NATIONWIDE SEPARATE ACCOUNT TRUST, 485APOS, 2000-06-20

NATIONWIDE SEPARATE ACCOUNT TRUST
485APOS, 2000-06-20

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<PAGE> 1
'33 Act File No. 2-73024
'40 Act File No. 811-3213

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 2000

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]

Post-Effective Amendment No. 37 [X]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 38 [X]

(Check appropriate box or boxes)

NATIONWIDE SEPARATE ACCOUNT TRUST

TOTAL RETURN FUND
CAPITAL APPRECIATION FUND
GOVERNMENT BOND FUND
MONEY MARKET FUND
NATIONWIDE SMALL COMPANY FUND
NATIONWIDE INCOME FUND
NATIONWIDE STRATEGIC GROWTH FUND
NATIONWIDE STRATEGIC VALUE FUND
NATIONWIDE EQUITY INCOME FUND
NATIONWIDE HIGH INCOME BOND FUND
NATIONWIDE BALANCED FUND
NATIONWIDE MULTI SECTOR BOND FUND

NATIONWIDE MID CAP INDEX FUND

NATIONWIDE SMALL CAP VALUE FUND
NATIONWIDE GLOBAL 50 FUND
NATIONWIDE SMALL CAP GROWTH FUND
NATIONWIDE GROWTH FOCUS FUND II
NATIONWIDE QUEST FUND II

GARTMORE VIP EMERGING MARKETS FUND
GARTMORE VIP INTERNATIONAL GROWTH FUND
GARTMORE VIP GLOBAL LEADERS FUND
GARTMORE VIP EUROPEAN GROWTH FUND
GARTMORE VIP GLOBAL SMALL COMPANIES FUND

(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)(ZIP CODE)

Registrant's Telephone Number, including Area Code: (614) 249-7111

Send Copies of Communications to:
MS. DINA A. TANTRA, ESQ. MR. DUANE L. LASSITER, ESQ.
ONE NATIONWIDE PLAZA, NA-03-01 STRADLEY, RONON, STEVENS AND YOUNG LLP
COLUMBUS, OHIO 43215 2600 COMMERCE SQUARE
(NAME AND ADDRESS OF AGENT FOR SERVICE) PHILADELPHIA, PENNSYLVANIA 19103

It is proposed that this filing will become effective: (check appropriate box)

[ ] immediately upon filing pursuant to paragraph (b)

[ ] on [date] pursuant to paragraph (b)

[ ] 60 days after filing pursuant to paragraph (a)(1)

[X] on September 1, 2000 pursuant to paragraph (a)(1)

[ ] 75 days after filing pursuant to paragraph (a)(2)

[ ] on [date] pursuant to paragraph (a)(2) of rule 485.

If appropriate, check the following box:

[ ] This post-effective amendment designated a new effective date for a
previously filed post-effective amendment.

1
<PAGE> 2
Explanatory Note

This Post-Effective Amendment No. 37 to Registrant's Registration Statement on
form N1-A is filed for the purpose of adding certain disclosure regarding five
new series of the Registrant to the Registration Statement. On June 16, 2000,
Post-Effective Amendment No. 37 was originally filed, however it has since been
determined that certain disclosure changes were necessary. Therefore, the
original filing was withdrawn on June 20, 2000 and Post-Effective Amendment No.
37 is being re-filed herewith. Also attached to this filing is a transmittal
letter pursuant to Rule 461 under the Securities Act of 1933 in which the
Registrant and Principal Underwriter request accelerated effectiveness to
September 1, 2000.

This filing includes the Prospectus for the Gartmore VIP Emerging Markets Fund,
Gartmore VIP International Growth Fund, Gartmore VIP Global Leaders Fund,
Gartmore VIP European Growth Fund and Gartmore VIP Global Small Companies Fund
and the Statement of Additional Information encompassing all series of the
Nationwide Separate Account Trust (the "Trust"). The prospectuses for the
Trust's remaining series are incorporated by reference.

This filing of Post-Effective Amendment No. 37 to the registration statement
does not amend in any respect Post-Effective Amendment No. 32 filed on February
16, 2000 or Post-Effective Amendment No. 33 filed on March 2, 2000,
Post-Effective Amendment No. 34 filed on March 24, 2000, Post-Effective
Amendment No. 35 filed on May 1, 2000 or Post-Effective Amendment No. 36 filed
on June 2, 2000.

<PAGE> 3

NATIONWIDE(R) SEPARATE ACCOUNT TRUST

- Gartmore VIP Emerging Markets Fund

- Gartmore VIP International Growth Fund

- Gartmore VIP Global Leaders Fund

- Gartmore VIP European Growth Fund

- Gartmore VIP Global Small Companies Fund

September 1, 2000

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> 4

TABLE OF CONTENTS

FUND SUMMARIES.................................................................2

Gartmore VIP Emerging Markets
Fund.............. 3

Gartmore VIP International Growth
Fund.............. 5

Gartmore VIP Global Leaders
Fund.............. 7

Gartmore VIP European Growth
Fund.............. 9

Gartmore VIP Global Small Companies
Fund.............. 11

MORE ABOUT THE FUNDS......................................................... 13

Risks and
Techniques........ 13

Temporary Defense
Positions......... 14

MANAGEMENT................................................................... 15

Investment
Adviser........... 15

Portfolio Management
Team.............. 15

BUYING AND SELLING FUND SHARES............................................... 16

Buying Shares..... 16

Selling Shares.... 16

Dividends and
Distributions..... 17

Tax Status........ 17

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

1
<PAGE> 5

FUND SUMMARIES

This prospectus provides information about five funds offered by the Nationwide
Separate Account Trust (together, the Funds).

A QUICK NOTE ABOUT THE FUNDS

This prospectus is designed to help you make informed decisions about some of
the investments available under your variable annuity contract or variable life
insurance policy. You'll find details about how your annuity contract or life
insurance policy works in the accompanying prospectus.

2
<PAGE> 6

FUND SUMMARIES GARTMORE VIP EMERGING MARKETS FUND

This section summarizes key information about the Funds. Use these summaries to
compare the Funds with other mutual funds. More detailed information about the
risks and investment techniques of the Funds can be found in "More About the
Funds" beginning on page 13.

OBJECTIVES AND PRINCIPAL STRATEGIES

The Fund seeks long term capital growth by investing primarily in equity
securities of companies located in emerging market countries. The Fund's
investment objective may be changed without shareholder approval.

Villanova Global Asset Management Trust (VGAMT), the Fund's investment adviser,
has chosen Gartmore Global Partners as a subadviser to manage the Fund's
portfolio on a day-to-day basis. To achieve its objective, the Fund normally
invests at least 65% of its assets in companies located in emerging markets of
or developing countries. The fund intends to invest in securities of companies
in at least three of these countries at any one time. The investment managers
select regions or countries and companies they believe have the potential to
deliver unexpected earnings growth.

The Fund invests primarily in common stocks, preferred stocks, convertible
securities, equity interests in foreign investment funds or trusts, and
depositary receipts.

Emerging market countries are countries that

- have been defined as emerging market countries by the International Finance
Corporation.

- have a low-to-middle income economy according to the World Bank, or

- are listed as developing countries in World Bank publications.

There are over 25 countries that currently qualify as emerging market countries,
including Argentina, Brazil, Chile, China, the Czech Republic, Columbia,
Ecuador, Greece, Hong Kong, Indonesia, India, Malaysia, Mexico, the Philippines,
Poland, Portugal, Peru, Russia, Singapore, South Africa, Thailand, Taiwan and
Turkey. [Inset Box]

The subadviser looks for emerging markets that are believed to have the
potential for strong economic growth, and tries to avoid emerging markets that
might be politically or economically risky.

The subadviser is a growth stock investor and its investment philosophy rests on
two fundamental principles:

Growth investing produces superior returns over the longer term, but consensus
growth produces average returns. Therefore, the subadviser focuses on
identifying unexpected earnings growth.

The subadviser looks to sell companies where there is significant risk that
earnings growth will disappoint against expectations.

PRINCIPAL RISKS

Because the value of an investment will fluctuate, there is the risk that a
shareholder will lose money. A shareholder's investment will decline in value if
the value of the Fund's investments decreases. The value of shares will also be
impacted in part by the subadviser's ability to assess economic conditions and
investment opportunities.

FOREIGN RISK. The Fund invests primarily in equity securities of companies in
emerging market countries, including securities denominated in foreign
currencies. As a result, those investments involve special risks and are
generally riskier than other kinds of foreign investments, particularly because
emerging market countries may be less stable from a political and economic
standpoint than other countries. Companies located in emerging market countries,
which have high growth potential, can be more volatile than securities in more
developed markets. It may also be more difficult to buy and sell securities in
emerging market countries. Foreign securities may also be less liquid and harder
to value than U.S. securities. In addition, the securities in which the Fund
invests are subject to significant changes in value due to exchange rate
fluctuations.

STOCK MARKET RISK. Stock market risk is the risk that the Fund could lose value
if the individual stocks in which the Fund has invested or the overall stock
markets in which they trade go down. Individual stocks and the overall stock
markets may experience short-term volatility as well as extended periods of
decline or little growth. Individual stocks are affected by factors such as
corporate earnings, production, management and sales. Individual stocks may also
be affected by the demand for a particular type of stock, such as growth stocks
or the stocks of companies with a particular market capitalization. The stock
market is affected by numerous factors, including interest rates, the outlook
for corporate profits, the health of the national and world economies, national
and world social and political events, and the fluctuations of other stock
markets around the world.

3
<PAGE> 7

FUND SUMMARIES

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.

RISK OF HOLDING A SMALL NUMBER OF SECURITIES. Because the Fund typically holds
fewer securities than other stock funds, the price fluctuations of any security
will have a greater impact on the Fund.

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

PERFORMANCE

No performance information is provided because the Fund did not begin operations
until on or about September 1, 2000.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<TABLE>
<S> <C> <C> <C>
Shareholder Fees(1)
(paid directly from your
investment) None
...............................................................
Annual Fund Operating
Expenses
(deducted from Fund assets)
...............................................................
Management Fees 1.15%
...............................................................
Other Expenses 0.60%
---------------------------------------------------------------
TOTAL ANNUAL FUND 1.75%
OPERATING EXPENSES(2)
</TABLE>

(1) Sales charges may be imposed by variable annuity contracts or variable life
insurance policies if the Fund's shares are purchased by a life insurance
separate account as an investment option for these contracts or policies.

(2) Because the Fund did not begin operations until on or about September 1,
2000, and has no operating history, the management fee is the fee to which
the adviser is entitled under its contract with the Fund. "Other Expenses"
are estimates of the other operating expenses (taking into account the
expense limitation agreement between the adviser and the Fund limiting Total
Annual Fund Operating Expenses) based on estimates for the Fund's first
fiscal year ending December 31, 2000. This waiver of management fees or
reimbursement of other expenses is subject to a possible reimbursement by
the Fund within five years of the Fund's commencement of operations if the
reimbursement by the Fund can be implemented within the annual expense
limitation 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 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
----------------------------------------------------------
<S> <C> <C>
178 551
</TABLE>

4
<PAGE> 8

FUND SUMMARIES GARTMORE VIP INTERNATIONAL GROWTH FUND

OBJECTIVES AND PRINCIPAL STRATEGIES

The Fund seeks long term capital growth by investing primarily in equity
securities of companies in Europe, Australia, the Far East and other regions,
including developing countries. The Fund's investment objective may be changed
without shareholder approval.

Villanova Global Asset Management Trust (VGAMT), the Fund's investment adviser,
has chosen Gartmore Global Partners as a subadviser to manage the Fund's
portfolio on a day-to-day basis. To achieve its objective, the Fund invests at
least 65% of its assets in established companies located in at least three
countries other than the United States. The investment managers select regions
or countries, and companies they believe have the potential for unexpected
growth.

The Fund primarily invests in equity securities which may include equity
interests in foreign investment funds or trusts, convertible securities, real
estate investment trust securities and depositary receipts.

The Fund may also invest in securities that are not part of its principal
investment strategies, but it will not hold more than 10% of its assets in any
one type of these securities.

The subadviser is a growth stock investor and its investment philosophy rests on
two fundamental principles:

- growth investing produces superior returns over the longer term, but consensus
growth produces average returns. Therefore, the subadviser focuses on
identifying unexpected earnings growth.

- the subadviser looks to sell companies where there is significant risk that
earnings growth will disappoint against expectations.

PRINCIPAL RISKS

Because the value of an investment will fluctuate, there is the risk that a
shareholder will lose money. A shareholder's investment will decline in value if
the value of the Fund's investments decreases. The value of shares will also be
impacted in part by the portfolio manager's ability to assess economic
conditions and investment opportunities.

FOREIGN RISK. Investments in foreign securities involve risks in addition to
those of U.S. investments. These risks include political and economic risks,
currency fluctuations, higher transaction costs, and delayed settlement. To the
extent that the Fund invests in countries with emerging markets, the foreign
securities risks are magnified since these countries may have unstable
governments and less established markets.

For more detailed information about the Fund's investments and risks, see "More
About the Funds" beginning on page 13.

5
<PAGE> 9

FUND SUMMARIES GARTMORE VIP INTERNATIONAL GROWTH FUND

PERFORMANCE

No performance information is provided because the Fund did not begin operations
until on or about September 1, 2000.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<TABLE>
<S> <C> <C> <C>
Shareholder Fees(1)
(paid directly from your
investment) None
...............................................................
Annual Fund Operating
Expenses
(deducted from Fund assets)
...............................................................
Management Fees 1.00%
...............................................................
Other Expenses 0.88%
---------------------------------------------------------------
TOTAL ANNUAL FUND 1.88%
OPERATING EXPENSES(2)
</TABLE>

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.

<TABLE>
<CAPTION>
1 year 3 years
----------------------------------------------------------
<S> <C> <C>
$191 $591
</TABLE>

6
<PAGE> 10

FUND SUMMARIES GARTMORE VIP GLOBAL LEADERS FUND

OBJECTIVES AND PRINCIPAL STRATEGIES

The Fund seeks long term capital growth by investing primarily in equity
securities of global leaders. A global leader is defined as a company with a
strong and improving franchise that is well positioned to take advantage of
growth opportunities in its industry. The Fund's investment objective may be
changed without shareholder approval.

Villanova Global Asset Management Trust (VGAMT), the Fund's investment adviser,
has chosen Gartmore Global Partners as a subadviser to manage the Fund's
portfolio on a day-to-day basis. To achieve its objective, the Fund invests in
equity securities of companies domiciled throughout the world. The rationale for
investing in global leaders arises from the increasing globalization of many
industries coupled with the increasing importance of multinational strategies in
leading corporations. Global leaders may be domiciled anywhere globally while
adopting winning multinational strategies within their industries.

The subadviser adopts a sector approach and looks to identify those companies
within industries with a strong and improving competitive advantage in key
growth segments. The portfolio manager then identifies which of these companies
have earnings growth potential greater than that expected by the stock market.

The Fund primarily invests in equity securities which may include equity
interests in investment funds or trusts, convertible securities, preferred
stocks, warrants, real estate investment trust securities and depository
receipts.

The Fund may also invest in securities that are not part of its principal
investment strategies, but it will not hold more than 10% of its assets in any
one type of these securities.

PRINCIPAL RISKS

Because the value of an investment will fluctuate, there is the risk that a
shareholder will lose money. A shareholder's investment will decline in value if
the value of the Fund's investments decreases. The value of shares will also be
impacted in part by the portfolio management team's ability to assess economic
conditions and investment opportunities.

STOCK MARKET RISK. Stock market risk is the risk that the Fund could lose value
if the individual stocks in which the Fund has invested or the overall stock
market goes down. Individual stocks and the overall stock market may experience
short-term volatility as well as extended periods of decline or little growth.
Individual stocks are affected by factors such as corporate earnings,
production, management and sales. Individual stocks may also be affected by the
demand for a particular type of stock, such as growth stocks or the stocks of
companies with a particular market capitalization. The stock market is affected
by numerous factors, including interest rates, the outlook for corporate
profits, the health of the national and world economies, national and world
social and political events, and the fluctuations of other stock markets around
the world.

MARKET TRENDS RISK. Market trends pose special risks in that from time to time
the stock market may not favor growth-oriented stocks. Rather, the market could
favor value securities or may not favor equities at all.

For more detailed information about the Fund's investments and risks, see "More
About the Funds" beginning on page 13.

7
<PAGE> 11

FUND SUMMARIES GARTMORE VIP GLOBAL LEADERS FUND

PERFORMANCE

No performance information is provided because the Fund did not begin operations
until on or about September 1, 2000.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<TABLE>
<S> <C> <C> <C>
Shareholder Fees(1) None
(paid directly from your
investment)
...............................................................
Annual Fund Operating
Expenses
(deducted from Fund assets)
...............................................................
Management Fees 1.00%
...............................................................
Other Expenses 0.88%
---------------------------------------------------------------
TOTAL ANNUAL FUND 1.88%
OPERATING EXPENSES(2)
</TABLE>

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

(2) Because the Fund did not begin operations until on or about September 1,
2000, and has no operating history, the management fee is the fee to which
the adviser is entitled under its contract with the Fund. "Other Expenses"
are estimates of the other operating expenses (without taking into account
the expense limitation agreement between the adviser and the Fund limiting
Total Annual Fund Operating Expenses) based on estimates for the Fund's
first fiscal year ending December 31, 2000. This waiver of management fees
or reimbursement of other expenses is subject to a possible reimbursement by
the Fund within five 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.

