high-quality
money market obligations maturing in 397 days or less, including corporate
obligations, U.S. Government and agency bonds, bills and notes, the obligations
of foreign governments, and the obligations of U.S. banks and U.S. branches of
foreign banks, if they are denominated in U.S. dollars. The Fund may also invest
in floating- and adjustable-rate obligations and asset-backed commercial paper.
Typically the Fund's dollar-weighted average maturity will be 90 days or less.

WHY A MONEY MARKET FUND? By investing in short-term corporate and government
bonds and other debt instruments, money market funds provide current income to
investors and allow easy access to their money. Money market funds are for
risk-adverse investors or investors who want to earn competitive yields on cash
they may need on short notice. While the Money Market Fund pays dependable
income, there is no guarantee that the Fund's earnings will stay ahead of
inflation or always provide a certain level of income. [ ]

The Fund invests in securities which the portfolio manager believes to have the
best return potential. Because the Fund invests in short-term securities, it
will generally sell securities only to meet liquidity needs, to maintain target
allocations and to take advantage of more favorable opportunities.

PRINCIPAL RISKS

The Fund is a low-risk investment, compared with stock and bond funds, but it is
subject to the following risks.

CREDIT RISK. Credit risk is the risk that the issuer of a debt security will be
unable to make the required payments of interest and/or repay the principal when
due. This risk is significantly reduced due to the short-term nature of the debt
securities held by the Fund. In addition, there is a risk that the rating of a
debt security may be lowered if the issuer's financial condition changes. This
could lead to a greater fluctuation in the value of the Fund.

MONEY MARKET FUND RISK. Although the Fund's objective is to preserve capital,
there can be no guarantee that the Fund will be able to maintain a stable net
asset value of $1.00 per share; therefore you could lose money. Investments in
the Fund are not bank deposits and are not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency.

For additional information, see "More About the Fund."

PERFORMANCE

The following bar chart and table show two aspects of the Fund: volatility and
performance. The bar chart shows the volatility--or variability--of the Fund's
annual total returns over time and that fund performance can change from year to
year. The annual returns shown in the bar chart do not include charges that may
be imposed by variable annuity contracts or variable life insurance polices. The
table shows the Fund's average annual total returns for certain time periods
compared to the returns of the Consumer Price 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 TOTAL RETURNS:*

Best Quarter:
Worst Quarter:

AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99:

<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
The Fund -- Prime Shares* % % %
The Fund -- Class R Shares* % % %
The Consumer Price Index** % % %
</TABLE>

* Average total returns of the Prime Shares of the Fund shown are shown in the
bar chart and table. The Prime Shares are offered in a separate prospectus.
Had the Class R shares been offered during the periods shown, the returns
would have been similar to those shown since the shares are invested in the
same portfolio of securities; however the performance of Class R Shares would
have been lower as a result of their additional expenses.

** The Consumer Price Index is an index of prices that measures the change in
the cost of basic goods and services over time. The Consumer Price Index is
frequently used to measure inflation in the United States.

3
<PAGE> 6

Fund Summary continued

FEES AND EXPENSES

THIS TABLE DESCRIBES THE FEES AND EXPENSES THAT A SHAREHOLDER MAY PAY WHEN
BUYING AND HOLDING CLASS R SHARES OF THE FUND.

<TABLE>
<S> <C>
Shareholder Fees
(paid directly from an investment) None
Annual Fund Operating Expenses
(deducted from Fund assets)
Management Fees 0.40%
Distribution and Service (12b-1) Fees 0.15%
Other Expenses --
----
TOTAL ANNUAL FUND OPERATING EXPENSES(1) --
====
</TABLE>

(1)

EXAMPLE

This example shows what you could pay in expenses over time. You can also use
this example to compare the cost of this Fund with other mutual funds.

The example assumes that you invest $10,000 in the Fund for the time periods
indicated and sells all shares at the end of those time periods. It also assumes
a 5% return each year and no changes in expenses. Although your actual costs may
be higher or lower, based on these assumptions the cost would be:

<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C>
$ $ $ $
</TABLE>

4
<PAGE> 7

MORE ABOUT THE MONEY MARKET FUND

PRINCIPAL RISKS

The Fund is a low-risk investment compared to most other investments. Given its
objective -- to preserve capital, generate income and maintain liquidity -- the
Fund invests in low-risk, high-quality securities. No investment, however, is
free of all risk. Any time an investor buys commercial paper or similar
obligations, there is credit risk and interest rate risk.

PRINCIPAL INVESTMENT TECHNIQUES

The Fund may invest in the following securities:

MONEY MARKET OBLIGATIONS. These include:

- U.S. Government securities with remaining maturities of 397 days or less

- Commercial paper rated in one of the two highest categories of any nationally
recognized statistical rating organization ("rating agency")

- Asset-backed commercial paper whose own ratings or the rating of any guarantor
is in one of the two highest categories of any rating agency

- Short-term bank obligations rated in one of the two highest categories by any
rating agency (with respect to obligations maturing in one year or less)

- Repurchase agreements relating to debt obligations that the Fund could
purchase directly

- Unrated debt obligations with remaining maturities of 397 days or less that
are determined by the Fund's investment adviser to be of comparable quality to
the securities described above.

Generally, money market obligations will not increase in value, but they are
high-quality investments that offer liquidity.

FLOATING AND VARIABLE RATE SECURITIES. Floating- and variable-rate securities
are securities that do not have fixed interest rates; the rates change
periodically. The interest rate on floating-rate securities varies with changes
in another index (such as the Treasury bill rate), while the interest rate on
variable-rate securities changes at preset times based upon an underlying index.
Some of the floating- or variable-rate securities will be callable by the
issuer, which means they can be paid off before their maturity date.

These securities are subject to credit and interest rate risk like other debt
securities. In addition, because they may be callable, these securities are also
subject to the risk that the Money Market Fund will be repaid prior to the
stated maturity and that the principal will be reinvested in a lower interest
rate market that reduces the Money Market Fund's income. The Money Market Fund
will only purchase floating- and variable-rate securities of the same quality as
the debt securities it would otherwise purchase.

REPURCHASE AGREEMENTS. When entering into repurchase agreements, the Fund
essentially makes a short-term loan to a qualified bank or broker-dealer. The
Fund buys securities that the seller has agreed to buy back at a specific time
and at a set price that includes interest. There is a risk that the seller will
be unable to buy back the securities at the time required and the Fund could
experience delays in recovering the amounts owed to it.

ASSET-BACKED COMMERCIAL PAPER. The Fund may invest in asset-backed commercial
paper that is secured by and paid from a pool of assets such as installment loan
contracts, leases of various types of property and receivables from credit
cards. Asset-backed commercial paper is issued and supported by private issuers.
This type of commercial paper is also subject to interest rate risk and credit
risk.

OTHER INVESTMENT TECHNIQUES

The Statement of Additional Information (SAI) contains additional information
about the Fund's other investment techniques. To obtain a copy of the SAI, see
the back cover.

5
<PAGE> 8

MANAGEMENT

INVESTMENT MANAGER

Villanova Mutual Fund Capital Trust ("VMF"), an affiliate of Nationwide Advisory
Services, Inc. and an indirect subsidiary of Nationwide Financial Services,
Inc., Three Nationwide Plaza, Columbus, Ohio 43215, manages the investment of
the assets and supervises the daily business affairs of Nationwide Mutual Funds
(the "Trust"). VMF and its predecessors have managed investments, including
mutual funds and other institutional accounts, since 1965. As of December 31,
1999, VMF had approximately $ billion in assets under management.

The Fund pays VMF a management fee, which is based on the Fund's average daily
net assets. The total fee paid by the Fund for the fiscal year ended October 31,
1999, expressed as a percentage of the Fund's average daily net assets, was %.

Portfolio Manager: Patricia Mynster is the portfolio manager of the Money Market
Fund. She has managed the Fund and its predecessor since 1997.

6
<PAGE> 9

BUYING AND SELLING FUND SHARES

WHO CAN BUY SHARES OF THE FUNDS

Insurance company accounts may purchase Class R shares using purchase payments
received on Contracts issued to qualified plans. Programs offered to qualified
plans through broker-dealers or the Nationwide Trust Company may also purchase
Class R shares of the Fund. Qualified plan -- or Contract-directed-purchases,
exchanges and redemptions are handled in accordance with terms of the qualified
plans or Contracts, subject to Fund restrictions contained herein. Since the
qualified plans or Contracts may have different provisions with respect to the
timing and method of purchases, exchanges and redemptions, beneficial owners of
the Class R shares should contract their designated financial intermediary
directly for details concerning transactions.

Class R shares are currently sold only to separate accounts of Nationwide Life
Insurance Company and an omnibus account held by Nationwide Trust Company. The
address for these entities is One Nationwide Plaza, Columbus, Ohio 43215.

PURCHASE PRICE

The purchase price of each share of the Fund is its "net asset value" (or NAV)
next determined after the order is received. No sales charge is imposed on the
purchase of the Fund's shares. A separate NAV is calculated for each class of
the Fund. Generally, NAV for a class is determined by dividing the total market
value of the securities owned by the Fund, less its liabilities, 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 Eastern Time
on each day the Exchange is open for trading.

We do not determine NAV on the following days:

- Christmas Day

- New Year's Day

- Martin Luther King Jr. Day

- Presidents' Day

- Good Friday

- Memorial Day

- Independence Day

- Labor Day

- Thanksgiving Day

- other days when the New York Stock Exchange is not open.

VMF reserves the right not to determine NAV when the Fund has not received any
orders to purchase, sell, or exchange shares. In determining the Fund's net
asset value, portfolio securities are valued at amortized cost, which
approximates market value, in accordance with Rule 2a-7 of the Investment
Company Act of 1940. Expenses and fees are accrued daily.

SELLING SHARES

Shares may be sold (redeemed) at any time, subject to certain restrictions. The
redemption price is the NAV next determined after the order is received.

RESTRICTIONS ON SALES

Shares of the Fund may not be redeemed or the Fund may delay paying the proceeds
from a redemption when the New York Stock Exchange is closed (other than
customary weekend and holiday closings) or if trading is restricted or an
emergency exists.

DISTRIBUTION PLAN

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, the Fund pays NAS compensation accrued daily and
paid monthly. Class R shares of the Fund pay an amount not exceeding, on an
annual basis, 0.15% of the Class R 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.

YEAR 2000

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 assessment of all computer systems and has 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.

7
<PAGE> 10

Buying and Selling Fund Shares continued

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 also 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 Year-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
its ongoing risk-management strategy.

DIVIDENDS AND DISTRIBUTIONS

Substantially all of the Fund's net investment income, if any, will be declared
daily and paid as a dividends monthly in the form of additional Class R shares
of the Fund. Any net capital gains realized by the Fund from the sale of its
portfolio securities will be declared and paid to shareholders annually.

TAX STATUS

The tax treatment of payments made under a variable annuity contract or variable
life insurance policy is described in the prospectus for the contract or policy.
Generally, the owners of variable annuity contracts and variable life insurance
policies are not taxed currently on income or gains realized under such
contracts until the income or gain is distributed. However, income distributions
from these contracts and policies will be taxable at ordinary income tax rates.
In addition, distributions made to an owner who is younger than 59 1/2 may be
subject to a 10% penalty tax. Investors should ask their own tax advisors for
more information on their own tax situation, including possible state or local
taxes.

Please refer to the Statement of Additional Information for more information
regarding the tax treatment of the Fund.

8
<PAGE> 11

FINANCIAL HIGHLIGHTS

Financial Highlights are not available for the Class R shares prior to January
4, 1999 since Class R shares had not yet commenced operations.

The following Financial Highlights for the Five Year Period ended October 31,
1998 are for the Fund's initial class of shares -- Prime Shares. On May 11,
1998, the initial class of the Fund commenced operations following a
reorganization. The Financial Highlights for such four year period reflect the
operations of the Fund's predecessor, the Nationwide Investing Foundation --
Nationwide Money Market Fund for the period prior to May 11, 1998. Financial
Highlights for 1999 are for Class R shares of the Fund which are subject to a
0.25% administrative servicing fee; the administrative servicing fee is not
applicable to the initial class of shares. The Class R shares of the Fund are
also subject to a 0.15% 12b-1 fee which was previously waived by NAS. The
Financial Highlights for the five year period ended October 31, 1999 have been
audited by KPMG LLP, Independent Auditors, whose report thereon, insofar as they
relate to each of the years in the five year period ended October 31, 1999,
together with the financial statements for the Fund for the year ended October
31, 1999, appearing in the Annual Report of the Nationwide Mutual Funds are
incorporated by reference in the Statement of Additional Information.

The Trust's Statement of Additional Information and the Annual Report, which
contain further information about the Fund's performance, may be obtained free
of charge by calling 1-800-848-0920.

(For a share outstanding throughout the period ending)

<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
--------------------------------------------------------------------------
1999** 1998 -- PRIME 1997 -- PRIME 1996 -- PRIME 1995 -- PRIME
---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE -- BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income .05 .05 .05 .05
Dividends from net investment income
(loss) (.05) (.05) (.05) (.05)
---------- ---------- -------- -------- --------
NET ASSET VALUE -- END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ======== ======== ========
Total Return 5.2 5.1 5.1 5.5
Ratios and supplemental data:
Expenses to average net assets .59 .59 .60 .62
Net investment income to average net
assets 5.03 4.96 4.93 5.34
Expenses to average net assets* .61 .64 .65 .67
Net investment income to average net
assets* 5.01 4.91 4.88 5.29
Net Assets, end of period (000) $1,048,689 $820,657 $729,500 $604,711
</TABLE>

* Ratios calculated as if no expenses were waived.
** Period from January 4, 1999 (commencement of operations for Class R shares)
through October 31, 1999.

9
<PAGE> 12

(This Page Intentionally Left Blank)
<PAGE> 13

INFORMATION FROM NATIONWIDE

Please read this Prospectus before investing. The following documents--which may
be obtained free of charge--contain additional information about the Funds:

- Statement of Additional Information (SAI) (incorporated by reference into this
Prospectus)

- Annual Report

- 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 AND ASSISTANCE:

1-800-848-0920 (toll free, 8 a.m. - 5 p.m. Eastern 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

Copies of Fund documents may be obtained from the Securities and Exchange
Commission as follows:

IN PERSON:

Public Reference Room in Washington, D.C. (for their hours of operation, call
1-800-SEC-0330)

BY MAIL:

Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-6009

(The Securities and Exchange Commission charges a fee to copy any documents.)

VIA THE INTERNET:

http://www.sec.gov

THE TRUST'S INVESTMENT COMPANY ACT FILE NO: 811-08495

APO-____
<PAGE> 14
PROSPECTUS

, 2000
-------------

NATIONWIDE MUTUAL FUNDS

NATIONWIDE S&P 500 INDEX FUND
(CLASS R, CLASS Y AND LOCAL FUND 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> 15

<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
FUND SUMMARY..........................................................1

MORE ABOUT THE FUND...................................................4

INVESTMENT RISKS......................................................6

MANAGEMENT............................................................8

BUYING, SELLING AND EXCHANGING FUND SHARES............................9

DISTRIBUTIONS AND TAXES...............................................12

FINANCIAL HIGHLIGHTS..................................................14

ADDITIONAL INFORMATION................................................Back Cover
</TABLE>

-i-

<PAGE> 16

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 R, Class Y and Local Fund shares. The fees 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 in the Fund Summary. For more
information about which share class offered by this Prospectus is right for you,
see "BUYING, SELLING AND EXCHANGING FUND SHARES - Who Can Buy Shares of the
Fund."

-1-

<PAGE> 17

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.

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 comprising
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. 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.

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

--------
*"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> 18

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 - Local Fund Shares

[add bar chart here]

Best Quarter: ___% ___ qtr of 1999 Worst Quarter: ___% ___qtr of 1999

Average annual returns - as of December 31, 1999

<TABLE>
<CAPTION>
One Year Since Inception(1)
-------- ------------------
<S> <C> <C>
Local Fund Shares ____% ____%
Class Y Shares ____% ____%
Class R Shares ____% ____%
S&P 500(2) ____% ____%
</TABLE>

(1) The Fund began operations July 24, 1998.
(2) 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.

-3-

<PAGE> 19

<TABLE>
<CAPTION>
Class R Shares Class Y Shares Local Fund Shares
-------------- -------------- -----------------

<S> <C> <C> <C> <C>
Shareholder Fees(1) None None None
(paid directly from your
investment)

Annual Fund Operating Expenses
(deducted from Fund assets)
Management Fees 0.07% 0.07% 0.07%
Distribution and/or Service
(12b-1) Fees 0.15 None 0.07
Other Expenses ____ ____ ____

Total Annual Fund
Operating Expenses(2) % % %
==== ==== ====
</TABLE>

(1) If you buy and sell shares through a broker or agent, they may also charge
you a transaction fee.
(2) At least through ______________, 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 0.63% for Class R shares, 0.48% for Class Y shares and 0.35% for Local
Fund 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 R Shares $___ $___ $____ $____

Class Y Shares $___ $___ $____ $____

Local Fund Shares $___ $___ $____ $____
</TABLE>

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

-4-

<PAGE> 20

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 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
comprising the Index. The Fund may change its target index if Fund management
believes a different index would better enable the Fund to match the performance
of the market segment represented by the current index. Except with respect to
the specific index used, 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.

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 or
bonds, as the case may be, 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 a market-weighted index, which means that the largest stocks represented in
the index have the most effect on the index's performance. The S&P 500 is
generally considered broadly representative of the performance of publicly
traded U.S. larger-capitalization stocks. Standard & Poor's selection of a stock
for the S&P 500 does not mean that Standard & Poor's believes the stock to be 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 not invest in all of the common stocks in the S&P 500, or in the
same weightings as in the S&P 500. Instead, the Fund may invest in a
statistically selected sample of the stocks included in the S&P 500. The Fund
will choose investments so that the market capitalizations, industry weightings
and other fundamental characteristics of the stocks and derivative instruments
in its portfolio are similar to the S&P 500 as a whole.

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 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

-5-

<PAGE> 21

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, 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]

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:

-6-

<PAGE> 22

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.

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.

-7-

<PAGE> 23

MANAGEMENT

INVESTMENT ADVISER

Villanova Mutual Fund Capital Trust ("VMF"), Three Nationwide Plaza, Columbus,
Ohio 43215, manages the investment of the assets and supervised 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.

The Fund pays VMF a management fee, which is based on the Fund's average daily
net assets. The total fee paid by the Fund for the fiscal year ended October 31,
1999 -- expressed as a percentage of a Fund's average daily net assets -- was
___%.

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.

THE SUBADVISER

Subject to the supervision of VMF and the Trustees, the subadviser manages 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.

-8-

<PAGE> 24

Since _____________, 2000, 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.

Since the Fund began operations until __________, 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.

WHO CAN BUY SHARES OF THE FUND

As noted in the Fund Summary, we offer three different share classes in this
Prospectus.

Class R shares are sold to life insurance company separate accounts to fund the
benefits of variable annuity contracts issued to employee benefit plans
qualified under ss.401(a) of the Internal Revenue Code, to programs offered to
qualified plans and to accounts held by the Nationwide Trust Company for
qualified plans.

Class Y shares are sold to life insurance company separate accounts to fund the
benefits of variable annuity contracts issued to governmental entities as an
investment option under their deferred compensation plans as defined under
Section 457 of the Internal Revenue Code or qualified plans adopted pursuant to
Section 401(a) of the Internal Revenue Code, or to such governmental entities
directly.

Local Fund shares are sold to certain funds of funds (mutual funds investing
primarily in other mutual funds) created by NAS.

Class R and Local Fund shares pay distribution and/or service fees under a
Distribution Plan. These fees are returned by NAS or are paid by NAS to brokers
for distribution and shareholder services. Class R and Class Y shares pay an
administrative service fee. This fee is paid to brokers and other entities who
provide administrative support services to the beneficial owners of Class R and
Class Y shares.

PURCHASE PRICE

The purchase or "offering" price of one share of the Fund is its "net asset
value" or NAV. 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

-9-

<PAGE> 25

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.

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
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.

When you purchase shares, your purchase price will be the offering price or NAV
next determined after your order is received.

HOW TO PLACE YOUR PURCHASE ORDER

If you purchase shares through a variable insurance contract or through another
financial intermediary, please contact that entity for information on how to
place purchase orders. Otherwise, please contact Nationwide Advisory Services,
Inc., Three Nationwide Plaza, P.O. Box 1492, Columbus, Ohio 43216-1492, (800)
848-0920.

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 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.

Your order to sell shares can be made through your financial intermediary or in
writing or by telephone to NAS. Generally, we will pay you for the shares that
you sell within three days after receiving your order to sell.

-10-

<PAGE> 26

RESTRICTIONS ON SALES

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.

DISTRIBUTION PLAN

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, the Fund pays NAS compensation accrued daily and
paid monthly. Class R shares of the Fund pay an amount not exceeding, on an
annual basis, 0.15% of the Class R shares' average daily net assets. Local Fund
shares of the Fund pay an amount not exceeding, on an annual basis, 0.07% of the
Local Fund 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.

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 and both accounts have the same owner. You can't
exchange Class Y shares for Class R shares. Currently, no other fund within
Nationwide Mutual Funds offers Local Fund Shares.

There is no sales charge for exchanges of Class R or Class Y shares.

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 them, you may 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 by contacting your financial intermediary
or NAS. Your exchange will processed on the date NAS receives your request. If
your request is received after 4 p.m. Eastern Standard Time, it will be
processed the next day. 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.
The Fund may delay forwarding redemption proceeds for up to seven days if the
investor redeeming shares is engaged in

-11-

<PAGE> 27

excessive trading, or if the amount of the redemption request otherwise would be
disruptive to efficient portfolio management, or would adversely affect the
Fund.

YEAR 2000

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.

DISTRIBUTIONS OF CAPITAL GAINS

If the Fund has net realized capital gains at the end of the fiscal year
(meaning the gains from sales of securities exceed any losses from sales), it
will distribute this capital gain to shareholders

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<PAGE> 28

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. 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 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.)

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 give 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 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 of your
purchases, sales, and any resulting gain or loss. If you do sell Fund shares for
a loss, you may be able to sue 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.

VARIABLE INSURANCE PRODUCTS

-13-

<PAGE> 29

penalty tax. Investors should ask their own tax advisors for more information on
their own tax situation, including possible state or local taxes.

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
financial performance for the period of the Fund's operation. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned [or
lost] on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP, whose report,
along with the Fund's financial statements, are included in the annual report,
which is available upon request.

-14-

<PAGE> 30

<TABLE>
<CAPTION>
PERIOD ENDED
YEAR ENDED OCTOBER 31, 1999 OCTOBER 31,1998(b)
--------------------------- ------------------
Class R Class Y Local Local
Shares(a) Shares(a) Fund Shares Fund Shares
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $_____ $_____ $_____ $ 10.00
Net investment income _____ _____ _____ 0.04
Net realized gain (loss) and unrealized
appreciation (depreciation) _____ _____ _____ (0.35)
Total from investment operations _____ _____ _____ (0.31)
Dividends from net investment income _____ _____ _____ (0.03)
Dividends from net realized gain from
investment transactions _____ _____ _____ --
Total distributions _____ _____ _____ (0.03)
Net increase (decrease) in net asset
value _____ _____ _____ _____

NET ASSET VALUE - END OF PERIOD $ $ $ $ 9.66
Total Return ===== ===== ==== =======
Ratios and supplemental data: _____% _____% _____% (3.08%)(c)
Net Assets, end of period (000)
Ratio of expenses to average net assets $_____ $_____ $_____ $22,325
Ratio of expenses to average net assets* _____% _____% _____% 0.32%(d)
Ratio of net investment income to _____% _____% _____% 0.64%(d)
average net assets
Ratio of net investment income to _____% _____% _____% 1.55%(d)
average net assets*
Portfolio turnover _____% _____% _____% 1.26%(d)
_____% _____% _____% 3.07%(d)
</TABLE>

* Ratios calculated as if no fees were waived or expenses reimbursed.

(a) Shares of this Class were first offered to the public on November 2, 1998.
(b) For the period from July 24, 1998 (commencement of operations) through
October 31, 1998.
(c) Not annualized
(d) Annualized

-14-

<PAGE> 31

[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
Fund documents from the SEC as follows:

IN PERSON:
Public Reference Room in Washington, D.C. (for their hours of operation, call
1-800-SEC-0330)

BY MAIL:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-6009
(The SEC charges a fee to copy any documents.)

VIA THE INTERNET:
http://ww.sec.gov

Nationwide Mutual Funds
Three Nationwide Plaza
Columbus, Ohio 43215-2220

-15-
<PAGE> 32

PROSPECTUS

, 2000

NATIONWIDE MUTUAL FUNDS

PRESTIGE ADVISOR SERIES

PRESTIGE LARGE CAP VALUE FUND
PRESTIGE LARGE CAP GROWTH FUND
PRESTIGE BALANCED FUND
PRESTIGE SMALL CAP FUND
PRESTIGE INTERNATIONAL FUND

As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these Funds' shares as an investment or determined
whether this prospectus is complete or accurate. To state otherwise is a crime.

<PAGE> 33

TABLE OF CONTENTS

FUND SUMMARIES.....................................................1
Prestige Large Cap Value Fund.............................2
Prestige Large Cap Growth Fund............................6
Prestige Balanced Fund....................................10
Prestige Small Cap Fund...................................13
Prestige International Fund...............................16

MORE ABOUT THE FUNDS...............................................19

MANAGEMENT.........................................................24

BUYING, SELLING AND EXCHANGING FUND SHARES.........................30

DISTRIBUTIONS AND TAXES............................................40

FINANCIAL HIGHLIGHTS...............................................41

ADDITIONAL INFORMATION.............................................Back Cover

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<PAGE> 34

FUND SUMMARIES

This Prospectus provides information about the Prestige Advisor Series of:
Prestige Large Cap Growth Fund, Prestige Large Cap Value Fund, Prestige Balanced
Fund, Prestige Small Cap Fund and Prestige International Fund (together the
"Funds"). "You" and "your" refer to potential investors and current shareholders
of one or more of the Funds.

This section summarizes key information about the Funds. Use these summaries to
compare the Funds with each other as well as with other mutual funds. More
detailed information about the risks and investment techniques of each Fund can
be found in "MORE ABOUT THE FUNDS."

A QUICK NOTE ABOUT SHARE CLASSES

Each Fund has three different share classes -- Class A, Class B and Class Y. The
fees, sales charges and expenses for each share class are different, but each
share class of a particular Fund represents an investment in the same assets of
that Fund.

The fees and expenses for each Fund are set forth in the Fund Summaries. For
more information about which share class is right for you, see "BUYING, SELLING
AND EXCHANGING FUND SHARES -- Choosing a Share Class."

ABOUT EACH FUND GENERALLY

Each Fund employs a "multi-manager" structure which means that Villanova Mutual
Fund Capital Trust ("VMF"), as the Funds' investment adviser may hire, replace
or terminate one or more subadvisers for a Fund without shareholder approval.
VMF believes that this structure gives it increased flexibility to manage the
Funds in your best interests and to operate the Funds more efficiently.

<PAGE> 35

PRESTIGE LARGE CAP VALUE FUND

OBJECTIVE AND PRINCIPAL STRATEGIES

The Fund seeks to maximize total return, consisting of both capital appreciation
and current income. VMF has selected Brinson Partners, Inc. as a subadviser to
manage the Fund's portfolio on a day-to-day basis. To achieve its objective, the
Fund, under normal circumstances, invests at least 65% of its total assets in
equity securities of U.S. large capitalization companies which are traded on
major stock exchanges and the over-the-counter markets. The Fund considers large
capitalization companies to be those with market capitalizations similar to the
companies in The Russell 1000(R) Value Index. As of the last update of the
index, the market capitalizations of companies in The Russell 1000(R) Value
Index ranged from $___ to $___. The market capitalization range for companies in
The Russell 1000(R) Value Index is updated annually. The Fund looks for value
oriented securities by focusing on investment fundamentals such as price-to-book
and price earnings ratios and dividend yields. The Fund will consider purchasing
a security when it believes that the market price for such security is below its
fundamental investment value.

The Russell 1000(R) Value Index is a registered service mark of The Frank
Russell Company which does not sponsor and is in no way affiliated with the
Fund. [Inset Box]

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 Large Cap Value
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.

Risks related to investing for value. Different types of stocks tend to shift
into and out of favor with stock market investors depending on market and
economic conditions. Because the Fund generally focuses on value-style stocks,
the Fund's performance may at times be better or worse than the performance of
stock funds that focus on other types of stocks, or that have a broader
investment style.

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 returns 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.

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<PAGE> 36

ANNUAL RETURNS - CLASS A SHARES(1)

[CHART TO BE INCLUDED]

Best qtr.: ____% ___ qtr. of 199__ Worst qtr.: ____% ___qtr. of 199__

(1) These annual returns do not include sales charges. If the sales charges
were included, the annual returns would be lower than those shown.

AVERAGE ANNUAL RETURNS - AS OF 12/31/99(1)

1 year Since Inception(2)

Class A shares ____% _____%
Class B shares ____% _____%
Class Y shares ____% _____%
Russell l000(R) Value Index(3) ____% _____%

(1) These returns reflect performance after sales charges and expenses are
deducted.
(2) The Fund began operations on November 2, 1998.
(3) The Russell 1000(R) Value Index is an unmanaged index of the value
securities of large U.S. companies included in The Russell 1000(R) Index.
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.

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<PAGE> 37

FEES AND EXPENSES

THIS TABLE DESCRIBED THE FEES AND EXPENSES THAT YOU MAY PAY WHEN BUYING AND
HOLDING SHARES OF THE LARGE CAP VALUE FUND.
<TABLE>
<CAPTION>

Shareholder Fees(1) Class A Shares Class B Shares Class Y 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 5.00%(3) 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 0.75% 0.75% 0.75%
Distribution and/or Service (12b-1) Fees 0.25 1.00 None
Other Expenses _____ _____ _____

Total Annual Fund Operating Expenses(4) % % %
===== ===== =====
</TABLE>

(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 EXCHANGING FUND SHARES -- Buying Shares -- Class A sales
charges."
(3) A contingent deferred sales charge (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 FUND SHARES - Selling Shares -
Contingent deferred sales charge (CDSC) on Class A and B shares."
(4) At least through ______________, 2000, VMF has agreed to waive fees or
otherwise reimburse expenses for the Fund so that the Total Annual
Operating Expenses will not exceed ____% for Class A shares, ____% for
Class B shares and ____% for Class Y 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.

-4-
<PAGE> 38

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class A Shares $_____ $_____ $_____ $_____

Class B Shares $_____ $_____ $_____ $_____

Class Y Shares $_____ $_____ $_____ $_____

You would pay the following expenses on the same investment if you did not sell
your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class B Shares $_____ $_____ $_____ $_____

Class B shares convert to Class A shares seven years after purchase; therefore,
Class A expenses are used in the example after year seven.

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<PAGE> 39

PRESTIGE LARGE CAP GROWTH FUND

OBJECTIVE AND PRINCIPAL STRATEGIES

The Fund seeks long-term capital appreciation. VMF has selected Goldman Sachs
Asset Management as a subadviser to manage the Fund's portfolio on a day-to-day
basis. To achieve its objective, the Fund invests primarily in equity securities
of U.S. large capitalization companies that are expected to have better
prospects for earnings growth than the growth rate of the general domestic
economy. Dividend income is a second consideration. The Fund considers large
capitalization companies to be those with market capitalizations similar to the
companies in the Russell 1000(R) Growth Index. As of the last update of this
Index, the market capitalizations of companies in the Russell 1000(R) Growth
Index ranged from $____ to $____. The market capitalization range for companies
in the Russell 1000(R) Growth Index is updated annually.

The Fund emphasizes a company's growth prospects in analyzing equity securities
to be purchased by the Fund. The Fund's investments are selected using both a
variety of quantitative techniques and fundamental research in seeking to
maximize the Fund's expected return while maintaining risk, style and
capitalization characteristics similar to The Russell 1000(R) Growth Index. The
Fund seeks a portfolio comprised of companies with above average capitalizations
and earnings growth expectations and below average dividend yields.

There are two building blocks in the subadviser's active management of the Fund:

1. Stock Selection

The Fun uses the subadviser's proprietary multifactor model, a rigorous
computerized rating system, to forecast the returns of securities in the Fund's
portfolio. This model incorporates common variables covering measures of:

- Value (price-to-book, price-to-earnings, cash flow to enterprise value)

- Momentum (earnings momentum, price momentum, sustainable growth)

- Risk (market risk, company-specific risk, earnings risk)

- Research (fundamental research ratings of the subadviser and other
analysts)

Each of these factors is carefully evaluated in the model because each has
demonstrated a significant impact on the performance of the securities and
markets they are designed to forecast.

2. Portfolio Construction

A proprietary computer optimizer calculates every security combination (at each
possible weighting) to construct the most efficient risk/return portfolio given
the Fund's benchmark.

The Russell 1000(R) Growth Index is a registered service mark of The Frank
Russell Company which does not sponsor and is in no way affiliated with the
Fund. [Inset Box]

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

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<PAGE> 40

fluctuate, there is the risk that you will lose money. Individual stocks and
other equity investments in the Large Cap Growth Fund - as well as a 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 in foreign
countries, interest rate changes and other factors can also affect the broader
stock market. Typically, stocks are more volatile than bonds.

Risks related to investing for growth. Different types of stocks tend to shift
into and out of favor with stock market investors depending on market and
economic conditions. Because the Fund focuses on growth-style stocks, the Fund's
performance may at times be better or worse than the performance of stock funds
that focus on other types of stocks, or that have a broader investment style.

PERFORMANCE

ANNUAL RETURNS - CLASS A SHARES(1)

[CHART TO BE INCLUDED]

Best qtr.: ____% ___ qtr. of 199__ Worst qtr.: ____% ___qtr. of 199__

(1) These annual returns do not include sales charges. If the sales charges
were included, the annual returns would be lower than those shown.

AVERAGE ANNUAL RETURNS - AS OF 12/31/99(1)

1 year Since Inception(2)

Class A shares _____% _____%
Class B shares _____% _____%
Class Y shares _____% _____%
Russell 1000(R) Growth Index(3) _____% _____%

(1) These returns reflect performance after sales charges and expenses are
deducted.
(2) The Fund began operations on November 2, 1998.
(3) The Russell 1000(R) Growth Index is an unmanaged index of growth securities
of large U.S. companies included in the Russell 1000(R) Index. These
returns do not include the effect of any sales charges. If sales charges
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 LARGE CAP GROWTH FUND.

-7-
<PAGE> 41
<TABLE>
<CAPTION>

Shareholder Fees(1) Class A Shares Class B Shares Class Y 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 5.00%(3) 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 0.80% 0.80% 0.80%
Distribution and/or Service (12b-1) Fees 0.25 1.00 None
Other Expenses _____ _____ _____

Total Annual Fund Operating Expenses(4) % % %
</TABLE>

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.

-8-
<PAGE> 42

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class A Shares $_____ $_____ $_____ $_____

Class B Shares $_____ $_____ $_____ $_____

Class Y Shares $_____ $_____ $_____ $_____

You would pay the following expenses on the same investment if you did not sell
your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class B Shares $_____ $_____ $_____ $_____

Class B shares convert to Class A shares seven years after purchase; therefore,
Class A expenses are used in the example.

-9-
<PAGE> 43

PRESTIGE BALANCED FUND

OBJECTIVE AND PRINCIPAL STRATEGIES

The Fund seeks a high total return from a diversified portfolio of equity and
fixed income securities. VMF has selected J.P. Morgan Investment Management,
Inc. as a subadviser to manage the Fund's portfolio on a day-to-day basis. To
achieve its objective, the Fund, under normal circumstances, invests
approximately 60% of its assets in equity securities and 40% of its assets in
fixed income securities (including U.S. Government, corporate, mortgage-backed
and asset-backed securities). The equity securities held by the Fund generally
are common stocks of large and medium sized companies included in the Standard &
Poor's 500 Index. The fixed income securities held by the Fund will generally be
investment grade securities, or unrated securities of comparable quality,
although a portion of the Fund's fixed income securities will be invested in
securities rated below investment grade.

The Standard & Poor's 500 Index is a registered service mark of Standard &
Poor's which does not sponsor and is in no way affiliated with the Fund. [Inset
Box]

Investment grade securities are taxable debt securities, including corporate
bonds and other debt instruments, that have been rated within the four highest
rating categories by a nationally recognized rating agency, such as Standard &
Poor's Rating Group or Moody's Investors Service, Inc. The rating agency
evaluates a debt security, measures the issuer's financial condition and
stability, and assigns a rating to the security. By measuring the issuer's
ability to pay back the debt, ratings help investors evaluate the safety of
their bond investments.
[Inset Box]

PRINCIPAL RISKS

The Fund's equity investments are subject to market risk--that is, that
individual stocks and other equity investments in the Fund - as well as a 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 in foreign
countries, interest rate changes and other factors can also affect the broader
stock market. Typically, stocks are more volatile than bonds.

The Fund's fixed income investments are subject to interest rate and credit
risk. Interest rate risk is the risk that when interest rates go up, the value
of debt instruments generally goes down. In general, the market price of debt
securities with longer maturities will go up or down more in response to changes
in interest rates than shorter term securities. Credit risk is the risk that the
issuer will be unable to pay the interest or principal when due. The degree of
credit risk depends on both the financial condition of the issuer and the terms
of the obligation. There is also the risk that a charge in a bond's rating will
lower its value. Mortgage-backed and asset-backed securities are also subject to
prepayment risk when interest rates fall, especially if the security was
purchased at a premium (more than face value), which could cause the security to
be paid off sooner than the portfolio manager anticipated. If interest rates
rise, mortgage-backed and asset-backed securities may be subject to extension
risk because the security is paid off later than

-10-
<PAGE> 44

the portfolio manager anticipated, which would cause shorter term securities to
act like more volatile, longer-term securities.

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 returns for certain time periods compared to the returns of two
broad-based securities indices. 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 - CLASS A SHARES(1)

[CHART TO BE INCLUDED]

Best qtr.: ____% ___ qtr. of 199__ Worst qtr.: ____% ___qtr. of 199__

(1) These annual returns do not include sales charges. If the sales charges
were included, the annual returns would be lower than those shown.

AVERAGE ANNUAL RETURNS - AS OF 12/31/99(1)

1 year Since Inception(2)

Class A shares _____% _____%
Class B shares _____% _____%
Class Y shares _____% _____%
___________Index(3) _____% _____%

(1) These returns reflect performance after sales charges and expenses are
deducted.
(2) The Fund began operations on November 2, 1998.
(3) The ________ Index is [add description].

FEES AND EXPENSES

THIS TABLE DESCRIBED THE FEES AND EXPENSES THAT YOU MAY PAY WHEN BUYING AND
HOLDING SHARES OF THE BALANCED FUND.
<TABLE>
<CAPTION>

-11-
<PAGE> 45
<TABLE>
<CAPTION>
<S> <C> <C> <C>

Annual Fund Operating Expenses
(deducted from Fund assets)
Management Fees 0.75% 0.75% 0.75%
Distribution and/or Service (12b-1) Fees 0.25 1.00 None
Other Expenses _____ _____ _____

Total Annual Fund Operating Expenses(4) % % %
</TABLE>

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.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class A Shares $_____ $_____ $_____ $_____

Class B Shares $_____ $_____ $_____ $_____

Class Y Shares $_____ $_____ $_____ $_____

You would pay the following expenses on the same investment if you did not sell
your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class B Shares $_____ $_____ $_____ $_____

Class B shares convert to Class A shares seven years after purchase; therefore,
Class A expenses are used in the example after year seven.

-12-
<PAGE> 46

PRESTIGE SMALL CAP FUND

OBJECTIVE AND PRINCIPAL STRATEGIES

The Fund seeks long-term capital appreciation. VMF has selected INVESCO
Management & Research, Inc. as a subadviser to manage the Fund's portfolio on a
day-to-day basis. To achieve its objective, the Fund, under normal
circumstances, invests at least 65% of its assets in equity securities of small
capitalization companies. The Fund considers small capitalization companies to
be those with market capitalization no greater than 110% of the largest company
in the Russell 2000(R) Index. As of the last update of the Index, the market
capitalizations of companies in the Russell 2000(R) Index ranged from $____ to
$____. The market capitalization range for companies in the Russell 2000(R)
Index is updated annually. The Fund looks at many factors when considering which
securities to purchase for the Fund, including measures of value, momentum and
quality, and other non-quantitative information about the issuers.

The Russell(R) Index is a registered service mark of The Frank Russell Company
which does not sponsor and is in no way affiliated with the Small Cap Fund.
[Inset Box]

The Fund may also invest in equity securities of U.S. companies with larger
market capitalizations and in foreign securities.

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 Small Cap 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 focuses on a more narrow portion of the overall stock market by
investing primarily in companies with smaller market capitalizations. Therefore,
the impact of these factors on small companies may affect the Fund more than if
the Fund were to invest more broadly in the overall stock market.

The stocks of small companies are usually less stable and less liquid than
stocks of larger, more established companies. Therefore, investments in smaller
companies may be riskier than investments in larger companies. In addition,
small capitalization stocks may, from time to time, be out of favor.

To the extent the Fund invests in foreign securities, the Fund is also subject
to foreign investment risks. These risks include political and economic risks,
currency fluctuations, higher transaction costs and delayed settlement.

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 returns for certain

-13-
<PAGE> 47

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 - CLASS A SHARES(1)

[CHART TO BE INCLUDED]

Best qtr.: ____% ___ qtr. of 199__ Worst qtr.: ____% ___qtr. of 199__

(1) These annual returns do not include sales charges. If the sales charges
were included, the annual returns would be lower than those shown.

AVERAGE ANNUAL RETURNS - AS OF 12/31/99(1)

1 year Since Inception(2)

Class A shares _____% _____%
Class B shares _____% _____%
Class Y shares _____% _____%
Russell 2000(R) Index(3) _____% _____%

(1) These returns reflect performance after sales charges and expenses are
deducted.
(2) The Fund began operations on November 2, 1998.
(3) The Russell 2000(R) Index is an unmanaged index of approximately 2000
companies with small market capitalizations relative to the market
capitalizations of other U.S. companies. These returns do not include the
effect of any sales charges. If sales charges 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 SMALL CAP FUND.
<TABLE>
<CAPTION>

Annual Fund Operating Expenses
(deducted from Fund assets)
Management Fees 0.95% 0.95% 0.95%
</TABLE>

-14-
<PAGE> 48

<TABLE>
<CAPTION>
<S> <C> <C> <C>
Distribution and/or Service (12b-1) Fees 0.25 1.00 None
Other Expenses _____ _____ _____

Total Annual Fund Operating Expenses(4) % % %
===== ===== =====
</TABLE>

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.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class A Shares $_____ $_____ $_____ $_____

Class B Shares $_____ $_____ $_____ $_____

Class Y Shares $_____ $_____ $_____ $_____

You would pay the following expenses on the same investment if you did not sell
your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class B Shares $_____ $_____ $_____ $_____

Class B shares convert to Class A shares seven years after purchase; therefore,
Class A expenses are used in the example after year seven.

-15-
<PAGE> 49

PRESTIGE INTERNATIONAL FUND

OBJECTIVE AND PRINCIPAL STRATEGIES

The Fund seeks long-term capital appreciation. VMF has selected Lazard Asset
Management as a subadviser to manage the Fund's portfolio on a day-to-day basis.
To achieve its objective, the Fund invests primarily in equity securities,
principally common stocks, of relatively large non-U.S. companies. These
companies will have market capitalizations in the range of the Morgan Stanley
Capital International (MSCI) Europe, Australia and Far East Index. The Fund
considers a non-U.S. company to be one that is organized or incorporated outside
of the United States. The Fund may also invest a portion of its assets in fixed
income investment grade securities [of non-U.S. companies]. The Fund invests in
such non-U.S. companies either directly or through Depositary Receipts,
including American Depositary Receipts and Global Depositary Receipts.

Depositary Receipts are securities representing foreign securities that are
deposited with foreign custodians, U.S. commercial banks or foreign branches of
U.S. commercial banks. American Depositary Receipts or "ADRs" are U.S.
dollar-denominated and traded on U.S. exchanges. Global Depositary Receipts or
"GDRs" are foreign currency denominated and trade on foreign exchanges. [Inset
Box]

Under normal conditions, the Fund invests at least 80% of its total assets in
securities of companies within not less than three foreign countries. The Fund
focuses on securities that are believed to be inexpensively priced in comparison
to the return on total capital or equity.

The Fund may also engage in foreign currency transactions.

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 International 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 foreign risks that are risks related to owning
securities of foreign companies. These risks include political and economic
risks, currency fluctuations, higher transaction costs and delayed settlement.

-16-
<PAGE> 50

PERFORMANCE

The following bar chart and table presents the performances of the Fund. The bar
chart shows the Fund's annual total return. The table shows the Fund's average
annual total returns 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 - CLASS A SHARES(1)

[CHART TO BE INCLUDED]

Best qtr.: ____% ___ qtr. of 199__ Worst qtr.: ____% ___qtr. of 199__

(1) These annual returns do not include sales charges. If the sales charges
were included, the annual returns would be lower than those shown.

AVERAGE ANNUAL RETURNS - AS OF 12/31/99(1)

1 year Since Inception(2)

Class A shares _____% _____%
Class B shares _____% _____%
Class Y Shares _____% _____%
___________Index(3) _____% _____%

(1) These returns reflect performance after sales charges and expenses are
deducted.
(2) The Fund began operations on November 2, 1998.
(3) The _________ Index [add Index description here].

FEES AND EXPENSES

THIS TABLE DESCRIBED THE FEES AND EXPENSES THAT YOU MAY PAY WHEN BUYING AND
HOLDING SHARES OF THE INTERNATIONAL FUND.
<TABLE>
<CAPTION>

Annual Fund Operating Expenses
(deducted from Fund assets)
Management Fees 0.85% 0.85% 0.85%
</TABLE>

-17-
<PAGE> 51
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Distribution and/or Service (12b-1) Fees 0.25 1.00 None
Other Expenses _____ _____ _____

Total Annual Fund Operating Expenses(4) % % %
</TABLE>

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.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class A Shares $_____ $_____ $_____ $_____

Class B Shares $_____ $_____ $_____ $_____

Class Y Shares $_____ $_____ $_____ $_____

You would pay the following expenses on the same investment if you did not sell
your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

Class B Shares $_____ $_____ $_____ $_____

Class B shares convert to Class A shares seven years after purchase; therefore,
Class A expenses are used in the example after year seven.

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<PAGE> 52

MORE ABOUT THE FUNDS

PRINCIPAL RISKS AND TECHNIQUES

The Funds may use the following principal investment techniques to increase
returns, protect assets or diversify investments. These techniques involve
certain risks. For more information about the Funds' investment strategies and
techniques, see the Statement of Additional Information.

Principal Risks

This section contains a summary discussion of the general risks of investing in
a Fund. As with any mutual fund, there can be no guarantee that a Fund will meet
its goals or that a Fund's performance will be positive for any period of time.

SMALL CAP RISK - Historically, the securities of small cap companies have been
more volatile in price than larger company securities, especially over the short
term. Among the reasons for the greater price volatility are the less certain
growth prospects of small companies, the lower degree of liquidity in the
markets for such securities, the greater impact caused by changes in investor
perception of value, limited product lines or markets and the greater
sensitivity of small cap companies to changing economic conditions. In addition,
small cap companies may:

- lack depth of management
- be unable to generate funds necessary for growth or development
- be developing or marketing new products or services for which markets
are not yet established and may never become established
- market products or services which may become quickly obsolete

Small cap companies in the technology and biotechnology industries may be
subject to abrupt or erratic price movements. Therefore, while small cap
companies may offer greater opportunities for capital growth than larger, more
established companies, they also involve greater risks and should be considered
speculative.

FOREIGN RISK

Foreign security investment involves special risks not present in U.S.
investments that can increase the chances that a Fund will lose money.

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<PAGE> 53

COUNTRY. The economies of certain foreign markets often do not compare favorably
with that of the U.S. with respect to such issues as growth of gross national
product, reinvestment of capital, resources, and balance of payments position.
Certain such economies may rely heavily on particular industries or foreign
capital and are more vulnerable to diplomatic developments, the imposition of
economic sanctions against a particular country or countries, changes in
international trading patterns, trade barriers, and other protectionist or
retaliatory measures. Investments in foreign markets may also be adversely
affected by governmental actions such as the imposition of capital controls,
nationalization of companies or industries, expropriation of assets, or the
imposition of punitive taxes. In addition, the governments of certain countries
may prohibit or impose substantial restrictions on foreign investing in their
capital markets or in certain industries. Any of these actions could severely
affect security prices, impair a Fund's ability to purchase or sell foreign
securities or transfer a Fund's assets or income back into the U.S., or
otherwise adversely affect a Fund's operations. Other foreign market risks
include foreign exchange controls, difficulties in pricing securities, defaults
on foreign government securities, difficulties in enforcing favorable legal
judgments in foreign courts, and political and social instability. Legal
remedies available to investors in certain foreign countries may be less
extensive than those available to investors in the U.S. or other foreign
countries.

FOREIGN MARKETS. A Fund is subject to the risk that because there are generally
fewer investors in foreign markets and a smaller number of securities traded
each day, it may make it difficult for a Fund to buy and sell certain
securities. In addition, prices of foreign securities may go up and down more
than prices of securities traded in the U.S. Also, brokerage commissions and
other costs of buying and selling securities often are higher in foreign
countries than they are in the United States. This reduces the amount the Fund
can earn on its investments.

GOVERNMENTAL SUPERVISION AND REGULATION/ACCOUNTING STANDARDS. Foreign companies
are not subject to the same disclosure, accounting, auditing and financial
reporting standards and practices as U.S. companies. A Fund may have greater
difficulty voting proxies, exercising shareholder rights, pursuing legal
remedies and obtaining judgments with respect to foreign investments in foreign
courts than with respect to U.S. companies in U.S. courts. Many foreign
governments supervise and regulate stock exchanges, brokers and the sale of
securities less than the U.S. does. Other countries may not have laws to protect
investors the way that the U.S.' securities laws do. For example, some foreign
countries may have no laws or rules against insider trading (this is when a
person buys or sells a company's securities based on "inside" non-public
information about that company). Accounting standards in other countries are not
necessarily the same as in the U.S. If the accounting standards in another
country do not require as much detail as U.S. accounting standards, it may be
harder for a Fund's portfolio manager to completely and accurately determine a
company's financial condition.

CURRENCY. Some of a Fund's investments may be denominated in foreign currencies.
Changes in foreign currency exchange rates will affect the value of what a Fund
owns and a Fund's share price. Generally, when the U.S. dollar rises in value
against a foreign currency, an investment in that country loses value because
that currency is worth fewer U.S. dollars. Devaluation of currency by a
country's government or banking authority also has a significant impact on the
value of any securities denominated in that currency.

CERTAIN RISKS OF HOLDING FUND ASSETS OUTSIDE THE U.S. The International Fund
generally holds the foreign securities and cash in which it invests outside the
U.S. in foreign banks and securities depositories. Certain of such foreign banks
and securities depositories may be recently organized or new to the foreign
custody business and/or may have operations subject to limited

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<PAGE> 54

or no regulatory oversight. Also, the laws of certain countries may put limits
on a Fund's ability to recover its assets if a foreign bank or depository or
issuer of a security or any of their agents goes bankrupt. In addition, it can
be expected that it will be more expensive for the Fund to buy, sell, and hold
securities in certain foreign markets than in the U.S. market due to higher
brokerage, transaction, custody and/or other costs. The increased expense to
invest in foreign markets reduces the amount the Fund can earn on its
investments and typically results in a higher operating expense ratio for the
Fund than investment companies invested only in the U.S.

Settlement and clearance procedures in certain foreign markets differ
significantly from those in the U.S. Foreign settlement procedures and trade
regulations also may involve certain risks (such as delays in payment for or
delivery of securities) not typically generated by the settlement of U.S.
investments. Communications between the U.S. and emerging market countries may
be unreliable, increasing the risk of delayed settlements or losses of security
certificates. Settlements in certain foreign countries at times have not kept
pace with the number of securities transactions; these problems may make it
difficult for the Fund to carry out transactions. If the Fund cannot settle or
is delayed in settling a purchase of securities, it may miss attractive
investment opportunities and certain of its assets may be uninvested with no
return earned thereon for some period. If a Fund cannot settle or is delayed in
settling a sale of securities, it may lose money if the value of the security
then declines or, if it has contracted to sell the security to another party,
the Fund could be liable to that party for any losses incurred.

Dividends or interest on, or proceeds from the sale of, foreign securities may
be subject to foreign withholding taxes, and special U.S. tax considerations may
apply.

EUROPEAN ECONOMIC AND MONETARY UNION ("EMU"). A number of European countries
have entered into EMU in an effort to reduce trade barriers between themselves
and eliminate fluctuations in their currencies. EMU has established a single
European currency (the euro), which was introduced in January 1, 1999 and is
expected to replace the existing national currencies of all initial EMU
participants by July 1, 2002. Certain securities (beginning with government and
corporate bonds) were redenominated in the euro. These securities trade and make
dividend and other payments only in euros. Like other investment companies and
business organizations, including the companies in which the Funds invest, the
Funds could be adversely affected:

- If the transition to euro, or EMU as a whole, does not proceed as
planned.
- If a participating country withdraws from EMU.
- If the computing, accounting and trading systems used by a Fund's
service providers, or by other entities with which the Fund or its
service providers do business, are not capable of recognizing the
euro as a distinct currency.

INTEREST RATE RISK - Interest rate risk is the risk that increases in market
interest rates may decrease the value of the bonds in the Fund's portfolio.
Usually the prices of bonds fall when interest rates increase, and rise when
interest rates decrease. Typically, the longer the maturity of a bond, the more
sensitive it is to price shifts as a result of interest rate changes. Likewise,
the longer the Fund holds a bond, the greater the chance that interest rate
changes will affect the bond's value.

INFLATION RISK - Inflation risk affects the value of fixed-rate investments such
as bonds. If the Fund buys bonds when inflation and interest rates are low, the
value of these bonds could fall as

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<PAGE> 55

inflation rises and interest rates increase. This could happen as investors find
the bonds with lower interest rates less attractive than bonds that pay higher
interest rates.

DERIVATIVES RISK - The risk that loss may result from a Fund's investments in
options, futures, swaps, structured securities and other derivative instruments.
These instruments may be leveraged so that small change may produce
disproportionate losses to a Fund.

LIQUIDITY RISK - The risk that a Fund will not be able to pay redemption
proceeds within the time period stated in this Prospectus because of unusual
market conditions, an unusually high volume of redemption requests, or other
reasons. Funds that invest in lower rated debt securities and small
capitalization stocks will be especially subject to the risk that during certain
periods the liquidity of particular issuers or industries, or all securities
within these investment categories, will shrink or disappear suddenly and
without warning as a result of adverse economic, market or political events, or
adverse investor perceptions whether or not accurate.

CREDIT RISK - Credit risk is the risk that the issuer of a debt security will be
unable to make the required payments of interest and/or repay the principal when
due. In addition, there is a risk that the rating of a debt security may be
lowered if an issuer's financial condition changes, which may lead to a greater
price fluctuation in the Fund. These risks are particularly strong for
lower-rated debt securities.

EVENT RISK - Event risk is the risk that corporate issuers may undergo
restructurings, such as mergers, leveraged buyouts, takeovers, or similar
events, which may be financed by increased debt. As a result of the added debt,
the credit quality and market value of a company's bonds may decline
significantly.

PREPAYMENT RISK AND EXTENSION RISK - When interest rates fall, borrowers may
refinance or otherwise repay principal on their mortgages or other obligations
earlier than scheduled. When this happens, certain types of mortgage-backed [and
asset-backed] securities will be paid off more quickly than originally
anticipated and owners of these securities have to invest the proceeds in
securities with lower yields. This risk is known as "prepayment risk." When
interest rates rise, however, fewer borrowers refinance and certain types of
mortgage-backed securities are paid off more slowly than originally anticipated,
which causes the value of these securities to fall. This risk is known as
"extension risk." Because of prepayment risk and extension risk, small movements
in interest rates (both increases and decreases) may significantly reduce the
value of certain mortgage-backed securities.

RISK ASSOCIATED WITH GROWTH AND VALUE STOCKS. Due to their relatively low
valuations, value stocks are typically less volatile than growth stocks. In
comparison, a growth stock's price may be more directly linked to market
developments than a value stock's price. However, value stocks tend to have
higher dividend yields than growth stocks. This means they depend less on price
changes for returns. Accordingly, they might not participate in upward market
movements, but may be less adversely affected in a down market compared to lower
yielding stocks.

Principal Investment Techniques

U.S. GOVERNMENT SECURITIES. These securities include Treasury bills, notes, and
bonds, securities issued or guaranteed by the U.S. Government and securities
issued by U.S. government agencies, including:

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<PAGE> 56

- The Federal Housing Administration, the Farmers Home Administration and the
Government National Mortgage Association ("GNMA"), including GNMA
pass-through certificates, which are backed by the full faith and credit of
the United States
- The Federal Home Loan Banks
- The Federal National Mortgage Association ("FNMA")
- The Student Loan Marketing Association and Federal Home Loan Mortgage
Corporation ("FHLMC")
- The Federal Farm Credit Banks.

Although there is virtually no credit risk with these U.S. Government
securities, neither the U.S. Government nor its agencies guarantee the market
value of their securities. Interest rate changes, prepayment rates and other
factors may affect the value of these securities.

MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. U.S. Government mortgage-backed
securities are securities that are secured by and paid from a pool of mortgage
loans on real property and issued or guaranteed by the U.S. Government or one of
its agencies. Mortgage-backed securities may also be issued by private issuers.

Collateralized mortgage obligations (CMOs) are securities that have mortgage
loans or mortgage pass-through securities, such as GNMA, FNMA or FHLMC
certificates, as their collateral. CMOs can be issued by the U.S.
Government or its agencies or by private lenders.

These securities are subject to interest rate risk and to credit risk if they
are issued by private issuers. CMOs and other mortgage-backed securities are
also subject to prepayment risk. With respect to prepayment risk, when interest
rates fall homeowners may refinance their loans and the mortgage-backed security
will be paid off sooner than the portfolio manager anticipated. Reinvesting the
returned principal in a lower interest rate market reduces the Fund's income.
Mortgage-backed securities are also subject to extension risk and the
possibility of losing principal as a result of prepayments.

Asset-backed securities are securities that are secured by and paid from a pool
of underlying assets, such as automobile installment sales contracts, home
equity loans, property leases and credit card receivables. Asset-backed
securities are generally issued by private issuers and are subject to interest
rate and credit risks.

OTHER INVESTMENT TECHNIQUES. The Funds may engage in hedging techniques such as
the purchase and sale of options and future contracts, as described in the
Statement of Additional Information.

The Statement of Additional Information contains additional information about
the Funds, including the Funds' other investment techniques. To obtain a copy,
see the back cover page.

TEMPORARY DEFENSIVE POSITIONS. In response to economic, political or unusual
market conditions, each Fund may invest up to 100% of its assets in cash or
money market obligations. Should this occur, a Fund may not meet its investment
objectives and may miss potential market upswings.

MANAGEMENT

-23-
<PAGE> 57

INVESTMENT MANAGER

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 each of the Funds. 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 a 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.

Each Fund pays VMF a management fee, which is based on the Funds' average daily
net assets. The total management fee paid by the Funds for the fiscal year ended
October 31, 1999 -- expressed as a percentage of a Fund's average daily net
assets -- was as follows:

Fund Fee
---- ---

Large Cap Value Fund _____%
Large Cap Growth Fund _____%
Balanced Fund _____%
Small Cap Fund _____%
International Fund _____%

MULTI-MANAGER STRUCTURE

The Trust has 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 Funds to operate more efficiently and with greater flexibility.

VMF provides the following oversight and evaluation services to the Funds:

- performing initial due diligence on prospective subadvisers for a Fund
- monitoring the performance of the subadvisers through ongoing analysis, as
well as periodic consultations
- communicating performance expectations and evaluations to the subadvisers
- ultimately recommending to the Board of Trustees whether a subadviser's
contract should be renewed, modified or terminated

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<PAGE> 58

THE SUBADVISERS

Subject to the supervisions of VMF and the Trustees, a subadviser will manage a
Fund's assets in accordance with the Fund's investment objective and strategies.
With regard to the portion of a Fund's assets allocated to it, each subadviser
makes investment decisions for the Fund and, in connection with such investment
decisions, places purchase and sell orders for securities.