<TABLE>
<CAPTION>
1 year 3 years
----------------------------------------------------------
<S> <C> <C>
$191 $591
</TABLE>

8
<PAGE> 12

FUND SUMMARIES GARTMORE VIP EUROPEAN GROWTH FUND

OBJECTIVE AND PRINCIPAL STRATEGIES

The Fund seeks long term capital growth by investing primarily in equity
securities of companies in Europe. The Fund's investment objective may be
changed without shareholder approval.

Villanova Global Asset Management Trust (VGAMT), the Fund's investment adviser,
has chosen Gartmore Global Partners as a subadviser to manage the Fund's
portfolio on a day-to-day basis. To achieve its objective, the Fund normally
invests at least 65% of its assets in established companies located in at least
three countries in Europe. The investment managers select companies they believe
have the potential to deliver unexpected earnings growth.

The Fund may also invest in securities that are not part of its principal
investment strategies, but it will not hold more than 10% of its assets in any
one type of these securities.

The subadviser is a growth stock investor and its investment philosophy rests on
two fundamental principles:

Growth investing produces superior returns over the longer term, but consensus
growth produces average returns. Therefore, the subadviser focuses on
identifying unexpected earnings growth.

The subadviser looks to sell companies where there is significant risk that
earnings growth will disappoint against expectations.

PRINCIPAL RISKS

Because the value of an investment will fluctuate, there is the risk that a
shareholder will lose money. A shareholder's investment will decline in value if
the value of the Fund's investments decreases. The value of shares will also be
impacted in part by the portfolio management team's ability to assess economic
conditions and investment opportunities.

For more detailed information about the Fund's investments and risks, see "More
About the Funds" beginning on page 13.

9
<PAGE> 13

FUND SUMMARIES GARTMORE VIP EUROPEAN GROWTH FUND

PERFORMANCE

No performance information is provided because the Fund did not begin operations
until on or about September 1, 2000.

FEES AND EXPENSES

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

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

(2) Because the Fund did not begin operations until on or about September 1,
2000, and has no operating history, the management fee is the fee to which
the adviser is entitled under its contract with the Fund. "Other Expenses"
are estimates of the other operating expenses (without taking into account
the expense limitation agreement between the adviser and the Fund limiting
Total Annual Fund Operating Expenses) based on estimates for the Fund's
first fiscal year ending December 31, 2000. This waiver of management fees
or reimbursement of other expenses is subject to a possible reimbursement by
the Fund within five 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 costs of this Fund with other mutual funds.

<TABLE>
<CAPTION>
1 year 3 years
-------------------------------------------------------------
<S> <C> <C>
$191 $591
</TABLE>

10
<PAGE> 14

FUND SUMMARIES -- GARTMORE VIP GLOBAL SMALL COMPANIES FUND

OBJECTIVE AND PRINCIPAL STRATEGIES

The Fund seeks long term capital growth by investing primarily in equity
securities of small U.S. and foreign companies. The Fund looks to invest in
small companies with a strong and improving franchise that is well positioned to
take advantage of growth opportunities in its industry. The Fund's investment
objective may be changed without shareholder approval.

Villanova Global Asset Management Trust (VGAMT), the Fund's investment adviser,
has chosen Gartmore Global Partners as a subadviser to manage the Fund's
portfolio on a day-to-day basis. To achieve its objective, the investment
managers select regions or countries, and small companies they believe have the
potential for unexpected growth.

Under normal market conditions, the Fund will invest at least 65% of assets in
equity securities of small companies from at least three countries, including
the U.S. The Fund considers a "small" company to be one whose market
capitalization normally does not exceed $3 billion, at time of purchase. Though
considered small by this definition, some companies in which the Fund invests
may be among the largest within their respective countries.

Some companies may outgrow the definition of a small company after the Fund has
purchased their securities. These companies continue to be considered small for
purposes of the Fund's minimum 65% allocation to global small company equities.

The Fund primarily invests in equity securities of U.S. and foreign small
companies which may include equity interests in investment funds or trusts,
convertible securities, common and preferred stocks, rights and warrants, real
estate investment trust securities and depository receipts.

The Fund may also invest in securities that are not part of its principal
investment strategies, but it will not hold more than 10% of its assets in any
one type of these securities.

PRINCIPAL RISKS

Because the value of an investment will fluctuate, there is the risk that a
shareholder will lose money. A shareholder's investment will decline in value if
the value of the Fund's investments decreases. The value of shares will also be
impacted in part by the portfolio management team's ability to assess economic
conditions and investment opportunities.

SMALL CAP RISK. The Fund's investments in smaller, newer companies may be
riskier than investments in larger, more established companies. The stocks of
small capitalization companies are usually less stable in price and less liquid
than the stocks of larger companies.

For more detailed information about the Fund's investments and risks, see "More
About the Funds" beginning on page 13.

11
<PAGE> 15

Fund Summaries -- Gartmore VIP Global Small Companies Fund

PERFORMANCE

No performance information is provided because the Fund did not begin operations
until on or about September 1, 2000.

FEES AND EXPENSES

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<TABLE>
<S> <C> <C> <C>
Shareholder Fees(1) None
(paid directly from your
investment)
...............................................................
Annual Fund Operating
Expenses
(deducted from Fund assets)
...............................................................
Management Fees 1.15%
...............................................................
Other Expenses 0.88%
---------------------------------------------------------------
TOTAL ANNUAL FUND 2.03%
OPERATING EXPENSES(2)
</TABLE>

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

(2) Because the Fund did not begin operations until on or about September 1,
2000, and has no operating history, the management fee is the fee to which
the adviser is entitled under its contract with the Fund. "Other Expenses"
are estimates of the other operating expenses (without taking into account
the expense limitation agreement between the adviser and the Fund limiting
Total Annual Fund Operating Expenses) based on estimates for the Fund's
first fiscal year ending December 31, 2000. This waiver of management fees
or reimbursement of other expenses is subject to a possible reimbursement by
the Fund within five 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.

<TABLE>
<CAPTION>
1 year 3 years
----------------------------------------------------------
<S> <C> <C>
$206 $637
</TABLE>

12
<PAGE> 16

MORE ABOUT THE FUNDS

RISKS AND TECHNIQUES

The Funds may use the investment techniques to increase returns, protect assets
or diversify investments. These techniques are subject to certain risks. For
additional information about the Funds' investment strategies and techniques,
see the Statement of Additional Information (SAI).

PRINCIPAL RISKS

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.

- COUNTRY -- General securities market movements in any country in which a
Fund has investments, are likely to affect the value of a Fund's securities
that trade in the country. These movements will affect a Fund's share price
and a Fund's performance. The political, economic and social structures of
some countries in which a Fund invests may be less stable and more volatile
than those in the U.S. The risk of investing in these countries include the
possibility of the imposition of exchange controls, currency devaluation,
foreign ownership limitations, expropriation, restrictions on removal of
currency or other assets, nationalization of assets, punitive taxes and
certain custody and settlement risks.

- 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. 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.

- 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.

13
<PAGE> 17

MORE ABOUT THE FUNDS

PRINCIPAL TECHNIQUES

PREFERRED STOCK. Shareholders of preferred stocks normally have the right to
receive dividends at a fixed rate but do not participate in other amounts
available for distribution by the issuer. Dividends on preferred stock may be
cumulative, and cumulative dividends must be paid before common shareholders
receive any dividends. Because preferred stock dividends usually must be paid
before common stock dividends, preferred stocks generally entail less risk than
common stocks. Upon liquidation, preferred stocks are entitled to a specified
liquidation preference, which is generally the same as the par or stated value,
and are senior in right of payment to common stock. Preferred stocks 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. In addition, preferred stocks are subordinated in
right of payment to all debt obligations and creditors of the issuer, and
convertible securities may be subordinated to other preferred stock of the same
issuer.

CONVERTIBLE SECURITIES. Convertible securities -- also known as convertibles --
include bonds, debentures, notes, preferred stocks, and other securities.
Convertibles are a hybrid security that have characteristics of both bonds and
stocks. Like bonds, they pay interest. Because they can be converted into common
stock within a set period of time, at a specified price or formula, convertibles
also offer the chance for capital appreciation, like common stocks.

Convertibles tend to be more stable in price than the underlying common stock,
although price changes in the underlying common stock can affect the
convertible's market value. For example, as an underlying common stock loses
value, convertibles present less opportunity for capital appreciation, and may
also lose value. Convertibles, however, may sustain their value better than the
common stock because they pay income, which tends to be higher than common stock
dividend yields.

Because of this fixed-income feature, convertibles may compete with bonds as a
good source of dependable income. Therefore, if interest rates increase and
"newer," better-paying bonds become more attractive, the value of convertibles
may decrease. Conversely, if interest rates decline, convertibles could increase
in value.

Convertibles tend to be more secure than common stock (companies must generally
pay holders of convertibles before they pay holders of common stock), but they
are typically less secure than similar non-convertible securities such as bonds
(bondholders must generally be paid before holders of convertibles and common
stock). Because convertibles are usually subordinate to bonds in terms of
payment priority, convertibles typically are rated below investment grade by a
nationally recognized rating agency, or they are not rated at all.

SMALL CAP STOCK. Historically, the securities of small 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, and the greater sensitivity of small cap companies to
changing economic conditions. In addition, small cap companies may:

- lack depth of management

- lack a proven track record

- 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.

WARRANTS. A warrant is a security that gives the holder of the warrant the
right to buy common stock at a specified price for a specified period of time.
Warrants are considered speculative and have no value if they are not exercised
before their expiration date.

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 stock. 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. Derivatives afford leverage and can also be
used in hedging portfolios.

14
<PAGE> 18

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.

15
<PAGE> 19

MANAGEMENT

INVESTMENT ADVISER

Villanova Global Asset Management Trust (VGAMT), 1200 River Road, Conshohoken,
Pennsylvania 19428, manages the investment of the assets and supervises the
daily business affairs of each of the Funds. VGAMT was organized in 2000, and
advises mutual funds and other institutional separate accounts.

Each Fund pays VGAMT a management fee, which is based on the Funds' average
daily net assets.

<TABLE>
<CAPTION>
Fund Fee
--------------------------------
<S> <C>
Emerging Markets 1.15%
................................
International Growth 1.00%
................................
Global Leaders 1.00%
................................
European Growth 1.00%
................................
Global Small Companies 1.15%
</TABLE>

SUBADVISER

Subject to the supervision of VGAMT and the Trustees, a subadviser will manage
the Fund's assets in accordance with a 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.

Gartmore Global Partners (Gartmore) serves as the subadviser to the Emerging
Markets, International Equity, Global Leaders, European Growth and Global Small
Companies Funds.

Gartmore is a global asset manager dedicated to serving the needs of U.S. based
investors. Gartmore was formed in 1995 as a registered investment adviser and
manages more than $1 billion in assets.

Gartmore takes a team approach to portfolio construction, allowing investors to
benefit from the skills of all the members of the team not just one investment
manager.

PORTFOLIO MANAGEMENT TEAM -- EMERGING MARKETS FUND

The Pacific and Emerging Markets Equity Team is responsible for the investment
management of the Nationwide Emerging Markets Fund. As at March 31, 2000 the
team managed over $2 billion in active Emerging Markets equities.

PORTFOLIO MANAGEMENT TEAM -- INTERNATIONAL GROWTH FUND

The International Equities Team is responsible for the investment management of
the Nationwide International Growth Fund. As at March 31, 2000 the team managed
almost $3.5 billion in active non-US equities.

PORTFOLIO MANAGEMENT TEAM -- GLOBAL LEADERS FUND

The Global Portfolio Team is responsible for the investment management of the
Nationwide Global Leaders Fund. As at March 31, 2000 the team managed almost
$3.5 billion.

PORTFOLIO MANAGEMENT TEAM -- EUROPEAN GROWTH FUND

The European Equity team is responsible for the investment management of the
Nationwide European Growth Fund. As at March 31, 2000 the team managed over $11
billion in active European equities.

PORTFOLIO MANAGEMENT TEAM -- GLOBAL SMALL COMPANIES FUND

The Global Portfolio Team is responsible for the investment management of the
Nationwide Global Small Companies Fund. As at March 31, 2000 the team managed
almost $3.5 billion.

16
<PAGE> 20

BUYING AND SELLING FUND SHARES

BUYING SHARES

Shares of the Funds are currently sold to separate accounts of Nationwide Life
Insurance Company and its wholly owned subsidiary, Nationwide Life and Annuity
Insurance Company, to fund benefits payable under variable life insurance
policies and variable annuity contracts. Shares of the Funds may also be sold to
affiliated Funds of Funds, and may in the future be sold to other insurance
companies. Shares are not sold to individual investors.

The separate accounts purchase shares of a Fund in accordance with variable
account allocation instructions received from owners of the variable annuity
contracts or variable life insurance policies. A Fund then uses the proceeds to
buy securities for its portfolio. Because variable annuity contracts or variable
life insurance policies may have different provisions with respect to the timing
and method of purchases, exchanges and redemptions, contract or policy owners
should contact their insurance company directly for details concerning these
transactions.

PURCHASE PRICE. The purchase or "offering" price of each share of a Fund is its
"net asset value" (NAV) next determined after the order is received. No sales
charge is imposed on the purchase of a Fund's shares. Generally, NAV of a Fund's
shares is determined by dividing the total market value of the securities owned
by a Fund, less its liabilities, by the total number of its outstanding shares.
NAV is determined at the close of regular trading on the New York Stock Exchange
(usually 4 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.

Each Fund reserves the right not to determine its NAV when:

- It has not received any orders to purchase, sell or exchange shares
- Changes in the value of the Fund's portfolio do not affect its NAV

If current prices are not available, or if Villanova SA Capital Trust (VSA) as a
Fund's administrator or its agent determines a price does not represent fair
value, a Fund's investments may be valued at fair market 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.

SELLING SHARES

You can sell -- also known as redeeming -- at any time, subject to certain
restrictions described below. The redemption price will be the NAV next
determined after the order is received. Of course, the value of the shares sold
may be more or less than their original purchase price depending upon the market
value of a Fund's investments at the time of sale.

RESTRICTIONS ON SALES. Shares of a Fund may not be redeemed or a 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.

17
<PAGE> 21

DISTRIBUTIONS AND TAXES

DIVIDENDS AND DISTRIBUTIONS

Substantially all of a Fund's net investment income, if any, will be paid as a
dividend each quarter in the form of additional shares of the Fund. Any net
capital gains realized by a 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 advisers for
more information on their own tax situation, including possible state or local
taxes.

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

18
<PAGE> 22

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 23

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 24

[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 25

INFORMATION FROM NATIONWIDE

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

- SAI (incorporated by reference in this Prospectus)

- Annual Report (as available)

- Semi-Annual Report (as available)

FOR ADDITIONAL INFORMATION CONTACT:

Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, Ohio 43215

Nationwide Logo

FOR INFORMATION AND ASSISTANCE:

1-800-848-6331 (toll free, 8 a.m. - 5 p.m. Eastern Time)

INFORMATION FROM THE SECURITIES AND EXCHANGE COMMISSION

You can obtain copies of the Funds' documents from the SEC as follows:

IN PERSON:

Public Reference Room in Washington, D.C. (for their hours of operation, call
1-202-942-8090)

BY MAIL:

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

ON THE EDGAR DATABASE VIA THE INTERNET:

www.sec.gov

BY ELECTRONIC REQUEST:

[email protected]

INVESTMENT COMPANY ACT FILE NO. 811-3213
<PAGE> 26

STATEMENT OF ADDITIONAL INFORMATION

SEPTEMBER 1, 2000

NATIONWIDE SEPARATE ACCOUNT TRUST
Nationwide Strategic Growth Fund
Nationwide Strategic Value Fund
Nationwide Equity Income Fund
Nationwide High Income Bond Fund
Nationwide Balanced Fund
Nationwide Multi Sector Bond Fund
Nationwide Small Cap Value Fund
Nationwide Small Cap Growth Fund (formerly Nationwide Select Advisers
Small Cap Growth Fund)
Nationwide Global 50 Fund (formerly Nationwide Global Equity Fund)
Nationwide Mid Cap Index Fund (formerly Nationwide Select Advisers
Mid Cap Fund)
Nationwide Small Company Fund
Nationwide Income Fund
Total Return Fund
Capital Appreciation Fund
Government Bond Fund
Money Market Fund
Nationwide Growth Focus Fund II
Nationwide Quest Fund II
Gartmore VIP Emerging Markets Fund
Gartmore VIP International Growth Fund
Gartmore VIP Global Leaders Fund
Gartmore VIP European Growth Fund

Gartmore VIP Global Small Companies Fund

Nationwide Separate Account Trust is a registered open-end investment
company currently consisting of 23 series. This Statement of Additional
Information relates to all series of the Trust (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. It contains information in addition to and more detailed than that
set forth in the Prospectuses for the Funds and should be read in conjunction
with the Prospectuses for each of the Nationwide Strategic Growth Fund,
Nationwide Strategic Value Fund, Nationwide Equity Income Fund, Nationwide High
Income Bond Fund, Nationwide Balanced Fund, Nationwide Multi Sector Bond Fund,
Nationwide Small Cap Value Fund, Nationwide Small Cap Growth Fund (formerly
Nationwide Select Advisers Small Cap Growth Fund), Nationwide Global 50 Fund
(formerly Nationwide Global Equity Fund), Nationwide Mid Cap Index Fund
(formerly Nationwide Select Advisers Mid Cap Fund), Nationwide Small Company
Fund,

<PAGE> 27

Nationwide Income Fund, Total Return Fund, Capital Appreciation Fund,
Government Bond Fund, Money Market Fund dated May 1, 2000; the Prospectus for
the Nationwide Growth Focus Fund II and Nationwide Quest Fund II dated ____,
2000; and/or the Prospectus for the Gartmore VIP Emerging Markets Fund, Gartmore
VIP International Growth Fund, Gartmore VIP Global Leaders Fund, Gartmore VIP
European Growth Fund, and Gartmore VIP Global Small Companies Fund dated August
28, 2000. 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 Life Insurance Company, One Nationwide Plaza, Columbus, Ohio
43215, or by calling toll free 1-800-848-6331.

ii
<PAGE> 28

<TABLE>
<CAPTION>
Table of Contents Page
----------------- ----
<S> <C>
General Information and History................................................. 1

Additional Information on Portfolio Instruments and Investment Policies......... 1

Investment Restrictions......................................................... 41

Major Shareholders.............................................................. 48

Trustees and Officers of the Trust.............................................. 49

Calculating Yield and Total Return.............................................. 51

Investment Advisory and Other Services.......................................... 54

Brokerage Allocations........................................................... 69

Purchases, Redemptions and Pricing of Shares.................................... 76

Additional Information.......................................................... 77

Tax Status...................................................................... 78

Other Tax Consequences.......................................................... 79

Tax Consequences to Shareholders................................................ 81

Financial Statements............................................................ 81

Appendix A - Bond Ratings....................................................... 82
</TABLE>

iii
<PAGE> 29

GENERAL INFORMATION AND HISTORY

Nationwide Separate Account Trust is an open-end investment company
organized under the laws of Massachusetts by a Declaration of Trust, dated June
30, 1981, as subsequently amended. The Trust currently offers shares in 23
separate series, each with its own investment objective. Each of the Funds,
except for the Nationwide Small Company Fund, Nationwide Strategic Growth Fund,
Nationwide Income Fund and the Nationwide Growth Focus Fund II, is a diversified
fund as defined in the Investment Company Act of 1940.

ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS AND INVESTMENT POLICIES

The Funds invest in a variety of securities and employ a number of
investment techniques, which involve certain risks. The Prospectuses for the
Funds highlight the principal investment strategies, investment techniques and
risks. This Statement of Additional Information (SAI) contains additional
information regarding both the principal and non-principal investment strategies
of the Funds. The following table sets forth additional information concerning
permissible investments and techniques for each of the Funds. A "Y" in the table
indicates that the Fund may invest in or follow the corresponding instrument or
technique. An empty box indicates that the Fund does not intend to invest in or
follow the corresponding instrument or technique.

1
<PAGE> 30
<TABLE>
<CAPTION>
C
a
p
i M
t S S u H
a t S m S G l i G
l r t a m o t g r
a r M S l a E v i h o
A t a i m l l q T e M w
p e t d a l u o r S I o t
p g e l C i t n e n n h
r i g C l a C G t a m c c e
e c i a p a l y l B e t o y F Q
c c p C p o a n o m o u
i G o G b I R l t I r e M c e
a r V I m r V a n e a n a u s
t o a n p o a l c t n B c B B r s t
i w l d a w l o u c o o o o k
o t u e n t u 5 m r e n m n n e I I
n h e x y h e 0 e n d d e d d t I I
Type of Investment or Technique
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <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 Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Preferred stocks Y Y Y Y Y Y Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Small company stocks Y Y Y Y Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Special situation companies Y Y Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Illiquid securities Y Y Y Y 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 Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
When-issued/delayed-delivery securities Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Limited liability companies Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Investment companies Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Real estate securities Y Y Y Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Securities of foreign issuers Y Y Y Y Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Depository receipts Y Y Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Securities from developing countries/emerging Y Y Y Y Y Y Y Y
markets
-----------------------------------------------------------------------------------------------------------------------------------
Convertible securities Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Long-term debt Y Y Y Y Y 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 Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Floating and variable rate securities Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Zero coupon securities Y Y Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Step-coupon securities Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Pay-in-kind bonds Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Deferred payment securities Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Brady bonds Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Non-investment grade debt Y Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Loan participations and assignments Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Sovereign debt (foreign) Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Foreign commercial paper Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Duration Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
U.S. Government securities Y Y Y 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 Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities Y Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

2
<PAGE> 31
<TABLE>
<CAPTION>

V
I
V P
I
P G
l
V I V o
I n I b
P t V P a
e I l
E r P
m n E S
e a G u m
r t l r a
g i o o l
i o b p l
n n a e
g a l a C
l n o
M L m
a G e G p
r r a t a
k o d o n
e w e w i
t t r t e
s h s h s

Type of Investment or Technique
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. common stocks
Preferred stocks X X X X X
------------------------------------------------------------------------------
Small company stocks X X X X X
------------------------------------------------------------------------------
Special situation companies X X X X X
------------------------------------------------------------------------------
Illiquid securities X X X X X
------------------------------------------------------------------------------
Restricted securities X X X X X
------------------------------------------------------------------------------
When-issued / delayed-delivery securities X X X X X
------------------------------------------------------------------------------
Limited liability companies
------------------------------------------------------------------------------
Investment companies
------------------------------------------------------------------------------
Real estate securities X X X X X
------------------------------------------------------------------------------
Securities of foreign issuers X X X X X
------------------------------------------------------------------------------
Depository receipts X X X X X
------------------------------------------------------------------------------
Securities from developing countries/ emerging X X X X X
markets
------------------------------------------------------------------------------
Convertible securities X X X X X
------------------------------------------------------------------------------
Long-term debt
------------------------------------------------------------------------------
Short-term debt X X X X
------------------------------------------------------------------------------
Floating and variable rate securities
------------------------------------------------------------------------------
Zero coupon securities
------------------------------------------------------------------------------
Step-coupon securities
------------------------------------------------------------------------------
Pay-in-kind bonds
------------------------------------------------------------------------------
Deferred payment securities
------------------------------------------------------------------------------
Brady bonds
------------------------------------------------------------------------------
Non-investment grade debt
------------------------------------------------------------------------------
Loan participations and assignments
------------------------------------------------------------------------------
Sovereign debt (foreign) X X X X X
------------------------------------------------------------------------------
Foreign commercial paper X X X X X
------------------------------------------------------------------------------
Duration
------------------------------------------------------------------------------
U.S. Government securities X X X X X
------------------------------------------------------------------------------
Money market instruments X X X X X
------------------------------------------------------------------------------
Mortgage-backed securities
------------------------------------------------------------------------------

</TABLE>

3
<PAGE> 32

<TABLE>
<CAPTION>
C
a
p
i M
t S S u H
a t S m S G l i G
l r t a m o t g r
a r M S l a E v i h o
A t a i m l l q T e M w
p e t d a l u o r S I o t
p g e l C i t n e n n h
r i g C l a C G t a m c c e
e c i a p a l y l B e t o y F Q
c c p C p o a n o m o u
i G o G b I R l t I r e M c e
a r V I m r V a n e a n a u s
t o a n p o a l c t n B c B B r s t
i w l d a w l o u c o o o o k
o t u e n t u 5 m r e n m n n e I I
n h e x y h e 0 e n d d e d d t I I
Type of Investment or Technique
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stripped mortgage-backed securities Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Collateralized mortgage obligations Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Mortgage dollar rolls Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Asset-backed securities Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Bank obligations Y Y 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 Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreements Y Y Y Y Y Y Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Warrants Y Y Y Y Y Y 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 Y Y Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Forward currency contracts Y Y Y Y Y
-----------------------------------------------------------------------------------------------------------------------------------
Borrowing money Y Y Y 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 Y Y
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

4
<PAGE> 33

<TABLE>
<CAPTION>
V
I
V P
I
P G
l
V I V o
I n I b
P t V P a
e I l
E r P
m n E S
e a G u m
r t l r a
g i o o l
i o b p l
n n a e
g a l a C
l n o
M L m
a G e G p
r r a t a
k o d o n
e w e w i
t t r t e
s h s h s

Type of Investment or Technique
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Type of Investment or Technique
------------------------------------------------------------------------------
Stripped mortgage-backed securities
------------------------------------------------------------------------------
Collateralized mortgage obligations
------------------------------------------------------------------------------
Mortgage dollar rolls
------------------------------------------------------------------------------
Asset-backed securities
------------------------------------------------------------------------------
Bank obligations X X X X X
------------------------------------------------------------------------------
Repurchase agreements X X X X X
------------------------------------------------------------------------------
Reverse repurchase agreements
------------------------------------------------------------------------------
Warrants XA X X X X
------------------------------------------------------------------------------
Futures X X X X X
------------------------------------------------------------------------------
Options X X X X X
------------------------------------------------------------------------------
Foreign currencies X X X X X
------------------------------------------------------------------------------
Forward currency contracts X X X X X
------------------------------------------------------------------------------
Borrowing money X X X X X
------------------------------------------------------------------------------
Lending of portfolio securities X X X X X
------------------------------------------------------------------------------
Short sales
------------------------------------------------------------------------------
</TABLE>

<PAGE> 34

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.

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

6
<PAGE> 35

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. 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

7
<PAGE> 36

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
Investors Service, 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 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.

<PAGE> 37

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:

- 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 and its agencies provide financial support to such
entities, no assurance can be given that they will always do so. The U.S.
government and its agencies and instrumentalities do not guarantee the market
value of their securities; consequently, the value of such securities will
fluctuate.

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<PAGE> 38

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.

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

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<PAGE> 39

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. 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

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<PAGE> 40

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 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 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 Mac
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 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

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<PAGE> 41

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 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

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<PAGE> 42

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.

In addition to the stripped mortgage securities described above, the Fund
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. The Fund 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 "Tax Status" in the Prospectus and "Additional Information Concerning
Taxes" in the 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.

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;

-- repurchase agreements;

-- bank obligations;

<PAGE> 43

-- 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 or its
guarantor will be rated within the top two rating categories by an NRSRO,
or if not rated, is issued and guaranteed as to payment of principal and
interest by companies which at the date of investment have a high quality
outstanding debt issue;

-- high quality short-term (maturity in 397 days or less) corporate
obligations, these obligations will be rated within the top two rating
categories by an NRSRO or if not rated, of comparable quality;

-- 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.

-- extendable commercial notes which are obligations underwritten by
Goldman Sachs, which differ from traditional commercial paper because the
issuer can extend the maturity of the note up to 390 days with the option
to call the note any time during the extension period. Because extension
will occur when the issuer does not have other viable options for lending,
these notes are considered illiquid and the Money Market Fund will be
limited to holding no more than 10% of its net assets in these and any
other illiquid securities.

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, acting
under the supervision of the Board of Trustees, 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-

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<PAGE> 44

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 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. 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

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<PAGE> 45

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

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
subadvisers of such Funds believe, however, that if the adviser or subadviser
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

<PAGE> 46

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 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 OR EMERGING MARKET COUNTRIES.
Investments may be made from time to time in companies in developing or emerging
market 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 investing not
more than 15% of its total net assets in illiquid securities. Conversely, the
Fund's inability to dispose fully

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<PAGE> 47

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-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.

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<PAGE> 48

Each 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 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

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<PAGE> 49

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 for 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.

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 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.

BRADY BONDS

Brady Bonds are debt securities, generally denominated in U.S. dollars,
issued under the framework of the Brady Plan. The Brady Plan is an initiative
announced by former U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
commercial bank indebtedness. In restructuring its external debt under the Brady
Plan framework, a debtor nation negotiates with its existing bank lenders as
well as multilateral institutions such as the International Bank for
Reconstruction and Development (the "World Bank") and the International Monetary
Fund (the "IMF"). The Brady Plan framework, as it has developed,

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<PAGE> 50

contemplates the exchange of external commercial bank debt for newly issued
bonds known as "Brady Bonds". Brady Bonds may also be issued in respect of new
money being advanced by existing lenders in connection with the debt
restructuring. The World Bank and/or the IMF support the restructuring by
providing funds pursuant to loan agreements or other arrangements which enable
the debtor nation to collateralize the new Brady Bonds or to repurchase
outstanding bank debt at a discount. Under these arrangements with the World
Bank and/or the IMF, debtor nations have been required to agree to the
implementation of certain domestic monetary and fiscal reforms. Such reforms
have included the liberalization of trade and foreign investment, the
privatization of state-owned enterprises and the setting of targets for public
spending and borrowing. These policies and programs seek to promote the debtor
country's economic growth and development. Investors should also recognize that
the Brady Plan only sets forth general guiding principles for economic reform
and debt reduction, emphasizing that solutions must be negotiated on a
case-by-case basis between debtor nations and their creditors. A Fund's adviser
or subadviser may believe that economic reforms undertaken by countries in
connection with the issuance of Brady Bonds may make the debt of countries which
have issued or have announced plans to issue Brady Bonds an attractive
opportunity for investment. However, there can be no assurance that the adviser
or the subadviser's expectations with respect to Brady Bonds will be realized.

Investors should recognize that Brady Bonds have been issued only
recently, and accordingly, do not have a long payment history. Brady Bonds which
have been issued to date are rated in the categories "BB" or "B" by Standard &
Poor's or "Ba" or "B" by Moody's or, in cases in which a rating by S&P or
Moody's has not been assigned, are generally considered by the Fund's adviser or
subadviser to be of comparable quality.

Agreements implemented under the Brady Plan to date are designed to
achieve debt and debt-service reduction through specific options negotiated by a
debtor nation with its creditors. As a result, the financial packages offered by
each country differ. The types of options have included the exchange of
outstanding commercial bank debt for bonds issued at 100% of face value of such
debt which carry a below-market stated rate of interest (generally known as par
bonds), bonds issued at a discount from the face value of such debt (generally
known as discount bonds), bonds bearing an interest rate which increases over
time and bonds issued in exchange for the advancement of new money by existing
lenders. Discount bonds issued to date under the framework of the Brady Plan
have generally borne interest computed semi-annually at a rate equal to 13/16 of
1% above the then current six month London Inter-Bank Offered Rate ("LIBOR")
rate. Regardless of the stated face amount and stated interest rate of the
various types of Brady Bonds, the applicable Funds will purchase Brady Bonds in
secondary markets, as described below, in which the price and yield to the
investor reflect market conditions at the time of purchase. Brady Bonds issued
to date have traded at a deep discount from their face value. Certain sovereign
bonds are entitled to "value recovery payments" in certain circumstances, which
in effect constitute supplemental interest payments but generally are not
collateralized. Certain Brady Bonds have been collateralized as to principal due
date at maturity (typically 30 years from the date of issuance) by U.S. Treasury
zero coupon bonds with a maturity equal to the final maturity of such Brady
Bonds. Collateral purchases are financed by the IMF, the World Bank and the
debtor nations' reserves. In addition, interest payments on certain types of
Brady Bonds may be collateralized by cash or high-grade securities in amounts
that typically represent between 12 and 18 months of interest accruals on these
instruments with the balance of the interest accruals being uncollateralized. In
the event of a default with respect to collateralized Brady

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Bonds as a result of which the payment obligations of the issuer are
accelerated, the U.S. Treasury zero coupon obligations held as collateral for
the payment of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be held by
the collateral agent to the scheduled maturity of the defaulted Brady Bonds,
which will continue to be outstanding, at which time the fact amount of the
collateral will equal the principal payments which would have then been due on
the Brady Bonds in the normal course. Based upon current market conditions, the
Fund would not intend to purchase Brady Bonds which, at the time of investment,
are in default as to payments. However, in light of the residual risk of the
Brady Bonds and, among other factors, the history of default with respect to
commercial bank loans by public and private entities of countries issuing Brady
Bonds, investments in Brady Bonds are considered speculative. A Fund may
purchase Brady Bonds with no or limited collateralization, and will be relying
for payment of interest and (except in the case of principal collateralized
Brady Bonds) principal primarily on the willingness and ability of the foreign
government to make payment in accordance with the terms of the Brady Bonds.

Brady Bonds issued to date are purchased and sold in secondary markets
through U.S. securities dealers and other financial institutions and are
generally maintained through European transnational securities depositories. A
substantial portion of the Brady Bonds and other sovereign debt securities in
which a Fund may invest are likely to be acquired at a discount, which involves
certain considerations discussed below under "Additional Information Concerning
Taxes."

REAL ESTATE SECURITIES

Although no Fund will invest in real estate directly, a Fund 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 taxed on
income distributed to shareholders provided they comply with several
requirements of Internal Revenue Code, as amended (the "Code").

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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.

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.

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Certain Funds may invest in convertible preferred stocks that offer
enhanced yield features, such as Preferred Equity Redemption Cumulative Stocks
("PERCS"), which provide an investor, such as a Fund, with the opportunity to
earn higher dividend income than is available on a company's common stock. PERCS
are preferred stocks that generally feature a mandatory conversion date, as well
as a capital appreciation limit, which is usually expressed in terms of a stated
price. Most PERCS expire three years from the date of issue, at which time they
are convertible into common stock of the issuer. PERCS are generally not
convertible into cash at maturity. Under a typical arrangement, after three
years PERCS convert into one share of the issuer's common stock if the issuer's
common stock is trading at a price below that set by the capital appreciation
limit, and into less than one full share if the issuer's common stock is trading
at a price above that set by the capital appreciation limit. The amount of that
fractional share of common stock is determined by dividing the price set by the
capital appreciation limit by the market price of the issuer's common stock.
PERCS can be called at any time prior to maturity, and hence do not provide call
protection. If called early, however, the issuer must pay a call premium over
the market price to the investor. This call premium declines at a preset rate
daily, up to the maturity date.