The following are the subadvisers for each Fund:

Large Cap Value Fund -- Brinson Partners, Inc.

Brinson Partners, a Delaware corporation, serves as Subadviser to the Large Cap
Value Fund. Brinson Partners is registered with the Securities and Exchange
Commission as an investment adviser and, as of June 30, 1999, managed $79
billion, primarily for pension and profit sharing institutional accounts.
Brinson Partners was organized in 1989 when it acquired the institutional asset
management business of The First National Bank of Chicago and First Chicago
Investment Advisors, N.A. Brinson Partners and its predecessor entities have
managed domestic and international investment assets since 1974 and global
investment assets since 1982. Brinson Partners is an indirect wholly-owned
subsidiary of UBS AG, an internationally diversified financial organization
headquartered in Zurich, Switzerland, and is the headquarters of UBS Brinson, an
institutional asset management organization within UBS AG, UBS Brinson has
offices in Chicago, Basel, Bahrain, London, Frankfurt, Geneva, Melbourne, New
York, Paris, Rio de Janeiro, Singapore, Sydney, Tokyo and Zurich and manages
over $280 billion worldwide.

Portfolio Managers. Investment decisions for the Large Cap Value Fund are made
by an investment management team at Brinson Partners. No individual member of
the investment management team is primarily responsible for making
recommendations regarding portfolio purchases and sales.

Large Cap Growth Fund -- Goldman Sachs Asset Management

Goldman Sachs Asset Management ("GSAM"), a division of the Investment Management
Division ("IMD") which is separate operating division of Goldman, Sachs & Co.
("Goldman Sachs"), serves as Subadviser to the Large Cap Growth Fund. Goldman
Sachs registered with the Securities and Exchange Commission as an investment
adviser in 1981. As of September 30, 1999, GSAM, along with other units of IMD
have assets under management in excess of $203 billion.

In performing its investment advisory services, GSAM, although responsible for
the management of the Fund, is able to draw upon the research and expertise of
its asset management affiliates for portfolio decisions and management with
respect to certain portfolio securities. In addition, GSAM will have access to
the research of Goldman Sachs, as well as certain proprietary technical models
developed by Goldman Sachs, and may apply quantitative and qualitative analysis
in determining the appropriate allocations among the categories of issuers and
types of securities.

Portfolio Managers. Robert C. Jones, Managing Director, Kent A. Clark, Managing
Director, Victor H. Pinter, Vice President, and Melissa Brown, Vice President,
are the portfolio managers for the Large Cap Growth Fund. Mr. Jones joined GSAM
as a portfolio manager in 1989. Mr. Clark joined GSAM as a portfolio manager on
the quantitative equity management team in 1992.

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<PAGE> 59

Mr. Pinter joined GSAM in 1990 and become a portfolio manager in 1992. Ms. Brown
joined GSAM in 1998. From 1984 to 1998, she was the director of Quantitative
Equity Research and served on the Investment Policy Committee at Prudential
Securities.

Balanced Fund -- J.P. Morgan Investment Management, Inc.

J.P. Morgan Investment Management, Inc. ("J.P. Morgan"), a wholly owned
subsidiary of J.P. Morgan & Co. Incorporated, serves as Subadviser to the
Balanced Fund. J.P. Morgan & Co. Incorporated is a bank holding company
organized under the laws of Delaware. J.P. Morgan offers a wide range of
investment management services and acts as investment adviser to corporate and
institutional clients. J.P. Morgan uses a sophisticated, disciplined,
collaborative process for managing all asset classes. As of September 30, 1999,
J.P. Morgan had assets under management of approximately $___ billion.

Portfolio Managers. Patrik Jakobson, Vice President, and Kate Jonas, Vice
President, are the portfolio managers for the Balanced Fund. Mr. Jakobson joined
J.P. Morgan in 1987, spending five years as a research analyst specializing in
the retailing industry. Subsequently, Mr. Jakobson managed equity and balanced
accounts and is currently responsible for managing global balanced portfolios.
Ms. Jonas joined J.P. Morgan in 1997 after eleven years at Morgan Stanley & Co.,
where she was a member of Morgan Stanley Asset Management's Emerging Markets
investment team. From 1985 to 1994, prior to joining Morgan Stanley Asset
Management, Ms Jonas co-managed the Morgan Stanley Capital International Indices
business.

Small Cap Fund - INVESCO Management & Research, Inc.

INVESCO manages the Small Cap Fund. INVESCO, which has been a registered
investment adviser since 1956, provides portfolio management for the Small Cap
Fund, including making investment decisions and placing purchase and sell order
for securities. As of September 30, 1999, INVESCO also manages approximately
$___ billion in investments for corporate and institutional clients, as well as
other investment companies.

INVESCO is a part of a global investment organization, AMVESCAP plc. AMVESCAP
plc is a public-traded holding company that, through its subsidiaries, engages
in the business of investment management on an international basis. AMVESCAP plc
manages in excess of $___ billion as of September 30, 1999, through specialized
investment management teams dedicated to clients and financial markets in their
region of the world.

Portfolio Managers. The Small Cap Fund is managed by INVESCO's Structured
Products Team, which is comprised of 11 investment professionals, each with an
average of 13 years of industry experience. No individual member of the
Structured Products Team is primarily responsible for making recommendations
regarding portfolio purchases.

International Fund -- Lazard Asset Management

Lazard Asset Management ("LAM"), a New York-based division of Lazard Freres &
Co. LLC ("Lazard"), a New York limited liability company, manages over $68
billion as of September 30, 1999, in investments for corporations, endowments,
public and private pension plans and wealthy individuals and is recognized as
one of the premier global investment advisory firms. Lazard - the world's first
global investment bank - has advised sophisticated investors for more

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<PAGE> 60

than 150 years. Lazard has offices in New York and San Francisco, and affiliates
in London, Tokyo, Frankfurt, Sydney and Cairo that extend its research
worldwide.

Portfolio Managers. LAM manages the International Fund on a team basis. The team
is involved in all levels of the investment process. This team approach allows
for every portfolio manager to benefit from his/her peers, and for clients to
receive the firm's best thinking, not that of a single portfolio manager. LAM's
international equity investment team operates under the guidance of Herbert
Gullquist, Vice Chairman and Chief Investment Officer of LAM with responsibility
for overall adherence to the firm's investment principles and John R. Reinsberg,
Managing Director of LAM, who is responsible for the team's day-to-day
operations and monitoring the International Fund's composition to ensure
appropriate diversification.

HISTORICAL PERFORMANCE OF THE SUBADVISERS

Each of the Funds began operations on November 2, 1998. The following table
shows the Funds' historical performance.

AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIOD ENDING DECEMBER 31, 1999)

FUND ONE YEAR SINCE INCEPTION
---- -------- ---------------

Large Cap Value
Large Cap Growth
Balanced
Small Cap
International

Although the Funds have been operating for only a limited time, the subadvisers
have managed similar mutual funds or institutional accounts for a longer period.
These other mutual funds or institutional accounts have investment objectives
and strategies that are substantially similar, but not necessarily identical, to
those of the Funds. We have included performance information about these other
mutual funds or institutional accounts for comparison purposes, BUT THESE OTHER
MUTUAL FUNDS AND INSTITUTIONAL ACCOUNTS ARE SEPARATE AND DISTINCT FROM EACH
FUND. THEIR PERFORMANCE DOES NOT GUARANTEE SIMILAR RESULTS FOR A FUND AND SHOULD
NOT BE VIEWED AS A SUBSTITUTE FOR A FUND'S OWN PERFORMANCE.

The performance of similar mutual funds or institutional accounts managed by the
Subadvisers may not be comparable to the performance of a Fund because of the
following differences:

- brokerage commissions and dealer spreads

- expenses (including management fees)

- the size of the investment in a particular security in relation to the
portfolio size

- the timing of purchases and sales (including the effect of market
conditions at that time)

- the timing of cash flows into the portfolio

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<PAGE> 61

- the availability of cash for new investments.

If the historical performance relates only to institutional accounts (including
institutional accounts that are included in composite performance), the
performance may not be comparable to the performance of the Funds because,
unlike the Funds, the institutional accounts may not be required to do the
following:

- redeem shares upon request

- meet the same diversification requirements as mutual funds

- follow the same tax restrictions and investment limitation as mutual
funds.

In some instances the performance of the institutional accounts is calculated by
combining the performance of all similarly managed accounts into a composite.
Depending on the subadviser, the composites may or may not also contain
registered mutual funds. If the accounts within each composite had been subject
to all Fund expenses, their performance would have been lower. As indicated
below, the composite performance has been prepared in compliance with the
Performance Presentation Standards of the Association for Investment Management
and Research ("AIMR Standards"), which are different from the performance
methodology used by registered investment companies like the Funds. AIMR has not
been involved with the preparation or review of this information.

Average annual total return represents the average change over a specified
period of time in the value of an investment after reinvesting all income and
capital gains distributions.

The historical performance information has been provided by each subadviser. The
Funds believe that it is reliable, but the Funds have not independently verified
it.

Brinson Partners, Inc. Brinson Partners is the subadviser for the Large Cap
Value Fund. The following chart shows the average annual total returns of the
Brinson U.S. Equity Composite. The account in this composite is managed by
Brinson Partners in a manner substantially similar to the way it manages the
Large Cap Value Fund. The historical investment performance of the composite
reflects the deduction of the investment advisory fees of 0.75% of the first $10
million of assets, but does not include the deduction of custody fees. These
fees are lower than the total annual operating expenses of the Large Cap Value
Fund. Brinson Partners prepared this performance information in compliance with
AIMR Standards.

Average Annual Total Returns
Brinson U.S. Equity Composite

For Years Ended December 31, 1999
--------------------------------------------------------------------------------

One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------

-----% -----% -----% -----%

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<PAGE> 62

Goldman Sachs Asset Management. GSAM is the subadviser for the Large Cap Growth
Fund. The following chart shows the average annual total returns of the Goldman
Sachs CORE Large Cap Growth Composite. Each of the accounts in this composite is
managed by GSAM in a manner substantially similar to the way it manages the
Large Cap Growth Fund. The historical investment performance of the composite
reflects the deduction of all applicable fees. [These fees are lower than the
total operating expenses of the Large Cap Growth Fund.]--Confirm GSAM prepared
this performance information in compliance with AIMR Standards.

Average Annual Total Returns
Goldman Sachs CORE Large Cap Growth Composite

For Years Ended December 31, 1999

--------------------------------------------------------------------------------

One Year Three Years Five Years From 12/1/91*
-------- ----------- ---------- -------------

-----% -----% -----% -----%

*Composite inception date.

J.P. Morgan Investment Management Inc. J.P. Morgan is the subadviser for the
Balanced Fund. The following chart shows the average annual total returns of the
J.P. Morgan Balanced Commingled Account Composite. Each of the accounts in this
composite is managed by J.P. Morgan in a manner substantially similar to the way
it manages the Balanced Fund. The historical investment performance of the
composite reflects the deduction of investment advisory fees of 0.60% which is
the maximum fee charged by J.P. Morgan for the accounts included in the
composite, but does not include the deduction of custody fees. These fees are
lower than the total annual operating expenses of the Balanced Fund. J.P. Morgan
prepared this performance information in compliance with AIMR Standards.

Average Annual Total Returns
J.P. Morgan Balanced Commingled Account Composite

For Years Ended December 31, 1999

--------------------------------------------------------------------------------

One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------

-----% -----% -----% -----%

INVESCO Management & Research, Inc. INVESCO is the subadviser for the Small Cap
Fund. The following chart shows the average annual total returns of the INVESCO
Structured Small Cap Equity Composite. Each of the accounts in this composite is
managed by INVESCO in a manner substantially similar to the way it manages the
Small Cap Fund. The historical investment performance of the composite reflects
the deduction of investment advisory fees (assuming an investment advisory fee
of 1% annually), but does not include the deduction of custody fees. These fees
are lower than the total annual operating expenses of the Small Cap Fund.
INVESCO prepared this performance information in compliance with AIMR Standards.

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<PAGE> 63

Average Annual Total Returns
INVESCO Structured Small Cap Equity Composite

For Years Ended December 31, 1999

--------------------------------------------------------------------------------

One Year Three Years Five Years From 4/1/92*
-------- ----------- ---------- ------------

-----% -----% -----% -----%

*Composite inception date.

Lazard Asset Management. Lazard is the subadviser for the International Fund.
The following chart shows the average annual total returns of the Lazard
International Equity Composite. Each of the accounts in this composite is
managed by Lazard in a manner substantially similar to the way it manages the
International Fund. The historical investment performance of the composite
reflects the deduction of investment advisory fees (which is a maximum of 0.75%
annually) but does not include the deduction of custody fees. These fees are
lower than the total annual operating expenses of the International Fund. Lazard
prepared this performance information in compliance with AIMR Standards.

Average Annual Total Returns
Lazard International Equity Composite

For Years Ended December 31, 1999

--------------------------------------------------------------------------------

One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------

-----% -----% -----% -----%

BUYING, SELLING AND EXCHANGING FUND SHARES

In this section, "we" and "our" refer to Nationwide Advisory Services, Inc.
("NAS"), as distributor of the Funds' shares. "You" and "your" mean potential
investors and current shareholders.

CHOOSING A SHARE CLASS

As noted in the Fund Summaries, we offer three different share classes to give
investors different price and cost options. Class A and Class B shares of the
Funds are available to all investors; Class Y shares are available to a limited
group of institutional investors, such as life insurance company separate
accounts to fund the benefits of certain variable annuity contracts.

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 Class Y shares.

Class A and Class B shares pay distribution and/or service fees under a
Distribution Plan. These fees are retained by NAS or paid by NAS to brokers for
distribution and shareholder services.

-30-
<PAGE> 64

Class A and Class Y shares pay an administrative service fee. This fee is paid
to brokers and other entities who provide administrative support services to the
beneficial owners of Class A and Class Y 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 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 investment immediately goes toward
sales 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.

Class Y Shares are sold to life insurance company separate accounts to
fund the benefits of variable annuity contracts issued to governmental entities
as an investment option under their deferred compensation plans as defined under
Section 457 of the Internal Revenue Code or qualified plans adopted pursuant to
Section 401(a) of the Internal Revenue Code, or to such governmental entities
directly. For investors who are eligible to purchase Class Y shares, the
purchase of Class Y shares will generally be preferable to purchasing Class A or
Class B Shares.

BUYING SHARES

MINIMUM INVESTMENTS - CLASS A AND CLASS B SHARES

To open an account (per Fund) $1000
Through the Automatic Asset $ 25
Accumulation plan
per transaction
Additional investments $ 100
(per Fund)

-31-
<PAGE> 65

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.

PURCHASE PRICE

The purchase or "offering" price of one share of a Fund is its "net asset value"
or NAV, plus any applicable sales charge. A separate NAV is calculated for each
class of a Fund. The NAV for a class is determined by dividing the total market
value of the securities owned by a 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.

The Funds do not calculate NAV on the following days:

- Christmas Day
- New Year's Day
- Martin Luther King, Jr. Day
- Presidents' Day
- Good Friday
- Memorial Day
- Independence Day
- Labor Day
- Thanksgiving Day
- Other days when the New York Stock Exchange is not open.

The Funds reserve the right not to determine an NAV when:

- We have not received any orders to purchase, sell or exchange shares
- Changes in the value of a Fund's portfolio do not affect the NAV.

If current prices are not available, or if VMF or a Fund's subadviser determines
a price does not represent fair value, a Fund's investments may be valued at
fair value in accordance with procedures adopted by the Board of Trustees. To
the extent that a Fund's investments are traded in markets that are open when
the New York Stock Exchange is closed, the value of the Fund's investments may
change on days when shares cannot be purchased or redeemed.

When you purchase shares, your purchase price will be the offering price or NAV
next determined after your order is received, plus any applicable sales load.

CLASS A SALES CHARGES

The charts below show the Class A sales charges, which decrease as the amount of
your investment increases.

Amount of purchase Sales charge as % Sales charge as %
of offering price of amount invested
------------------------------------------------------------------------------
Less than $50,000 5.75% 6.10%

-32-
<PAGE> 66

$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
------------------------------------------------------------------------------

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:

- INCREASE THE AMOUNT OF YOUR INVESTMENT. The preceding table shows how the
sales charge decreases as the amount of your investment increases.

- FAMILY MEMBER DISCOUNT. Members of your family who live at the same address
can combine investments, possibly reducing the sales charge.

- 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.

- 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.

- 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.

- 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:

- Any person purchasing through an account with an unaffiliated brokerage
firm that has an agreement with NAS to waive sales charges for those
persons;

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<PAGE> 67

- 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;

- 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);

- 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;

- Trustees and retired Trustees of Nationwide Mutual Funds (including its
predecessor Trusts);

- Directors, officers, full-time employees, sales representatives and their
employees, and retired directors, officers, employees, and sales
representatives, their spouses, children or immediate relatives (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; and

- 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 with the Nationwide Insurance and
Nationwide Financial companies 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

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.

-34-
<PAGE> 68

BY WIRE - You can request that your bank transmit funds ("federal funds") by
wire to the Funds' 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 or
other financial institutions who are authorized to accept, or designate
intermediaries to accept, purchase and redemption orders for the Funds. If you
purchase through such a broker, your order will be priced at the NAV next
determined after your broker or its designated intermediary accepts it. Contact
your broker to determine whether it has an established relationship with NAS.

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 Funds 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.

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.

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<PAGE> 69

RESTRICTIONS ON SALES

You may not be able to sell your shares of the Funds 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

A signature guarantee is required under the following circumstances:

- if a redemption is over $100,000, or
- if your account registration has changed within the last 30 days, or
- 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
- 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 3years 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. Also, we will 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 in
Class A shares 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.

-36-
<PAGE> 70

HOW TO PLACE YOUR SALE ORDER

You can request the sale of your shares in any of the following ways:

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.

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 - If you have elected to have telephone redemption
privileges, a check payable to the shareholder of record can be mailed to the
address of record, unless you declined the telephone redemption privilege on
your application. 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 telephone privileges 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 Funds will use procedures to confirm that telephone
instructions are genuine. If the Funds act on instructions they reasonably
believed were genuine, they will not be liable for any loss, injury, damage or
expense that occurs as a result, and the Funds will be held harmless for any
loss, claims or liability arising from their compliance with the instructions.
NAS may record telephone instructions to sell shares. The Funds reserve 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 CLEARING HOUSE ("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

-37-
<PAGE> 71

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 if you fax your letter. A
signature guarantee may be required under certain circumstances. Please refer
back to "Signature Guarantee" on page _____.

THROUGH AN AUTHORIZED BROKER - NAS has relationships with certain brokers or
other financial institutions who are authorized to accept, or designate
intermediaries to accept, purchase and redemption orders for the Funds. 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.

ACCOUNTS WITH LOW BALANCES

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 Funds to compensate NAS - as
distributor - for expenses associated with distributing their shares and
providing shareholder services.

Under the Distribution Plan, the Funds pay NAS compensation accrued daily and
paid monthly. Class A shares of each Fund pay an amount not exceeding, on an
annual basis, 0.25% of the Class A shares' average daily net assets. Class B
shares of each 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.

EXCHANGING SHARES

You can exchange the shares you own for shares of another fund within Nationwide
Mutual Funds (except the Morley Capital Accumulation and Exchange Income Funds)
so 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. You can't exchange Class A shares for Class B or Class Y shares.

There is no sales charge for exchanges of Class A shares or Class Y 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

-38-
<PAGE> 72

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

HOW TO PLACE YOUR EXCHANGE ORDER

You can request an exchange of shares in writing, by fax or by phone (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 your letter is
signed exactly as your account is registered. Your exchange 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 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. 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. A
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.

YEAR 2000

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 Funds' 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

-39-
<PAGE> 73

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.

DISTRIBUTIONS AND TAXES

DISTRIBUTIONS OF INCOME DIVIDENDS

The Funds distribute 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.

DISTRIBUTIONS OF CAPITAL GAINS

If a Fund has net realized capital gains at the end of the fiscal 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. 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
applicable Fund. You may request a payment in cash in writing if distributions
are in excess of $5. If the checks sent to you cannot be delivered, or are not
cashed, distributions will be reinvested in shares of such Fund. You are subject
to tax on reinvested distributions.

-40-
<PAGE> 74

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. You will not receive interest on any uncashed
distribution, dividend or redemption checks.

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

EXCHANGING FUND SHARES

Exchanging your shares of one 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.

FINANCIAL HIGHLIGHTS

The financial highlights tables are intended to help you understand the Funds'
financial performance for the period of each Fund's operation. Certain
information reflects financial results for a single Fund share. The total
returns in the tables represent the rate that an investor would have earned [or
lost] on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP, whose report,
along with the Fund's financial statements, are included in the annual report,
which is available upon request.

-41-
<PAGE> 75

LARGE CAP VALUE FUND
<TABLE>
<CAPTION>

YEAR ENDED OCTOBER 31, 1999
---------------------------
Class A Shares Class B Shares Class Y Shares
-------------- -------------- --------------
<S> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $----- $----- $-----
Net investment income ----- ----- -----
Net realized gain and unrealized
appreciation on investments and
translation of assets and liabilities in
foreign currencies ----- ----- -----
Total from investment operations ----- ----- -----
Dividends from net investment income ----- ----- -----
Dividends from net realized gain from
investments and foreign currency
transactions ----- ----- -----
Dividends in excess of net realized gain
from investments and foreign currency
transactions ----- ----- -----
Total distributions ----- ----- -----
Net increase in net asset value ----- ----- -----

NET ASSET VALUE - END OF PERIOD $
===== ===== =====
Total Return

Ratios and supplemental data:
Net Assets, end of period (000) $ $ $
----- ----- -----
Ratio of expenses to average net assets -----% -----% -----%
Ratio of expenses to average net assets* -----% -----% -----%
Ratio of net investment income to average -----% -----% -----%
net assets
Ratio of net investment income to average -----% -----% -----%
net assets*
Portfolio turnover -----% -----% -----%

</TABLE>

* Ratios calculated as if no fees were waived or expenses reimbursed.

-42-
<PAGE> 76

LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>

NET ASSET VALUE - END OF PERIOD $
===== ===== =====
Total Return

</TABLE>

* Ratios calculated as if no fees were waived or expenses reimbursed.

-43-
<PAGE> 77

BALANCED FUND
<TABLE>
<CAPTION>

NET ASSET VALUE - END OF PERIOD $
===== ===== =====
Total Return

</TABLE>

* Ratios calculated as if no fees were waived or expenses reimbursed.

-44-
<PAGE> 78

SMALL CAP FUND

<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1999
---------------------------
Class A Shares Class B Shares Class Y Shares
-------------- -------------- --------------
<S> <C> <C> <C>

NET ASSET VALUE - BEGINNING OF PERIOD $ $ $
--------- ---------- -------
Net investment income
--------- ---------- -------
Net realized gain and unrealized
appreciation on investments and
translation of assets and liabilities in
foreign currencies
--------- ---------- -------
Total from investment operations
--------- ---------- -------
Dividends from net investment income
--------- ---------- -------
Dividends from net realized gain from
investments and foreign currency
transactions
--------- ---------- -------
Dividends in excess of net realized gain
from investments and foreign currency
transactions
--------- ---------- -------
Total distributions
--------- ---------- -------
Net increase in net asset value
--------- ---------- -------

NET ASSET VALUE - END OF PERIOD $ $ $
--------- ---------- -------
Total Return

Ratios and supplemental data:
Net Assets, end of period (000) $ $ $
--------- ---------- -------
Ratio of expenses to average net assets % % %
--------- ---------- -------
Ratio of expenses to average net assets* % % %
--------- ---------- -------

Ratio of net investment income to average
net assets % % %
--------- ---------- -------
Ratio of net investment income to average
net assets* % % %
--------- ---------- -------
Portfolio turnover % % %
--------- ---------- -------
</TABLE>

* Ratios calculated as if no fees were waived or expenses reimbursed.

-45-
<PAGE> 79

INTERNATIONAL FUND
<TABLE>
<CAPTION>

YEAR ENDED OCTOBER 31, 1999
---------------------------
Class A Shares Class B Shares Class Y Shares
-------------- -------------- --------------
<S> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ $ $
Net investment income
--------- ---------- -------
Net realized gain and unrealized
appreciation on investments and
translation of assets and liabilities in
foreign currencies
--------- ---------- -------
Total from investment operations
--------- ---------- -------
Dividends from net investment income
--------- ---------- -------
Dividends from net realized gain from
investments and foreign currency
transactions
--------- ---------- -------
Dividends in excess of net realized gain
from investments and foreign currency
transactions
--------- ---------- -------
Total distributions
--------- ---------- -------
Net increase in net asset value
--------- ---------- -------

NET ASSET VALUE - END OF PERIOD $ $ $
--------- ---------- -------
Total Return
Ratios and supplemental data:
Net Assets, end of period (000) $ $ $
--------- ---------- -------
Ratio of expenses to average net assets % % %
--------- ---------- -------
Ratio of expenses to average net assets* % % %
--------- ---------- -------
Ratio of net investment income to average
net assets % % %
--------- ---------- -------
Ratio of net investment income to average
net assets* % % %
--------- ---------- -------
Portfolio turnover % % %
--------- ---------- -------
</TABLE>

* Ratios calculated as if no fees were waived or expenses reimbursed.

-46-
<PAGE> 80

[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 Funds. To
obtain a document free of charge, contact us at the address or number listed
below.

- Statement of Additional Information (SAI) (incorporated by reference
into this Prospectus)

- Annual Report (which contains a discussion of the market conditions and
investment strategies that significantly affected each Fund's
performance)

- 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 Fund documents from the SEC as follows:

IN PERSON:
Public Reference Room in Washington, D.C. (for their hours of operation,
call 1-800-SEC-0330)

BY MAIL:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-6009
(The SEC charges a fee to copy any documents.)

VIA THE INTERNET:
http://ww.sec.gov

Investment Company Act File No. 811-08495

Nationwide Mutual Funds
Three Nationwide Plaza
Columbus, Ohio 43215-2220

-47-

<PAGE> 81

NATIONWIDE(R) MUTUAL FUNDS

______________, 2000

MORLEY CAPITAL ACCUMULATION FUND

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> 82

<TABLE>
<CAPTION>
TABLE OF CONTENTS

<S> <C>
FUND SUMMARY................................................................1
Objectives and Principal Strategies....................................2
Fees and Expenses......................................................4
MORE ABOUT THE FUND.........................................................5
MANAGEMENT..................................................................7
Investment Manager.....................................................7
Portfolio Managers.....................................................7
BUYING AND SELLING FUND SHARES..............................................8
Choosing a Share Class.................................................8
Who can buy Institutional Service Class, Institutional Class and
IRA Class Shares ....................................................8
Buying Shares..........................................................9
Selling Shares.........................................................10
Distribution Plan......................................................13
Year 2000..............................................................13
DISTRIBUTIONS AND TAXES.....................................................14
Distributions of Income and Capital Gains..............................14
Tax Status.............................................................14
FINANCIAL HIGHLIGHTS........................................................14
ADDITIONAL INFORMATION......................................................Back Cover
</TABLE>

-i-

<PAGE> 83

FUND SUMMARY

This prospectus provides information about the Morley Capital Accumulation Fund
(the "Fund"), a series of the Nationwide(R) Mutual Funds. "You" and "your"
refers to potential investors and current shareholders of the Fund.

A QUICK NOTE ABOUT SHARE CLASSES.

The Fund has three different share classes--Institutional Service Class ("ISC
shares"), Institutional Class ("IC shares") and IRA Class ("IRA shares"). The
fees and expenses for each share class are different, but each share class of
the Fund represents an investment in the same assets of the Fund. Having
different share classes simply lets you choose the cost structure that's right
for you.

The fees and expenses for the Fund are set forth in the Fund Summary. For more
information about which share class is right for you, see "Buying and Selling
Fund Shares - Choosing a Share Class."

-1-

<PAGE> 84

FUND SUMMARY (CONTINUED)

This section summarizes key information about the Fund. Use the 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."

OBJECTIVES AND PRINCIPAL STRATEGIES

The Fund seeks to provide a high level of current income while preserving
capital and maintaining a stable net asset value per share. The Fund's
investment objectives can be changed without shareholder approval.

To achieve its goals, under normal conditions, the Fund invests primarily in
securities issued by the U.S. Government and its agencies, as well as high-grade
debt securities issued by corporations. The Fund also purchases mortgage-backed
and asset-backed securities. The debt securities in which the Fund invests pay
interest on either a fixed-rate or variable-rate basis. The Fund has entered
into book value maintenance agreements ("wrap contracts") with one or more
highly rated financial institutions for the purpose of maintaining the Fund's
assets at a stable net asset value. The Fund will be managed so that the
duration of its securities will be between 2.0 and 3.5 years. The use of wrap
contracts is intended to effectively reduce the overall duration of the Fund to
zero.

Duration is the sensitivity of the net asset value of the Fund to changes in
interest rates. [Inset Box]

High grade debt securities include corporate bonds and other debt that have been
rated within the two highest rating categories by a nationally recognized rating
agency such as Standard & Poor's Rating Group or Moody's Investor Services, Inc.
The rating agency evaluates a debt security, measures the issuer's financial
condition and stability and assigns a rating to the security. By measuring the
issuer's ability to pay back the debt, ratings help investors evaluate the
safety of their debt investments. [Inset Box]

When selecting securities for the Fund, the Fund's portfolio managers will
consider expected changes in interest rates and in the price relationships among
various types of securities. They will attempt to identify and purchase
securities offering the best combination of yield, maturity and relative price
performance. The Fund's portfolio managers may elect to sell securities in order
to buy others which they believe will better serve the objectives of the Fund.

The Fund's portfolio managers expect that careful selection of securities and
the use of wrap contracts will enable the Fund to meet its investment objective
of a constant net asset value per share, although there can be no guarantee that
the Fund will meet its objective.

PRINCIPAL RISK. Because the value of securities held by the Fund may fluctuate,
there is the risk that you will lose money if the Fund cannot enter into wrap
contracts covering all its assets or if the value of the Fund's wrap contracts
otherwise becomes impaired.

CREDIT RISK. Credit risk is the risk that the issuer of a debt security will be
unable to make the required payments of interest and/or repay principal when
due. In addition, there is a risk that

-2-

<PAGE> 85

the rating of a debt security may be lowered if an issuer's financial condition
changes, which may lead to a greater fluctuation in the value of the security.
The Fund limits this risk by purchasing high-grade debt securities.