A Fund may also invest in other classes of enhanced convertible
securities. These include but are not limited to ACES (Automatically Convertible
Equity Securities), PEPS (Participating Equity Preferred Stock), PRIDES
(Preferred Redeemable Increased Dividend Equity Securities), SAILS (Stock
Appreciation Income Linked Securities), TECONS (Term Convertible Notes), QICS
(Quarterly Income Cumulative Securities), and DECS (Dividend Enhanced
Convertible Securities). ACES, PEPS, PRIDES, SAILS, TECONS, QICS, and DECS all
have the following features: they are issued by the company, the common stock of
which will be received in the event the convertible preferred stock is
converted; unlike PERCS they do not have a capital appreciation limit; they seek
to provide the investor with high current income with some prospect of future
capital appreciation; they are typically issued with three or four-year
maturities; they typically have some built-in call protection for the first two
to three years; and, upon maturity, they will necessarily convert into either
cash or a specified number of shares of common stock.

Similarly, there may be enhanced convertible debt obligations issued by
the operating company, whose common stock is to be acquired in the event the
security is converted, or by a different issuer, such as an investment bank.
These securities may be identified by names such as ELKS (Equity Linked
Securities) or similar names. Typically they share most of the salient
characteristics of an enhanced convertible preferred stock but will be ranked as
senior or subordinated debt in the issuer's corporate structure according to the
terms of the debt indenture. There may be additional types of convertible
securities not specifically referred to herein, which may be similar to those
described above in which a Fund may invest, consistent with its goals and
policies.

An investment in an enhanced convertible security or any other security
may involve additional risks to the fund. A Fund may have difficulty disposing
of such securities because there may be a thin trading market for a particular
security at any given time. Reduced liquidity may have an adverse impact on
market price and a Fund's ability to dispose of particular securities, when
necessary, to meet the Fund's liquidity needs or in response to a specific
economic event, such as the deterioration in the credit worthiness of an issuer.
Reduced liquidity in the secondary market for certain securities may also make
it more difficult for the Fund to obtain market quotations based on actual
trades for

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<PAGE> 54

purposes of valuing the fund's portfolio. A Fund, however, intends to acquire
liquid securities, though there can be no assurances that it will always be able
to do so.

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 accretes 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 than 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
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.

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<PAGE> 55

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 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.

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<PAGE> 56

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 "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.

A Fund may sell over-the-counter ("OTC") options and, in connection
therewith, segregate assets or cover its obligations with respect to OTC options
written by the Fund. The assets used as cover for OTC options written by a Fund
will be considered illiquid unless the OTC options are sold to

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<PAGE> 57

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 the 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. Regulation D in the Securities Act of 1933 lists registered
investment companies as accredited investors.

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 Adviser 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 (generally, 331/3% 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 temporary or
emergency purposes; for the Total Return Fund, the Capital Appreciation Fund,
the Government Bond Fund and the Money Market Fund, this 5% limit is the only
borrowing permitted. 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

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<PAGE> 58

options and forward currency contracts 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.

(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

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<PAGE> 59

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

The value of an option position will reflect, among other things, the
historical price volatility of the underlying investment, the current market
value of the underlying investment, the time remaining until expiration of the
option, the relationship of the exercise price to the market price of the
underlying investment, and general market conditions. Options that expire
unexercised have no value. Options used by 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.

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<PAGE> 60

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 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

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<PAGE> 61

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.

FUTURES CONTRACTS. A Fund 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

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<PAGE> 62

interest rate fluctuations, such Fund may be able to hedge its exposure more
effectively and perhaps at a lower cost through using futures contracts.

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

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

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transactions only on exchanges or boards of trade where there appears to be an
active market, there can be no assurance that such a market will exist for a
particular contract at a particular time.

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

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

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

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

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<PAGE> 64

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 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 Fund's adviser or 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.

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<PAGE> 65

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 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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<PAGE> 66

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 or, in the
case of the Global 50 Fund, to adjust its currency exposure relative to its
benchmark, the MSCI World Equity Index. 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.

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.

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<PAGE> 67

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
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.

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.

BANK OBLIGATIONS

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

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<PAGE> 68

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. Bank obligations may be issued by domestic banks
(including their branches located outside the United States), domestic and
foreign branches of foreign banks and savings and loan associations.

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. 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.

ZERO COUPON SECURITIES, STEP-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. Step-coupon
securities are debt securities that do not make regular cash interest payments
and are sold at a deep discount to their face value. When a zero coupon security
is held to maturity, its entire return, which consists of the amortization of
discount, comes

<PAGE> 69

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 (such as Brady Bonds) 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 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 adviser or 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

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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 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

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<PAGE> 71

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
may invest up to 100% of its assets in cash or money market obligations. 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 for each of the Funds
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.

INVESTMENT RESTRICTIONS FOR: STRATEGIC VALUE FUND, EQUITY INCOME FUND, HIGH
INCOME BOND FUND, BALANCED FUND, MULTI SECTOR BOND FUND, SMALL CAP VALUE FUND,
SMALL CAP GROWTH FUND, GLOBAL 50 FUND, AND MID CAP INDEX FUND

A Fund:

- May not purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, if, immediately after such purchase, more than 5% of the
Fund's total assets would be invested in such issuer or the Fund would hold
more than 10% of the outstanding voting securities of the issuer, except
that 25% or less of the Fund's total assets may be invested without regard
to such limitations. There is no limit to the percentage of assets that may
be invested in U.S. Treasury bills, notes, or other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.

- May (i) borrow money from banks and (ii) make other investments or engage
in other transactions permissible under the Investment Company Act of 1940
(the "1940 Act") which may involve a borrowing, provided that the
combination of (i) and (ii) shall not exceed 331/3% of the value of the

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<PAGE> 72

Fund's total assets (including the amount borrowed), less the Fund's
liabilities (other than borrowings), except that the Fund may borrow up to
an additional 5% of its total assets (not including the amount borrowed)
from a bank for temporary or emergency purposes (but not for leverage or
the purchase of investments). The Fund may also borrow money from other
persons to the extent permitted by applicable law. For purposes of this
restriction, short sales, the entry into currency transactions, options,
futures contracts, options on futures contracts, forward commitment
transactions and dollar roll transactions that are not accounted for as
financings (and the segregation of assets in connection with any of the
foregoing) shall not constitute borrowing.

- May not issue senior securities, except as permitted under the 1940 Act.

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

- May not purchase or sell real estate unless acquired as a result of
ownership of securities or instruments, but this restriction shall not
prohibit the Fund from purchasing or selling securities issued by entities
or investment vehicles that own or deal in real estate or interests therein
or instruments secured by real estate or interests therein.

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

- May not lend any security or make any other loan if, as a result, more than
331/3% of its total assets (taken at current value) would be lent to other
parties, except in accordance with its investment objective, policies and
limitations through (i) purchase of debt securities or other debt
instruments, including loan participations, assignments and structured
securities, or (ii) by engaging in repurchase agreements.

- May not purchase the securities of any issuer if, as a result, more than
25% (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.

INVESTMENT RESTRICTIONS FOR: STRATEGIC GROWTH FUND, SMALL COMPANY FUND AND
INCOME FUND

A Fund:

- May (i) borrow money from banks and (ii) make other investments or engage
in other transactions permissible under the 1940 Act which may involve a
borrowing, provided that the combination of (i) and (ii) shall not exceed
331/3% of the value of the Fund's total assets (including the amount
borrowed), less the Fund's liabilities (other than borrowings), except that
the Fund may borrow up to an additional 5% of its total assets (not
including the amount borrowed) from a bank for temporary or emergency
purposes (but not for leverage or the purchase of investments). A Fund may
also borrow money from other persons to the extent permitted by applicable
law. For purposes of this restriction, short sales, the entry into currency
transactions, options, futures

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<PAGE> 73

contracts, options on futures contracts, forward commitment transactions
and dollar roll transactions that are not accounted for as financings (and
the segregation of assets in connection with any of the foregoing) shall
not constitute borrowing.

- May not issue senior securities, except as permitted under the 1940 Act.

- May not purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments, but this shall not prevent
the Fund from purchasing or selling options, futures contracts, or other
derivative instruments, or from investing in securities or other
instruments backed by physical commodities.

INVESTMENT RESTRICTIONS FOR: Nationwide Growth Focus Fund II, NATIONWIDE
QUEST Fund II, GARTMORE VIP EMERGING MARKETS FUND, GARTMORE VIP INTERNATIONAL
GROWTH FUND, GARTMORE VIP GLOBAL LEADERS FUND, GARTMORE VIP EUROPEAN GROWTH
FUND, AND GARTMORE VIP GLOBAL SMALL COMPANIES FUND.

A Fund:

- May not lend any security or make any other loan except that each Fund may,
in accordance with its investment objective and policies, (i) lend
portfolio securities, (ii) purchase and hold 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, and enter into any
other lending arrangement as and to the extent permitted by the Investment
Company Act of 1940 or any rule, order or interpretation thereunder.

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<PAGE> 74

- 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 borrow money or issue senior securities, except that each Fund may
enter into reverse repurchase agreements and may otherwise borrow money and
issue senior securities as and to the extent permitted by the 1940 Act or
any rule, order or interpretation thereunder.

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

- May not act as an underwriter of another issuer's securities, except to the
extent that each 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 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. 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, the Nationwide Quest Fund II:

- May not purchase securities of 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.

INVESTMENT RESTRICTIONS FOR: TOTAL RETURN FUND, CAPITAL APPRECIATION FUND,
GOVERNMENT BOND FUND, MONEY MARKET FUND

A Fund:

- May not borrow money, except an amount equal to no more than 5% of the
value of each of the Fund's total assets (calculated when the loan is made)
for temporary, emergency purposes or for the clearance of transactions.
This limited borrowing authority will not be used to leverage the Funds or
to borrow for extended periods of time. This authority is intended to
provide the investment manager additional flexibility in the execution of
routine daily transactions, and allow for more efficient cash management.

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<PAGE> 75

- May not purchase securities on margin, but the Trust may obtain such
credits as may be necessary for the clearance of purchases and sales of
securities and except as may be necessary to make margin payments in
connection with derivative securities transactions.

- May not make loans to other persons, except by the purchase of obligations
in which the Trust is authorized to invest. The Trust may, however, enter
into repurchase agreements, but a Fund will not enter into repurchase
agreements if, as a result thereof, more than 10% of the Fund's total
assets (taken at current value) would be subject to repurchase agreements
maturing in more than 7 days.

- May not purchase or sell commodities or commodities contracts, except to
the extent disclosed in the current Prospectus of such Fund. May not issue
securities except as permitted by the Investment Company Act of 1940.

The following are the NON-FUNDAMENTAL operating policies of the Nationwide
Strategic Growth Fund, Nationwide Strategic Value Fund, Nationwide Equity Income
Fund, Nationwide High Income Bond Fund, Nationwide Balanced Fund, Nationwide
Multi Sector Bond Fund, Nationwide Small Cap Value Fund, Nationwide Small Cap
Growth Fund, Nationwide Global 50 Fund, Nationwide Mid Cap Index Fund,
Nationwide Small Company Fund, Nationwide Income Fund, Nationwide Growth Focus
Fund II,Quest Fund II, Gartmore VIP Emerging Markets Fund, Gartmore VIP
International Growth Fund, Gartmore VIP Global Leaders Fund, Gartmore VIP
European Growth Fund, and Gartmore VIP Global Small Companies Fund which MAY BE
CHANGED by the Board of Trustees of the Trust WITHOUT SHAREHOLDER APPROVAL:

Each Fund may not:

- Sell securities short (except for the Mid Cap Index Fund), 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. The

47
<PAGE> 76

Mid Cap Index Fund may only sell securities short in accordance with the
description contained in its Prospectus.

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

- Purchase or otherwise acquire any security if, as a result, more than 15%
of its net assets would be invested in securities that are illiquid. If any
percentage restriction or requirement described above is satisfied at the
time of investment, a later increase or decrease in such percentage
resulting from a change in net asset value will not constitute of such
restriction or requirement. However, should a change in net asset value or
other external events cause a Fund's investments in illiquid securities
including repurchase agreements with maturities in excess of seven days, to
exceed the limit set forth above for such Fund's investment in illiquid
securities, a Fund will act to cause the aggregate amount such securities
to come within such limit as soon as reasonably practicable. In such event,
however, such Fund would not be required to liquidate any portfolio
securities where a Fund would suffer a loss on the sale of such securities.

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

- Pledge, mortgage or hypothecate any assets owned by the Fund except as may
be necessary in connection with permissible borrowings or investments and
then such pledging, mortgaging, or hypothecating may not exceed 331/3% of
the Fund's total assets at the time of the borrowing or investment.

The following are the NON-FUNDAMENTAL operating policies of the Capital
Appreciation Fund, Total Return Fund, Government Bond Fund and Money Market Fund
which MAY BE CHANGED by the Board of Trustees of the Trust WITHOUT SHAREHOLDER
APPROVAL:

No Fund may:

- Make short sales of securities.

- Purchase or otherwise acquire any other securities 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. If any percentage
restriction or requirement described above is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from
a change in net asset value will not constitute of such restriction or
requirement. However, should a change in net asset value or other external
events cause a Fund's investments in illiquid securities including
repurchase agreements with maturities in excess of seven days, to exceed
the limit set forth above for such Fund's investment in illiquid
securities, a Fund will act to cause the aggregate amount such securities
to come within such limit as soon as reasonably practicable. In such event,
however, such Fund would not be required to liquidate any portfolio
securities where a Fund would suffer a loss on the sale of such securities.

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<PAGE> 77

- Purchase securities of other investment companies, except (a) in connection
with a merger, consolidation, acquisition or reorganization and (b) to the
extent permitted by the 1940 Act, or any rules or regulations thereunder,
or pursuant to any exemption therefrom.

The investment objectives of each of the Funds are not fundamental and may
be changed by the Board of Trustees without shareholder approval.

PORTFOLIO TURNOVER

The portfolio turnover rate for each Fund is calculated by dividing the lesser
of purchases or sales of portfolio securities for the year by the monthly
average value of the portfolio securities, excluding securities whose maturities
at the time of purchase were one year or less. The portfolio turnover rate for
the years ended December 31, 1999 and 1998 were as follows:

FUND 1999 1998

Strategic Growth(1) 637.83% 369.83%

Strategic Value 113.30% 68.65%

Equity Income 45.16% 49.12%

High Income Bond 22.04% 24.25%

Balanced 103.69% 137.35%

Multi Sector Bond 242.89% 287.69%

Small Cap Value 270.26% 283.65%

Small Cap Growth 130.98% N/A

Global 50 79.22% 59.01%

Mid Cap Index(2) 275.04% 119.37%

Small Company 134.74% 141.27%

Income(3) 88.39% 157.21%

Total Return 29.95% 17.13%

Capital Appreciation 24.70% 10.67%

Government Bond 51.61% 32.03%

Growth Focus II(4) N/A N/A

Quest II(4) N/A N/A

Emerging Markets(5) N/A N/A

International Growth(5) N/A N/A

Global Leaders(5) N/A N/A

European Growth(5) N/A N/A

Global Small Companies N/A N/A

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<PAGE> 78

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

(1) The portfolio turnover for the Strategic Growth Fund increased
significantly during the fiscal year ended December 31, 1999 due to market
volatility and the Fund's decision to take advantage of investment
opportunities in Internet related companies consistent with the Fund's
principal investment strategies.

(2) The portfolio turnover for the Mid Cap Index Fund increased significantly
during the fiscal year ended December 31, 1999 due to its change in
strategies from an actively managed fund to an index fund and the need to
sell securities in order to purchase the securities in the index.

(3) The portfolio turnover for the Income Fund decreased significantly during
the fiscal year ended December 31, 1999. This can be attributed to the
Fund's rapid growth in 1999 which allowed the Fund to restructure itself by
using incoming periodic contributions, thereby alleviating the need to sell
existing portfolio assets to change the Fund's capital structure.

(4) The Nationwide Growth Focus Fund II and Quest Fund II commenced operations
on July ____, 2000.

(5) Emerging Markets Fund, International Growth Fund, Global Leaders Fund,
European Growth Fund and Global Small Companies Fund commenced operations
on September 1, 2000.

High portfolio turnover rate will generally result in higher brokerage expenses.

INSURANCE LAW RESTRICTIONS

In connection with the Trust's agreement to sell shares to the Accounts,
Villanova Mutual Fund Capital Trust ("VMF") and the insurance companies may
enter into agreements, required by certain state insurance departments, under
which VMF may agree to use its best efforts to assure and to permit insurance
companies to monitor that each Fund of the Trust complies with the investment
restrictions and limitations prescribed by state insurance laws and regulations
applicable to the investment of separate account assets in shares of mutual
funds. If a Fund failed to comply with such restrictions or limitations, the
separate accounts would take appropriate action which might include ceasing to
make investments in the Fund or withdrawing from the state imposing the
limitation. Such restrictions and limitations are not expected to have a
significant impact on the Trust's operations.

MAJOR SHAREHOLDERS [REVISE PERCENTAGES AS OF JUNE 2, 2000]

As of June 2, 2000, separate accounts of Nationwide Life Insurance Company
and Nationwide Life and Annuity Insurance Company had shared voting and
investment power over 100% of the Balanced Fund shares, 100% of the Multi Sector
Bond Fund shares, 100% of the Small Cap Value Fund shares, 100% of the Global 50
Fund shares, 100% of the Mid Cap Index Fund shares, 100% of the Small Cap Growth
Fund, 100% of the Strategic Growth Fund shares, 100% of the Strategic Value Fund
shares, 100% of the Equity Income Fund shares, 100% of the High Income Bond Fund
shares, 99.2% of the Small Company Fund shares, 100% of the Total Return Fund
shares, 100% of the Government Bond Fund shares, 99.5% of the Capital
Appreciation Fund shares, and 100% of the Money Market Fund shares,
respectively. As of April 1, 2000, the following portfolios of Nationwide Asset
Allocation Trust had shared voting and investment power over shares of the
Income Fund: Moderately Aggressive Portfolio, 13.9%, Moderate Portfolio, 25.6%;
Moderately Conservative Portfolio, 14.5%; and Conservative Portfolio, 13.1%.
Nationwide Asset Allocation Trust is a registered investment company advised by
Villanova SA Capital Trust, an affiliate of VMF, and sold to separate accounts
of Nationwide Life Insurance Company.

Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance
Company, One Nationwide Plaza, Columbus, Ohio 43215 are wholly owned by
Nationwide Financial Services, Inc.

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<PAGE> 79

("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
(95.24%) and Nationwide Mutual Fire Insurance Company (4.76%), each of which is
a mutual company owned by its policyholders.

As of June 2, 2000, the Trustees and Officers of the Trust as a group owned
beneficially less than 1% of the shares of the Trust.

TRUSTEES AND OFFICERS OF THE TRUST

TRUSTEES AND OFFICERS

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 occupations of the Trustees and Officers during the last five
years and their affiliations are:

Professor of Education, Wilmington College.

C. BRENT DEVORE, Trustee, Age 58
111 N. West Street, Westerville, Ohio 43081
Dr. DeVore is President of Otterbein College.

ROBERT M. DUNCAN, TRUSTEE, Age 71
1397 Haddon Road Columbus, Ohio 43209
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.

JOSEPH J. GASPER, TRUSTEE*, CHAIRMAN, Age 54
One Nationwide Plaza Columbus, Ohio 43215

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<PAGE> 80

Mr. Gasper is Director, President and Chief Operating Officer for Nationwide
Life and Annuity Insurance Company and Nationwide Life Insurance Company. Prior
to that, he was Executive Vice President and Senior Vice President for the
Nationwide Insurance Enterprise.

THOMAS J. KERR, IV, TRUSTEE, Age 65
4890 Smoketalk Lane Westerville, Ohio 43081
Dr. Kerr is President Emeritus of Kendall College. He was formerly President of
Grant Hospital Development Foundation.

DOUGLAS F. KRIDLER, TRUSTEE, Age 43
55 East State Street, Columbus, Ohio 43215
Mr. Kridler is President of Columbus Association for the Performing Arts.

ARDEN L. SHISLER, TRUSTEE*, Age 58
P.O. Box 267, Dalton, Ohio 44618
Mr. Shisler is President and Chief Executive Officer of K&B Transport, Inc., a
trucking firm.

ROBERT J. WOODWARD, JR., TRUSTEE*, Vice-Chairman, Age 56
One Nationwide Plaza Columbus, Ohio 43215
Mr. Woodward is Executive Vice President - Chief Investment Officer for
Nationwide Life and Annuity Insurance Company and Nationwide Life Insurance
Company.

DAVID C. WETMORE, TRUSTEE, Age 50
11495 Sunset Hills Rd - Suite #210, Reston, Virginia 20190
Mr. Wetmore is the Managing Director of The Updata Capital, a venture capital
firm.

JAMES F. LAIRD, JR., TREASURER, Age 42
Three Nationwide Plaza Columbus, Ohio 43215
Mr. Laird is Senior Vice President - Product Development for Villanova Capital,
Inc. and Vice President and General Manager of Nationwide Advisory Services,
Inc., an affiliate of VMF. He was formerly Treasurer of Nationwide Advisory
Services, Inc.

ELIZABETH A. DAVIN, SECRETARY, Age 35
One Nationwide Plaza Columbus, Ohio 43215
Ms. Davin is a member of the Office of General Counsel and Assistant General
Counsel of Villanova Capital, Inc.

-----------------
* A Trustee who is an "interested person" of the Trust as defined in the 1940
Act.

** DeVore, Duncan, Kerr, Kridler, Shisler and Wetmore are also Trustees of
Nationwide Mutual Funds and Nationwide Asset Allocation Trust, which are
registered investment companies in the Nationwide fund complex. Gasper and
Woodward are also Trustees of Nationwide Asset Allocation Trust. Laird and
Davin are also officers of Nationwide Mutual Funds and Nationwide Asset
Allocation Trust.

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<PAGE> 81

AFFILIATED PERSONS OF THE TRUST AND THE ADVISER

Mr. Joseph J. Gasper, Trustee and Chairman of the Trust, is also Vice
Chairman of the Board of Directors of VMF and NFS. Mr. Arden L. Shisler, Trustee
of the Trust, is also a member of the Board of Directors of NFS and other
Nationwide Insurance entities. Mr. Robert J. Woodward, Jr., Trustee and
Vice-Chairman of the Trust, is also Executive Vice President - Chief Investment
Officer of VMF.

The Trust does not pay any fees to Officers or to Trustees who are also
officers of VMF, VSA or their affiliates. The table below lists the aggregate
compensation paid by the Trust to each disinterested Trustee during the fiscal
year ended December 31, 1999, and the aggregate compensation paid to each
disinterested Trustee during the fiscal year ended December 31, 1999 by all 38
registered investment series to which VMF or its affiliates provide investment
advisory services or fund administration services (the "Nationwide Fund
Complex").

The Trust does not maintain any pension or retirement plans for the
Officers or Trustees of the Trust.

COMPENSATION TABLE
FISCAL YEAR ENDED DECEMBER 31, 1999

--------------------------------------------------------------------------------
TOTAL
COMPENSATION FROM
AGGREGATE THE NATIONWIDE
COMPENSATION FUND COMPLEX
DISINTERESTED TRUSTEES FROM THE TRUST INCLUDING THE TRUST
------------------------------------------------------------------------------

John C. Bryant $9,000 $28,000

C. Brent DeVore $9,000 $28,000

Sue Doody $9,000 $28,000

Robert M. Duncan $9,000 $28,000

Thomas J. Kerr, IV $9,000 $28,000

Douglas F. Kridler $9,000 $28,000

Arden L. Shisler* N/A N/A

David C. Wetmore $9,000 $28,000

------------
* Mr. Shisler was elected as a Trustee on February 9, 2000.

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<PAGE> 82

PERFORMANCE ADVERTISING

The Funds may use past performance in advertisements, sales literature, and
their prospectuses, including calculations of average annual total return,
30-day yield, and seven-day yield, as described below.

CALCULATING YIELD AND TOTAL RETURN

CALCULATING YIELD - THE MONEY MARKET FUND

Any current yield quotations for the Money Market Fund, subject to Rule 482
under the Securities Act of 1933, shall consist of a seven calendar day
historical yield, carried at least to the nearest hundredth of a percent. The
yield shall be calculated by determining the net change, excluding realized and
unrealized gains and losses, in the value of a hypothetical pre-existing account
having a balance of one share at the beginning of the period, dividing the net
change in account value by the value of the account at the beginning of the base
period to obtain the base period return, and multiplying the base period return
by 365/7 (or 366/7 during a leap year). For purposes of this calculation, the
net change in account value reflects the value of additional shares purchased
with dividends from the original share, and dividends declared on both the
original share and any such additional shares. As of December 31, 1999, the
Fund's seven-day current yield was 5.40%. The Fund's effective yield represents
an annualization of the current seven day return with all dividends reinvested,
and for the period ended December 31, 1999, was 5.55%.

The Fund's yield will fluctuate daily. Actual yields will depend on factors
such as the type of instruments in the Fund's portfolio, portfolio quality and
average maturity, changes in interest rates, and the Fund's expenses. There is
no assurance that the yield quoted on any given occasion will remain in effect
for any period of time and there is no guarantee that the net asset value 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 of 1933. 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 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 total return represents the rate required each year for an initial
investment to equal the 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 for a specified period of time, by the
amount of the initial payment, assuming reinvestment of all dividends and
distributions. The one, five, and ten year periods are calculated based on
periods that end on the

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<PAGE> 83

last day of the calendar quarter preceding the date on which an advertisement is
submitted for publication.

The uniformly calculated average annual total returns for the one, five,
and ten year periods ended December 31, 1999, and the period from inception to
December 31, 1999, are shown below.

<TABLE>
<CAPTION>
10 YEARS
FUND 1 YEAR 5 YEARS OR LIFE
----- ------ ------- -------
<S> <C> <C> <C>
Strategic Growth Fund(1) 84.75% N/A 42.97%
Strategic Value Fund(1) (3.07)% N/A (0.51)%
Equity Income Fund(1) 18.49% N/A 16.37%
Multi Sector Bond Fund(1) 1.56% N/A 2.41%
High Income Bond Fund(1) 3.19% N/A 5.23%
Balanced Fund(1) 0.87% N/A 4.76%
Small Cap Value Fund(1) 27.84% N/A 9.59%
Global 50 Fund(1) 22.92% N/A 19.89%
Mid Cap Index Fund(1) 20.92% N/A 14.29%
Small Cap Growth Fund(2) N/A N/A 105.01%
Small Company Fund(3) 44.02% N/A 23.22%
Income Fund(4) (2.01)% N/A 2.53%
Total Return Fund 6.94% 20.78% 14.79%
Capital Appreciation Fund 4.28% 24.36% 17.27%
Money Market Fund 4.84% 5.22% 4.99%
Government Bond Fund (2.35%) 7.46% 7.67%
Growth Focus Fund II(5) N/A N/A N/A
Quest Fund II(5) N/A N/A N/A
Emerging Markets(6) N/A N/A N/A
International Growth(6) N/A N/A N/A
Global Leaders(6) N/A N/A N/A
European Growth(6) N/A N/A N/A
Global Small Companies(6) N/A N/A N/A
</TABLE>

----------------
(1) These Funds commenced operations on October 31, 1997.
(2) This Fund commenced operations on May 1, 1999.
(3) This Fund commenced operations on October 23, 1995.
(4) This Fund commenced operations on January 20, 1998.

(5) These Funds commenced operations on July ____, 2000.
(6) These Funds commenced operations on September 1, 2000.

Certain Funds 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, and annualizing the results, assuming
reinvestment of all dividends and distributions. This yield formula uses the
average number of share 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

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<PAGE> 84

of time. The uniformly calculated yields for the 30 day period ended December
31, 1999 were as follows:

FUND 30-DAY YIELD
----- -----------
High Income Bond Fund 9.80%

Balanced Fund 3.45%

Multi Sector Bond Fund 7.58%

Government Bond Fund 6.12%

Income Fund 5.19%

CODE OF ETHICS

Federal law requires the Trust, each of its investment advisers and
sub-advisers to adopt codes of ethics which govern the personal securities
transactions of their respective personnel. Accordingly, each such entity has
adopted a code of ethics pursuant to which their respective personnel may invest
securities for their personal accounts (including securities that may be
purchased or held by the Trust).

INVESTMENT ADVISORY AND OTHER SERVICES

With the exception of each of the Emerging Markets Fund, International
Growth Fund, Global Leaders Fund, European Growth Fund and Global Small
Companies Fund, Villanova Mutual Fund Capital Trust ("VMF") oversees the
management of each of the Funds, other than the Gartmore VIP Emerging Markets,
VIP International Growth, VIP Global Leaders, VIP European Growth and VIP Global
Small Company Funds which are managed by Villanova Global Asset Management Trust
("VGAMT"), pursuant to Investment Advisory Agreements with the Trust (the
"Investment Advisory Agreements"). Pursuant to the Investment Advisory
Agreements, VMF and VGAMT either provide portfolio management for the Funds
directly or hire and monitor the subadvisers who are responsible for daily
portfolio management. VMF and VGAMT pay the compensation of the Trustees
affiliated with VMF and VGAMT. The officers of the Trust receive no compensation
from the Trust. VMF and VGAMT also pay all expenses incurred by each firm in
providing service under the Investment Advisory Agreements, other than the cost
of investments (including brokerage commissions and other transaction costs).

The Investment Advisory Agreements also provide that VMF and/or VGAMT shall
not be liable for any act or omission in providing advisory services, or for any
loss arising out of any investment, unless VMF and/or VGAMT have acted with
willful misfeasance, bad faith, or gross negligence in the performance of their
duties, or by reason of VMF's and/or VGAMT's reckless disregard of
their obligations and duties under the Agreements. After an initial two-year
period, the Investment Advisory Agreements must be approved each year by the
Trust's board of trustees or by shareholders in order to continue. Each
Investment Advisory Agreement terminates automatically if it is assigned. They
may be terminated without penalty by vote of a majority of the outstanding
voting securities, or by either party, on not less than 60 days written notice.

VMF, a Delaware business trust, is a wholly owned subsidiary of Villanova
Capital, Inc., 97% of the common stock of which is owned by NFS. NFS, a holding
company, has two classes of common stock outstanding with different voting
rights enabling Nationwide Corporation to control NFS.

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<PAGE> 85

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 (95.24%) and Nationwide Mutual Fire
Insurance Company (4.76%), each of which is a mutual company owned by its
policyholders.

VGAMT, a Delaware business trust, is a wholly owned subsidiary of Villanova
Capital, Inc., ____% of the common stock of which is owned by NFS. NFS, a
holding company, has two classes of common stock outstanding with different
voting rights enabling Nationwide Corporation 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 (95.24%) and Nationwide Mutual Fire Insurance Company (4.76%),
each of which is a mutual company owned by its policyholders.

Subject to the supervision of VMF, VGAMT and the Trustees, each subadviser
manages a Fund's assets in accordance with such Fund's investment objective and
policies. Each subadviser shall make investment decisions for such Fund, and in
connection with such investment decisions, shall place purchase and sell orders
for securities.

Each subadviser provides investment advisory services to one or more Funds
pursuant to a Subadvisory Agreement. Each of the Subadvisory Agreements
specifically provides that the subadviser 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 Fund, 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
such Agreement. After an initial two-year period, each Subadvisory Agreement
must be approved each year by the Trust's board of trustees or by shareholders
in order to continue. Each Subadvisory Agreement terminates automatically if it
is assigned. It may also be terminated without penalty by vote of a majority of
the outstanding voting securities, or by either party, on not less than 60 days
written notice.

Prior to September 1, 1999, Nationwide Advisory Services, Inc. ("NAS")
served as the investment adviser to the Funds and paid fees to the subadvisers
pursuant to the Funds' Subadvisory Agreements. Effective September 1, 1999, the
investment advisory services previously performed for the Funds (effective
September 27, 1999 for the Nationwide Mid Cap Index Fund) by NAS were
transferred to Villanova Mutual Fund Capital Trust ("VMF"), an affiliate of NAS
and an indirect subsidiary of Nationwide Financial Services, Inc. VMF assumed
all rights and responsibilities performed by NAS, including the supervision and
monitoring of each Funds' subadviser(s), and the Fund's subadviser(s) continued
to manage the Fund after the transfer to VMF. After the transfer, there were no
changes in the fees charged for investment advisory services to each of the
Funds except for a decrease in fees for the Nationwide Mid Cap Index Fund.

The following is a summary of the investment advisory fees paid and the
subadvisory arrangements for each Fund.

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<PAGE> 86

TOTAL RETURN FUND, CAPITAL APPRECIATION FUND, GOVERNMENT BOND FUND AND MONEY
MARKET FUND

Prior to November 1, 1997, NAS received a fee computed and paid monthly at
the annual rate equal to 0.50% of the average daily net assets of each Fund. As
of November 1, 1997 (paid to VMF effective September 1, 1999), the following are
the advisory fees expressed as an annual percentage of average daily net assets:

FUND ADVISORY FEES
---- ------------

Total Return Fund and 0.60% on assets up to $1 billion

FUND ADVISORY FEES
---- ------------

Capital Appreciation Fund 0.575% on assets of $1 billion and more
but less than $2 billion
0.55% on assets of $2 billion and more
but less than $5 billion
0.50% for assets of $5 billion and more

Government Bond Fund 0.50% on assets up to $1 billion
0.475% on assets of $1 billion and more
but less then $2 billion
0.45% on assets of $2 billion and more
but less then $5 billion
0.40% for assets of $5 billion and more

Money Market Fund 0.40% on assets up to $1 billion
0.38% on assets of $1 billion and more
but less than $2 billion
0.36% on assets of $2 billion and more
but less then $5 billion
0.34% for assets of $5 billion and more

For the years ended December 31, 1998 and 1997, NAS received fees in the
following amounts: Total Return Fund, $12,401,821 and $7,903,818, respectively;
Capital Appreciation Fund, $4,402,924 and $1,759,412, respectively; Government
Bond Fund, $3,015,171 and $2,231,930, respectively; and Money Market Fund,
$5,043,088 and $4,969,345, respectively. For the year ended December 31, 1999
NAS/VMF received fees in the following amounts: $14,084,011 for the Total Return
Fund, $6,579,545 for the Capital Appreciation Fund, $3,867,960 for the
Government Bond Fund and $6,844,464 for the Money Market Fund.

VMF has agreed to waive advisory fees and, if necessary, to reimburse
expenses in order to limit total annual Fund operating expenses to 0.78% on the
Total Return Fund, 0.80% on the Capital Appreciation Fund, 0.66% on the
Government Bond Fund and 0.55% on the Money Market Fund; however, this waiver
may be discontinued upon prior written notice to shareholders.

58
<PAGE> 87

QUEST FUND II

VMF receives an annual fee expressed as an annual percentage of the Fund's
average daily net assets:

1.03% on assets up to $250 million
1.00% on assets of $250 million and more
but less than $1 billion
0.97% on assets of $1 billion and more
but less than $2 billion
0.94% on assets of $2 billion and more
but less than $5 billion
0.91% for assets of $5 billion and more

VMF has agreed to waive advisory fees and, if necessary, reimburse expenses
in order to limit total annual Fund operating expenses to 1.35% until at least
December 31, 2000. As of June 1, 2000, this Fund has not commenced operations.

EQUITY INCOME FUND

Under the terms of its Investment Advisory Agreement, the Equity Income
Fund pays to VMF a fee at the annual rate of 0.80% of the Fund's average daily
net assets. VMF has agreed to waive advisory fees and, if necessary, reimburse
expenses in order to limit total annual Fund operating expenses to 0.95%;
however, this waiver may be discontinued upon prior written notice to
shareholders. For the fiscal year ended December 31, 1998, NAS was paid $46,531,
net of waivers in the amount of $16,475. For the fiscal year ended December 31,
1999, NAS/VMF was paid $139,401 net of waivers in the amount of $28,960.

Federated Investment Counseling ("Federated") is the subadviser of the
Fund. For the investment management services it provides to the Fund, Federated
receives an annual fee from VMF in the amount of 0.40% on assets up to $50
million, 0.25% on assets of $50 million and more but less than $250 million,
0.20% on assets of $250 million and more but less than $500 million, and 0.15%
on assets of $500 million and more. These fees are calculated at an annual rate
based upon the Fund's average daily net assets. For the period October 31, 1997
(commencement of operations) through December 31, 1997, NAS paid $842 in fees to
Federated. For the fiscal year ended December 31, 1998, NAS paid Federated
$31,503. For the fiscal year ended December 31, 1999, NAS/VMF paid Federated
$84,180.

Federated, a Delaware business trust organized on April 11, 1989 is a
registered investment adviser under the Investment Advisers Act of 1940. It is a
subsidiary of Federated Investors, Inc. Federated and other subsidiaries of
Federated Investors, Inc. serve as investment advisers to an open number of
investment companies and private accounts. Certain other subsidiaries also
provide administrative services to a number of investment companies.

59
<PAGE> 88

HIGH INCOME BOND FUND

Under the terms of its Investment Advisory Agreement, the High Income Bond
Fund pays to VMF a fee at the annual rate of .80% of the Fund's average daily
net assets. VMF has agreed to waive advisory fees and, if necessary, reimburse
expenses in order to limit total annual Fund operating expenses to 0.95%;
however, this waiver may be discontinued upon prior written notice to
shareholders. For the period October 31, 1997 (commencement of operations)
through December 31, 1997, NAS waived all advisory fees in the amount of $7,374.
For the fiscal year ended December 31, 1998, NAS was paid $126,140 net of
waivers in the amount of $32,820. For the fiscal year ended December 31, 1999,
NAS/VMF was paid $313,448, net of waivers in the amount of $104,310.

Federated Investment Counseling is the subadviser of the Fund. For the
investment management services it provides to the Fund, Federated receives an
annual fee from VMF in the amount of 0.40% on assets up to $50 million, 0.25% on
assets of $50 million and more but less than $250 million, 0.20% on assets of
$250 million and more but less than $500 million, and 0.15% on assets of $500
million and more. These fees are calculated at an annual rate based upon the
Fund's average daily net assets. Additional information about Federated is
included above. For the period October 31, 1997 (commencement of operations)
through December 31, 1997, NAS paid $3,687 in fees to Federated. For the fiscal
year ended December 31, 1998, NAS paid Federated $79,480. For the fiscal year
ended December 31, 1999, NAS/VMF paid Federated $202,180.

GLOBAL 50 FUND

Under the terms of its Investment Advisory Agreement the Global 50 Fund
pays to VMF a fee at the annual rate of 1.00% of the Fund's average daily net
assets. VMF has agreed to waive advisory fees and, if necessary, reimburse
expenses in order to limit total annual Fund operating expenses to 1.20%;
however, this waiver may be discontinued upon prior written notice to
shareholders. For the period October 31, 1997 (commencement of operations)
through December 31, 1997, NAS waived all advisory fees in the amount of $8,799.
For the fiscal year ended December 31, 1998, NAS was paid $101,488 net of
waivers of $32,240. For the fiscal year ended December 31, 1999, NAS/VMF was
paid $239,904, net of waivers in the amount of $126,090.

J.P. Morgan Investment Management Inc. ("J.P. Morgan") is the subadviser of
the Fund. For the investment management services it provides to the Fund, J.P.
Morgan receives an annual fee from VMF in an amount equal to 0.60% on assets up
to $50 million and 0.55% on assets of $50 million and over. These fees are
calculated at an annual rate based on the Fund's average daily net assets. For
the period October 31, 1997 (commencement of operations) through December 31,
1997, NAS paid $5,279 in fees to, J. P. Morgan. For the fiscal year ended
December 31, 1998, NAS paid J.P. Morgan $80,237. For the fiscal year ended
December 31, 1999, NAS/VMF paid J.P. Morgan $219,596.

J.P. Morgan is a 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 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
December 31, 1999, J.P. Morgan and its affiliates had assets under management of
approximately $349 billion, including approximately $3.2 billion in global
equity portfolios.

60
<PAGE> 89

MID CAP INDEX FUND

Under the terms of its Investment Advisory Agreement the Fund pays to VMF a
fee at the annual rate of 0.50% of the Fund's average daily net assets. VMF has
agreed to waive advisory fees and, if necessary, reimburse expenses in order to
limit total annual Fund operating expenses to 0.65%; however, this waiver may be
discontinued upon prior written notice to shareholders. Prior to September 27,
1999, advisory fees were paid under a different fee schedule. For the period
October 31, 1997 (commencement of operations) through December 31, 1997, NAS
waived all advisory fees earned under the prior fee schedule in the amount of
$5,371. For the fiscal year ended December 31, 1998, NAS was paid $50,235 net of
waivers of $24,305, under the prior fee schedule. For the fiscal year ended
December 31, 1999, NAS/VMF was paid $23,009, net of waivers of $100,860 under
the combined fee schedules.

VMF has selected The Dreyfus Corporation ("Dreyfus"), as subadviser for the
Mid Cap Index Fund. For the investment management services it provides to the
Fund, Dreyfus receives an annual fee from VMF in an amount equal to

- 0.10% on assets up to $250 million,
- 0.09% on assets of $250 million and more but less than $500 million,
- 0.08% on assets of $500 million and more but less than $750 million,
- 0.07% on assets of $750 million and more but less than $1 billion, and
- 0.05% on assets of $1 billion and more.

These fees are calculated at an annual rate based on the Fund's average
daily net assets. Prior to September 27, 1999, First Pacific Advisors, Inc.,
Pilgrim Baxter & Associates, Ltd and Rice, Hall, Jones & Associates were the
subadvisers for the Fund. For the period October 31, 1997 (commencement of
operations) through December 31, 1997, NAS paid $3,325 in fees to the previous
subadvisers of the Fund under a different fee schedule. For the fiscal year
ended December 31, 1998, NAS paid the previous subadvisers $46,144. For the
fiscal year ended December 31, 1999, NAS/VMF paid the subadvisers $67,410 under
the combined fee schedules.

Dreyfus, located at 200 Park Avenue, New York, New York 10166, was formed
in 1947. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A., which is a
wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"). As of December
31, 1999, Dreyfus managed or administered approximately $129 billion in assets
for approximately 1.8 million investor accounts nationwide. Mellon is a publicly
owned multibank holding company incorporated under Pennsylvania law in 1971 and
registered under the Federal Bank Holding Company Act of 1956, as amended.
Mellon provides a comprehensive range of financial products and services in
domestic and selected international markets. Mellon is among the twenty-five
largest bank holding companies in the United States based on total assets.
Through its subsidiaries, including Dreyfus, Mellon managed more than $488
billion in assets as of December 31, 1999, including approximately $129 billion
in mutual fund assets. As of December 31, 1999, various subsidiaries of Mellon
provided non-investment services, such as custodial or administration services,
for more than $2.2 trillion in assets.

61
<PAGE> 90
BALANCED FUND

Under the terms of its Investment Advisory Agreement, the Balanced Fund
pays to VMF a fee at the annual rate of 0.75% of the Fund's average daily net
assets. VMF has agreed to waive advisory fees and, if necessary, reimburse
expenses in order to limit total annual Fund operating expenses to 0.90%;
however, this waiver may be discontinued upon prior written notice to
shareholders. For the period October 31, 1997 (commencement of operations)
through December 31, 1997, NAS waived all advisory fees in the amount of $1,605.
For the fiscal year ended December 31, 1998, NAS was paid $131,136 net of
waivers of $12,162. For the fiscal year ended December 31, 1999, NAS/VMF was
paid $411,834, net of waivers in the amount of $57,656.

J. P. Morgan is the subadviser of the Fund. For the investment management
services it provides to the Fund, J. P. Morgan receives an annual fee from VMF
in an amount equal to 0.35% on assets up to $100 million, and 0.30% on assets of
$100 million and more. These fees are calculated as an annual rate based upon
the Fund's average daily net assets. Prior to May 1, 2000, Salomon Brothers
Asset Management Inc. ("SBAM") was the Fund's subadviser. For the period October
31, 1997 (commencement of operations) through December 31, 1997, NAS paid $749
in fees to SBAM under a different fee schedule. For the fiscal year ended
December 31, 1998, NAS paid SBAM $66,872. For the fiscal year ended December 31,
1999, NAS/VMF paid SBAM $219,095.

MULTI SECTOR BOND FUND

Under the terms of its Investment Advisory Agreement, the Multi Sector
Bond Fund pays to VMF a fee at the annual rate of 0.75% of the Fund's average
daily net assets. VMF has agreed to waive advisory fees and, if necessary,
reimburse expenses in order to limit total annual Fund operating expenses to
0.90%; however, this waiver may be discontinued upon prior written notice to
shareholders. For the period October 31, 1997 (commencement of operations)
through December 31, 1997, NAS waived all advisory fees in the amount of $1,724.
For the fiscal year ended December 31, 1998, NAS was paid $132,978 net of
waivers of $11,628. For the fiscal year ended December 31, 1999, NAS/VMF was
paid $331,711, net of waivers in the amount of $64,933.

Miller Anderson & Sherrerd, LLP ("MAS") is the subadviser of the Fund. For
the investment management services it provides to the Fund, MAS receives an
annual fee from VMF in the amount of 0.30% on assets up to $200 million, and
0.25% on assets of $200 million and more. These fees are calculated at an annual
rate based upon the Fund's average daily net assets. Prior to May 1, 2000, SBAM
was the Fund's subadviser. For the period October 31, 1997 (commencement of
operations) through December 31, 1997, NAS paid $805 in fees to SBAM under a
different fee schedule. For the fiscal year ended December 31, 1998, NAS paid
SBAM $67,483. For the fiscal year ended December 31, 1999, NAS/VMF paid SBAM
$181,855.

MAS is wholly owned by subsidiaries of Morgan Stanley Dean Witter & Co.
and is a division of Morgan Stanley Dean Witter Investment Management ("MSDW
Investment Management") and provides investment advisory services to employee
benefit plans, endowment funds, foundations and other institutional investors.
As of December 31, 1999, MSDW Investment Management managed in excess of $145
billion in assets.

<PAGE> 91
SMALL CAP VALUE FUND

Under the terms of its Investment Advisory Agreement, the Small Cap Value
Fund pays to VMF a fee at the annual rate of 0.90% of the Fund's average daily
net assets. VMF has agreed to waive advisory fees and, if necessary, reimburse
expenses in order to limit total annual Fund operating expenses to 1.05%;
however, this waiver may be discontinued upon prior written notice to
shareholders. For the period October 31, 1997 (commencement of operations)
through December 31, 1997, NAS waived all advisory fees in the amount of $2,029.
For the fiscal year ended December 31, 1998, NAS was paid $128,764 net of
waivers of $57,626. For the fiscal year ended December 31, 1999, NAS/VMF was
paid $647,442, net of waivers in the amount of $215,56

The Dreyfus Corporation ("Dreyfus") is the subadviser of the Fund. For the
investment management services it provides to the Small Cap Value Fund, Dreyfus
receives an annual fee from VMF in an amount equal to 0.50% on assets up to $200
million and 0.45% on assets of $200 million and more. These fees are calculated
at an annual rate based on each Fund's average daily net assets. For the period
October 31, 1997 (commencement of operations) through December 31, 1997, NAS
paid $1,127 in fees to Dreyfus. For the fiscal year ended December 31, 1998, NAS
paid Dreyfus $103,550. For the fiscal year ended December 31, 1999, NAS/VMF paid
Dreyfus $479,449.

SMALL CAP GROWTH FUND

Under the terms of its Investment Advisory Agreement, the Fund pays VMF a
fee at the annual rate of 1.10% of the Fund's average daily net assets. The Fund
commenced operations on or around May 1, 1999 and did not incur any investment
advisory fees prior to that date. NAS has agreed to waive advisory fees and, if
necessary, to reimburse expenses in order to limit total annual Fund operating
expenses to 1.30%; however, this waiver may be discontinued upon prior written
notice to shareholders. For the period May 1, 1999 (commencement of operations)
through December 31, 1999, NAS/VMF waived all advisory fees in the amount of
$47,647.

VMF has selected three subadvisers, each of whom will each manage part of
the Fund's portfolio. Each subadviser receives an annual fee from VMF in an
amount equal to 0.60% on assets managed by such subadviser. For the period May
1, 1999 (commencement of operations) through December 31, 1999, NAS/VMF paid
$25,989 to the subadvisers.

63
<PAGE> 92
The Small Cap Growth Fund's subadvisers are:

Franklin Advisers, Inc. ("Franklin")
Miller Anderson & Sherrerd, LLP ("MAS")
Neuberger Berman, LLC ("Neuberger Berman")

Subject to the supervision of VMF and the Trustees, the subadvisers each
manage separate portions of the Fund's assets in accordance with the Fund's
investment objective and policies. With regard to the portion of the Fund's
assets allocated to it, each subadviser shall make investment decisions for the
Fund, and in connection with such investment decisions shall place purchase and
sell orders for securities. No subadviser shall have any investment
responsibility for any portion of the Fund's assets not allocated to it by VMF
for investment management.

Franklin is a wholly owned subsidiary of Franklin Resources, Inc., one of
the oldest mutual fund organizations in the U.S. Franklin and its affiliates act
as investment manager to numerous other investment companies and accounts.
Together with its affiliates, Franklin manages over $235 billion in assets as of
December 31, 1999.

Neuberger Berman and its predecessor firms and affiliates have specialized
in the management of no-load mutual funds since 1950. Neuberger Berman and its
affiliates manage securities accounts that had approximately $54.4 billion of
assets as of December 31, 1999. Neuberger Berman is a member of the NYSE and
other principal exchanges and acts as a broker in the purchase and sale of their
securities for that portion of the Fund's portfolio managed by Neuberger Berman.

STRATEGIC VALUE FUND AND STRATEGIC GROWTH FUND

Under the terms of the Investment Advisory Agreement, each of the
Strategic Value Fund and Strategic Growth Fund pays to VMF a fee at the annual
rate of 0.90% of that Fund's average daily net assets. VMF has agreed to waive
advisory fees and, if necessary, reimburse expenses in order to limit total
annual Fund operating expenses to 1.00%; however, this waiver may be
discontinued upon prior written notice to shareholders. For the period October
31, 1997 (commencement of operations) through December 31, 1997, NAS waived all
advisory fees for the Strategic Value and Strategic Growth Fund in the amount of
$1,715 and $1,645, respectively. For the fiscal year ended December 31, 1998,
NAS was paid $57,340 for the Strategic Value Fund and $19,683 for the Strategic
Growth Fund net of waivers of $19,318 and $31,214, respectively. For the fiscal
year ended December 31, 1999, NAS/VMF was paid $106,922 for the Strategic Value
Fund and $34,683 for the Strategic Growth Fund, net of waivers of $211,042 and
$72,875, respectively.

VMF has selected Strong Capital Management, Inc. ("Strong") to be the
subadviser to the Strategic Value Fund and the Strategic Growth Fund. Strong has
subcontracted with Schafer Capital Management, Inc. ("Schafer Capital") to
subadviser the Strategic Value Fund. For the investment management services
provided to each Fund, Strong receives an annual fee from VMF in an amount equal
to 0.50% on assets of each Fund up to $500 million and 0.45% on assets of each
Fund of $500 million and more. These fees are calculated at an annual rate based
on each Fund's average daily net assets. Pursuant to its subcontract with
Schafer Capital, Strong pays Schafer's subadvisory fees. For the period October
31, 1997 (commencement of operations) through December 31, 1997, NAS paid

<PAGE> 93
$953 and $914, respectively for the Strategic Value and Strategic Growth
Funds, in fees to the subadviser. For the fiscal year ended December 31, 1998,
Strong was paid $42,588 and $28,276 for the Strategic Value Fund and the
Strategic Growth Fund, respectively. For the fiscal year ended December 31,
1999, Strong was paid $78,669 and $157,732 for the Strategic Value Fund and the
Strategic Growth Fund, respectively.

Strong began conducting business in 1974. Since then, its principal
business has been providing continuous investment supervision for individuals
and institutional accounts. Strong also acts as investment advisor for each of
the mutual funds within the Strong Family of Funds. As of December 31, 1999,
Strong had over $38 billion under management. Strong's principal mailing address
is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Richard S. Strong is the
controlling shareholder of Strong.

Schafer Capital's controlling person and sole shareholder is David K.
Schafer. Mr. Schafer has been in the investment management business for more
than 25 years and founded Schafer Capital in 1981.