INTEREST RATE RISK. Interest rate risk is the risk that increases in market
interest rates may decrease the value of debt securities held by the Fund. In
general, the prices of debt securities fall when interest rates increase and
rise when interest rates decrease. Typically, the longer the maturity of a debt
security, the more sensitive it is to price shifts as a result of interest rate
changes. The Fund's use of wrap contracts is intended to eliminate the direct
impact of interest rate risk on the Fund's net asset value by offsetting any
fluctuation in the value of securities held by the Fund caused by changes in
interest rates. However, there can be no assurance that the Fund's use of wrap
contracts will be effective, and changes in interest rates may still impact the
current yield of the Fund.

PREPAYMENT RISK. The issuers of mortgage- and asset-backed securities may be
able to repay principal in advance, and are especially likely to do so when
interest rates fall. Changes in prepayment rates can make the price and yield of
mortgage- and asset-backed securities volatile. When mortgage- and asset-backed
securities are prepaid, the Fund may also fail to recover premiums paid for the
securities, resulting in an unexpected capital loss. In addition, rising
interest rates may cause prepayments to occur at a slower than expected rate
thereby effectively lengthening the maturity of the securities and making them
more sensitive to interest rate changes. Under normal conditions, the Fund's use
of wrap contracts is expected to offset the effects of prepayment risk on the
Fund's net asset value. However, there can be no assurance that the Fund's use
of wrap contracts will be effective to eliminate prepayment risks. In addition,
prepayments may affect the current yield of the Fund.

RISK OF USING WRAP CONTRACTS. The Fund is subject to risks associated with its
use of wrap contracts and their providers. The Fund may be unable to cover all
of its securities with wrap contracts. Alternatively, the credit standing of a
wrap contract provider may deteriorate over time, and the Fund may be unable to
renegotiate, replace, or provide for successor contracts in a timely or
economical manner. If either or both of these events were to occur the net asset
value of the Fund could be subject to fluctuation.

LIQUIDITY RISK. Liquidity risk is the risk that a security cannot be sold, or
cannot be sold quickly, at an acceptable price. The Fund will limit liquidity
risk by investing primarily in relatively short-term, high-grade securities, and
by maintaining a reasonable cash balance to fund redemptions and investment
purchase opportunities.

For more detailed information about the Fund's investments and risks, see "More
About the Fund."

PERFORMANCE. No performance information is provided because the Fund has not
yet had a full calendar year of operations.

-3-

<PAGE> 86

FEES AND EXPENSES

This table describes the fees and expenses that you may pay when buying and
selling shares of the Fund.

<TABLE>
<CAPTION>
Institutional Service Institutional Class IRA Class
Class Shares Shares Shares

<S> <C> <C> <C>
Shareholder Fees(1)
(paid directly from your
investment)

Redemption Fee (as a
percentage of the amount
redeemed)(2) 2.00% 2.00% 2.00%

Annual Fund Operating
Expenses (deducted from fund
assets)

Management Fees 0.35% 0.35% 0.35%

Distribution and/or Service
(12b-1) Fees 0.25 None 0.25

Other Expenses ____ ____ ____

Total Annual Fund
Operating Expenses(3) % % %
==== ==== ====
</TABLE>

(1) If you buy and sell shares through a broker or agent, they may also charge
you a transaction fee.
(2) You will be charged a redemption fee equal to 2% of the amount you redeem if
the Fund Protection Trigger ("Trigger") is active the day your redemption order
is received by the Fund. See "_____ ________" below to determine when the
Trigger is considered to be active.
(3) At least through ______________, 2000, Union Bond & Trust Company ("UBT")
has agreed to waive fees or otherwise reimburse expenses for the Fund so that
the Total Annual Operating Expenses will not exceed 0.95% for ISC shares, 0.55%
for IC shares, and 0.95% for IRA shares. This waiver of fees and reimbursement
of expenses is subject to a possible reimbursement of UBT by the Fund within
three years of the Fund's commencement of operations if the reimbursement by the
Fund can be implemented within the annual expense limitations described above.

EXAMPLE

THIS EXAMPLE SHOWS WHAT YOU COULD PAY IN EXPENSES OVER TIME. YOU CAN ALSO USE
THIS EXAMPLE TO COMPARE THE COST OF THIS FUND WITH OTHER MUTUAL FUNDS.

THE EXAMPLE ASSUMES THAT YOU INVEST $10,000 IN THE FUND FOR THE TIME PERIODS
INDICATED

-4-

<PAGE> 87

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. NO REDEMPTION FEE IS INCLUDED
BECAUSE IT IS ANTICIPATED THAT THE TRIGGER WILL NOT GENERALLY BE ACTIVE.
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>
Institutional Services Class Shares $_____ $_____ $_____ $_____

Institutional Class Shares $_____ $_____ $_____ $_____

IRA Class Shares $_____ $_____ $_____ $_____
</TABLE>

MORE ABOUT THE FUND

PRINCIPAL INVESTMENTS AND TECHNIQUES

The Fund may use the following investments and techniques to increase its
returns, protect its assets or diversify its investments.

U.S. Government Securities. These securities include Treasury bills, notes and
bonds issued or guaranteed by the U.S. Government and securities issued by U.S.
Government agencies, including:

o The Federal Housing Administration, the Farmers Home Administration, and
the Government National Mortgage Association ("GNMA"), including GNMA
pass-through certificates, which are backed by the full faith and credit
of the United States government;
o The Federal Home Loan Banks;
o The Federal National Mortgage Association ("FNMA");
o The Student Loan Marketing Association and Federal Home Loan Mortgage
Corporation ("FHLMC"); and
o The Federal Farm Credit Banks

Although there is virtually no credit risk with these U.S. government
securities, neither the U.S. Government nor its agencies guarantee the market
value of their securities. Interest rate changes, prepayment and other factors
may affect the value of these securities.

Mortgage-Backed and Asset-Backed Securities. U.S. Government mortgage-backed
securities are securities that are secured by and paid from a pool of mortgage
loans on real property and issued or guaranteed by the U.S. Government or one of
its agencies. Mortgage-backed securities may also be issued by private issuers.
Collateralized mortgage obligations (CMOs) are securities that have mortgage
loans or mortgage pass-through securities, such as GNMA, FNMA or FHLMC
certificates, as their collateral. CMOs can be issued by the U.S.
Government or its agencies or by private lenders.

These securities are subject to interest rate risk and to credit risk if they
are issued by private

-5-

<PAGE> 88

issuers. CMOs and other mortgage-backed securities are also subject to
prepayment risk. With respect to prepayment risk, when interest rates fall,
homeowners may refinance their loans and mortgage-backed securities will be paid
off sooner than anticipated. Reinvesting the returned principal in a lower
interest rate market would reduce the Fund's income and the Fund may lose
principal as a result of faster than anticipated prepayment of securities
purchased at a premium. Mortgage-backed securities are also subject to extension
risk if rates increase and prepayments slow, which would cause shorter-term
securities to act like more volatile, longer-term securities.

Wrap Contracts. Wrap contracts cover certain assets of the Fund and reduce or
eliminate the volatility of the Fund's net asset value. A wrap contract is an
agreement between the Fund and a financial institution, typically a highly-rated
bank or insurance company (a "wrap provider"), to maintain certain Fund assets
at their purchase price plus accrued interest. Under normal circumstances, the
value of a wrap contract is the difference between the aggregate book value and
the current market value of covered assets. A wrap contract therefore gains
value when the market price of covered assets declines, and decreases in value
when the market price of the covered assets increases. The Fund expects to pay
an annual premium of between 0.10% and 0.23% on the book value of assets in the
Fund that are covered by wrap contracts.

Wrap contracts are considered illiquid assets of the Fund. In addition to
liquidity risk, wrap contracts are subject to the credit risk of the wrap
provider, and also to the risk that the Fund may be unable to replace a wrap
contract that is maturing or subject to termination. Although wrap contracts are
designed to reduce the volatility of the Fund's net asset value, they may not
always be able to do so.

Derivatives. A derivative is a contract whose value is based on the performance
of an underlying financial asset, index or other investment. For example, an
option is a derivative because its value changes in relation to the performance
of an underlying security. The value of an option on a futures contract varies
with the value of the underlying futures contract, which in turn varies with the
value of the underlying commodity or security. Derivatives are available based
on the performance of assets, interest rates, currency exchange rates, and
various domestic foreign indexes. The Fund may use derivatives to hedge its
portfolio.

Temporary Defensive Positions. In response to economic, political or unusual
market conditions, the Fund may invest up to 100% of its assets in cash or money
market obligations. Should this occur, the Fund will not meet its investment
objectives.

Other Investment Techniques. The Statement of Additional Information (SAI)
contains additional information about the Fund, including the Fund's other
investment techniques. To obtain a copy of the SAI, see the back cover.

-6-

<PAGE> 89

MANAGEMENT

INVESTMENT MANAGER

Union Bond & Trust Company ("UBT"), 5665 S.W. Meadows Road, Lake Oswego, Oregon
97035, manages the investment of the assets and supervises the daily business
affairs of the Fund. UBT is a state bank and trust company chartered in 1913 and
reorganized in 1992 under the laws of the State of Oregon. 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 believed to be relatively stable. As of December ___,
1999, UBT and its affiliates has approximately $_____billion in assets under
management.

The Fund pays UBT an annual management fee which is based on the Fund's average
daily net assets. The total management fee paid by the Fund for the fiscal
period ended October 31, 1999--expressed as a percentage of the Fund's average
daily net assets--was ____%.

PORTFOLIO MANAGERS

Taylor E. Drake and Thomas F. Mitchell have co-managed the Fund since it began
operations in February 1999.

Mr. Drake, Vice President and Portfolio Manager, joined Morley Capital
Management, Inc. ("MCM"), an affiliate of UBT, in 1995 and has managed corporate
stable value portfolios beginning in 1995 and the Morley Enhanced Income Fund
since ___________ 2000 when it began operations. Prior to joining MCM in 1995,
he was Associate Director of Investment Banking at US Bancorp.

Mr. Mitchell, Senior Portfolio Manager, joined MCM in 1999. He began managing
the Morley Enhanced Income Fund in ____________ 2000 when it began operations.
Mr. Mitchell has over twenty years' experience with taxable and tax-exempt
securities. From 1978 to 1996 he managed investment portfolios for commercial
bank affiliates of First Interstate Bancorp. In 1997 and 1998, following First
Interstate's merger with Wells Fargo & Co., he was a fixed income trader with
Wells Fargo's Institutional Securities Sales and Trading Division

BUYING AND SELLING FUND SHARES

CHOOSING A SHARE CLASS

As noted in the Fund Summary, the Fund offers different share classes. Each
Class is available to a limited group of investors as described below. ISC and
IRA shares pay distribution and/or service fees under a Distribution Plan. These
fees are either retained by Nationwide Advisory Services, Inc. ("NAS"), the
Fund's distributor, or paid by NAS to brokers for distribution and shareholder
services. ISC and IRA shares also pay administrative service fees. These fees
are paid to brokers and other entities that provide administrative support
services to the beneficial owners of the shares.

-7-

<PAGE> 90

WHO CAN BUY INSTITUTIONAL SERVICE CLASS, INSTITUTIONAL CLASS AND IRA CLASS
SHARES

The ISC and IC shares are available for purchase by the following:

o employee benefit plans qualified under Section 401(a) of the Internal
Revenue Code
o governmental plans as defined in Section 414(d) of the
Code
o eligible deferred compensation plans as defined in Section 457 of
the Code
o employee benefit plans qualifying under Section 403(b) of the
Code
o bank maintained collective investment funds that hold exclusively
assets of U.S. employee benefit plans qualified under Section 401(a)
of the Code and are tax exempt under Section 501(a) of the Code
o other plans eligible to invest in bank-maintained collective
investment funds

ISC shares are also sold to life insurance company separate accounts to fund the
benefits of variable life insurance policies and variable annuity contracts.

Unlike ISC shares which are authorized to pay Rule 12b-1 fees and administrative
services fees, IC shares are generally sold to larger institutional investors
who do not require extensive shareholder or administrative services.

To be eligible to purchase shares of the Fund, the plan or other institution
must restrict individual participants from transferring assets from the Fund to
another fixed income investment option which has a targeted average duration of
three years or less or which seeks to maintain a stable value (a "Competing
Fund"). Alternatively, if a Competing Fund is an option for participant
transfers, participants must be required to transfer assets to an investment
option which is not a Competing Fund for a period of at least 90 days before the
assets can be transferred into a Competing Fund.

IRA shares are offered to investors who wish to purchase the Fund's shares
through an individual retirement account (as defined in Sections 408 and 408A of
the Code), including a traditional IRA, SEP-IRA, ROTH IRA, SIMPLE IRA, an
education IRA and a KEOGH plan.

-8-

<PAGE> 91

BUYING SHARES

PURCHASE PRICE

The purchase or "offering" price of one share of the Fund is its "net asset
value" or NAV next determined after the order is received. A separate NAV is
calculated for each class of shares of the Fund. Generally, NAV is based on the
market value of the securities owned by the Fund less its liabilities. The NAV
for a class is determined by dividing the total market value of the securities
owned by the Fund allocable to such class, less the liabilities allocable to
that class, by the total number of that class' outstanding shares. NAV is
determined at the close of regular trading on the New York Stock Exchange
(usually 4 p.m. Eastern Standard Time) on each day the Exchange is open for
trading.

MINIMUM INVESTMENTS
<TABLE>
<CAPTION>
Institutional
Service Class Institutional Class IRA Class
------------- ------------------- ---------
<S> <C> <C> <C>
To open an account $100,000 $1,000,000 $2,000($500 for
Education IRA's)

Additional investments None None $500
</TABLE>

These minimum investment requirements may not apply to certain retirement plans.
Call 1-800-848-0920 for more information.

If you purchase shares through an account at a broker (other than NAS),
different minimum account requirements may apply.

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
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 for the Fund when it has not
received any orders to purchase, sell or exchange shares.

If current market prices for the Fund's securities are not available, or if
Villanova SA Capital Trust ("VSA"), the Fund's administrator or its agent,
determines a price does not represent fair

-9-

<PAGE> 92

value, the Fund's investments may be valued at fair market value in accordance
with procedures adopted by the Board of Trustees. Wrap contracts are valued at
fair value in accordance with procedures adopted by the Board of Trustees.

HOW TO PLACE YOUR PURCHASE ORDER

Eligible entities wishing to purchase Institutional Service Class or
Institutional Class shares should contact NAS at 1-800-848-0920 for information
regarding such purchases.

If you wish to purchase IRA Class shares, you may purchase the shares using one
of the methods below.

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 transmits 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 Fund resulting
from the cancellation. Your bank may charge a fee to wire the 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.

THROUGH AN AUTHORIZED BROKER - NAS has relationships with certain brokers or
other financial institutions that 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
determined after your broker or its designated intermediary accepts it. Contact
your broker to determine whether it has an established relationship with NAS.

ADDITIONAL SHAREHOLDER SERVICES

Shareholders are entitled to a wide variety of services by contacting:

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 the
customer service number listed above 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

-10-

<PAGE> 93
applicable redemption fee as described below) next determined after NAS receives
your properly completed order to sell in its offices in Columbus, Ohio.

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 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.

If you request to sell Class ISC or Class IC shares in an amount exceeding
$250,000 or 1% of the net asset value of the Fund, under extraordinary
circumstances the Fund may elect to honor your request by transferring some of
the securities held by the Fund directly to you. For more information about the
Fund's ability to make such a redemption in kind, see the Fund's Statement of
Additional Information.

RESTRICTIONS ON SALES

You may not be able to sell your shares of the Fund or the Fund 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 - IRA CLASS SHARES

A signature guarantee is required under the following circumstances:

if redemption is over $100,000, or
if your account registration has changed within the last 30 days, or
if the redemption check is made payable to anyone other than the registered
shareholder, or
if the proceeds are sent back to a bank account not previously designated, 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.

REDEMPTION FEES

There is no redemption fee if you request a redemption of shares when the
Trigger is not active. If you request a redemption of shares when the Trigger is
active, generally a 2% redemption fee will be deducted from your proceeds and
retained by the Fund. The Trigger is "active" if the current yield of the Dealer
Commercial Paper (90-day) Index (the "Index") (as measured two business days
before your request is received by NAS) exceeds the annualized gross yield of
the Fund. The Index is printed daily in the Wall Street Journal. Once activated,
the Trigger remains active until the gross yield of the Fund (as measured two
business days before your request is received by NAS) exceeds the yield of the
Index plus 0.25%.

Even if the Trigger is "active," your redemption proceeds will not be subject to
the 2% redemption fee if, with respect to Institutional Service Class or
Institutional Class shares, your redemption is due to:

-11-

<PAGE> 94

o death, disability, retirement, employment termination, loans,
hardships or other withdrawals permitted by the terms of your
employee benefit plan; or
o an exchange of your shares for an investment in an investment
option that is not considered a Competing Fund.

The Fund uses redemption fees to help minimize the impact that redemptions may
have on its performance and to cover a portion of the Fund's related
administrative costs. Redemption fees may also discourage market timing by
shareholders initiating redemptions to take advantage of short-term movements in
interest rates.

For more information about the redemption fee and whether your redemption
request may be subject to such fee, call NAS at 1-800-848-0920.

HOW TO PLACE YOUR SALE ORDER

You can request the sale of your shares in any of the following ways:

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.

BANK BY 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 CLEARING HOUSE ("ACH") - Your funds can be sent to your bank via
ACH on the second business day after your order to sell has been reviewed 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 - 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

-12-

<PAGE> 95
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 the next business day. NAS reserves the right to require the
original document if you fax your letter. A signature guarantee may be required
under certain circumstances. Please refer back to "Signature Guarantee - IRA
Class shares" on page __.

THROUGH AN AUTHORIZED BROKER - NAS has relationships with certain brokers and
other financial institutions 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 may charge a fee for this service.

ACCOUNTS WITH LOW BALANCES

NAS 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 $2,000 ($500 for Education
IRAs). 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.

For additional information concerning your ability to sell your shares, call our
customer service line at 1-800-848-0920 or see your Nationwide representative.

DISTRIBUTION PLAN

Under the Distribution Plan, the Fund pays NAS compensation which accrues daily
and is paid monthly. Institutional Service Class and IRA Class shares pay an
amount, not exceeding on an annual basis, 0.25% of the Class' 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.

YEAR 2000

UBT, 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. UBT, 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

-13-

<PAGE> 96

Year 2000 compliant. UBT, VSA and NAS have also tested each application for
their 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.
UBT, VSA and NAS' assessment of Year 2000 issues has included non-information
technology systems with embedded computer chips. UBT, VSA 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 Year 2000 readiness issues, UBT, VSA and NAS
are surveying significant external organizations (business partners) to assess
if they will be Year 2000 compliant. UBT, VSA and NAS continue their efforts to
identify external risk factors and have developed contingency plans as part of
its ongoing risk-management strategy.

DISTRIBUTIONS AND TAXES

DISTRIBUTIONS OF INCOME AND CAPITAL GAINS

The Fund declares dividends of income daily and distributes them monthly. If the
Fund has net realized capital gains at the end of the fiscal year (meaning the
gains from sale of securities exceed any losses from sales), it will distribute
this capital gain to shareholders annually.

TAX STATUS

If you use the Fund as an investment option under a qualified employee benefit
plan or retirement plan or through some other tax-deferred account, dividend and
capital gain distributions from the Fund generally are not currently subject to
federal income taxes. In general, the entities eligible to purchase the Fund's
shares are governed by complex tax rules. You should ask your own tax adviser or
plan administrator about your own tax situation, including possible state and
local taxes.

Please refer to the SAI for more information regarding the tax treatment of the
Fund.

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the Fund's
financial performance for the period of the Fund's operation. Certain
information reflects financial results for a single Fund share. The total
returns in the tables represent the rate that an investor would have earned [or
lost] on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP, whose report,
along with the Fund's financial statements, are included in the annual report,
which is available upon request.

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<PAGE> 97

<TABLE>

<CAPTION>
PERIOD ENDED OCTOBER 31, 1999(A)
--------------------------------
Institutional Institutional IRA Class
------------- ------------- ---------
Service Class Class Shares Shares
------------- ------------ ------
Shares
------
<S> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ ----- $----- $-----
Net investment income ----- ----- -----
Net realized gain and unrealized appreciation on
investments and translation of assets and
liabilities in foreign currencies
Total from investment operations ----- ----- -----
Dividends from net investment income ----- ----- -----
Dividends from net realized gain from
investments and foreign currency transactions ----- ----- -----
Dividends in excess of net realized gain from
investments and foreign currency transactions ----- ----- -----
Total distributions ----- ----- -----
Net increase in net asset value ----- ----- -----

NET ASSET VALUE - END OF PERIOD ----- ----- -----
Total Return (b) ----- ----- -----
Ratios and supplemental data:
Net Assets, end of period (000) $ ===== $===== $=====
Ratio of expenses to average net assets (c) -----% -----% -----%
Ratio of expenses to average net assets*(c) $ ----- $----- $-----
Ratio of net investment income to average net -----% -----% -----%
assets (c)
Ratio of net investment income to average net -----% -----% -----%
assets* (c)
Portfolio turnover (c) -----% -----% -----%
-----% -----% -----%
</TABLE>

* Ratios calculated as if no fees were waived or expenses reimbursed.
(a) The Fund commenced operations February 1, 1999
(b) Not annualized
(c) Annualized

-15-

<PAGE> 98

INFORMATION FROM NATIONWIDE

Please read this Prospectus before you invest, and keep it with your records.
The following documents contain additional information about the Fund. To obtain
a document free of charge, contact us at the address or number listed below.

Statement of Additional Information (SAI) (incorporated by reference in
this Prospectus)

Annual Report (which contains a discussion of the market conditions and
investment strategies that significantly affect the Fund's performance)

Semi-Annual Report

FOR ADDITIONAL INFORMATION CONTACT:
Nationwide Advisory Services, Inc.
P.O. Box 1492
Three Nationwide Plaza
Columbus, Ohio 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 documents from the SEC as follows:

IN PERSON:
Public Reference Room in Washington, D.C. (for their hours of operation, call
1-800-SEC-0330)

BY MAIL:
Securities and Exchange Commission
Public Reference Section
Washington, D.C. 20549-6009
(The SEC charges a fee to copy any documents.)

VIA THE INTERNET:
http://www.sec.gov

-16-
<PAGE> 99

STATEMENT OF ADDITIONAL INFORMATION

__________________, 2000

NATIONWIDE MUTUAL FUNDS

NATIONWIDE MID CAP GROWTH FUND
NATIONWIDE GROWTH FUND
NATIONWIDE FUND
NATIONWIDE BOND FUND
NATIONWIDE TAX-FREE INCOME FUND
NATIONWIDE LONG-TERM U.S. GOVERNMENT BOND FUND
NATIONWIDE INTERMEDIATE U.S. GOVERNMENT BOND FUND
NATIONWIDE MONEY MARKET FUND
NATIONWIDE S & P 500 INDEX FUND
PRESTIGE LARGE CAP VALUE FUND
PRESTIGE LARGE CAP GROWTH FUND
PRESTIGE BALANCED FUND
PRESTIGE SMALL CAP FUND
PRESTIGE INTERNATIONAL FUND
MORLEY CAPITAL ACCUMULATION FUND

Nationwide Mutual Funds (the "Trust") is a registered open-end
investment company consisting of ____ series as of the date hereof. This
Statement of Additional Information relates to 15 series of the Trust which are
listed above (each, a "Fund" and collectively, the "Funds").

This Statement of Additional Information is not a prospectus but the
Statement of Additional Information is incorporated by reference into the
Prospectuses for the Funds. It contains information in addition to and more
detailed than that set forth in the Prospectuses dated _______________, 2000 and
should be read in conjunction with the Prospectuses. Terms not defined in this
Statement of Additional Information have the meanings assigned to them in the
Prospectuses. The Prospectuses 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.

<PAGE> 100

<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
----------------- ----

<S> <C>
General Information and History.............................................1
Additional Information on Portfolio Instruments and Investment Policies.....1
Description of Portfolio Instruments and Investment Policies................5
Investment Restrictions....................................................45
Trustees and Officers of the Trust.........................................47
Investment Advisory and Other Services.....................................50
Brokerage Allocation.......................................................71
Additional Information on Purchases and Sales..............................74
Valuation of Shares........................................................82
Investor Strategies........................................................83
Investor Privileges........................................................85
Investor Services..........................................................87
Fund Performance Advertising...............................................89
Additional Information.....................................................93
Additional General Tax Information.........................................94
Major Shareholders........................................................101
Financial Statements......................................................102
Appendix A - Bond Ratings.................................................103
</TABLE>

i
<PAGE> 101

------------------------------------------------------------------------------------------------------------------------------------
Inter-
Long-Term mediate
U.S. U.S. Prestige Prestige Morley
Mid Tax Govern- Govern- S & P Large Large Prestige Prestige Capital
Cap Nation- Free ment ment Money 500 Cap Cap Prestige Small Inter- Accumula-
TYPE OF INVESTMENT Growth Growth wide Bond Income Bond Bond Market Index Value Growth Balanced Cap national tion
OR TECHNIQUE Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. common stocks Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Preferred stocks Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Small company stocks Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Special situation
companies Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities Y Y Y Y Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Restricted securities Y Y Y Y Y Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
When-issued /
delayed-delivery
securities Y Y Y Y Y Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Investment companies Y Y Y Y Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Real estate investment
trusts (REITS) Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Securities of foreign
issuer Y Y Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Depository receipts Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Securities from
developing countries/
emerging markets Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Convertible securities Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Long-term debt Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Short-term debt Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

2
<PAGE> 102

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Inter-
Long-Term mediate
U.S. U.S. Prestige Prestige Morley
Mid Tax Govern- Govern- S & P Large Large Prestige Prestige Capital
Cap Nation- Free ment ment Money 500 Cap Cap Prestige Small Inter- Accumula-
TYPE OF INVESTMENT Growth Growth wide Bond Income Bond Bond Market Index Value Growth Balanced Cap national tion
OR TECHNIQUE Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Floating and variable
rate securities Y Y Y Y Y Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Zero coupon securities Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Pay-in-kind bonds Y
------------------------------------------------------------------------------------------------------------------------------------
Deferred payment
securities Y
------------------------------------------------------------------------------------------------------------------------------------
Non-investment
grade debt Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Loan participations
and assignments Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Sovereign debt
(foreign) Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Foreign commercial paper Y
------------------------------------------------------------------------------------------------------------------------------------
Duration Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
U.S. Government
securities Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Money market
instruments Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed
securities Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Stripped mortgage-backed
securities Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Collateralized mortgage
obligations Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Mortgage dollar rolls Y Y
------------------------------------------------------------------------------------------------------------------------------------
Asset-backed securities Y Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

3
<PAGE> 103

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Inter-
Long-Term mediate
U.S. U.S. Prestige Prestige Morley
Mid Tax Govern- Govern- S & P Large Large Prestige Prestige Capital
Cap Nation- Free ment ment Money 500 Cap Cap Prestige Small Inter- Accumula-
TYPE OF INVESTMENT Growth Growth wide Bond Income Bond Bond Market Index Value Growth Balanced Cap national tion
OR TECHNIQUE Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------------------
Bank obligations Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase
agreements Y Y
------------------------------------------------------------------------------------------------------------------------------------
Warrants Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Futures Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Options Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Foreign currencies Y Y
------------------------------------------------------------------------------------------------------------------------------------
Forward currency
contracts Y Y Y [Y] Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Borrowing money Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Lending of portfolio
securities Y Y Y Y Y Y Y Y Y Y Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Short sales Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Participation Interests Y
------------------------------------------------------------------------------------------------------------------------------------
Swap Agreements Y Y Y Y
------------------------------------------------------------------------------------------------------------------------------------
Wrap Contracts Y
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

4
<PAGE> 104

DESCRIPTION OF PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES

INFORMATION CONCERNING DURATION

Duration is a measure of the average life of a fixed-income security
that was developed as a more precise alternative to the concepts of "term to
maturity" or "average dollar weighted maturity" as measures of "volatility" or
"risk" associated with changes in interest rates. Duration incorporates a
security's yield, coupon interest payments, final maturity and call features
into one measure.

Most debt obligations provide interest ("coupon") payments in addition
to final ("par") payment at maturity. Some obligations also have call
provisions. Depending on the relative magnitude of these payments and the nature
of the call provisions, the market values of debt obligations may respond
differently to changes in interest rates.

Traditionally, a debt security's "term-to-maturity" has been used as a
measure of the sensitivity of the security's price to changes in interest rates
(which is the "interest rate risk" or "volatility" of the security). However,
"term-to-maturity" measures only the time until a debt security provides its
final payment, taking no account of the pattern of the security's payments prior
to maturity. Average dollar weighted maturity is calculated by averaging the
terms of maturity of each debt security held with each maturity "weighted"
according to the percentage of assets that it represents. Duration is a measure
of the expected life of a debt security on a present value basis and reflects
both principal and interest payments. Duration takes the length of the time
intervals between the present time and the time that the interest and principal
payments are scheduled or, in the case of a callable security, expected to be
received, and weights them by the present values of the cash to be received at
each future point in time. For any debt security with interest payments
occurring prior to the payment of principal, duration is ordinarily less than
maturity. In general, all other factors being the same, the lower the stated or
coupon rate of interest of a debt security, the longer the duration of the
security; conversely, the higher the stated or coupon rate of interest of a debt
security, the shorter the duration of the security.

There are some situations where the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds the frequency of the
coupon reset. Another example where the interest rate exposure is not properly
captured by duration is the case of mortgage pass-through securities. The stated
final maturity of such securities is generally 30 years, but current prepayment
rates are more critical in determining the securities' interest rate exposure.
In these and other similar situations, a Fund's investment adviser or subadviser
will use more sophisticated analytical techniques to project the economic life
of a security and estimate its interest rate exposure. Since the computation of
duration is based on predictions of future events rather than known factors,
there can be no assurance that a Fund will at all times achieve its targeted
portfolio duration.

5
<PAGE> 105

The change in market value of U.S. Government fixed-income securities
is largely a function of changes in the prevailing level of interest rates. When
interest rates are falling, a portfolio with a shorter duration generally will
not generate as high a level of total return as a portfolio with a longer
duration. When interest rates are stable, shorter duration portfolios generally
will not generate as high a level of total return as longer duration portfolios
(assuming that long-term interest rates are higher than short-term rates, which
is commonly the case.) When interest rates are rising, a portfolio with a
shorter duration will generally outperform longer duration portfolios. With
respect to the composition of a fixed-income portfolio, the longer the duration
of the portfolio, generally, the greater the anticipated potential for total
return, with, however, greater attendant interest rate risk and price volatility
than for a portfolio with a shorter duration.