SMALL COMPANY FUND

On September 1, 1999, at the time of the transfer of investment advisory
services from NAS to VMF, the management fee payable by the Fund was split
between investment advisory and fund administration agreements Under these
agreements, the revised management fee for the Fund is 0.93% on the Fund's first
$250 million of average daily net assets, 0.95% on the next $750 million and
0.96% on assets of more than $1 billion, based on the Fund's average daily net
assets. Prior to September 1, 1999, the Fund paid NAS a fee at the annual rate
of 1.00% of the Fund's average daily net assets. VMF has agreed to waive
advisory fees and, if necessary, to reimburse expenses in order to limit total
annual Fund operating expenses to 1.25%; however, this waiver may be
discontinued upon prior written notice to shareholders. During the fiscal years
ended December 31, 1998 and 1997, NAS received advisory fees in the amount of
$3,598,194 and $2,520,540 respectively. For the fiscal year ended December 31,
1999, NAS/VMF received advisory fees of $3,805,726 under the combined fee
schedules.

VMF has selected four subadvisers, each of whom will each manage part of
the Fund's portfolio. In addition, VMF will manage a portion of the Fund's
portfolio itself. Each subadviser receives an annual fee from VMF in an amount
equal to 0.60% on assets managed by a subadviser. During the fiscal years ended
December 31, 1998 and 1997, the subadvisers were paid $2,119,688, $1,402,367 and
$483,472 by NAS and for the fiscal year ended December 31, 1999, the subadvisers
were paid $2,336,764 by NAS/VMF.

The Small Company Fund's subadvisers are:
The Dreyfus Company
Neuberger Berman LLC
Strong Capital Management, Inc.
Lazard Asset Management

Prior to May 1, 2000, Credit Suisse Asset Management, LLC also served as a
subadviser to the Small Company Fund.

65
<PAGE> 94
Subject to the supervision of VMF and the Trustees, the subadvisers each
manage separate portions of the Fund's assets in accordance with the Fund's
investment objective and policies. With regard to the portion of the Fund's
assets allocated to it, each subadviser and VMF shall make investment decisions
for the Fund, and in connection with such investment decisions shall place
purchase and sell orders for securities. No subadviser shall have any investment
responsibility for any portion of the Fund's assets not allocated to it by VMF
for investment management.

Below is a brief description of each of the subadvisers.

THE DREYFUS CORPORATION. Dreyfus, located at 200 Park Avenue, New York,
New York 10166, was formed in 1947 and serves as one of the Small Company Fund's
subadvisers. Dreyfus is a wholly-owned subsidiary of Mellon Bank, N.A., which is
a wholly-owned subsidiary of Mellon Bank Corporation ("Mellon"). As of December
31, 1999, Dreyfus managed or administered approximately $129 billion in assets
for approximately 1.8 million investor accounts nationwide. Mellon is a publicly
owned multibank holding company incorporated under Pennsylvania law in 1971 and
registered under the Federal Bank Holding Company Act of 1956, as amended.
Mellon provides a comprehensive range of financial products and services in
domestic and selected international markets. Mellon is among the twenty-five
largest bank holding companies in the United States based on total assets.
Through its subsidiaries, including Dreyfus, Mellon managed more than $488
billion in assets as of December 31, 1999, including approximately $129 billion
in mutual fund assets. As of December 31, 1999, various subsidiaries of Mellon
provided non-investment services, such as custodial or administration services,
for more than $2.2 trillion in assets.

NEUBERGER BERMAN L.L.C. Neuberger Berman also serves as a subadviser to
the Fund. Neuberger Berman and its predecessor firms have specialized in the
management of no-load mutual funds since 1950. Neuberger Berman and its
affiliates manage securities accounts that had approximately $54.4 billion of
assets as of December 31, 1999. Neuberger Berman is a member firm of the NYSE
and other principal exchanges and acts as a broker in the purchase and sale of
their securities for that portion of the Fund's portfolio managed by Neuberger
Berman.

STRONG CAPITAL MANAGEMENT, INC. Strong, which also serves as one of the
subadvisers for the Fund, began conducting business in 1974. Since then, its
principal business has been providing continuous investment supervision for
individuals and institutional accounts. Strong also acts as investment adviser
for each of the mutual funds within the Strong Family of Funds. As of December
31, 1999, Strong had over $38 billion under management. Strong's principal
mailing address is P.O. Box 2936, Milwaukee, Wisconsin 53201. Mr. Richard S.
Strong is the controlling shareholder of Strong.

LAZARD ASSET MANAGEMENT. Effective October 1, 1998, Lazard began serving
as one of the subadvisers to the Fund. Lazard, a division of Lazard Freres & Co.
LLC, a New York limited liability company, manages approximately $75 billion, as
of December 31, 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 has offices in New York and San
Francisco. In addition, Lazard provides asset management services worldwide
through its affiliates in London, Tokyo, Sydney, Frankfurt and Cairo. Lazard's
address is 30 Rockefeller Center, New York, New York 10112.

<PAGE> 95

INCOME FUND

Under the terms of its Investment Advisory Agreement, the Fund pays VMF a
fee at the annual rate of 0.45% of the Fund's average daily net assets. VMF has
voluntarily agreed to waive advisory fees and, if necessary, to reimburse
expenses in order to limit total annual Fund operating expenses to 0.75% of the
Fund's average daily net assets; however, this waiver may be discontinued upon
prior written notice to shareholders. The Fund commenced operations on January
20, 1998. For the period from commencement of operations to December 31, 1998,
NAS received $5,839 in fees, net of waivers and reimbursements of $8,115. For
the fiscal year ended December 31, 1999, NAS/VMF received $21,163 in fees, net
of waivers in the amount of $9,754.

VMF has selected two subadvisers, each of whom will manage part of the
Fund's portfolio. Each subadviser receives an annual fee from VMF based on the
average daily net assets of the portion of the Fund managed by that subadviser
as specified below:

<TABLE>
<CAPTION>
SUBADVISORY FEES AVERAGE DAILY NET ASSETS
---------------- ----------------------
<S> <C>
0.25% on the first $100 million
0.15% on assets in excess of $100 million
</TABLE>

The fees for each of the subadvisers are subject to the following annual
minimum fees: $15,000 for NCM Capital and $25,000 for Smith Graham. For the
fiscal year ended December 31, 1999, NAS paid $15,000 and $25,000 in fees to NCM
Capital and Smith Graham, respectively. For the fiscal year ended December 31,
1998, NAS paid $15,000 and $25,000 in fees to NCM Capital and Smith Graham,
respectively.

Below is a brief description of each of the subadvisers.

NCM CAPITAL MANAGEMENT GROUP, INC. NCM Capital was founded in 1986 and
serves as one of the Fund's subadvisers. As of December 31, 1999, NCM Capital
had approximately $5.7 billion in assets under management.

NCM Capital is a wholly-owned subsidiary of Sloan Financial Group, Inc.
Both NCM Capital and Sloan Financial Group, Inc. are located at 103 West Main
Street, 4th Floor, Durham, North Carolina 27701. Sloan Financial Group, Inc. is
a corporation of which Maceo K. Sloan, CFA, Chairman, President and Chief
Executive Officer of NCM Capital, owns 72% ; Justin F. Beckett, Executive Vice
President and director of NCM Capital, owns 28%.

SMITH GRAHAM & CO. ASSET MANAGERS, L.P. Smith Graham also services as a
subadviser to the Fund. Its corporate offices are located at 6900 Chase Tower,
600 Travis Street, Houston, Texas 77002-3007. Smith Graham serves as an
investment adviser to a variety of corporate, foundation, public, Taft Hartley
and mutual fund clients. The firm provides domestic, global and international
money management. As of December 31, 1999, Smith Graham managed approximately
$2.2 billion of assets.

Smith Graham is 60% owned by its Managing General Partner, Smith Graham &
Co., Inc., while 40% of the firm is owned by the Dutch based Robecco Group.
Smith Graham & Co., Inc. is wholly owned by Gerald B. Smith and Jamie G. House.

67
<PAGE> 96
GROWTH FOCUS FUND II

As described in the prospectus, the Growth Focus Fund II is subject to
base investment advisory fees that may be adjusted if a Fund out- or
under-performs a stated benchmark. Set forth below is information about the
advisory fee arrangements of the Fund:
<TABLE>
<CAPTION>

FUND BENCHMARK REQUIRED EXCESS BASE ADVISORY HIGHEST POSSIBLE LOWEST POSSIBLE
PERFORMANCE FEE ADVISORY FEE AT ADVISORY FEE AT
EACH BREAK POINT EACH BREAK POINT
<S> <C> <C> <C> <C> <C>
Growth Focus II Russell 1000 12.0% 0.90% for assets 1.10% 0.68%
Growth up to $500 million,

0.80% for assets 0.98% 0.62%
of $500 million
and more but less
than $2 billion,

0.75% for assets of 0.91% 0.59%
$2 billion and more
</TABLE>

The performance adjustment works as follows: If the Growth Focus Fund II
outperforms the Russell 1000 Growth Index by more than 12.0% over a 36 month
period, the advisory fees will increase from 0.90% to 1.12% for assets under
$500 million. If, however, the Fund underperforms its benchmark by 12.0% over a
36 month period, the advisory fees would go down to 0.68%. These
performance-based fees will only be charged once a Fund has been in operation
for at least one year, will be implemented incrementally over the first three
years of the Fund's operations and will comply with all applicable Securities
and Exchange Commission ("SEC") rules.

VMF has agreed to waive advisory fees and, if necessary, reimburse
expenses in order to limit total annual Fund operating expenses to 0.35% until
at least December 31, 2000.

Turner Investment Partners, Inc. ("Turner") is the subadviser of the Fund.
For the subadvisory services it provides to the Fund, Turner receives a base
subadvisory fee that may be adjusted if a Fund out- or under-performs a stated
benchmark. Set forth below is information about the subadvisory fee arrangements
of the Fund:

FUND BENCHMARK REQUIRED EXCESS BASE ADVISORY HIGHEST POSSIBLE LOWEST POSSIBLE
PERFORMANCE FEE SUBADVISORY FEE AT SUBADVISORY FEE AT
EACH BREAK POINT EACH BREAK POINT
<S> <C> <C> <C> <C> <C>
Growth Focus II Russell 1000 12.0% 0.55% for assets 0.77% 0.33%
Growth up to $500 million,

0.45% for assets 0.67% 0.27%
of $500 million
and more but less
than $2 billion,

0.40% for assets of 0.57% 0.24%
$2 billion and more
</TABLE>

These performance-based fees will be paid from the investment advisory
fees received by VMF and will be subject to the same conditions.

Turner was founded in 1990 and is located at 1235 Westlakes Drive, Berwyn,
Pennsylvania 19312. It is a registered investment adviser under the Investment
Advisers Act of 1940. Turner

68
<PAGE> 97

serves as investment adviser to other investment
companies, as well as separate investment portfolios. As of June 1, 2000, the
Fund had not commenced operations.

Villanova Global Asset Management Trust ("VGAMT"), manages the investment
of the assets and supervises the daily business affairs of each of the Emerging
Markets Fund, International Growth Fund, Global Leaders Fund, European Growth
Fund and Global Small Companies Fund pursuant to a joint Investment Advisory
Agreement with the Trust (the "Investment Advisory Agreement"). VGAMT pays the
compensation of the Trustees affiliated with VGAMT. The officers of the Trust
receive no compensation from the Trust. VGAMT also pays all expenses incurred by
it in providing service under the Investment Advisory Agreement other than the
cost of investments (including brokerage commissions and other transaction
costs).

The Investment Advisory Agreement also provides that VGAMT shall not be
liable for any act or omission in providing advisory services, or for any loss
arising out of any investment, unless VGAMT has acted with willful misfeasance,
bad faith, or gross negligence in the performance of its duties, or by reason of
VGAMT's reckless disregard of its obligations and duties under the Agreement.
After an initial two-year period, the Investment Advisory Agreement must be
approved each year by the Trust's board of trustees or shareholders in order to
continue. Each Investment Advisory Agreement terminates automatically if it is
assigned. They may be terminated without penalty by vote of a majority of the
outstanding voting securities, or by either party, on not less than 60 days
written notice.

VGAMT, a Delaware business trust, is a wholly owned subsidiary of
Nationwide Global Holding, Inc., "NGH") a holding company. Nationwide
Corporation owns 100% of the common stock of NGH and as such may control NGH. As
stated previously, Nationwide Mutual Insurance Company and Nationwide Mutual
Fire Insurance Company together own all of the common stock of Nationwide
Corporation.

Under the terms of the Advisory Agreement, each of the Emerging Markets
Fund, International Growth Fund, Global Leaders Fund, European Growth Fund and
Global Small Companies Fund pays to VGAMT a fee at an annual rate of 1.15%,
1.00%, 1.00%, 1.00% and 1.15% respectively, of the Fund's average daily net
assets. VGAMT has agreed to waive advisory fees and, if necessary, reimburse
expenses in order to limit total annual Fund operating expenses for each of the
Emerging Markets Fund, International Growth Fund, Global Leaders Fund, European
Growth Fund and Global Small Companies Fund to 1.75%, 1.60%, 1.55%, 1.60% and
1.75%, respectively. This waiver may be discontinued upon prior written notice
to shareholders.

FUND ADMINISTRATION SERVICES

Under the terms of a Fund Administration Agreement, VSA provides various
administration and accounting services, including daily valuation of the
remaining Fund's shares and preparation of financial statements, tax returns and
regulatory reports.

Total Return Fund, Capital Appreciation Fund, Government Bond Fund, and
Money Market Fund. Villanova SA Capital Trust ("VSA") received a fee, calculated
daily and paid monthly at an annual rate of 0.05% for each Fund's average net
assets on the first $1 billion of assets and 0.04% on the assets of $1 billion
and more. This fee was first implemented November 1, 1997.

All Other Funds. For these services, each of the remaining Funds pays VSA
an annual fee in the amount of 0.07% of the Fund's first $250 million of average
daily net assets, 0.05% on the next $750 million and 0.04% on assets of more
than $1 billion.

<PAGE> 98

Effective September 1, 1999, the fund administration services previously
performed for the Funds by Nationwide Advisory Services, Inc. ("NAS") were
transferred to Villanova SA Capital Trust ("VSA"), an affiliate of NAS and an
indirect subsidiary of Nationwide Financial Services, Inc. In addition, BISYS
Fund Services Ohio, Inc. performs certain fund administration services pursuant
to a Sub-Administration Agreement also effective September 1, 1999. After these
changes were implemented, there was no change in the fees charged for fund
administration services for each of the Funds.

The fund administration fees are as follows:
<TABLE>
<CAPTION>

1997
1999 1999 1998 1998 Administration Fees
Fund Received Waived Received Waived Waived
------ ---------- ---------- -------- -------- --------

<S> <C> <C> <C> <C> <C>
Strategic Growth Fund $22,082 $ --- $3,959 $ --- $128
Strategic Value Fund 11,014 --- 5,962 --- 134
Equity Income Fund 14,732 --- 5,513 --- 147
High Income Bond Fund 36,554 --- 13,909 --- 645
Balanced Fund 43,819 --- 13,374 --- 150
Multi Sector Bond Fund 37,020 --- 13,497 --- 161
Small Cap Value Fund 67,123 --- 14,497 --- 158
Small Cap Growth Fund(1) 49,932 43,393 N/A N/A N/A
Money Market Fund 799,936 --- 608,781 N/A 89,708
Small Company Fund(1) 88,960 --- N/A N/A N/A
Total Return Fund 1,068,669 --- 947,890 N/A 135,272
Capital Appreciation Fund 539,831 --- 366,788 N/A 37,284
Government Bond Fund 386,796 --- 301,517 N/A 39,441
Global 50 Fund 25,620 --- 9,361 --- 616
Mid Cap Index Fund 9,880 --- 4,969 --- 358
Income Fund(2) 4,809 --- 2,171 --- N/A
Growth Focus Fund II(3) N/A N/A N/A N/A N/A
Quest Fund II(3) N/A N/A N/A N/A N/A
VIP Emerging Markets Fund(4) N/A N/A N/A N/A N/A
VIP International Growth Fund(4) N/A N/A N/A N/A N/A
VIP Global Leaders Fund(4) N/A N/A N/A N/A N/A
VIP European Growth Fund(4) N/A N/A N/A N/A N/A
VIP Global Small Companies Fund(4)

</TABLE>

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

(1) The Small Cap Growth Fund commenced operations on May 1, 1999.

(2) The Income Fund commenced operations on January 20, 1998.

(3) The Growth Focus Fund II and Quest Fund II commenced operations as of
July, 2000.

(4) The VIP Emerging Markets, VIP International Growth, VIP Global Leaders,
VIP European Growth, and VIP Global Small Companies Funds commenced
operations as of September 1, 2000.

<PAGE> 99

ADMINISTRATIVE SERVICE PLAN

Under the terms of an Administrative Services Plan, a Fund is permitted to
enter Servicing Agreements with servicing organizations who agree to provide
certain administrative support services for the Funds. Such administrative
support services include but are not limited to the following: establishing and
maintaining shareholder accounts, processing purchase and redemption
transactions, arranging for banks 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 to the Funds held beneficially by its customers. In consideration for
providing administrative support services, Nationwide Financial Services, Inc.
and other entities with which the Trust may enter into Servicing Agreements
(which may include NAS) will receive a fee, computed at the annual rate of up to
0.25% of the average daily net assets of the shares of the Funds held by
customers of Nationwide Financial Services, Inc. or such other entity.

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 Custodian Agreement. Pursuant to the Custodian Agreement,
Fifth Third utilizes the services of the global custody network of Bank of New
York for foreign custody of the Funds' assets. The Custodian performs no
managerial or policy making functions for the Funds.