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, medium-quality and
non-investment grade debt obligations are characterized as such based on their
ratings by nationally recognized statistical rating organizations ("NRSROs"),
such 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 a Fund as initial criteria for the selection of portfolio securities,
but the Fund also relies upon the independent advice of a Fund's adviser or
subadviser(s) to evaluate potential investments. This is particularly important
for lower-quality securities. 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 a Fund, an issue of securities may cease
to be rated or its rating may be reduced below the minimum required for purchase
by such Fund. In addition, it is possible that an NRSRO might not change its
rating of a particular issue to reflect subsequent events. None of these events
generally will require sale of such securities, but a Fund's adviser or
subadviser will consider such events in its determination of whether the Fund
should continue to hold the securities.

<PAGE> 106

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.

MEDIUM-QUALITY SECURITIES. Certain Funds anticipate investing in
medium-quality obligations, which are obligations rated in the fourth highest
rating category by any NRSRO. Medium-quality securities, although considered
investment-grade, may have some speculative characteristics and may be subject
to greater fluctuations in value than higher-rated securities. In addition, the
issuers of medium-quality securities may be more vulnerable to adverse economic
conditions or changing circumstances than issues of higher-rated securities.

LOWER QUALITY (HIGH-RISK) SECURITIES. Non-investment grade debt or
lower quality/rated securities (hereinafter referred to as "lower-quality
securities") include (i) bonds rated as low as C by Moody's, Standard & Poor's,
or Fitch IBCA Information Services, Inc. ("Fitch"), or CCC by D&P; (ii)
commercial paper rated as low as C by Standard & Poor's, Not Prime by Moody's or
Fitch 4 by Fitch; and (iii) unrated debt securities of comparable quality.
Lower-quality securities, while generally offering higher yields than investment
grade securities with similar maturities, involve greater risks, including the
possibility of default or bankruptcy. There is more risk associated with these
investments because of reduced creditworthiness and increased risk of default.
Under NRSRO guidelines, lower quality securities and comparable unrated
securities will likely have some quality and protective characteristics that are
outweighted by large uncertainties or major risk exposures to adverse
conditions. Lower quality securities are considered to have extremely poor
prospects of ever attaining any real investment standing, to have a current
identifiable vulnerability to default or to be in default, to be unlikely to
have the capacity to make required interest payments and repay principal when
due in the event of adverse business, financial or economic conditions, or to be
in default or not current in the payment of interest or principal. They are
regarded as predominantly speculative with respect to the issuer's capacity to
pay interest and repay principal. The special risk considerations in connection
with investments in these securities are discussed below.

Effect of Interest Rates And Economic Changes. All interest-bearing
securities typically experience appreciation when interest rates decline and
depreciation when interest rates rise. The market values of lower-quality and
comparable unrated securities tend to reflect individual corporate developments
to a greater extent than do higher rated securities, which react primarily to
fluctuations in the general level of interest rates. Lower-quality and
comparable unrated securities also tend to be more sensitive to economic
conditions than are higher-rated securities. As a result, they generally involve
more credit risks than securities in the higher-rated categories. During an
economic downturn or a sustained period of rising interest rates, highly
leveraged issuers of lower-quality and comparable unrated securities may
experience financial stress and may not have sufficient revenues to meet their
payment obligations. The issuer's ability to service its debt obligations may
also be adversely affected by specific corporate developments, the issuer's
inability to meet specific projected business forecasts or the unavailability of
additional financing. The risk of loss due to default by an issuer of these
securities is significantly greater than issuers of higher-rated securities
because such securities are generally unsecured and are often subordinated to
other creditors. Further, if the issuer of a lower-quality or comparable unrated
security defaulted, the Fund might

<PAGE> 107

incur additional expenses to seek recovery. Periods of economic uncertainty and
changes would also generally result in increased volatility in the market prices
of these securities and thus in the Fund's net asset value.

As previously stated, the value of a lower-quality or comparable
unrated security will generally decrease in a rising interest rate market, and
accordingly so will a Fund's net asset value. If a Fund experiences unexpected
net redemptions in such a market, it may be forced to liquidate a portion of its
portfolio securities without regard to their investment merits. Due to the
limited liquidity of lower-quality and comparable unrated securities (discussed
below), a Fund may be forced to liquidate these securities at a substantial
discount which would result in a lower rate of return to the Fund.

Payment Expectations. Lower-quality and comparable unrated securities
typically contain redemption, call or prepayment provisions which permit the
issuer of such securities containing such provisions to, at its discretion,
redeem the securities. During periods of falling interest rates, issuers of
these securities are likely to redeem or prepay the securities and refinance
them with debt securities at a lower interest rate. To the extent an issuer is
able to refinance the securities, or otherwise redeem them, a Fund may have to
replace the securities with a lower yielding security, which would result in a
lower return for that Fund.

Liquidity And Valuation. A Fund may have difficulty disposing of
certain lower-quality and comparable unrated securities because there may be a
thin trading market for such securities. Because not all dealers maintain
markets in all lower-quality and comparable unrated securities, there may be no
established retail secondary market for many of these securities. The Funds
anticipate that such securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading market
does exist, it is generally not as liquid as the secondary market for
higher-rated securities. The lack of a liquid secondary market may have an
adverse impact on the market price of the security. As a result, a Fund's asset
value and ability to dispose of particular securities, when necessary to meet
such Fund's liquidity needs or in response to a specific economic event, may be
impacted. The lack of a liquid secondary market for certain securities may also
make it more difficult for a Fund to obtain accurate market quotations for
purposes of valuing that Fund's portfolio. Market quotations are generally
available on many lower-quality and comparable unrated issues only from a
limited number of dealers and may not necessarily represent firm bids of such
dealers or prices for actual sales. During periods of thin trading, the spread
between bid and asked prices is likely to increase significantly. In addition,
adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower-quality and comparable
unrated securities, especially in a thinly traded market.

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:

8
<PAGE> 108

- 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.

The Federal Reserve creates STRIPS (Separate Trading of Registered
Interest and Principal of Securities) by separating the coupon payments and the
principal payment from an outstanding Treasury security and selling them as
individual securities. To the extent a Fund purchases the principal portion of
the STRIPS, the Fund will not receive regular interest payments. Instead they
are sold at a deep discount from their face value. The Fund will accrue income
on such STRIPS for tax and accounting purposes, in accordance with applicable
law, which income is distributable to shareholders. Because no cash is received
at the time such income is accrued, the Fund may be required to liquidate other
securities to satisfy its distribution obligations. Because the principal
portion of the STRIP does not pay current income, its price can be volatile when
interest rates change. In calculating its dividend, the Fund takes into account
as income a portion of the difference between the principal portion of the
STRIP's purchase price and its face value.

MORTGAGE AND ASSET-BACKED SECURITIES. Mortgage-backed securities
represent direct or indirect participation in, or are secured by and payable
from, mortgage loans secured by real property, and include single- and
multi-class pass-through securities and collateralized mortgage obligations.
Such securities may be issued or guaranteed by U.S. Government agencies or
instrumentalities by private issuers, generally originators in mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
investment bankers, and special purpose entities (collectively, "private
lenders"). The purchase of mortgage-backed securities from private lenders may
entail greater risk than mortgage-backed securities that are issued or
guaranteed by the U.S. government, its agencies or instrumentalities.
Mortgage-backed securities issued by private lenders maybe supported by pools of
mortgage loans or other mortgage-backed securities that are guaranteed, directly
or indirectly, by the U.S. Government or one of its agencies or
instrumentalities, or they may be issued without any governmental guarantee of
the underlying mortgage assets but with some form of non-governmental credit
enhancement. These credit enhancements may include letters of credit, reserve
funds, overcollateralization, or guarantees by third parties.

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Since privately-issued mortgage certificates are not guaranteed by an
entity having the credit status of GNMA or FHLMC, such securities generally are
structured with one or more types of credit enhancement. Such credit enhancement
falls into two categories: (i) liquidity protection; and (ii) protection against
losses resulting from ultimate default by an obligor on the underlying assets.
Liquidity protection refers to the provisions of advances, generally by the
entity administering the pool of assets, to ensure that the pass-through of
payments due on the underlying pool occurs in a timely fashion. Protection
against losses resulting from ultimate default enhances the likelihood of
ultimate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches.

The ratings of mortgage-backed securities for which third-party credit
enhancement provides liquidity protection or protection against losses from
default are generally dependent upon the continued creditworthiness of the
provider of the credit enhancement. The ratings of such securities could be
subject to reduction in the event of deterioration in the creditworthiness of
the credit enhancement provider even in cases where the delinquency loss
experience on the underlying pool of assets is better than expected. There can
be no assurance that the private issuers or credit enhancers of mortgage-backed
securities can meet their obligations under the relevant policies or other forms
of credit enhancement.

Examples of credit support arising out of the structure of the
transaction include "senior-subordinated securities" (multiple class securities
with one or more classes subordinate to other classes as to the payment of
principal thereof and interest thereon, with the result that defaults on the
underlying assets are borne first by the holders of the subordinated class),
creation of "reserve funds" (where cash or investments sometimes funded from a
portion of the payments on the underlying assets are held in reserve against
future losses) and "over-collateralization" (where the scheduled payments on, or
the principal amount of, the underlying assets exceed those required to make
payment of the securities and pay any servicing or other fees). The degree of
credit support provided for each issue is generally based on historical
information with respect to the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that which is anticipated
could adversely affect the return on an investment in such security.

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

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

Unlike fixed rate mortgage-backed securities, adjustable rate
mortgage-backed securities are collateralized by or represent interest in
mortgage loans with variable rates of interest. These variable rates of interest
reset periodically to align themselves with market rates. A Fund will not
benefit from increases in interest rates to the extent that interest rates rise
to the point where they cause the current coupon of the underlying adjustable
rate mortgages to exceed any maximum allowable annual or lifetime reset limits
(or "cap rates") for a particular mortgage. In this event, the value of the
adjustable rate mortgage-backed securities in a Fund would likely decrease.
Also, a Fund's net asset value could vary to the extent that current yields on
adjustable rate mortgage-backed securities are different than market yields
during interim periods between coupon reset dates or if the timing of changes to
the index upon which the rate for the underlying mortgage is based lags behind
changes in market rates. During periods of declining interest rates, income to a
Fund derived from adjustable rate mortgage securities which remain in a mortgage
pool will decrease in contrast to the income on fixed rate mortgage securities,
which will remain constant. Adjustable rate mortgages also have less potential
for appreciation in value as interest rates decline than do fixed rate
investments.

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

<PAGE> 111

any time after default on an underlying mortgage, but in no event later than one
year after it becomes payable.

Asset-backed securities have structural characteristics similar to
mortgage-backed securities. However, the underlying assets are not first-lien
mortgage loans or interests therein; rather they include assets such as motor
vehicle installment sales contracts, other installment loan contracts, home
equity loans, leases of various types of property and receivables from credit
card and other revolving credit arrangements. Payments or distributions of
principal and interest on asset-backed securities may be supported by
non-governmental credit enhancements similar to those utilized in connection
with mortgage-backed securities. The credit quality of most asset-backed
securities depends primarily on the credit quality of the assets underlying such
securities, how well the entity issuing the security is insulated from the
credit risk of the originator or any other affiliated entities, and the amount
and quality of any credit enhancement of the securities.

Collateralized Mortgage Obligations ("CMOs") and Multiclass
Pass-Through Securities. CMOs are debt obligations collateralized by mortgage
loans or mortgage pass-through securities. Other types of securities
representing interests in a pool of mortgage loans are known as real estate
mortgage investment conduits ("REMICs").

Typically, CMOs are collateralized by GNMA, Fannie Mae or Freddie Mae
Certificates, but also may be collateralized by whole loans or private
pass-throughs (such collateral collectively hereinafter referred to as "Mortgage
Assets"). Multiclass pass-through securities are interests in a trust composed
of Mortgage Assets. REMICs, which have elected to be treated as such under the
Internal Revenue Code, are private entities formed for the purpose of holding a
fixed pool of mortgages secured by an interest in real property. Unless the
context indicates otherwise, all references herein to CMOs include REMICs and
multiclass pass-through securities. Payments of principal and interest on the
Mortgage Assets, and any reinvestment income thereon, provide the funds to pay
debt service on the CMOs or make scheduled distributions on the multiclass
pass-through securities. CMOs may be issued by agencies or instrumentalities of
the U.S. government, or by private originators of, or investors in, mortgage
loans, including savings and loan associations, mortgage banks, commercial
banks, investment banks and special purpose subsidiaries of the foregoing.

In a CMO, a series of bonds or certificates is issued in multiple
classes. Each class of CMOs, often referred to as a "tranche," is issued at a
specified fixed or floating coupon rate and has a stated maturity or final
distribution date. Principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates. Interest is paid or accrues on all classes of the CMOs on a
monthly, quarterly or semi-annual basis. The principal of and interest on the
Mortgage Assets may be allocated among the several classes of a series of a CMO
in innumerable ways. In one structure, payments of principal, including any
principal prepayments, on the Mortgage Assets are applied to the classes of a
CMO in the order of their respective stated maturities or final distribution
dates, so that no payment of principal will be made on any class of CMOs until
all other classes having an earlier stated maturity or final distribution date
have been paid in full. As market conditions change, and particularly during

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<PAGE> 112

periods of rapid or unanticipated changes in market interest rates, the
attractiveness of the CMO classes and the ability of the structure to provide
the anticipated investment characteristics may be significantly reduced. Such
changes can result in volatility in the market value, and in some instances
reduced liquidity, of the CMO class.

A Fund may also invest in, among others, parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. These
simultaneous payments are taken into account in calculating the stated maturity
date or final distribution date of each class, which, as with other CMO
structures, must be retired by its stated maturity date or a final distribution
date but may be retired earlier. PAC Bonds are a type of CMO tranche or series
designed to provide relatively predictable payments of principal provided that,
among other things, the actual prepayment experience on the underlying mortgage
loans falls within a predefined range. If the actual prepayment experience on
the underlying mortgage loans is at a rate faster or slower than the predefined
range or if deviations from other assumptions occur, principal payments on the
PAC Bond may be earlier or later than predicted. The magnitude of the predefined
range varies from one PAC Bond to another; a narrower range increases the risk
that prepayments on the PAC Bond will be greater or smaller than predicted.
Because of these features, PAC Bonds generally are less subject to the risks of
prepayment than are other types of mortgage-backed securities.

Stripped Mortgage Securities. Stripped mortgage securities are
derivative multiclass mortgage securities. Stripped mortgage securities may be
issued by agencies or instrumentalities of the U.S. government, or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose subsidiaries of the foregoing. Stripped mortgage securities have greater
volatility than other types of mortgage securities. Although stripped mortgage
securities are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, the market for such
securities has not yet been fully developed. Accordingly, stripped mortgage
securities are generally illiquid.

Stripped mortgage securities are structured with two or more classes of
securities that receive different proportions of the interest and principal
distributions on a pool of mortgage assets. A common type of stripped mortgage
security will have at least one class receiving only a small portion of the
interest and a larger portion of the principal from the mortgage assets, while
the other class will receive primarily interest and only a small portion of the
principal. In the most extreme case, one class will receive all of the interest
("IO" or interest-only), while the other class will receive all of the principal
("PO" or principal-only class). The yield to maturity on IOs, POs and other
mortgage-backed securities that are purchased at a substantial premium or
discount generally are extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on such securities' yield
to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities even if the securities have received the
highest rating by a nationally recognized statistical rating organization.

<PAGE> 113

[In addition to the stripped mortgage securities described above,
certain Funds may invest in similar securities such as Super POs and Levered IOs
which are more volatile than POs, IOs and IOettes. Risks associated with
instruments such as Super POs are similar in nature to those risks related to
investments in POs. IOettes represent the right to receive interest payments on
an underlying pool of mortgages with similar risks as those associated with IOs.
Unlike IOs, the owner also has the right to receive a very small portion of the
principal. Risks connected with Levered IOs and IOettes are similar in nature to
those associated with IOs. Such Funds may also invest in other similar
instruments developed in the future that are deemed consistent with its
investment objective, policies and restrictions. POs may generate taxable income
from the current accrual of original issue discount, without a corresponding
distribution of cash to the Fund. See "ADDITIONAL GENERAL TAX INFORMATION " in
this Statement of Additional Information.]

A Fund may also purchase stripped mortgage-backed securities for
hedging purposes to protect that Fund against interest rate fluctuations. For
example, since an IO will tend to increase in value as interest rates rise, it
may be utilized to hedge against a decrease in value of other fixed-income
securities in a rising interest rate environment. With respect to IOs, if the
underlying mortgage securities experience greater than anticipated prepayments
of principal, the Fund may fail to recoup fully its initial investment in these
securities even if the securities are rated in the highest rating category by an
NRSRO. Stripped mortgage-backed securities may exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal and
interest are returned to investors. The market value of the class consisting
entirely of principal payments can be extremely volatile in response to changes
in interest rates. The yields on stripped mortgage-backed securities that
receive all or most of the interest are generally higher than prevailing market
yields on other mortgage-backed obligations because their cash flow patterns are
also volatile and there is a greater risk that the initial investment will not
be fully recouped. The market for CMOs and other stripped mortgage-backed
securities may be less liquid if these securities lose their value as a result
of changes in interest rates; in that case, a Fund may have difficulty in
selling such securities.

MUNICIPAL SECURITIES

Municipal securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term municipal securities, ONLY if the interest paid
thereon is exempt from federal taxes.

Other types of municipal securities include short-term General
Obligation Notes, Tax Anticipation Notes, Bond Anticipation Notes, Revenue
Anticipation Notes, Project Notes, Tax-Exempt Commercial Paper, Construction
Loan Notes and other forms of short-term tax-exempt loans. Such instruments are
issued with a short-term maturity in anticipation of the receipt of tax funds,
the proceeds of bond placements or other revenues. In addition, the Tax-Free
Income Fund

<PAGE> 114

may invest in other types of tax-exempt instruments, such as municipal bonds,
private activity bonds, and pollution control bonds.

Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the Project Notes.

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

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

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;

-- obligations of sovereign foreign governments, their agencies,
instrumentalities and political subdivisions, with remaining maturities
of 397 days or less;

-- asset-backed commercial paper whose own rating or the rating of any
guarantor is in one of the two highest categories of any NRSRO;

<PAGE> 115

-- 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;

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

-- 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.

WRAP CONTRACTS

The Morley Capital Accumulation Fund purchases wrap contracts for the
purpose of attempting to maintain a constant net asset value ("NAV") of $10.00
per share. A wrap contract is a contract between the Fund and a financial
institution such as a bank, insurance company or other financial institution (a
"wrap provider"), under which the wrap provider agrees to make payments to the
Fund upon the occurrence of certain events. By purchasing wrap contracts, the
Fund expects to reduce fluctuations in NAV per share because, under normal
circumstances, the value of the Fund's wrap contracts will vary inversely with
the value of Fund assets covered by the contracts ("covered assets"). For
example, when the market value of covered assets falls below "book value"
(essentially the purchase price of covered assets plus any accrued net income
thereon), wrap contracts will be assets of the Fund with a value equal to the
difference between the book and market values. Similarly, when the market value
of covered assets is greater than their book value, wrap contracts will become a
liability of the Fund equal to the amount by which the market value of covered
assets exceeds their book value. In this manner, under normal conditions, wrap
contracts are expected to reduce the impact of interest rate risk on covered
assets and, hence, the market price variability of the Fund.

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<PAGE> 116

The Fund will pay premiums to wrap providers for wrap contracts, and
these premiums will be an ongoing expense of the Fund. Wrap contracts obligate
wrap providers to make certain payments to the Fund in exchange for payment of
premiums. Payments made by wrap providers as provided by wrap contracts are
intended to enable the Fund to make redemption payments at the current book
value of covered assets rather than at the current market price. Wrap contract
payments may be made when assets are sold to fund redemption of shares, upon
termination of wrap contracts, or both. Payments are based on the book value of
wrap contracts, and are normally equal to the sum of (i) the accrued or
amortized purchase price of covered assets, minus (ii) the sale price of covered
assets liquidated to fund share redemptions, plus (iii) interest accrued at a
crediting rate, computation of which is specified in the wrap contracts. The
crediting rate is the yield on the covered assets, adjusted to amortize the
difference between market value and book value over the duration of the covered
assets, less wrap contract premiums and Fund expenses. Wrap contracts typically
provide for periodic reset of crediting rates. Crediting rates reflect the
amortization of realized and unrealized gains and losses on covered assets and,
in consequence, may not reflect the actual returns achieved on the wrapped
assets. From time to time crediting rates may be significantly greater or less
than current market interest rates, although wrap contracts generally provide
that crediting rates may not fall below zero.

The Fund will normally hold 1 to 3 percent of its assets as cash or
cash equivalents which can be sold close to book value to fund redemption
requests. If circumstances arise that require the Fund to liquidate assets other
than cash, and if the fair market value of those other assets is less than their
book value, a wrap contract will, under normal circumstances, obligate the wrap
provider to pay the Fund all or some of the difference. However, if the market
value of assets being liquidated exceeds the corresponding book value, the Fund
would be obligated to pay all or some of the difference to the wrap provider.
Generally, wrap contract payments will be made within one day after the Fund
requests a payment. If more than one wrap contract applies to covered assets
which have been liquidated, payment requests will be allocated among wrap
contracts as specified in each wrap contract.

Wrap contracts may require that covered assets be limited as to
duration or maturity, consist of specified types of securities, and/or be at or
above a specified credit quality. Wrap contracts purchased by the Fund will be
consistent with the Fund's investment objectives and policies as set forth in
the Prospectus and this SAI, although in some cases wrap contracts may require
more restrictive investment objectives and policies. Wrap contracts may also
allow providers to terminate their contracts if the Fund changes the investment
objectives, policies and restrictions set forth in the Prospectus and this SAI
without having obtained the consent of the wrap providers. In the event of
termination by a wrap provider, the Fund may not be able successfully to replace
contract coverage with another provider.

Wrap contracts may mature on specified dates and may be terminable upon
notice by the Fund or in the event of a default by either the Fund or the wrap
provider. "Evergreen" wrap contracts specify no maturity date. They allow either
the Fund or a provider to terminate the wrap contract through a fixed maturity
conversion. Under a fixed maturity conversion the wrap contract will terminate
on a future date which is generally determined by adding the duration of covered

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<PAGE> 117

assets to a date elected by the party seeking to terminate the contract. For
example, if the date elected is January 1, 2002, and the duration of covered
assets is 3 years, the wrap contract will terminate as of January 1, 2005. In
addition, during the conversion period, the Fund may be required to comply with
certain restrictions on covered assets, such as limitation of their duration to
the remaining term of the conversion period.

Generally, at termination of a wrap contract, the wrap provider will be
obligated to pay the Fund any excess of book value over market value of covered
assets. However, if a wrap contract terminates because of a default by the Fund
or upon election by the Fund (other than through a fixed maturity conversion),
no such payment is made.

RISKS ASSOCIATED WITH WRAP CONTRACTS. The Fund expects wrap contracts
to enable it to maintain the price of the Fund at $10.00 per share. However,
there are certain risks associated with the use of wrap contracts that could
impair the Fund's ability to achieve this objective.

If a wrap contract matures or terminates, the Fund may be unable to
obtain a replacement wrap contract or a wrap contract with terms substantially
similar those of the maturing or terminating agreement. If at the time the
market value of covered assets is less than their book value, the Fund may be
required to reduce its NAV accordingly. Likewise, if the market value of the
covered assets is greater than their book value, the Fund's NAV may increase. In
either case, Fund shareholders may experience unexpected fluctuations in the
value of their shares. Further, if new wrap contracts are negotiated on less
favorable terms than those of the contracts being replaced, such as higher wrap
premiums, the net returns of the Fund may be negatively affected.

The Fund's Board of Trustees determines in good faith the value of each
of the Fund's wrap contracts and has established policies and procedures
governing valuation of these instruments. Other fair and reasonable valuation
methodologies may be utilized in certain circumstances including, but not
limited to, (1) default by a wrap provider under a wrap contract or other
agreement; (2) insolvency of a wrap provider; (3) reduction of the credit rating
of a wrap provider; or (4) any other situation in which the Board of Trustees
determines that a wrap provider may no longer be able to satisfy its obligations
under a wrap contract. In any such case, the fair value of any wrap contract may
be determined to be less than the difference between book value and the market
value of covered assets. In these situations the Fund may experience variability
in its NAV per share.

Wrap Contracts do not protect the Fund from the credit risk of covered
assets. Defaults by issuers of covered assets or downgrades in their credit
rating to below investment grade status will generally cause those assets to be
removed from coverage under wrap contracts, in which event the Fund may
experience a decrease in NAV.

Currently, there is no active trading market for wrap contracts, and
none is expected to develop. The Fund may therefore be unable to liquidate wrap
contracts within seven days at fair market value, in which case the wrap
contracts will be considered illiquid. At the time of their purchase, the fair
market value of the Fund's wrap contracts, plus the fair market value of all
other

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illiquid assets in the Fund, may not exceed fifteen percent (15%) of the fair
market value of the Fund's net assets. If the fair market value of illiquid
assets including wrap contracts later rises above 15% of the fair market value
of the Fund's net assets, the price volatility of the Fund's shares may increase
as the Fund acts to reduce the percentage of illiquid assets to a level that
does not exceed 15% of the Fund.

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 a Fund, the
Fund's custodian, or a subcustodian, will have custody of, and will hold in a
segregated account, securities acquired by the Fund under a repurchase
agreement. Repurchase agreements are contracts under which the buyer of a
security simultaneously commits to resell the security to the seller at an
agreed-upon price and date. Repurchase agreements are considered by the staff of
the Securities and Exchange Commission (the "SEC") to be loans by 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 a
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 a
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. A Fund's adviser or subadviser reviews the
creditworthiness of those banks and non-bank dealers with which the Funds enter
into repurchase agreements to evaluate these risks.

WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS

When securities are purchased on a "when-issued" basis or purchased for
delayed delivery, then payment and delivery occur beyond the normal settlement
date at a stated price and yield. When-issued transactions normally settle
within 45 days. The payment obligation and the interest rate that will be
received on when-issued securities are fixed at the time the buyer enters into
the commitment. Due to fluctuations in the value of securities purchased or sold
on a when-issued or delayed-delivery basis, the yields obtained on such
securities may be higher or lower than the yields available in the market on the
dates when the investments are actually delivered to the buyers. The greater a
Fund's outstanding commitments for these securities, the greater the exposure to
potential fluctuations in the net asset value of a Fund. Purchasing when-issued
or delayed-delivery securities may involve the additional risk that the yield or
market price available in the market when the delivery occurs may be higher or
the market price lower than that obtained at the time of commitment.

When a Fund agrees to purchase when-issued or delayed-delivery
securities, to the extent required by the SEC, its custodian will set aside
permissible liquid assets equal to the amount of the commitment in a segregated
account. Normally, the custodian will set aside portfolio securities to

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

LENDING PORTFOLIO SECURITIES

A 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) a 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) a
Fund must be able to terminate the loan at any time; (4) a Fund must receive
reasonable interest on the loan, as well as any dividends, interest or other
distributions payable on the loaned securities, and any increase in market
value; (5) a Fund may pay only reasonable custodian fees in connection with the
loan; and (6) while any voting rights on the loaned securities may pass to the
borrower, a 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.

SMALL COMPANY [AND EMERGING GROWTH] STOCKS

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Investing in securities of small-sized and emerging growth companies
may involve greater risks than investing in the stocks of larger, more
established companies since these securities may have limited marketability and
thus may be more volatile than securities of larger, more established companies
or the market averages in general. Because small-sized and emerging growth
companies normally have fewer shares outstanding than larger companies, it may
be more difficult for a Fund to buy or sell significant numbers of such shares
without an unfavorable impact on prevailing prices. Small-sized and emerging
growth companies may have limited product lines, markets or financial resources
and may lack management depth. In addition, small-sized and emerging growth
companies are typically subject to wider variations in earnings and business
prospects than are larger, more established companies. There is typically less
publicly available information concerning small-sized and emerging growth
companies than for larger, more established ones.

SPECIAL SITUATION COMPANIES

"Special situation companies" include those involved in an actual or
prospective acquisition or consolidation; reorganization; recapitalization;
merger, liquidation or distribution of cash, securities or other assets; a
tender or exchange offer; a breakup or workout of a holding company; or
litigation which, if resolved favorably, would improve the value of the
company's stock. If the actual or prospective situation does not materialize as
anticipated, the market price of the securities of a "special situation company"
may decline significantly. Therefore, an investment in a Fund that invests a
significant portion of its assets in these securities may involve a greater
degree of risk than an investment in other mutual funds that seek long-term
growth of capital by investing in better-known, larger companies. The adviser or
subadviser of such a Fund believes, however, that if it analyzes "special
situation companies" carefully and invests in the securities of these companies
at the appropriate time, the Fund may achieve capital growth. There can be no
assurance however, that a special situation that exists at the time the Fund
makes its investment will be consummated under the terms and within the time
period contemplated, if it is consummated at all.

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. Since
investments in foreign companies will frequently involve currencies of foreign
countries, and since a Fund may hold securities and funds in foreign currencies,
a Fund may be affected favorably or unfavorably by changes in currency rates and
in exchange control regulations, if any, and may incur costs in connection with
conversions between various currencies. Most foreign stock markets, while
growing in volume of trading activity, have less volume than the New York Stock
Exchange, and securities of some foreign companies are less liquid and more
volatile than securities of comparable domestic companies. Similarly, volume and
liquidity in most foreign bond markets are less than in the United States and,
at times, volatility of price can be greater than in the United States. Fixed
commissions on foreign securities exchanges are generally higher than negotiated
commissions on United States exchanges, although each Fund endeavors to achieve
the most favorable net results on its portfolio transactions. There is generally
less government

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supervision and regulation of securities exchanges, brokers and listed companies
in foreign countries than in the United States. In addition, with respect to
certain foreign countries, there is the possibility of exchange control
restrictions, expropriation or confiscatory taxation, and political, economic or
social instability, which could affect investments in those countries. Foreign
securities, such as those purchased by a Fund, may be subject to foreign
government taxes, higher custodian fees, 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 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.

[INVESTMENT IN COMPANIES IN DEVELOPING COUNTRIES. Investments may be
made from time to time in companies in developing countries as well as in
developed countries. Although there is no universally accepted definition, a
developing country is generally considered to be a country which is in the
initial stages of industrialization. Shareholders should be aware that investing
in the equity and fixed income markets of developing countries involves exposure
to unstable governments, economies based on only a few industries, and
securities markets which trade a small number of securities. Securities markets
of developing countries tend to be more volatile than the markets of developed
countries; however, such markets have in the past provided the opportunity for
higher rates of return to investors.

The value and liquidity of investments in developing countries may be
affected favorably or unfavorably by political, economic, fiscal, regulatory or
other developments in the particular countries or neighboring regions. The
extent of economic development, political stability and market depth of
different countries varies widely. Certain countries in the Asia region,
including Cambodia, China, Laos, Indonesia, Malaysia, the Philippines, Thailand,
and Vietnam are either comparatively underdeveloped or are in the process of
becoming developed. Such investments typically involve greater potential for
gain or loss than investments in securities of issuers in developed countries.

The securities markets in developing countries are substantially
smaller, less liquid and more volatile than the major securities markets in the
United States. A high proportion of the shares of many issuers may be held by a
limited number of persons and financial institutions, which may limit the number
of shares available for investment by a Fund. Similarly, volume and liquidity in
the bond markets in developing countries are less than in the United States and,
at times, price volatility can be greater than in the United States. A limited
number of issuers in developing countries' securities markets may represent a
disproportionately large percentage of market capitalization and trading volume.
The limited liquidity of securities markets in developing countries may also
affect the Fund's ability to acquire or dispose of securities at the price and
time it wishes to do so. Accordingly, during periods of rising securities prices
in the more illiquid securities markets, the Fund's ability to participate fully
in such price increases may be limited by its investment policy of

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investing not more than 15% of its total net assets in illiquid securities.
Conversely, the Fund's inability to dispose fully and promptly of positions in
declining markets will cause the Fund's net asset value to decline as the value
of the unsold positions is marked to lower prices. In addition, securities
markets in developing countries are susceptible to being influenced by large
investors trading significant blocks of securities.

Political and economic structures in many such countries may be
undergoing significant evolution and rapid development, and such countries may
lack the social, political and economic stability characteristic of the United
States. Certain of such countries have in the past failed to recognize private
property rights and have at times nationalized or expropriated the assets of
private companies. As a result, the risks described above, including the risks
of nationalization or expropriation of assets, may be heightened. In addition,
unanticipated political or social developments may affect the value of the
Fund's investments in those countries and the availability to the Fund of
additional investments in those countries.

Economies of developing countries may differ favorably or unfavorably
from the United States' economy in such respects as rate of growth of gross
national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. As export-driven economies,
the economies of countries in the Asia Region are affected by developments in
the economies of their principal trading partners. Hong Kong, Japan and Taiwan
have limited natural resources, resulting in dependence on foreign sources for
certain raw materials and economic vulnerability to global fluctuations of price
and supply.

Certain developing countries do not have comprehensive systems of laws,
although substantial changes have occurred in many such countries in this regard
in recent years. Laws regarding fiduciary duties of officers and directors and
the protection of shareholders may not be well developed. Even where adequate
law exists in such developing countries, it may be impossible to obtain swift
and equitable enforcement of such law, or to obtain enforcement of the judgment
by a court of another jurisdiction.]

Trading in futures contracts on foreign commodity exchanges may be
subject to the same or similar risks as trading in foreign securities.

DEPOSITORY RECEIPTS. A Fund may invest in foreign securities by
purchasing depository receipts, including American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs") or
other securities convertible into securities of issuers based in foreign
countries. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs, in
registered form, are denominated in U.S. dollars and are designed for use in the
U.S. securities markets, GDRs, in bearer form, are issued and designed for use
outside the United States and EDRs (also referred to as Continental Depository
Receipts ("CDRs")), in bearer form, may be denominated in other currencies and
are designed for use in European securities markets. ADRs are receipts typically
issued by a U.S. Bank or trust company evidencing ownership of the underlying
securities. EDRs are European receipts evidencing a similar arrangement. GDRs
are receipts typically issued by non-

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United States banks and trust companies that evidence ownership of either
foreign or domestic securities. For purposes of a Fund's investment policies,
ADRs, GDRs and EDRs are deemed to have the same classification as the underlying
securities they represent. Thus, an ADR, GDR or EDR representing ownership of
common stock will be treated as common stock.

A Fund may invest in depository receipts through "sponsored" or
"unsponsored" facilities. While ADRs issued under these two types of facilities
are in some respects similar, there are distinctions between them relating to
the rights and obligations of ADR holders and the practices of market
participants.

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

Sponsored ADR facilities are created in generally the same manner as
unsponsored facilities, except that the issuer of the deposited securities
enters into a deposit agreement with the depository. The deposit agreement sets
out the rights and responsibilities of the issuer, the depository, and the ADR
holders. With sponsored facilities, the issuer of the deposited securities
generally will bear some of the costs relating to the facility (such as dividend
payment fees of the depository), although ADR holders continue to bear certain
other costs (such as deposit and withdrawal fees). Under the terms of most
sponsored arrangements, depositories agree to distribute notices of shareholder
meetings and voting instructions, and to provide shareholder communications and
other information to the ADR holders at the request of the issuer of the
deposited securities.

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

Eurodollar and Yankee bank obligations are subject to the same risks
that pertain to domestic issues, notably credit risk, market risk and liquidity
risk. Additionally, Eurodollar (and to a limited extent, Yankee) bank
obligations are subject to certain sovereign risks. One such risk is the
possibility that a sovereign country might prevent capital, in the form of
dollars, from flowing across their borders. Other risks include: adverse
political and economic developments; the extent and quality of government
regulation of financial markets and institutions; the imposition of foreign

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withholding taxes, and the expropriation or nationalization of foreign issues.
However, Eurodollar and Yankee bank obligations held in a Fund will undergo the
same credit analysis as domestic issues in which the Fund invests, and will have
at least the same financial strength as the domestic issuers approved for the
Fund.

FOREIGN SOVEREIGN DEBT. Certain Funds may invest in sovereign debt
obligations issued by foreign governments. To the extent that a Fund invests in
obligations issued by developing or emerging markets, these investments involve
additional risks. Sovereign obligors in developing and emerging market countries
are among the world's largest debtors to commercial banks, other governments,
international financial organizations and other financial institutions. These
obligors have in the past experienced substantial difficulties in servicing
their external debt obligations, which led to defaults on certain obligations
and the restructuring of certain indebtedness. Restructuring arrangements have
included, among other things, reducing and rescheduling interest and principal
payments by negotiation new or amended credit agreements or converting
outstanding principal and unpaid interest to Brady Bonds, and obtaining new
credit fo finance interest payments. Holders of certain foreign sovereign debt
securities may be requested to participate in the restructuring of such
obligations and to extend further loans to their issuers. There can be no
assurance that the foreign sovereign debt securities in which a Fund may invest
will not be subject to similar restructuring arrangements or to requests for new
credit which may adversely affect the Fund's holdings. Furthermore, certain
participants in the secondary market for such debt may be directly involved in
negotiating the terms of these arrangements and may therefore have access to
information not available to other market participants.

REAL ESTATE SECURITIES

Although no Fund will invest in real estate directly, certain Funds may
invest in securities of real estate investment trusts ("REITs") and other real
estate industry companies or companies with substantial real estate investments
and, as a result, such Fund may be subject to certain risks associated with
direct ownership of real estate and with the real estate industry in general.
These risks include, among others: possible declines in the value of real
estate; possible lack of availability of mortgage funds; extended vacancies of
properties; risks related to general and local economic conditions;
overbuilding; increases in competition, property taxes and operating expenses;
changes in zoning laws; costs resulting from the clean-up of, and liability to
third parties for damages resulting from, environmental problems; casualty or
condemnation losses; uninsured damages from floods, earthquakes or other natural
disasters; limitations on and variations in rents; and changes in interest
rates.

REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interests. REITs are
generally classified as equity REITs, mortgage REITs or hybrid REITs. Equity
REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize
capital gains by selling properties that have appreciated in value. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
income from the collection of interest payments. Hybrid REITs combine the
investment strategies of Equity REITs and Mortgage REITs. REITs are not

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taxed on income distributed to shareholders provided they comply with several
requirements of Internal Revenue Code, as amended (the "Code").

CONVERTIBLE SECURITIES

Convertible securities are bonds, debentures, notes, preferred stocks,
or other securities that may be converted into or exchanged for a specified
amount of common stock of the same or a different issuer within a particular
period of time at a specified price or formula. Convertible securities have
general characteristics similar to both debt obligations and equity securities.
The value of a convertible security is a function of its "investment value"
(determined by its yield in comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and its
"conversion value" (the security's worth, at market value, if converted into the
underlying common stock). The investment value of a convertible security is
influenced by changes in interest rates, the credit standing of the issuer and
other factors. The market value of convertible securities tends to decline as
interest rates increase and, conversely, tends to increase as interest rates
decline. The conversion value of a convertible security is determined by the
market price of the underlying common stock. The market value of convertible
securities tends to vary with fluctuations in the market value of the underlying
common stock and therefore will react to variations in the general market for
equity securities. If the conversion value is low relative to the investment
value, the price of the convertible security is governed principally by its
investment value. Generally, the conversion value decreases as the convertible
security approaches maturity. To the extent the market price of the underlying
common stock approaches or exceeds the conversion price, the price of the
convertible security will be increasingly influenced by its conversion value. A
convertible security generally will sell at a premium over its conversion value
by the extent to which investors place value on the right to acquire the
underlying common stock while holding a fixed income security. While no
securities investments are without risk, investments in convertible securities
generally entail less risk than investments in common stock of the same issuer.

A convertible security entitles the holder to receive interest normally
paid or accrued on debt or the dividend paid on preferred stock until the
convertible security matures or is redeemed, converted, or exchanged.
Convertible securities have unique investment characteristics in that they
generally (i) have higher yields than common stocks, but lower yields than
comparable non-convertible securities, (ii) are less subject to fluctuation in
value than the underlying stock since they have fixed income characteristics,
and (iii) provide the potential for capital appreciation if the market price of
the underlying common stock increases. Most convertible securities currently are
issued by U.S. companies, although a substantial Eurodollar convertible
securities market has developed, and the markets for convertible securities
denominated in local currencies are increasing.

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

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<PAGE> 126

Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, generally enjoy seniority in right of payment to all
equity securities, and convertible preferred stock is senior to common stock of
the same issuer. Because of the subordination feature, however, convertible
securities typically are rated below investment grade or are not rated.

Certain Funds may also invest in zero coupon convertible securities.
Zero coupon convertible securities are debt securities which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero coupon
convertible securities acretes at a stated yield until the security reaches its
face amount at maturity. Zero coupon convertible securities are convertible into
a specific number of shares of the issuer's common stock. In addition, zero
coupon convertible securities usually have put features that provide the holder
with the opportunity to sell the securities back to the issuer at a stated price
before maturity. Generally, the prices of zero coupon convertible securities may
be more sensitive to market interest rate fluctuations then conventional
convertible securities. Federal income tax law requires the holder of a zero
coupon convertible security to recognize income from the security prior to the
receipt of cash payments. To maintain its qualification as a regulated
investment company and avoid liability of federal income taxes, a Fund will be
required to distribute income accrued from zero coupon convertible securities
which it owns, and may have to sell portfolio securities (perhaps at
disadvantageous times) in order to generate cash to satisfy these distribution
requirements.

WARRANTS

Warrants are securities giving the holder the right, but not the
obligation, to buy the stock of an issuer at a given price (generally higher
than the value of the stock at the time of issuance), on a specified date,
during a specified period, or perpetually. Warrants may be acquired separately
or in connection with the acquisition of securities. Warrants acquired by a Fund
in units or attached to securities are not subject to these restrictions.
Warrants do not carry with them the right to dividends or voting rights with
respect to the securities that they entitle their holder to purchase, and they
do not represent any rights in the assets of the issuer. As a result, warrants
may be considered more speculative than certain other types of investments. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities, and a warrant ceases to have value if it is not
exercised prior to its expiration date.

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

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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, a 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.

A 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. A 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.

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. A 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.

A 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 Funds do not intend to engage in short sales against
the box for investment purposes. A 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

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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

A Fund may not invest more than 15% (10% for the Money Market Fund) of
its net assets, in the aggregate, in illiquid securities, including repurchase
agreements which have a maturity of longer than seven days, time deposits
maturing in more than seven days and securities that are illiquid because of the
absence of a readily available market or legal or contractual restrictions on
resale. 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 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

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"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 a 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.

Some Funds 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 a Fund
will be considered illiquid unless the OTC options are sold to qualified dealers
who agree that the Fund may repurchase any OTC option it writes at a maximum
price to be calculated by a formula set forth in the option agreement. The cover
for an OTC option written subject to this procedure would be considered illiquid
only to the extent that the maximum repurchase price under the formula exceeds
the intrinsic value of the option.

The applicable subadviser or adviser will monitor the liquidity of
restricted securities in the portion of a Fund it manages. 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).

PRIVATE PLACEMENT COMMERCIAL PAPER. Commercial paper eligible for
resale under Section 4(2) of the Securities Act is offered only to accredited
investors. Rule 506 of Regulation D in the Securities Act lists investment
companies as an accredited investor.

Section 4(2) paper not eligible for resale under Rule 144A under the
Securities Act shall be deemed liquid if (1) the Section 4(2) paper is not
traded flat or in default as to principal and interest; (2) the Section 4(2)
paper is rated in one of the two highest rating categories by at least two
NRSROs, or if only NRSRO rates the security, it is rated in one of the two
highest categories by that NRSRO; and (3) the Fund's adviser or subadviser
believes that, based on the trading markets for such security, such security can
be disposed of within seven days in the ordinary course of business at
approximately the amount at which the Fund has valued the security.

BORROWING

A Fund may borrow money from banks, limited by each 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, a Fund may
borrow up to an additional 5% of its total assets from banks for

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temporary or emergency purposes. A Fund will not purchase securities when bank
borrowings exceed 5% of such Fund's total assets.

Each Fund expects that its borrowings will be on a secured basis. In
such situations, either the custodian will segregate the pledged assets for the
benefit of the lender or arrangements will be made with a suitable subcustodian,
which may include the lender. The Funds have established a line-of-credit
("LOC") with their custodian by which they may borrow for temporary or emergency
purposes. The Funds intend to use the LOC to meet large or unexpected
redemptions that would otherwise force a Fund to liquidate securities under
circumstances which are unfavorable to a Fund's remaining shareholders.

DERIVATIVE INSTRUMENTS

A 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, stock index options, forward currency
contracts and swaps, to hedge a Fund's portfolio or for risk management or for
any other permissible purposes consistent with that 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, a
Fund's ability to use these instruments will be limited by tax considerations.

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.

<PAGE> 131

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

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

(3) Hedging strategies, if successful, can reduce the risk of loss by
wholly or partially offsetting the negative effect of unfavorable price
movements in the investments being hedged. However, hedging strategies can also
reduce opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Fund entered into a short
hedge because a 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, a Fund could
suffer a loss.

(4) As described below, a Fund might be required to maintain assets as
"cover," maintain segregated accounts, or make margin payments when it takes
positions in these instruments involving obligations to third parties (i.e.,
instruments other than purchased options). If the Fund were unable to close out
its positions in such instruments, it might be required to continue to maintain
such assets or accounts or make such payments until the position expired or
matured. The requirements might impair the Fund's ability to sell a portfolio
security or make an investment at a time when it would otherwise be favorable to
do so, or require that the Fund sell a portfolio security at a disadvantageous
time. The Fund's ability to close out a position in an instrument prior to
expiration or maturity depends on the existence of a liquid secondary market or,
in the absence of such a market, the ability and willingness of the other party
to the transaction ("counter party") to enter into a transaction closing out the
position. Therefore, there is no assurance that any hedging position can be
closed out at a time and price that is favorable to the Fund.

For a discussion of the federal income tax treatment of a Fund's
derivative instruments, see "ADDITIONAL GENERAL TAX INFORMATION" below.

OPTIONS. A Fund may purchase or write put and call options on
securities and indices, and may purchase options on foreign currencies, and
enter into closing transactions with respect to such options to terminate an
existing position. The purchase of call options serves as a long hedge, and

<PAGE> 132

the purchase of put options serves as a short hedge. Writing put or call options
can enable a Fund to enhance income by reason of the premiums paid by the
purchaser of such options. Writing call options serves as a limited short hedge
because declines in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it can
be expected that the option will be exercised, and the Fund will be obligated to
sell the security at less than its market value or will be obligated to purchase
the security at a price greater than that at which the security must be sold
under the option. All or a portion of any assets used as cover for OTC options
written by a Fund would be considered illiquid to the extent described under
"Restricted, 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 a 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.

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

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

A Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. A 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

<PAGE> 133

that such a market will exist at any particular time. Closing transactions can
be made for OTC options only by negotiating directly with the counterparty, or
by a transaction in the secondary market if any such market exists. Although a
Fund will enter into OTC options only with counterparties that are expected to
be capable of entering into closing transactions with a Fund, there is no
assurance that such Fund will in fact be able to close out an OTC option at a
favorable price prior to expiration. In the event of insolvency of the counter
party, a Fund might be unable to close out an OTC option position at any time
prior to its expiration.

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

A 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 a
Fund to counter party risk. To the extent required by SEC guidelines, a Fund
will not enter into any such transactions unless it owns either (1) an
offsetting ("covered") position in securities, other options, or futures or (2)
cash and liquid obligations with a value sufficient at all times to cover its
potential obligations to the extent not covered as provided in (1) above. A Fund
will also set aside cash and/or appropriate liquid assets in a segregated
custodial account if required to do so by the SEC and CFTC regulations. Assets
used as cover or held in a segregated account cannot be sold while the position
in the corresponding option or futures contract is open, unless they are
replaced with similar assets. As a result, the commitment of a large portion of
the Fund's assets to segregated accounts as a cover could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.

[SPREAD TRANSACTIONS. A Fund may purchase covered spread options from
securities dealers. Such covered spread options are not presently
exchange-listed or exchange-traded. The purchase of a spread option gives a Fund
the right to put, or sell, a security that it owns at a fixed dollar spread or
fixed yield spread in relationship to another security that the Fund does not
own, but which is used as a benchmark. The risk to a Fund in purchasing covered
spread options is the cost of the premium paid for the spread option and any
transaction costs. In addition, there is no assurance that closing transactions
will be available. The purchase of spread options will be used to protect a Fund
against adverse changes in prevailing credit quality spreads, i.e., the yield
spread between high quality and lower quality securities. Such protection is
only provided during the life of the spread option.]

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

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

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

A futures contract provides for the future sale by one party and
purchase by another party of a specified amount of a specific financial
instrument (e.g., debt security) or currency for a specified price at a
designated date, time, and place. An index futures contract is an agreement
pursuant to which the parties agree to take or make delivery of an amount of
cash equal to a specified multiplier times the difference between the value of
the index at the close of the last trading day of the contract and the price at
which the index futures contract was originally written. Transactions costs are
incurred when a futures contract is bought or sold and margin deposits must be
maintained. A futures contract may be satisfied by delivery or purchase, as the
case may be, of the instrument, the currency, or by payment of the change in the
cash value of the index. More commonly, futures contracts are closed out prior
to delivery by entering into an offsetting transaction in a matching

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futures contract. Although the value of an index might be a function of the
value of certain specified securities, no physical delivery of those securities
is made. If the offsetting purchase price is less than the original sale price,
a Fund realizes a gain; if it is more, a Fund realizes a loss. Conversely, if
the offsetting sale price is more than the original purchase price, a Fund
realizes a gain; if it is less, a Fund realizes a loss. The transaction costs
must also be included in these calculations. There can be no assurance, however,
that a Fund will be able to enter into an offsetting transaction with respect to
a particular futures contract at a particular time. If a Fund is not able to
enter into an offsetting transaction, that Fund will continue to be required to
maintain the margin deposits on the futures contract.

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

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

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

<PAGE> 136

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

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

SWAP AGREEMENTS. A Fund may enter into interest rate, securities index,
commodity, or security and currency exchange rate 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. A 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. Swap
agreements may include interest rate caps, under which, in return for a premium,
one party agrees to make payments to the other to the extent that interest rates
exceed a specified rate, or "cap"; interest rate floors under which, in return
for a premium, one party agrees to make payments to the other to the extent that
interest rates fall below a specified level, or "floor"; and interest rate
collars, under which a party sells a cap and purchases a floor, or vice versa,
in an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels.

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

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agreements entered into by a Fund, the obligations of the parties would be
exchanged on a "net basis." Consequently, a 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"). A 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 a Fund's use of swap agreements will be successful in
furthering its investment objective will depend, in part, on a 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. Swap
agreements may be considered to be illiquid. Moreover, a 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 a Fund by the Internal Revenue Code may limit a Fund's
ability to use swap agreements. The swaps market is largely unregulated.

A Fund will enter swap agreements only with counterparties that a
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, a 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.

FOREIGN CURRENCY-RELATED DERIVATIVE STRATEGIES - SPECIAL
CONSIDERATIONS. A Fund may use options and futures and options on futures on
foreign currencies and forward currency contracts to hedge against movements in
the values of the foreign currencies in which a Fund's securities are
denominated. A Fund may engage in currency exchange transactions to protect
against uncertainty in the level of future exchange rates and may also engage in
currency transactions to increase income and total return. Such currency hedges
can protect against price movements in a security the Fund owns or intends to
acquire that are attributable to changes in the value of the currency in which
it is denominated. Such hedges do not, however, protect against price movements
in the securities that are attributable to other causes.

A Fund might seek to hedge against changes in the value of a particular
currency when no hedging instruments on that currency are available or such
hedging instruments are more expensive than certain other hedging instruments.
In such cases, a Fund may hedge against price movements in that currency by
entering into transactions using hedging instruments on another foreign currency
or a basket of currencies, the values of which a subadviser believes will have a
high degree of positive correlation to the value of the currency being hedged.
The risk that movements in the price of the hedging instrument will not
correlate perfectly with movements in the price of the currency being hedged is
magnified when this strategy is used.

The value of derivative instruments on foreign currencies depends on
the value of the underlying currency relative to the U.S. dollar. Because
foreign currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of

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such hedging instruments, a Fund could be disadvantaged by having to deal in the
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the derivative instruments until they reopen.

Settlement of derivative transactions involving foreign currencies
might be required to take place within the country issuing the underlying
currency. Thus, a Fund might be required to accept or make delivery of the
underlying foreign currency in accordance with any U.S. or foreign regulations
regarding the maintenance of foreign banking arrangements by U.S. residents and
might be required to pay any fees, taxes and charges associated with such
delivery assessed in the issuing country.

Permissible foreign currency options will include options traded
primarily in the OTC market. Although options on foreign currencies are traded
primarily in the OTC market, a Fund will normally purchase OTC options on
foreign currency only when a Fund's adviser or subadviser believes a liquid
secondary market will exist for a particular option at any specific time.

FORWARD CURRENCY CONTRACTS

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

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

The precise matching of forward currency contract amounts and the value
of the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the foreign
currency contract has been established. Thus, the Fund might need to purchase or
sell foreign currencies in the spot (cash) market to the extent such foreign

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currencies are not covered by forward contracts. The projection of short-term
currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain.

CURRENCY HEDGING. While the values of forward currency contracts,
currency options, currency futures and options on futures may be expected to
correlate with exchange rates, they will not reflect other factors that may
affect the value of a Fund's investments. A currency hedge, for example, should
protect a Yen-denominated bond against a decline in the Yen, but will not
protect a Fund against price decline if the issuer's creditworthiness
deteriorates. Because the value of a Fund's investments denominated in foreign
currency will change in response to many factors other than exchange rates, a
currency hedge may not be entirely successful in mitigating changes in the value
of a Fund's investments denominated in that currency over time.

A decline in the dollar value of a foreign currency in which a Fund's
securities are denominated will reduce the dollar value of the securities, even
if their value in the foreign currency remains constant. The use of currency
hedges does not eliminate fluctuations in the underlying prices of the
securities, but it does establish a rate of exchange that can be achieved in the
future. In order to protect against such diminutions in the value of securities
it holds, a Fund may purchase put options on the foreign currency. If the value
of the currency does decline, the Fund will have the right to sell the currency
for a fixed amount in dollars and will thereby offset, in whole or in part, the
adverse effect on its securities that otherwise would have resulted. Conversely,
if a rise in the dollar value of a currency in which securities to be acquired
are denominated is projected, thereby potentially increasing the cost of the
securities, a Fund may purchase call options on the particular currency. The
purchase of these options could offset, at least partially, the effects of the
adverse movements in exchange rates. Although currency hedges limit the risk of
loss due to a decline in the value of a hedged currency, at the same time, they
also limit any potential gain that might result should the value of the currency
increase.

A Fund may enter into foreign currency exchange transactions to hedge
its currency exposure in specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward currency with respect to
specific receivables or payables of a Fund generally accruing in connection with
the purchase or sale of its portfolio securities. Position hedging is the sale
of forward currency with respect to portfolio security positions. A Fund may not
position hedge to an extent greater than the aggregate market value (at the time
of making such sale) of the hedged securities.

FOREIGN COMMERCIAL PAPER

A Fund may invest in commercial paper which is indexed to certain
specific foreign currency exchange rates. The terms of such commercial paper
provide that its principal amount is adjusted upwards or downwards (but not
below zero) at maturity to reflect changes in the exchange rate between two
currencies while the obligation is outstanding. A Fund will purchase such
commercial paper with the currency in which it is denominated and, at maturity,
will receive interest and principal payments thereon in that currency, but the
amount or principal payable by the issuer at maturity will change in proportion
to the change (if any) in the exchange rate between two specified

<PAGE> 140

currencies between the date the instrument is issued and the date the instrument
matures. While such commercial paper entails the risk of loss of principal, the
potential for realizing gains as a result of changes in foreign currency
exchange rate enables a Fund to hedge or cross-hedge against a decline in the
U.S. dollar value of investments denominated in foreign currencies while
providing an attractive money market rate of return. A Fund will purchase such
commercial paper for hedging purposes only, not for speculation. The staff of
the SEC is currently considering whether the purchase of this type of commercial
paper would result in the issuance of a "senior security" within the meaning of
the Investment Company Act of 1940. The Funds believe that such investments do
not involve the creation of such a senior security, but nevertheless will
establish a segregated account with respect to its investments in this type of
commercial paper and to maintain in such account cash not available for
investment or other liquid assets having a value equal to the aggregate
principal amount of outstanding commercial paper of this type.

SECURITIES OF INVESTMENT COMPANIES

As permitted by the Investment Company Act of 1940, a 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 a Fund's total assets may be invested in the securities of any one investment
company nor may it acquire more than 3% of the voting securities of any other
investment company. A 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. Some of the countries in which a Fund may
invest may not permit direct investment by outside investors. Investments in
such countries may only be permitted through foreign government-approved or
government-authorized investment vehicles, which may include other investment
companies.

SPDRs. The S & P 500 Index 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
S & P 500 Index Fund may sustain sudden, and sometimes substantial, fluctuations
in the value of its investment in SPDRs.

BANK OBLIGATIONS

<PAGE> 141

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

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

FLOATING AND VARIABLE RATE INSTRUMENTS

Floating or variable rate obligations bear interest at rates that are
not fixed, but vary with changes in specified market rates or indices, such as
the prime rate, or at specified intervals. The interest rate on floating-rate
securities varies with changes in the underlying index (such as the Treasury
bill rate), while the interest rate on variable or adjustable rate securities
changes at preset times based upon an underlying index. Certain of the floating
or variable rate obligations that may be purchased by the Funds may carry a
demand feature that would permit the holder to tender them back to the issuer of
the instrument or to a third party at par value prior to maturity.

Some of the demand instruments purchased by a Fund may not be traded in
a secondary market and derive their liquidity solely from the ability of the
holder to demand repayment from the issuer or third party providing credit
support. If a demand instrument is not traded in a secondary market, the Fund
will nonetheless treat the instrument as "readily marketable" for the purposes
of its investment restriction limiting investments in illiquid securities unless
the demand feature has a notice period of more than seven days in which case the
instrument will be characterized as "not readily marketable" and therefore
illiquid.

Such obligations include variable rate master demand notes, which are
unsecured instruments issued pursuant to an agreement between the issuer and the
holder that permit the indebtedness thereunder to vary and to provide for
periodic adjustments in the interest rate. A Fund will limit its purchases of
floating and variable rate obligations to those of the same quality as it is
otherwise allowed to purchase. A Fund's adviser or subadviser will monitor on an
ongoing basis the ability of an issuer of a demand instrument to pay principal
and interest on demand.

A Fund's right to obtain payment at par on a demand instrument could be
affected by events occurring between the date the Fund elects to demand payment
and the date payment is due that may affect the ability of the issuer of the
instrument or third party providing credit support to make payment when due,
except when such demand instruments permit same day settlement. To facilitate

<PAGE> 142

settlement, these same day demand instruments may be held in book entry form at
a bank other than a Fund's custodian subject to a subcustodian agreement
approved by the Fund between that bank and the Fund's custodian.

ZERO COUPON SECURITIES, PAY-IN-KIND BONDS ("PIK BONDS") AND DEFERRED PAYMENT
SECURITIES

Zero coupon securities are debt securities that pay no cash income but
are sold at substantial discounts from their value at maturity. When a zero
coupon security is held to maturity, its entire return, which consists of the
amortization of discount, comes from the difference between its purchase price
and its maturity value. This difference is known at the time of purchase, so
that investors holding zero coupon securities until maturity know at the time of
their investment what the expected return on their investment will be. Zero
coupon securities may have conversion features. PIK bonds pay all or a portion
of their interest in the form of debt or equity securities. Deferred payment
securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. Deferred payment securities are
often sold at substantial discounts from their maturity value.

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

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

LOAN PARTICIPATIONS AND ASSIGNMENTS

Loan Participations typically will result in a Fund having a
contractual relationship only with the lender, not with the borrower. A Fund
will have the right to receive payments of principal, interest and any fees to
which it is entitled only from the lender selling the Participation and only
upon receipt by the lender of the payments from the borrower. In connection with
purchasing Loan Participations, a Fund generally will have no right to enforce
compliance by the borrower with the terms of the loan agreement relating to the
loan, nor any rights of set-off against the borrower, and a Fund may not benefit
directly from any collateral supporting the loan in which it has purchased

<PAGE> 143

the Participation. As a result, a Fund will assume the credit risk of both the
borrower and the lender that is selling the Participation. In the event of the
insolvency of the lender selling a Participation, a Fund may be treated as a
general creditor of the lender and may not benefit from any set-off between the
lender and the borrower. A Fund will acquire Loan Participations only if the
lender interpositioned between the Fund and the borrower is determined by the
applicable subadviser to be creditworthy. When a Fund purchases Assignments from
lenders, the Fund will acquire direct rights against the borrower on the loan,
except that under certain circumstances such rights may be more limited than
those held by the assigning lender.

A Fund may have difficulty disposing of Assignments and Loan
Participations. Because the market for such instruments is not highly liquid,
the Fund anticipates that such instruments could be sold only to a limited
number of institutional investors. The lack of a highly liquid secondary market
may have an adverse impact on the value of such instruments and will have an
adverse impact on the Fund's ability to dispose of particular Assignments or
Loan Participations in response to a specific economic event, such as
deterioration in the creditworthiness of the borrower.

In valuing a Loan Participation or Assignment held by a Fund for which
a secondary trading market exists, the Fund will rely upon prices or quotations
provided by banks, dealers or pricing services. To the extent a secondary
trading market does not exist, the Fund's Loan Participations and Assignments
will be valued in accordance with procedures adopted by the Board of Trustees,
taking into consideration, among other factors: (i) the creditworthiness of the
borrower under the loan and the lender; (ii) the current interest rate; period
until next rate reset and maturity of the loan; (iii) recent prices in the
market for similar loans; and (iv) recent prices in the market for instruments
of similar quality, rate, period until next interest rate reset and maturity.

MORTGAGE DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS

A Fund may engage in reverse repurchase agreements to facilitate
portfolio liquidity, a practice common in the mutual fund industry, or for
arbitrage transactions discussed below. In a reverse repurchase agreement, a
Fund would sell a security and enter into an agreement to repurchase the
security at a specified future date and price. A Fund generally retains the
right to interest and principal payments on the security. Since a Fund receives
cash upon entering into a reverse repurchase agreement, it may be considered a
borrowing (see "Borrowing"). When required by guidelines of the SEC, a Fund will
set aside permissible liquid assets in a segregated account to secure its
obligations to repurchase the security. At the time a Fund enters into a reverse
repurchase agreement, it will establish and maintain a segregated account with
an approved custodian containing liquid securities having a value not less than
the repurchase price (including accrued interest). The assets contained in the
segregated account will be marked-to-market daily and additional assets will be
placed in such account on any day in which the assets fall below the repurchase
price (plus accrued interest). A Fund's liquidity and ability to manage its
assets might be affected when it sets aside cash or portfolio securities to
cover such commitments. Reverse repurchase agreements involve the risk that the
market value of the securities retained in lieu of sale may decline below the
price of the securities the Fund has sold but is obligated to repurchase. In the
event the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such

<PAGE> 144

buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Fund's obligation to repurchase the securities, and the
Fund's use of the proceeds of the reverse repurchase agreement may effectively
be restricted pending such determination. Reverse repurchase agreements are
considered to be borrowings under the Investment Company Act of 1940.

Mortgage dollar rolls are arrangements in which a Fund would sell
mortgage-backed securities for delivery in the current month and simultaneously
contract to purchase substantially similar securities on a specified future
date. While a Fund would forego principal and interest paid on the
mortgage-backed securities during the roll period, the Fund would be compensated
by the difference between the current sales price and the lower price for the
future purchase as well as by any interest earned on the proceeds of the initial
sale. A Fund also could be compensated through the receipt of fee income
equivalent to a lower forward price. At the time the Fund would enter into a
mortgage dollar roll, it would set aside permissible liquid assets in a
segregated account to secure its obligation for the forward commitment to buy
mortgage-backed securities. Mortgage dollar roll transactions may be considered
a borrowing by the Funds. (See "Borrowing")

Mortgage dollar rolls and reverse repurchase agreements may be used as
arbitrage transactions in which a Fund will maintain an offsetting position in
investment grade debt obligations or repurchase agreements that mature on or
before the settlement date on the related mortgage dollar roll or reverse
repurchase agreements. Since a Fund will receive interest on the securities or
repurchase agreements in which it invests the transaction proceeds, such
transactions may involve leverage. However, since such securities or repurchase
agreements will be high quality and will mature on or before the settlement date
of the mortgage dollar roll or reverse repurchase agreement, the Fund's adviser
or subadviser believes that such arbitrage transactions do not present the risks
to the Funds that are associated with other types of leverage.

TEMPORARY DEFENSIVE POSITIONS

In response to economic, political or unusual market conditions, each
Fund, except the Tax-Free Income Fund, may invest up to 100% of its assets in
cash or money market obligations. The Tax-Free Income Fund may as a temporary
defensive position invest up to 20% of its assets in cash and taxable money
market instruments. In addition, a Fund may have, from time to time, significant
cash positions until suitable investment opportunities are available.

INVESTMENT RESTRICTIONS

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

Each of the Funds:

<PAGE> 145

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

- May not borrow money or issue senior securities, except that each Fund may
enter into reverse repurchase agreements and may otherwise borrow money and
issue senior securities as and to the extent permitted by the 1940 Act or
any rule, order or interpretation thereunder. In addition, each of the
Large Cap Value, Large Cap Growth, Balanced, Small Cap and International
Funds may enter into mortgage dollar roll transactions.

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

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

- 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 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.

In addition, each of 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, S&P 500 Index Fund
and Morley Capital Accumulation Fund:

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

<PAGE> 146

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

The S&P 500 Index Fund:

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

Each of the Large Cap Value Fund, Large Cap Growth Fund, Balanced Fund,
Small Cap Fund and International Fund:

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

May not lend any security or make any other loan except that each Fund may, in
accordance with its investment objectives and policies, (i) lend portfolio
securities, (ii) purchase debt securities or other debt instruments, including
but not limited to loan participations and subparticipations, assignments, and
structured securities, (iii) make loans secured by mortgages on real property,
(iv) enter into repurchase agreements, and (v) make time deposits with financial
institutions and invest in instruments issued by financial institutions.

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

Each Fund may not:

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

- Purchase securities on margin, except that the Fund may obtain such
short-term credits as are necessary for the clearance of transactions; and
provided that margin deposits in connection with

47
<PAGE> 147

options, futures contracts, options on futures contracts, transactions in
currencies or other derivative instruments shall not constitute purchasing
securities on margin.

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

- Purchase securities of other investment companies except (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.

- 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.

- Concentrate its investments (invest 25% or more of its total assets) in the
securities of one or more issuers conducting their principal business in a
particular industry or group of industries. This does not include
obligations issued or guaranteed by the U.S. government or its agencies and
instrumentalities and repurchase agreements involving such securities.
[Source of this restriction? And it is not in the Class R share SAI or S &
P 500 Index Fund SAI]

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

48
<PAGE> 148

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.

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.

<PAGE> 149

*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, Cray 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.

The Trustees receive fees and reimbursement for expenses of attending
board meetings from the Trust. VMF and UBT, each paying a pro rata share for the
Funds for which it acts as investment adviser, reimburse 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.

COMPENSATION TABLE

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 $ ______ --0-- --0-- $______
C. Brent DeVore, Trustee ______ --0-- --0-- ______
Sue A. Doody, Trustee ______ --0-- --0-- ______
Robert M Duncan, Trustee ______ --0-- --0-- ______
Thomas J. Kerr, IV, Trustee ______ --0-- --0-- ______
Douglas F. Kridler, Trustee ______ --0-- --0-- ______
Dimon R. McFerson, Trustee --0-- --0-- --0-- --0--
Nancy C. Thomas, Trustee ______ --0-- --0-- ______
David C. Wetmore, Trustee ______ --0-- --0-- ______

</TABLE>

**The Fund Complex includes three trusts comprised of ______ investment company
funds or series.

Each of the Trustees and officers and their families are eligible to
purchase Class D shares of the Funds which offer such Class and generally charge
a front-end sales charge, at net asset value

<PAGE> 150

without a sales charge. This is permitted because there are few marketing
expenses associated with these sales.

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 Funds (other than Morley Capital
Accumulation Fund) 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, and Money Market Fund, VMF manages the
day-to-day investments of the assets of such Funds. With respect to each of the
other Funds, VMF provides investment management evaluation services in initially
selecting and 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.

Pursuant to the Investment Advisory Agreement, VMF also manages the
investment of the assets of eight other funds of the Trust: Nationwide Focus
Fund, the Aggressive Fund, the Moderately Aggressive Fund, the Moderate Fund,
the Moderately Conservative Fund, the Conservative Fund, the Small Cap Value
Fund II and the High Yield Bond Fund.

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
a Fund without penalty by vote of a majority of the outstanding voting
securities of that Fund, or by either party, on not less than 60 days written
notice. The Agreement further provides that VMF may render similar services to
others.

51
<PAGE> 151

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 and Union Bond & Trust Company reimburse 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 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 Funds. Effective September 1, 1999, the
investment advisory services previously performed for the Funds 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 each of the Funds.

For services provided under the Investment Advisory Agreement, VMF
receives an annual fee paid monthly based on average daily net assets of each
Fund according to the following schedule:

FUND ASSETS FEE

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. $1 billion up to $2 billion 0.45%
Government Bond Fund, and $2 billion up to $5 billion 0.425%
Nationwide Intermediate U.S.
Government Bond Fund

52
<PAGE> 152

FUND ASSETS FEE

$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 all assets 0.13%

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%

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%

The Aggressive Fund all assets 0.13%

The Moderately Aggressive Fund all assets 0.13%

The Moderate Fund all assets 0.13%

The Moderately Conservative Fund all assets 0.13%

The Conservative Fund all assets 0.13%

Nationwide Small Cap $0 up to $250 million 0.70%
Value Fund II $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%

53
<PAGE> 153

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%

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:

- 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
- 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
- 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 0.48% for Class Y shares, 0.63% for Class
R shares and 0.35% for Local Fund shares
- each of the Life Strategy Series to 0.56% for Class A shares, 1.31% for
Class B shares and 0.36% for Service Class 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 Small Cap Value Fund II 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 Nationwide S&P 500 Index Fund, VMF 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 the limits described above. Reimbursement by the Fund
of the advisory fees waived or limited and other

54
<PAGE> 154

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.

<PAGE> 155

During the fiscal years ended October 31, 1999, 1998 and 1997, VMF/NAS
received the following fees for investment advisory services*:

Years Ended October 31,
FUND 1999 1998 1997
---- ---- ---- ----

Mid Cap Growth $_______ $ 61,706 $ 63,883
Growth _______ 4,894,110 3,750,599
Nationwide Fund _______ 9,977,231 5,938,011
Bond _______ 647,809 629,068
Tax-Free Income _______ 1,505,626 1,810,070
Long Term U.S. Government _______ 254,928 343,259
Intermediate U.S. Government _______ 266,473 256,016
Money Market** _______ 3,857,898 3,519,727
S&P 500 Index _______ 7,315(1) --
Large Cap Value _______(2) -- --
Large Cap Growth _______(2) -- --
Balanced _______(2) -- --
Small Cap _______(2) -- --
International _______(2) -- --

(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 advisor
had not yet begun operations as of October 31, 1999.

<PAGE> 156

The Subadvisers for certain of the Funds are as follows:

FUND SUBADVISER

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")

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.

Prior to ______________, 1999, The Dreyfus Corporation ("Dreyfus")
served as subadviser for the S&P 500 Index 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. 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:

57
<PAGE> 157

FUND ASSETS FEE

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 $250 million 0.07%
next $250 million 0.06%
next $500 million 0.05%
$1 billion or more 0.04%

The following table sets forth the amount NAS/VMF paid to the
Subadvisers for the fiscal periods ended October 31, 1999 and 1998:

Years Ended October 31,
SUBADVISER 1999 1998
---------- ---- ----

Brinson Partners $_______(1) --
GSAM _______(1) --
J.P. Morgan _______(1) --
IMR _______(1) --
Lazard _______(1) --
Dreyfus _______ $ 3,939(2)

(1) The Fund began operations on November 2, 1998.
(2) The Fund began operation on July 24, 1998.

VMF and the Trust have 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

<PAGE> 158

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
the Funds' 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 $___________. 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 or sale by the 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.

<PAGE> 159

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 Villanova Capital, Inc.

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
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 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 Morley 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 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

60
<PAGE> 160

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 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 Index 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 Index Master
Series Trust. Index Master Series Trust has entered into a management agreement
("Management Agreement") with Fund Asset Management ("FAM").

FAM provides the Index Master Series Trust with investment advisory and
management services. Subject to the supervision of the Board of Trustees of the
Index Master Series Trust, FAM is responsible for the actual management of each
Series' portfolio and constantly reviews the Series'

<PAGE> 161

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 Index 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:

NAME OF SERIES MANAGEMENT FEE
-------------- --------------

Merrill Lynch Small Cap Index Series........................ 0.08%
Merrill Lynch Aggregate Bond Index Series................... 0.06%
Merrill Lynch International Index Series.................... 0.11%

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.

SMALL CAP AGGREGATE BOND INTERNATIONAL
INDEX SERIES INDEX SERIES INDEX 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 Index Series, and April 9, 1997 for the Small Cap Index
Series and the International Index Series).

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 Index Master

<PAGE> 162

Series Trust connected with investment and economic research, trading and
investment management of the Index 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 Index Master
Series Trust or the Series. Merrill Lynch Funds Distributor will pay certain of
the expenses of the Index 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 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 each of the Funds 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 each Fund, such continuance is approved at least annually by (i) the
Trust's Board of Trustees or by the vote of a majority of the outstanding shares
of that Fund, and (ii) the vote of a majority of the Trustees of the Trust who
are not parties to the Underwriting Agreement or interested persons (as defined
in the 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

<PAGE> 163

compensation under the Underwriting Agreement with the Trust, but may retain all
or a portion of the sales charge imposed upon sales of Shares of each of the
Funds.

<PAGE> 164

During the fiscal years ended October 31, 1999, 1998 and 1997, NAS
received the following commissions from the sale of shares of the Funds:

Years Ended October 31,
FUNDS 1999 1998 1997
----- ---- ---- ----

Mid Cap Growth $_______ $ 20,296 $ --
Growth _______ 1,058,927 873,750
Nationwide Fund _______ 3,502,971 2,037,896
Bond _______ 112,368 123,036
Tax-Free Income _______ 87,774 --
Long Term U.S. Government _______ 7,157 --
Intermediate U.S. Government _______ 25,366 --
S&P 500 Index _______ _______(1) --
Large Cap Value _______(2) -- --
Large Cap Growth _______(2) -- --
Balanced _______(2) -- --
Small Cap _______(2) -- --
International _______(2) -- --

*This information includes commissions from the sale of shares of the Acquired
Funds prior to the Reorganization.

(1) Sales to the public commenced July 24, 1998.
(2) Sales to the public commenced November 2, 1998.

NAS also receives the proceeds of contingent deferred sales charges
imposed on certain redemptions of shares. During the fiscal years ended October
31, 1999, 1998 and 1997, NAS received the following amounts*:

Years Ended October 31,
FUNDS 1999 1998 1997
----- ---- ---- ----

Mid Cap Growth $_______ -- $ 10,832
Growth _______ -- --
Nationwide Fund _______ $ 254 --
Bond _______ $ 6,107 --
Tax-Free Income _______ $ 111 202,973
Long Term U.S. Government _______ -- 23,417
Intermediate U.S. Government _______ -- 31,232
S&P 500 Index _______ _______(1) --
Large Cap Value _______(2) -- --
Large Cap Growth _______(2) -- --
Balanced _______(2) -- --
Small Cap _______(2) -- --

<PAGE> 165

International _______(2) -- --

*This information includes commissions from the redemption of shares of the
Acquired Funds prior to the Reorganization.

(1) Sales to the public commenced July 24, 1998.
(2) Sales to the public commenced November 2, 1998.

From such fees, NAS retained $_______, $1,048,391 and $1,603,988,
respectively, after reallowances to dealer. NAS reallows to dealers 4.75% of
sales charges on Class A shares of the Stock Funds, 4.00% on Class B shares of
the Funds, 4.00% on Class D shares of the Funds, and 4.00% on Class A of the
Bond Funds.

DISTRIBUTION PLAN

The Funds have adopted a Distribution Plan (the "Plan") under Rule
12b-1 of the 1940 Act. The Plan permits the Funds to compensate NAS, as the
Funds' Distributor, for expenses associated with the distribution of shares of
the Funds. Although actual distribution expenses may be more or less, under the
Plan the Funds pay NAS an annual fee in an amount that will not exceed the
following amounts:

- 0.25% of the average daily net assets of Class A shares, ISC Shares and
IRA shares;

- 1.00% of the average daily net assets of Class B shares for each of the
Funds other than the Bond, Long-Term U.S. Government Bond, Intermediate
U.S. Government Bond and Tax-Free Funds (the "Bond Funds");

- 0.85% of the average daily net assets of the Class B shares of the Bond
Funds; and

- 0.15% of the average daily net assets of Class R shares of the Money
Market Fund and the S&P 500 Index Fund.

NAS has agreed with the Trust to waive the 0.15% 12b-1 fee for Class R
shares of the Money Market Fund until further notice to shareholders.

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.

<PAGE> 166

During the fiscal year ended October 31, 1999, NAS received the
following distribution fees:

FUNDS CLASS A CLASS B CLASS R
----- ------- ------- -------

Mid Cap Growth $_______ $_______ N/A
Growth _______ _______ N/A
Nationwide Fund _______ _______ N/A
Bond _______ _______ N/A
Tax-Free Income _______ _______ N/A
Long Term U.S. Government _______ _______ N/A
Intermediate U.S. Government _______ _______ N/A
Money Market Fund N/A N/A $________
S&P 500 Index N/A N/A ________
Large Cap Value _______ _______ N/A
Large Cap Growth _______ _______ N/A
Balanced _______ _______ N/A
Small Cap _______ _______ N/A
International _______ _______ N/A

ISC SHARES IRA SHARES
---------- ----------

Morley Capital Accumulation $________ $________

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 Funds 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 upon
approval by the Board of Trustees. The Plan may be terminated as to a Class of a
Fund by vote of a majority of the Independent Trustees, or by vote of majority
of the outstanding shares of that 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

<PAGE> 167

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 a Fund must determine that there is a reasonable likelihood that
the Plan will benefit such Fund and its Shareholders.

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

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

ADMINISTRATIVE SERVICES PLAN

Under the terms of an Administrative Services Plan, a 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 D and Class Y shares of the Funds, the Prime shares and Class
R shares of the Money Market Fund, the Class R and Service Class shares of the
S&P 500 Index Fund and the ISC and IRA shares of the Morley Capital Accumulation
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 Funds, 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.

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 A, D and Y shares of each Fund and
Prime Shares of the Money Market Fund, and Class R and Service Class shares of
the S&P 500 Index 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 (a) 0.25% of the average daily net
assets of the Class A, D or Y shares of each Fund, Prime shares and Class R
shares of the Money Market Fund and Class R and Service Class shares of the S&P
500 Index Fund and (b) 0.15% of the average daily net assets of ISC and IRA
Class shares of the Morley Capital Accumulation Fund, held by customers of NFS
or such other entity.

68
<PAGE> 168
The Trust has also entered into a Servicing Agreement pursuant to which
Nationwide Investment Services Corporation has agreed to provide certain
administrative support services in connection with Class R shares of the Money
Market Fund held beneficially by its customers.

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 Funds' shares, preparation of financial statements, tax
returns, and regulatory reports, and presentation of quarterly reports to the
Board of Trustees. For these services, each Fund pays VSA an annual fee based on
each Fund's average daily net assets according to the following schedule:
<TABLE>
<CAPTION>

FUND ASSETS FEE

<S> <C> <C>
Nationwide Mid Cap Growth Fund, $0 up to $250 million 0.07%
Nationwide Growth Fund, Nationwide $250 million up to $1 billion 0.05%
Fund, Nationwide Bond Fund, $1 billion and more 0.04%
Nationwide Tax-Free Income Fund,
Nationwide Long-Term U.S.
Government Bond Fund, Nationwide
Intermediate U.S. Government Bond
Fund, Nationwide Money Market
Fund and Morley Capital
Accumulation Fund(*)

Nationwide S&P 500 Index Fund $0 to $1 billion 0.05%
$1 billion or more 0.04%

Large Cap Value Fund, Large $0 up to $250 million 0.10%
Cap Growth Fund, Balanced $250 million up to $1 billion 0.06%
Fund, Small Cap Fund, and $1 billion or more 0.04%
International Fund(**)
</TABLE>

(*) Subject to a minimum of $50,000 per year for Morley Capital Accumulation
Fund.

(**) Subject to a minimum of $75,000 per Fund per year.

Prior to September 1, 1999, NAS provided fund administration services
to the Funds. Effective September 1, 1999, the fund administration services
previously performed for the Funds 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-

69
<PAGE> 169

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 each of the Funds.

During the fiscal years ended October 31, 1999 and 1998, NAS/VSA
received fund administration fees from the Funds as follows:
<TABLE>
<CAPTION>

YEAR ENDED OCTOBER 31,
----------------------
FUNDS 1999 1998
----- ---- ----
<S> <C> <C>
Mid Cap Growth ______ $ 3,308
Growth ______ 248,049
Nationwide Fund ______ 470,352
Tax-Free Income ______ 88,596
Bond ______ 44,441
Long Term U.S. Government ______ 13,998
Intermediate U.S. Government ______ 16,351
Money Market ______ 257,123
S&P 500 Index(1) ______ ______
Large Cap Value(2) ______ --
Large Cap Growth(2) ______ --
Balanced(2) ______ --
Small Cap(2) ______ --
International(2) ______ --
Morley Capital Accumulation(3) ______ --

(1) Commenced operations July 24, 1998.
(2) Commenced operations November 2, 1998.
(3) Commenced operations February 1, 1999.

</TABLE>

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 each of the Funds. For these services, NISI
receives an annual fee from each of the Funds according to the following
schedule:

70
<PAGE> 170

FUND FEE
<S> <C>
Mid Cap Growth Fund, Growth $16 per account
Fund, and Nationwide Fund

Bond Fund, Tax-Free Income $18 per account
Fund, Long-Term U.S.
Government Bond Fund, and
Intermediate U.S. Government
Bond Fund

Money Market Fund - Prime $27 per
Shares Prime Share Account

Money Market Fund - Class R 0.01% of average daily net
Shares assets of Class R shares

S&P 500 Index Fund and 0.01% of average daily net
Morley Capital Accumulation Fund assets

Large Cap Value Fund, Large $18 per account for Class A
Cap Growth Fund, Balanced and Class B shares
Fund, Small Cap Fund, and 0.01% of average daily net
International Fund assets of Class Y shares
</TABLE>

During the fiscal years ended October 31, 1999, 1998 and 1997, NISI
received the following transfer agent fees from the Funds(*):
<TABLE>
<CAPTION>
Years Ended October 31,
-----------------------
FUNDS 1999 1998 1997
----- ---- ---- ----
<S> <C> <C> <C>
Mid Cap Growth $_______ $ 12,379 $ 11,300
Growth _______ 785,969 729,500
Nationwide Fund _______ 1,018,754 788,500
Bond _______ 142,149 149,300
Tax-Free Income _______ 144,397 146,800
Long Term U.S. Government _______ 34,092 41,500
Intermediate U.S. Government _______ 38,102 37,599
Money Market Fund _______ 701,561 664,007
S&P 500 Index(1) _______ _______ --

</TABLE>

71
<PAGE> 171

Years Ended October 31,
-----------------------
FUNDS 1999 1998 1997
----- ---- ---- ----
<S> <C> <C> <C>
Large Cap Value(2) _______ -- --
Large Cap Growth(2) _______ -- --
Balanced(2) _______ -- --
Small Cap(2) _______ -- --
International(2) _______ -- --
Morley Capital Accumulation(3) _______ -- --

(*) This information includes fees paid to NISI by the Acquired Funds prior to
the Reorganization.

(1) Commenced operation July 24, 1998.
(2) Commenced operations November 2, 1998.
(3) Commenced operations February 1, 1999.

</TABLE>

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 Funds.

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 S&P 500 Index 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

72
<PAGE> 172

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

A Fund's adviser (or a Subadviser) is responsible for decisions to buy
and sell securities and other investments for the Funds, 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 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, the adviser or a
Subadviser always attempts to achieve best price - best execution, and both VMF
and the Subadvisers have complete freedom as to the markets in and the
broker-dealers through which they seek this result. In selecting broker-dealers,
the adviser and each Subadviser 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][agency only?] 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 the adviser or a Subadviser. In placing
orders with such broker-dealers, the adviser or Subadviser will, where possible,
take into account the comparative usefulness of such information. Such
information is useful to the adviser or Subadviser even though its dollar value
may be indeterminable, and its

73
<PAGE> 173

receipt or availability generally does not reduce the adviser's or Subadviser'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 a 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
the adviser or Subadviser or by an affiliated company thereof. Although such
concurrent authorizations potentially could be either advantageous or
disadvantageous to a Fund, they are effected only when the adviser or Subadviser
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 the adviser's and each Subadviser's
performance of their responsibilities in connection with the placement of
portfolio transactions on behalf of the Funds and review the commissions paid by
the Funds over representative periods of time to determine if they are
reasonable in relation to the benefits to the Funds.

UBT and each Subadviser may cause a 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 UBT or a Subadviser is considered to be in addition to and not in lieu of
services required to be performed by it under its investment advisory or
subadvisory agreement, as the case may be. The fees paid to UBT and a Subadviser
pursuant to its investment advisory or subadvisory agreement are not reduced by
reason of its receiving any brokerage and research services. The research
services provided by broker-dealers can be useful to UBT or a Subadviser in
serving its other clients or clients of its affiliates. Subject to the policy of
UBT and the Subadvisers to obtain best execution at the most favorable prices
through responsible broker-dealers, UBT and the Subadvisers also may consider
the broker-dealer's sale of shares of any fund for which it serves as investment
adviser, subadviser or administrator.

During the fiscal years ended October 31, 1999, 1998 and 1997, the
following brokerage commissions were paid by the Funds(*):

74
<PAGE> 174

Years Ended October 31,
-----------------------
FUNDS 1999 1998 1997
----- ---- ---- ----
<S> <C> <C> <C>
Mid Cap Growth $ _______ $ 10,084 $ 8,480
Growth _______ 712,200 742,579
Nationwide Fund _______ 934,759 664,395
S&P 500 Index _______ 8,386(1) --
Large Cap Value _______(2) -- --
Large Cap Growth _______(2) -- --
Balanced _______(2) -- --
Small Cap _______(2) -- --
International _______(2) -- --
Morley Capital Accumulation _______(3) -- --
</TABLE>

(*) This information includes commissions paid by the Acquired Funds prior to
the Reorganization.

(1) Commenced operations July 24, 1998.
(2) Commenced operations November 2, 1998.
(3) Commenced operations February 1, 1999.

As of October 31, 1999, the ________________ Fund and
____________________________ Fund held investments in securities of their
regular broker-dealers as follows:

[TO BE UPDATED]

Under the Investment Company Act of 1940, "affiliated persons" of a
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, each Fund may purchase securities from underwriting
syndicates of which a Subadviser 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.

Each of the Funds contemplate 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 a Fund to an
"affiliated broker or dealer" in connection with a purchase or sale of
securities offered on a securities exchange may not exceed the usual and
customary broker's commission. Accordingly, it is the Funds' policy that the
commissions to be paid to an affiliated broker-dealer must, in the judgment of
the adviser or the appropriate Subadviser, 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

75
<PAGE> 175

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 Funds do not
deem it practicable or in their 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 AND CLASS D SALES CHARGES

The charts below show the Class A and Class D sales charges, which
decrease as the amount of your investment increases.

CLASS A SHARES OF THE FUNDS (OTHER THAN BOND FUNDS)
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS %
AMOUNT OF PURCHASE 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>

CLASS A SHARES OF THE BOND FUNDS

<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS %
AMOUNT OF PURCHASE OF OFFERING PRICE OF AMOUNT INVESTED
------------------ ----------------- ------------------
<S> <C> <C>
less than $50,000 4.50% 4.71%
$50,000 to $99,999 4.00 4.17
$100,000 to $249,999 3.00 3.09
$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
CLASS D SHARES OF THE FUNDS
</TABLE>

76
<PAGE> 176

<TABLE>
<S> <C> <C>
$50,000 to $99,999 4.00 4.17
$100,000 to $249,999 3.00 3.09
$250,000 to $499,999 2.50 2.56
$500,000 to $999,999 1.00 1.01
$1 million to $24,999,999 0.50 0.50
$25 million or more None None
</TABLE>

NET ASSET VALUE PURCHASE PRIVILEGE (CLASS A AND D SHARES ONLY)

The sales charge applicable to Class A and D 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:

(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;

(3) for Class D shares sold:

(a) to Trustees and retired Trustees of the Trust (including its
predecessor Trusts);

(b) 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;

(c) 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,

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<PAGE> 177

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;

(d) to any qualified pension or profit sharing plan established by a
Nationwide sales representative for himself/herself and his/her
employees;

(4) Class A shares sold;

(a) to any person purchasing through an account with an unaffiliated
brokerage firm having an agreement with NAS to waive sales charges for
those persons;

(b) 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;

(c) 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 requested when the purchase
order is placed, and NAS may require evidence of qualification for
this waiver.

(d) to any Class Member of Snyder vs. Nationwide Mutual Insurance Company
and Nationwide Life Insurance Company on the initial purchase of
shares for an amount no less than $5,000 and no more than $100,000. To
be eligible for this waiver, the purchase of Class A shares must come
from a source other than the surrender of, withdrawal from, or loan
against any existing policy, mutual fund or annuity issued by
Nationwide Mutual Insurance Company or its affiliates.

(e) 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.

(f) 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 FUNDS 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

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REINVESTED, OR ON APPRECIATION OVER THE INITIAL PURCHASE PRICE. The CDSC applies
only to the lesser of the original investment or current market value.

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>

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.

For the Bonds Funds your money will earn daily dividends through the
date of liquidation. If you redeem all of your shares in one of the Bond Funds,
you will receive a check representing the value of your account, less any
applicable CDSC calculated as of the date of your withdrawal, plus all daily
dividends credited to your account through the date of withdrawal.

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 Funds 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:

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1.00% for sales of the Funds of $1 million up to $3 million
0.50% for sales of the Funds of $3 million up to $50 million
0.25% for sales of the Funds of $50 million or more

The finder's fee is paid on the aggregate assets of all Funds 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.

If you effect one or more exchanges among Class B shares of the Funds
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 a Fund, investors
should consider whether, during the anticipated life of their investment in a
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

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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 a 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 a 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 a 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
Funds (other than the Bond Funds) and 4.50% for the Bond Funds. 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 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 Class D shares, the purchase of Class D shares will
usually be preferable to purchasing Class A or Class B shares.

REDEMPTION OF SHARES IN MORLEY CAPITAL ACCUMULATION FUND

The Morley Capital Accumulation Fund intends that it usually will
redeem its shares for cash. However the Fund has elected to redeem shares with
respect to any one shareholder during any 90-day period solely in cash up to the
lesser of $250,000 or 1% of the NAV of the Fund at the beginning of the period.
In addition, the Morley Capital Accumulation Fund intends to redeem shares in
cash for any requests of up to $1,000,000.

As described in its Prospectus, however, the Fund reserves the right,
in circumstances where in its sole discretion it determines that cash redemption
payments would be undesirable, to honor any request for redemption by making
payment wholly or partly in securities and in Wrapper Agreements, as the same
may be chosen by UBT in its sole discretion (an "in kind redemption"). The
Trust, on behalf of the Fund, is seeking an exemptive order from the SEC with
respect to redemptions in kind made to shareholders who own 5% or more of the
Fund. Until such time as appropriate regulatory authorization is obtained, the
Fund will not make redemptions in kind to such shareholders.

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OTHER REDEMPTION REQUIREMENTS. Redemption requests for ISC and IC
Shares from Plans with more than $1,000,000 in the Fund and which represent a
withdrawal of 5% or more of a Plan's assets on any business day must include or
be preceded by the following information: (i) the Plan name; (ii) a listing of
the Plan trustee(s); (iii) copies of Plan documents or summaries which describe
the investment options available to and restrictions imposed upon Plan
participants; (iv) a listing of the allocation of Plan assets across available
investment options; (v) for the three year period immediately preceding the
withdrawal, a monthly summary of cash flow activity for the investment option in
which the Shares are included, detailing contribution and benefit payment amount
and amounts transferred to and from other investment options; and (vi) in the
case of Plans subject to ERISA, identification of a "Qualified Professional
Asset Manager" within the meaning of Department of Labor Prohibited Transaction
Class Exemption 84-14 (March 8, 1984). The Fund may waive these requirements
under some circumstances. For purposes of this paragraph, "Plans" include
employee benefit plans qualified under Section 401(a) of the Internal Revenue
Code, "governmental plans" as defined in Section 414(d) of the Code, eligible
deferred compensation plans as defined in Section 457 of the Code, and employee
benefit plans qualifying under Section 403(b) of the Code.

REDEMPTION FEES. Generally, redemption requests on all Shares will be
subject to a 2% redemption fee when the Trigger is "active." The redemption fee
will be retained by the Fund to help minimize the impact the redemptions may
have on Fund performance and to support administrative costs associated with
redemptions from the Fund. Additionally, the redemption fee may discourage
market timing by those shareholders initiating redemptions to take advantage of
short-term movements in interest rates.

The Trigger is active on any day that, as of two business days prior,
the "Gross Annual Effective Yield of the Fund" is less than the current yield on
the Dealer Commercial Paper (90-day) Index. Once activated, the Trigger will
become inactive on any day than, as of two business days prior, the Gross Annual
Effective Yield of the Fund is greater than the current yield of the Dealer
Commercial Paper (90-day) Index plus 0.25%. The Fund will rely on the Dealer
Commercial Paper (90-day) Index found daily on the front page of the Money and
Investing section of the WALL STREET JOURNAL. If the Dealer Commercial Paper
(90-day) Index is not available in the WALL STREET JOURNAL, the Fund may use
alternative sources of information for 90-day dealer commercial paper rates.

Redemptions of ISC or IC Shares by participants in a Plans and Contract
owners for reasons of death, disability, retirement, employment termination,
loans, hardship, and other Plan permitted withdrawals and investment transfers
to non-Competing Funds (each, a "Benefit Responsive Payment Event") are not
subject to a redemption fee. All other redemptions of Shares are subject to a 2%
redemption fee, payable tot he Fund when the Trigger is active.

EXAMPLE

An IRA Class shareholder decides to redeem shares in the amount of
$5,000 from the Fund on October 15th. Assume that as of October 13th the current
yield on the Dealer Commercial Paper

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(90-day) Index is 7.2% and the Gross Annual Effective Yield of the Fund is 7.0%.
Because the Gross Annual Effective Yield of the Fund is less than the current
yield on the Dealer Commercial Paper (90-day) Index the Trigger is active, and
the shareholder will receive net proceeds of $4,900 for the redemption. The
Trigger will remain active until two business days after the Gross Annual
Effective Yield of the Fund exceeds the current yield on the Dealer Commercial
Paper (90-day) Index by 0.25%.

The "Gross Annual Effective Yield of the Fund" is a measure of one
day's investment income (before deduction for fees and expenses) expressed as an
annual compounded yield. It is calculated on each business day based on the
dividend declared for the previous day as follows:

[((1 + Previous Day's Gross Dividend Factor) 365) -1]/[NAV per Share]

Information on the Trigger and the Gross Annual Effective Yield of the
Fund can be obtained by calling 1-800-848-0920.

The Fund reserves the right to modify its redemption fee and waiver
policy in whole or in part for certain shareholders upon 30 days written notice
to such shareholders.

REDEMPTION IN KIND. In certain circumstances, the Fund reserves the
right to honor a redemption request by making payment in whole or in part in
securities or securities and wrap contracts, selected solely at the discretion
of UBT. The Fund will always redeem shares in cash for redemption requests up to
the lesser of $250,000 or 1% of the net asset value of the Fund pursuant to an
election made by the Fund and filed with the SEC. In addition, the Fund does not
intend to do an in-kind redemption for any redemption requests of less than
$1,000,000. The Fund does not anticipate exercising its right to redeem in-kind
except in extraordinary circumstances as determined by the Fund and never if a
request for redemption is received in connection with a Benefit Responsive
Payment Event or for redemption of IRA Shares.

To the extent a payment in kind is made with securities, you may incur
transaction expenses in holding and disposing of the securities. Therefore, in
receiving securities you may incur costs that may exceed your share of the
operating expenses incurred by the Fund. In addition, wrap contracts assigned to
you as a payment in kind are illiquid and will require you to pay fees directly
to the Wrap Provider rather than though the Fund. Further, a wrap contract may
contain restrictions on the securities subject to such Agreement, including, but
not limited to the types, maturities, duration and credit quality of each
security. Therefore, to obtain the benefits of a wrap contract, you may not be
able to freely trade the securities underlying the Agreement. Also, wrap
contracts assigned to you will not provide protection against the credit risk
associated with the issuer of any Underlying Assets (see "Specific Risks of Wrap
Contracts").

To the extent that any such payment in kind includes a wrap contract,
the Fund will assign a portion of one or more wrap contracts to you. The
economic terms and conditions of each assigned wrap contract will be
substantially similar to the wrap contracts held by the Fund. By purchasing
shares in the Fund, you agree to accept an assignment of a wrap contract as part
of an in-kind

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redemption, provided that at the time of the redemption payment such assignment
would not violate applicable law.

A Wrap Provider, prior to the assignment of a wrap contract to a Class
ISC or IC shareholder, may require you to represent and warrant that such
assignment does not violate any applicable laws. Moreover, the Wrap Provider may
require you to obtain at your own expense the services of a qualified
professional asset manager acceptable to the Wrap Provider to manage the
securities distributed in kind in conformity with the wrap contract provisions.
In the event a wrap contract cannot be assigned to you, the Fund in its
discretion may satisfy the redemption request through (a) a cash payment, (b) a
redemption in-kind consisting entirely of securities, or (c) a combination of
cash and securities.

In the event a redemption is made in kind with a wrap contract, the
Fund will incur costs in obtaining such wrap contract and assigning it the
shareholder. The Fund will examine the costs and benefits of obtaining a wrap
contract in making a determination to incur such costs. Typically, these costs
should not exceed $5,000 per issuance.

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 each 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 a Fund to materially affect the net asset value of that
Fund (the "Valuation Time").

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The Funds will not compute net asset value on customary business
holidays, including Christmas, New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day and
Thanksgiving.

The net asset value per share of a class is computed by adding the
value of all securities and other assets in a 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, 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 purchased by a non-money market fund are valued at amortized cost in
accordance with provisions contained in Rule 2a-7 of the Investment Company Act
of 1940, as described below. 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 the
adviser or its designee are valued at fair value in accordance with procedures
adopted by the Board of Trustees.

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

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

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

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

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 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

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

1 NO SALES CHARGE ON REINVESTMENTS--All dividends and capital gains will be
automatically reinvested free of charge in the form of additional shares within
the same 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.

2 EXCHANGE PRIVILEGE--The exchange privilege is a convenient way to exchange
shares from one Fund to another Fund in order to respond to changes in your
goals or in market conditions. 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

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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 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 Class D 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 Funds 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 THREE CONVENIENT WAYS:

BY TELEPHONE

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

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

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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 Funds will employ the same procedure described under "Buying, Selling
and Exchanging Fund Shares" in the Prospectus to confirm that the
instructions are genuine.

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

BY 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.

3 NO SALES CHARGE ON A REPURCHASE--If you redeem all or part of your Class A
or D shares on which you paid a front-end sales charge, you have a one-time
privilege to reinvest all or part of the 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.

4 FREE CHECKING WRITING PRIVILEGE (PRIME SHARES OF THE MONEY MARKET FUND
ONLY)--You may request a supply of free checks for your personal use and there
is no monthly service fee. You may use them to make withdrawals of $500 or more
from your account at any time. Your account will continue to earn daily income
dividends until your check clears your account. There is no limit on the number
of checks you may write. Cancelled checks will not be returned to you. However,

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<PAGE> 189

your monthly statement will provide the check number, date and amount of each
check written. You will also be able to obtain copies of cancelled checks, the
first five free and $2.00 per copy thereafter, by contacting one of our service
representatives at 1-800-848-0920.

INVESTOR SERVICES

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

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

3 RETIREMENT PLANS (NOT AVAILABLE WITH THE TAX-FREE INCOME FUND)--Shares of
the Funds may be purchased for Self-Employed Retirement Plans, Individual
Retirement Accounts (IRAs), 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 Funds, other than the Bond
Funds and the Money Market Fund, receive quarterly statements as of the end of
March, June, September and December. Shareholders of the Bond and Money Market
Funds receive monthly statements. Please review your statement carefully and
notify us immediately if there is a discrepancy or error in your account.

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

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, 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

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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 funds.

8 PROSPECTUSES--Updated prospectuses 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 yield and 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 Funds, 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 MONEY MARKET FUND YIELD

Any current Money Market Fund yield quotations, subject to Rule 482
under the Securities Act, shall consist of a seven calendar day historical yield
for each class, carried at least to the nearest hundredth of a percent. The
yield shall be calculated by determining the change, excluding realized and
unrealized gains and losses, in the value of a hypothetical pre-existing account
in each class having a balance of one share at the beginning of the period,
dividing the net change in account value by the value of the account at the
beginning of the base period to obtain the base period return, and multiplying
the base period return by 365/7 (or 366/7 during a leap year). For purposes of
this calculation , the net change in account value reflects the value of
additional shares purchased with dividends declared on both the original share
and any such additional shares. The Fund's effective yield represents an
annualization of the current seven day return with all dividends reinvested. The
yields for each class will differ due to different fees and expenses charged on
the class. As of October 31, 1999, the seven day current and effective yields
for the Prime Shares of the Money Market Fund were ____% and ____%,
respectively, and for the Class R shares, were _____% and ____%, respectively.

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<PAGE> 191

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

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

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

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

The Funds may from time to time advertise historical performance,
subject to Rule 482 under the Securities Act. An investor should keep in mind
that any return or yield quoted represents past performance and is not a
guarantee of future results. The investment return and principal value of
investments will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.

All performance advertisements shall include average annual (compound)
total return quotations for the most recent one, five, and ten-year periods (or
life if a Fund has been in operation less than one of the prescribed periods).
Average annual (compound) total return represents redeemable value at the end of
the quoted period. It is calculated in a uniform manner by dividing the ending
redeemable value of a hypothetical initial payment of $1,000 minus the maximum
sales charge, for a specified period of time, by the amount of the initial
payment, assuming reinvestment of all dividends and distributions. In
calculating the standard total returns for Class A and Class D shares, the
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.

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<PAGE> 192

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 5 YEAR 10 YEAR OR LIFE
------ ------ ---------------
CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS CLASS
A(1) B(1) D A(1) B(1) D A(1) B(1) D
------ ------ ----- ----- ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mid Cap Growth(*) ___% ___% ___% ___% ___% ___% ___% ___% ___%
Growth ___% ___% ___% ___% ___% ___% ___% ___% ___%
Nationwide Fund ___% ___% ___% ___% ___% ___% ___% ___% ___%
Bond ___% ___% ___% ___% ___% ___% ___% ___% ___%
Tax-Free ___% ___% ___% ___% ___% ___% ___% ___% ___%
Long Term U.S. Govt.(**) ___% ___% ___% ___% ___% ___% ___% ___% ___%
Intermediate U.S. Govt.(**) ___% ___% ___% ___% ___% ___% ___% ___% ___%
</TABLE>

(1) These returns include performance based on the Funds' predecessors,
which was achieved prior to the creation of the class (5/11/98), and which is
the same as the performance shown for Class D shares through May 11, 1998. The
returns have been restated for sales charges but not for fees applicable to
Class A and B. Had Class A or B been in existence for the time periods
presented, the performance would have been lower as a result of their additional
expenses.

(*) The life of the Fund is since 12/19/88.
(**) The life of the Fund is since 2/10/92.

1 YEAR SINCE INCEPTION(1)
------ ------------------
LOCAL LOCAL
CLASS Y CLASS R FUND CLASS Y CLASS R FUND
------- ------- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
S&P 500 Index ____% ____% ____% ____% ____% ____%

</TABLE>

<TABLE>
<CAPTION>
SINCE INCEPTION(2)
------------------
CLASS A CLASS B CLASS Y
------- ------- -------
<S> <C> <C> <C>
Large Cap Value ____% ____% ____%
Large Cap Growth ____% ____% ____%
Balanced ____% ____% ____%
Small Cap ____% ____% ____%
International ____% ____% ____%

(1) July 24, 1998
(2) November 2, 1998
</TABLE>

<TABLE>
<CAPTION>
SINCE INCEPTION(3)
------------------
ISC IC IRA
--- -- ---
<S> <C> <C> <C>
Morley Capital Accumulation ____% ____% ____%

</TABLE>

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<PAGE> 193

(3) February 1, 1999

The Nationwide Bond Fund, Nationwide Tax-Free Income Fund, Nationwide
Intermediate U.S. Government Bond Fund, Nationwide Long-Term U.S. Government
Bond Fund and Morley Capital Accumulation Fund may also from time to time
advertise a uniformly calculated yield quotation. This yield is calculated by
dividing the net investment income per share earned during a 30-day base period
by the maximum offering price per share on the last day of the period, assuming
reinvestment of all dividends and distributions. This yield formula uses the
average number of shares entitled to receive dividends, provides for semi-annual
compounding of interest, and includes a modified market value method for
determining amortization. The yield will fluctuate, and there is no assurance
that the yield quoted on any given occasion will remain in effect for any period
of time. The effect of sales charges are not reflected in the calculation of the
yields, therefore, a shareholders actual yield may be less.

The following are the yields for the 30-day period ended October 31,
1999:
<TABLE>
<CAPTION>

CLASS A CLASS B CLASS D
------- ------- -------
<S> <C> <C> <C>
Bond ____% ____% ____%
Tax-Free Income ____% ____% ____%
Long Term U.S. Government ____% ____% ____%
Intermediate U.S. Government ____% ____% ____%
</TABLE>

ISC IC IRA
--- -- ---
<S> <C> <C> <C>
Morley Capital Accumulation ____% ____% ____%
</TABLE>

The Tax-Free Income Fund may also advertise a tax equivalent yield
computed by dividing that portion of the uniformly calculated yield which is
tax-exempt by one minus a stated income tax rate and adding the product to that
portion, if any, of the yield that is not tax-exempt. Assuming a tax rate of
36%, the tax equivalent yields for the Tax-Free Income Fund for the 30-day
period ended October 31, 1999 were ____% for Class A shares, ____% for Class B
shares, and ____% for Class D shares.

NONSTANDARD RETURNS

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

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<PAGE> 194

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.

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

RANKINGS AND RATINGS IN FINANCIAL PUBLICATIONS

The Funds may report their performance relative to other mutual funds
or investments. The performance comparisons are made to: other mutual funds with
similar objectives; other mutual funds with different objectives; or, to other
sectors of the economy. Other investments which the Funds may be compared to
include, but are not limited to: precious metals; real estate; stocks and bonds;
closed-end funds; market indexes; fixed-rate, insured bank CDs, bank money
market deposit accounts and passbook savings; and the Consumer Price Index.

Normally these rankings and ratings are published by independent
tracking services and publications of general interest including, but not
limited to: Lipper Analytical Services, Inc., CDA/Wiesenberger, Morningstar,
Donoghue's, Schabaker Investment Management, Kanon Bloch Carre & Co.; magazines
such as Money, Fortune, Forbes, Kiplinger's Personal Finance Magazine, Smart
Money, Mutual Funds, Worth, Financial World, Consumer Reports, Business Week,
Time, Newsweek, U.S. News and World Report; and other publications such as the
Wall Street Journal, Barron's, Columbus Dispatch, Investor's Business Daily, and
Standard & Poor's Outlook.

The rankings may or may not include the effects of sales charges.

ADDITIONAL INFORMATION

DESCRIPTION OF SHARES

The Trust presently offers the following series of shares of beneficial
interest, without par value and with the various classes listed; 14 of these
series are the Funds:
<TABLE>
<CAPTION>

SERIES SHARE CLASSES
------ -------------
<S> <C>
Nationwide Mid Cap Growth Fund Class A, Class B, Class D
</TABLE>

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<PAGE> 195

<TABLE>
<S> <C>
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,
Service 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, Service Class
Nationwide International Index Fund Class A, Class B, Service Class
Nationwide Bond Index Fund Class A, Class B, Service Class
Nationwide Mid Cap Index Fund II Class A, Class B, Service Class
The Aggressive Fund Class A, Class B, Service Class
The Moderately Aggressive Fund Class A, Class B, Service Class
The Moderate Fund Class A, Class B, Service Class
The Moderately Conservative Fund Class A, Class B, Service Class
The Conservative Fund Class A, Class B, Service Class
Nationwide Focus Fund Class A, Class B,
Institutional Class
Nationwide Small Cap Value Fund II 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 a Fund, shares of the same
class will share pro rata in the distribution of the net assets of such 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

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<PAGE> 196

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
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 shares, Class B shares or Prime shares 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 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.

ADDITIONAL GENERAL TAX INFORMATION

Each of the Funds is treated as a separate entity for Federal income
tax purposes and intends to qualify as a "regulated investment company" under
the Code, for so long as such qualification is in the best interest of that
Fund's shareholders. In order to qualify as a regulated investment company, a
Fund must, among other things: diversify its investments within certain
prescribed limits; derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from the sale or
other disposition of securities or foreign currencies, or other income derived
with respect to its business of investing in such stock, securities, or
currencies. In addition, to utilize the tax provisions specially applicable to
regulated investment companies, a Fund must distribute to its shareholders at
least 90% of its investment company taxable income for the year. In general, the
Fund's investment company taxable income will be its taxable income subject to
certain adjustments and excluding the excess of any net 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.

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<PAGE> 197

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

It is expected that each Fund will distribute annually to shareholders
all or substantially all of that Fund's net ordinary income and net realized
capital gains and that such distributed net ordinary income and distributed net
realized capital gains will be taxable income to shareholders for federal income
tax purposes, even if paid in additional shares of that Fund and not in cash.

Distribution by a Fund of the excess of net 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.

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.

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<PAGE> 198

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

Foreign taxes may be imposed on a Fund by foreign countries with
respect to its income from foreign securities. 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 each Fund's assets to be invested in various countries is not known.

If less than 50% in value of any Fund's total assets at the end of its
fiscal year are invested in stocks or securities of foreign corporations, such
Fund will not be entitled under the Code to pass through to its Shareholders
their pro rata share of the foreign taxes paid by that Fund. These taxes will be
taken as a deduction by the Fund. Under Section 1256 of the Code, gain or loss
realized by a Fund from certain financial futures and options transactions will
be treated as 60% long-term capital gain or loss and 40% short-term capital gain
or loss. Gain or loss will arise upon exercise or lapse of such futures and
options as well as from closing transactions. In addition, any such futures and
options remaining unexercised at the end of a Fund's taxable year will be
treated as sold for their then fair market value, resulting in additional gain
or loss to such Fund characterized in the manner described above.

If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of the stock or securities of foreign corporations,
the Fund may elect to "pass through" to its shareholders the amount of foreign
income taxes paid by the Fund. Pursuant to such election, shareholders would be
required (i) to include in gross income, even though not actually received,
their respective pro rata share of the foreign taxes paid by the Fund, (ii) to
treat their income from the Fund as being from foreign sources to the extent
that the Fund's income is from foreign sources, and (iii) to either deduct their
pro rata share of foreign taxes in computing their taxable income or use it as a
foreign tax credit against federal income (but not both). No deduction for
foreign taxes could be claimed by a shareholder who does not itemize deductions.

It is anticipated that the International Fund will be operated so as to
meet the requirements of the Code to "pass through" to its shareholders credits
for foreign taxes paid, although there can be no assurance that these
requirements will be met. Each shareholder will be notified within 45 days after
the close of the International Fund's taxable year whether the foreign taxes
paid by the International Fund will "pass through" for that year and, if so, the
amount of each shareholder's pro rata share of (i) the foreign taxes paid, and
(ii) the International Fund's gross income from foreign sources. Of course,
shareholders who are not liable for federal income taxes, such as retirement
plans qualified under Section 401 of the Code, will not be affected by any such
"pass through" of foreign tax credits.

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<PAGE> 199

If a Fund invests in an entity that is classified as a "passive foreign
investment company" ("PFIC") for federal income tax purposes, the operation of
certain provisions of the Code applying to PFICs could result in the imposition
of certain federal income taxes on the Fund. In addition, gain realized from the
sale, other disposition, or marking-to-market of PFIC securities may be treated
as ordinary income under Section 1291 or Section 1296 of the Code.

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

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

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

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

Information set forth in the Prospectuses and this Statement of
Additional Information which relates to Federal taxation is only a summary of
some of the important Federal tax considerations generally affecting purchasers
of shares of the Funds. No attempt has been made to present a detailed
explanation of the Federal income tax treatment of the Funds or their
shareholders and this

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discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of shares of a Fund are urged to consult their
tax advisers with specific reference to their own tax situation. In addition,
the tax discussion in the Prospectus and this Statement of Additional
Information is based on tax laws and regulations which are in effect on the date
of the prospectuses and this Statement of Additional Information; such laws and
regulations may be changed by legislative or administrative action.

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

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

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

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

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

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sale or exchange of such share shall be disallowed to the extent of the amount
of such exempt-interest dividend.

In general, interest on indebtedness incurred or continued by a
shareholder to purchase or carry shares is not deductible for federal income tax
purposes if the Tax-Free Income Fund distributes exempt-interest dividends
during the shareholder's taxable year. A shareholder of the Tax-Free Income Fund
that is a financial institution may not deduct interest expense attributable to
indebtedness incurred or continued to purchase or carry shares of the Tax-Free
Income Fund if the Tax-Free Income Fund distributes exempt-interest dividends
during the shareholder's taxable year. Certain federal income tax deductions of
property and casualty insurance companies holding shares of the Tax-Free Income
Fund and receiving exempt-interest dividends may also be adversely affected. In
certain limited instances, the portion of Social Security benefits received by a
shareholder which may be subject to federal income tax may be affected by the
amount of tax-exempt interest income, including exempt-interest dividends
received by shareholders of the Tax-Free Income Fund.

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

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

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exemption amount up to $175,000 and 28% on the excess of $175,000; for
corporations the alternative minimum tax rate is 20% on alternative minimum
taxable income in excess of $40,000.

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

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

The Tax-Free Income Fund may acquire rights regarding specified
portfolio securities under puts. The policy of the Tax-Free Income Fund is to
limit its acquisition of puts to those under which it will be treated for
federal income tax purposes as the owner of the municipal securities acquired
subject to the put and the interest on the municipal securities will be
tax-exempt to it. Although the Internal Revenue Service has issued a published
ruling that provides some guidance regarding the tax consequences of the
purchase of puts, there is currently no guidance available from the Internal
Revenue Service that definitively establishes the tax consequences of many of
the types of puts that the Tax-Free Income Fund could acquire under the
Investment Company Act of 1940. Therefore, although the Tax-Free Income Fund
will only acquire a put after concluding that it will have the tax consequences
described above, the Internal Revenue Service could reach a different
conclusion.

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

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

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long-term capital gain from certain straddle and/or conversion transactions may
be recharacterized as ordinary income.

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

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

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

MAJOR SHAREHOLDERS [TO BE UPDATED]

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 ____% of the outstanding shares of the
Mid Cap Growth Fund. As of October 31, 1999, Nationwide Life Insurance Company
and its affiliates directly or indirectly owned, controlled or held power to
vote ____% of the Growth Fund, ____% of the Nationwide Fund, ____% of the Bond
Fund, and ____% of the Money Market 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

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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
Funds for the period ended October 31, 1999 are incorporated by reference to the
Trust's Annual Reports. Copies of the Annual Report are available without charge
upon request by writing the Trust or by calling toll-free 1-800-848-0920.

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APPENDIX A

BOND RATINGS

STANDARD & POOR'S DEBT RATINGS

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

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

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

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

2. Nature of and provisions of the obligation.

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

INVESTMENT GRADE

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

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

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

BBB - Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions

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or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.

SPECULATIVE GRADE

Debt rated 'BB', 'B', 'CCC', 'CC' and 'C' is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. 'BB' indicates the least degree of speculation and 'C' the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to adverse
conditions.

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

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

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

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

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

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

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

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MOODY'S LONG-TERM DEBT RATINGS

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

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

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

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

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

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

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

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

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

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STATE AND MUNICIPAL NOTES

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

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

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

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

FITCH IBCA INFORMATION SERVICES, INC. BOND RATINGS

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

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

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

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

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

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

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AAA Bonds considered to be investment grade and represent the
lowest expectation of credit risk. The obligor has an
exceptionally strong capacity for timely payment of financial
commitments, a capacity that is highly unlikely to be
adversely affected by foreseeable events.

AA Bonds considered to be investment grade and of very high
credit quality. This rating indicates a very strong capacity
for timely payment of financial commitments, a capacity that
is not significantly vulnerable to foreseeable events.

A Bonds considered to be investment grade and represent a low
expectation of credit risk. This rating indicates a strong
capacity for timely payment of financial commitments. This
capacity may, nevertheless, be more vulnerable to changes in
economic conditions or circumstances than long term debt with
higher ratings.

BBB Bonds considered to be in the lowest investment grade and
indicates that there is currently low expectation of credit
risk. The capacity for timely payment of financial commitments
is considered adequate, but adverse changes in economic
conditions and circumstances are more likely to impair this
capacity.

BB Bonds are considered speculative. This rating indicates that
there is a possibility of credit risk developing, particularly
as the result of adverse economic changes over time; however,
business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this
category are not investment grade.

B Bonds are considered highly speculative. This rating indicates
that significant credit risk is present, but a limited margin
of safety remains. Financial commitments are currently being
met; however, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.

CCC, CC Bonds are considered a high default risk. Default is a real
and C possibility. Capacity for meeting financial commitments is
solely reliant upon sustained, favorable business or economic
developments. A `CC' rating indicates that default of some
kind appears probable. `C' rating signal imminent default.

DDD, DD Bonds are in default. Such bonds are not meeting current
and D obligations and are extremely speculative. `DDD' designates
the highest potential for recovery of amounts outstanding on
any securities involved and 'D' represents the lowest
potential for recovery.

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DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS

These ratings represent a summary opinion of the issuer's long-term fundamental
quality. Rating determination is based on qualitative and quantitative factors
which may vary according to the basic economic and financial characteristics of
each industry and each issuer. Important considerations are vulnerability to
economic cycles as well as risks related to such factors as competition,
government action, regulation, technological obsolescence, demand shifts, cost
structure, and management depth and expertise. The projected viability of the
obligor at the trough of the cycle is a critical determination.

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

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

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

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

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

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

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

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

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

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

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

DP Preferred stock with dividend arrearages.

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.

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

STANDARD & POOR'S NOTE RATINGS

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

The following criteria will be used in making the assessment:

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

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

Note rating symbols and definitions are as follows:

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

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

SP-3 Speculative capacity to pay principal and interest.

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.

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

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

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

MOODY'S NOTE RATINGS

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

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

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

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

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

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.

114
<PAGE> 214

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 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.

115
<PAGE> 215

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

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

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

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

DEFAULT
-------

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

THOMSON'S SHORT-TERM RATINGS

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

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

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

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

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

116
<PAGE> 216
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) 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.

(2) 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.

(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) Subadvisory Agreement for the Prestige Large Cap Value Fund
January 5, 1999, and is hereby incorporated by reference.
(c) 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.
(d) 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.
(e) 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.
(f) 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.

(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) Fund Administration Agreement previously filed with the Trust's
Registration Statement on January 5, 1999, and is hereby incorporated
by reference.

(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- to be filed by post
effective amendment.

(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- to be filed by post-effective amendment.

(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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<PAGE> 218

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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<PAGE> 223

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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<PAGE> 224

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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<PAGE> 225
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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<PAGE> 230

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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<PAGE> 231
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.

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<PAGE> 232

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

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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> 234

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.

(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> 235

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> 236

(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> 237

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> 238

SIGNATURES

Pursuant to the requirements of the Securities Act 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No.15 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 thirtieth day of November, 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 THIRTIETH DAY OF NOVEMBER, 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