LEGAL COUNSEL

Stradley Ronon Stevens & Young, LLP, 2600 Commerce Square, Philadelphia,
PA 19103, serves as the Trust's legal counsel.

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP, 100 E. Broad Street, Columbus, Ohio 43215
serves as independent accountants for the Trust.

TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Nationwide Investors Services, Inc. (NIS), Three Nationwide Plaza,
Columbus, Ohio 43215 is the Transfer Agent and Dividend Disbursing Agent for the
Funds. NIS is an affiliate of VMF. For these services, NIS is paid a fee by each
Fund at the annual rate of 0.01% of that Fund's average daily

71
<PAGE> 100

net assets. Management believes the charges for the services performed are
comparable to fees charged by other companies performing similar services.

72
<PAGE> 101

BROKERAGE ALLOCATIONS

VMF or VGAMT (or a subadviser) is responsible for decisions to buy and
sell securities and other investments for the Funds and 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 OTC markets, there is generally no commission, but the
price includes a spread between the dealer's purchase and sale price which makes
up the dealer's profit. In underwritten offerings, the price includes a
disclosed, fixed commission or discount. Most short-term obligations and other
debt obligations are normally traded on a "principal" rather than agency basis.
This may be done through a dealer (e.g. 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. A dealer's profit, if any, is the difference, or
spread, between the dealer's purchase and sale price for the obligation.

The primary consideration in portfolio security transactions is "best
price-best execution," i.e., prompt and reliable execution at the most favorable
prices and in the most effective manner possible taking into account all
considerations discussed below. VMF, VGAMT or a subadviser always attempts to
achieve best execution, and it has complete freedom as to the markets in and the
broker-dealers through which it seeks this result. Subject to the requirement of
seeking best price-best execution, securities may be bought from or sold to
broker-dealers who have furnished statistical, research, and other information
or services to VMF, VGAMT or a subadviser. In placing orders with such
broker-dealers, VMF, VGAMT or a subadviser will, where possible, take into
account the comparative usefulness of such information. Such information is
useful to VMF, VGAMT, or a subadviser even though its dollar value may be
indeterminable, it does not directly benefit a Fund and its receipt or
availability generally does not reduce VMF's, VGAMT's or a subadviser's normal
research activities or expenses.

Fund portfolio transactions may be effected with broker-dealers who have
assisted investors in the purchase of the variable life insurance policies or
variable annuity contracts. 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 served by affiliated companies of VMF, VGAMT or a
subadviser and their affiliates. Although such concurrent authorizations
potentially could be either advantageous or disadvantageous to a Fund, they are
effected for a Fund only when VMF, VGAMT or a subadviser believes that to do so
is in the best interest of the Fund. When such concurrent authorizations occur,
the executions will be allocated in an equitable manner.

In purchasing and selling investments for the Funds, it is the policy of
each of the subadvisers to obtain best execution at the most favorable prices
through responsible broker-dealers. The determination of what may constitute
best execution in a securities transaction by a broker involves a

73
<PAGE> 102

number of considerations, including the overall direct net economic result to
the Fund (involving both price paid or received and any commissions and other
costs paid), the efficiency with which the transaction is effected, the ability
to effect the transaction at all when a large block is involved, the
availability of the broker to stand ready to execute possibly difficult
transactions in the future, and the financial strength and stability of the
broker. These considerations are judgmental and are weighed by VMF, VGAMT, or
subadviser in determining the overall reasonableness of securities executions
and commissions paid. In selecting broker-dealers, 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.

VMF or VGAMT 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 that such commission is reasonable in relation
to the value of the brokerage and/or research services as defined in Section
28(e) of the Securities Exchange Act of 1934 which have been 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 VMF, VGAMT or a subadviser is considered to be in addition to and not in lieu
of services required to be performed by VMF or VGAMT under its investment
advisory agreement or by the subadviser under its subadvisory agreement with VMF
or VGAMT. The fees to VMF, VGAMT or to each of the subadvisers is not reduced by
reason of its receiving any brokerage and research services. The research
services provided by broker-dealers can be useful to VMF, VGAMT or a subadviser
in serving its other clients. Subject to the policy of VMF, VGAMT or the
subadvisers to obtain best execution at the most favorable prices through
responsible broker-dealers, VMF, VGAMT or a subadviser also may consider the
broker-dealer's sale of shares of any fund for which VMF, VGAMT or the
subadviser serves as investment adviser, subadviser or administrator.

<PAGE> 103

The following tables list the amount of brokerage commissions (excluding
directed brokerage) and the amount of transactions and related commissions paid
to brokers providing research and other services to the subadvisers for the
following periods:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------------------------------------
TRANSACTIONS RELATED TO

--------------------
BROKERAGE OR RESEARCH SERVICES(1)

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

----------------------------------------------------------------------------------------------------
FUND COMMISSION $ AMOUNT COMMISSION
----- ----------- --------- -----------

----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Strategic Growth Fund $348,253 $77,864,109 $98,375

----------------------------------------------------------------------------------------------------
Strategic Value Fund 66,667 5,013,018 7,859

----------------------------------------------------------------------------------------------------
Equity Income Fund 27,780 8,088,262 8,659

----------------------------------------------------------------------------------------------------
High Income Bond Fund 379 -- --

----------------------------------------------------------------------------------------------------
Balanced Fund 47,558 858,024 1,248

----------------------------------------------------------------------------------------------------
Multi Sector Bond Fund -- -- --

----------------------------------------------------------------------------------------------------
Small Cap Value Fund 1,199,913 124,965,494 316,630

----------------------------------------------------------------------------------------------------
Global 50 Fund 102,624 -- --

----------------------------------------------------------------------------------------------------
Mid Cap Index Fund 60,773 -- --

----------------------------------------------------------------------------------------------------
Small Cap Growth Fund(2) 16,381 6,004,581 9,600

----------------------------------------------------------------------------------------------------
Small Company Fund(3) 996,995 141,963,141 282,969

----------------------------------------------------------------------------------------------------
Income Fund -- -- --

----------------------------------------------------------------------------------------------------
Total Return Fund 1,982,239 -- --

----------------------------------------------------------------------------------------------------
Capital Appreciation Fund 651,886 -- --

----------------------------------------------------------------------------------------------------
Government Bond Fund -- -- --

----------------------------------------------------------------------------------------------------
Growth Focus Fund II(4) N/A N/A N/A

----------------------------------------------------------------------------------------------------
Quest Fund II(4) N/A N/A N/A

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

VIP Emerging Markets Fund(5) N/A N/A N/A

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

VIP International Growth Fund(5) N/A N/A N/A

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

VIP Global Leaders Fund(5) N/A N/A N/A

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

VIP European Growth Fund(5) N/A N/A N/A
VIP Global Small Companies Fund(5) N/A N/A N/A

</TABLE>

<PAGE> 104

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

(1) This information has been provided by the respective Fund's subadvisers,
and the information is believed to be reliable, however, the Funds have not
independently verified it.

(2) The Small Cap Growth Fund commenced operations on May 1, 1999.

(3) The information provided for `$ Amount' under Transactions Related to
Brokerage or Research Services for this Fund does not reflect the impact of
$15,200 of commissions because the former subadviser to which this
information pertains was unable to furnish the related transactions `$
Amount'.

(4) The Growth Focus Fund II and Quest Fund II commenced operations as of
July ____, 2000.

(5) The VIP Emerging Markets, VIP International Growth, VIP Global Leaders, VIP
European Growth, and VIP Global Small Companies Funds commenced operations
as of September 1, 2000.

-------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1998

-------------------------------------------------------------------------------------------------------------------
TRANSACTIONS RELATED TO
--------------------
BROKERAGE OR RESEARCH SERVICES

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

FUND COMMISSION $ AMOUNT COMMISSION
----- ----------- --------- -----------

<S> <C> <C> <C>
Strategic Growth Fund $44,342 $ -- $ --

Strategic Value Fund 40,906 -- --

Equity Income Fund 16,519 7,066,374 6,448

High Income Bond Fund 72 -- --

Balanced Fund 20,024 641,284 1,224

Multi Sector Bond Fund -- -- --

Small Cap Value Fund 249,877 -- --

Global 50 Fund 37,313 -- --

Mid Cap Index Fund 23,405 -- --

Small Cap Growth Fund * -- -- --

Small Company Fund 1,252,284 3,155,796 13,596

Income Fund -- -- --

Total Return Fund 881,930 -- --

Capital Appreciation Fund 699,978 -- --

Government Bond Fund -- -- --

-------------------------------------------------------------------------------------------------------------------
</TABLE>

* The Small Cap Growth Fund commenced operations on May 1, 1999.

76
<PAGE> 105
<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997

-------------------------------------------------------------------------------------------------------
TRANSACTIONS RELATED TO
BROKERAGE OR RESEARCH SERVICES

-------------------------------------------------------------------------------------------------------
FUND COMMISSION $ AMOUNT COMMISSION

-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Strategic Growth Fund $2,117 $--0-- $ - 0 -

-------------------------------------------------------------------------------------------------------
Strategic Value Fund 2,664 --0-- -- 0 --

-------------------------------------------------------------------------------------------------------
Equity Income Fund 1,319 1,018,166 910

-------------------------------------------------------------------------------------------------------
High Income Bond Fund --0-- --0-- --0--

-------------------------------------------------------------------------------------------------------
Balanced Fund 1,038 315,101 420

-------------------------------------------------------------------------------------------------------
Multi Sector Bond Fund --0-- --0-- --0--

-------------------------------------------------------------------------------------------------------
Small Cap Value Fund 2,317 3,045 30

-------------------------------------------------------------------------------------------------------
Global 50 Fund 8,058 --0-- --0--

-------------------------------------------------------------------------------------------------------
Mid Cap Index Fund 3,479 509,403 828

-------------------------------------------------------------------------------------------------------
Small Company Fund 887,672 -- --

-------------------------------------------------------------------------------------------------------
Total Return Fund 924,959 -- --
-------------------------------------------------------------------------------------------------------
Capital Appreciation Fund 327,691 -- --
</TABLE>

<TABLE>
<S> <C> <C> <C>
-------------------------------------------------------------------------------------------------------
Government Bond Fund --0-- -- --

-------------------------------------------------------------------------------------------------------
Money Market Fund --0-- -- --
-------------------------------------------------------------------------------------------------------
</TABLE>

Under the 1940 Act, "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 1940 Act, is a member
under certain conditions, in accordance with Rule 10f-3 under the 1940 Act.

Certain of the Funds contemplate that, consistent with the policy of
obtaining best results, brokerage transactions may be conducted through
"affiliated broker/dealers," as defined in the 1940 Act. Under the 1940 Act,
commissions paid by a Fund to an "affiliated broker/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
its judgment, 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/dealer on
comparable transactions for its most favored unaffiliated customers, except for
accounts for which the affiliated broker/dealer acts as

77
<PAGE> 106

a clearing broker for another brokerage firm and customers of an affiliated
broker/dealer considered by a majority of the independent trustees not to be
comparable to the Fund. The Fund does not deem it practicable and in its best
interests to solicit competitive bids for commissions on each transaction.
However, consideration regularly is given to information concerning the
prevailing level of commissions charged on comparable transactions by other
brokers during comparable periods of time.

The following table lists the amount of brokerage commissions paid to
affiliated brokers:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------------------------
COMMISSIONS

-----------------------------------------------------------------------------------------------------------------
FUND BROKER 1999 1998 1997

-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balanced Fund Salomon Smith Barney $3,220 $2,010 N/A

-----------------------------------------------------------------------------------------------------------------
Small Company Fund Lazard Freres $290 $542 N/A

-----------------------------------------------------------------------------------------------------------------
Small Company Fund Neuberger & Berman $42,706 $31,801 $35,069

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

During the year ended December 31, 1999, commissions paid by the Balanced
Fund to Saloman Smith Barney represented 6.8% of total commissions paid by the
Fund or 0.004% of the aggregate dollar amount of transactions involving the
payment of commissions. During the year ended December 31, 1999, commissions
paid by the Small Company Fund to Lazard Freres and Neuberger & Berman
represented less than 0.03% and 4.3%, respectively, of total commissions paid by
the Fund or 0.000007% and 0.001%, respectively, of the aggregate dollar amount
of transactions involving the payment of commissions.

As of December 31, 1999, the following Funds held investments in their
regular broker/dealers as follows:

--------------------------------------------------------------------------------------
FUND SHARES/ \
SECURITY PRINCIPAL VALUE

--------------------------------------------------------------------------------------
Capital Appreciation Fund

Merrill Lynch & Co. 130,100 $10,863,350

--------------------------------------------------------------------------------------
Equity Income Fund

Merrill Lynch & Co. 3,400 $283,900
Morgan Stanley Dean Witter & Co. 3,400 $485,350

--------------------------------------------------------------------------------------
Strategic Growth Fund

Donaldson, Lufkin, Jenrette, Inc. 15,500 $749,813
Lehman Brother Holding, Inc. 18,500 $1,566,719
Paine Webber Group, Inc. 29,500 $1,144,969

--------------------------------------------------------------------------------------
Strategic Value Fund

Merrill Lynch & Co. 6,500 $542,750

--------------------------------------------------------------------------------------
Total Return Fund

Morgan Stanley Dean Witter & Co. 165,000 $23,553,750

--------------------------------------------------------------------------------------------
</TABLE>

78
<PAGE> 107
<TABLE>
<CAPTION>

SHARES/ \
SECURITY PRINCIPAL VALUE
<S> <C> <C>
-----------------------------------------------------------------------------------------------------------------
Balanced Fund

Donaldson, Lufkin, Jenrette, Inc. 5.875%, 4/01/02 $150,000 $145,605
Lehman Brother Holding, Inc., 7.25%, 4/15/03 $825,000 $819,244
Merrill Lynch & Co., 6.00%, 11/15/04 $425,000 $402,754
Paine Webber Group, Inc., 7.625%, 12/01/09 $600,000 $584,523

----------------------------------------------------------------------------------------------------------------
Income Fund

Morgan Stanley Dean Witter & Co., 6.875%, 3/01/07 $100,000 $96,237

----------------------------------------------------------------------------------------------------------------
Money Market Fund

Bear Stearns Co., 5.81%, 1/11/00 $10,000,000 $9,983,861
Bear Stearns Co., 5.83%, 1/12/00 $10,000,000 $9,982,186
Bear Stearns Co., 5.83%, 1/20/00 $8,000,000 $7,975,385
Bear Stearns Co., 4.83%, 1/28/00 $10,000,000 $10,000,000
Bear Stearns Co., 5.97%, 2/18/00 $10,000,000 $9,920,400
Bear Stearns Co., 5.86%, 2/22/00 $10,000,000 $9,915,356

Goldman Sachs Group, 5.98%, 1/13/00 $15,000,000 $14,970,100
Goldman Sachs Group, 5.98%, 1/28/00 $25,000,000 $24,887,875
Goldman Sachs Group, 5.97%, 2/14/00 $8,000,000 $7,941,627
Goldman Sachs Group, 5.95%, 2/25/00 $8,000,000 $7,927,278

Merrill Lynch & Co., 5.95%, 1/21/00 $10,000,000 $9,967,111
Merrill Lynch & Co., 5.95%, 1/28/00 $10,000,000 $9,955,375
Merrill Lynch & Co., 5.85%, 1/31/00 $16,000,000 $15,922,000
Merrill Lynch & Co., 5.86%, 1/31/00 $10,000,000 $9,951,167
Merrill Lynch & Co., 5.95%, 1/31/00 $8,118,000 $8,077,748
Merrill Lynch & Co., 5.84%, 2/04/00 $5,045,000 $5,017,174

Morgan Stanley Dean Witter & Co., 6.06%, 1/14/00 $5,000,000 $4,989,059
Morgan Stanley Dean Witter & Co., 6.10%, 1/14/00 $10,000,000 $9,977,972
Morgan Stanley Dean Witter & Co., 5.99%, 1/27/00 $25,000,000 $24,891,847
Morgan Stanley Dean Witter & Co., 5.95%, 2/15/00 $20,000,000 $19,851,250

-----------------------------------------------------------------------------------------------------------------
Multi Sector Bond Fund

Merrill Lynch & Co., 5.97%, 9/11/00 $800,000 $552,587
Merrill Lynch & Co., 6.00%, 11/15/04 $30,000 $28,430
Paine Webber Group, Inc., 7.75%, 9/01/02 $100,000 $100,440
Paine Webber Group, Inc., 7.625%, 12/01/09 $250,000 $243,551

-----------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 108

PURCHASES, REDEMPTIONS AND PRICING OF SHARES

An insurance company purchases shares of the Funds at their net asset
value using purchase payments received on variable annuity contracts and
variable life insurance policies issued by separate accounts. These separate
accounts are funded by shares of the Funds. For certain of the Funds, shares may
also be sold to affiliated Funds of Funds.

All investments in the Trust are credited to the shareholder's account in
the form of full and fractional shares of the designated Fund (rounded to the
nearest 1/1000 of a share). The Trust does not issue share certificates.

The net asset value per share of the Funds is determined once daily, as of
the close of regular trading on the New York Stock Exchange (generally 4 P.M.
Eastern Time) on each business day the New York Stock Exchange is open for
regular trading (and on such other days as the Board determines) and on any
other day during which there is a sufficient degree of trading in each Fund's
portfolio securities that the net asset value of the Fund is materially affected
by changes in the value of portfolio securities. The Trust will not compute net
asset value for the Funds on customary national business holidays, including the
following: Christmas Day, New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day and
Thanksgiving Day. The net asset value per share is calculated by adding the
value of all securities and other assets of a Fund, deducting its liabilities,
and dividing by the number of shares outstanding. [ADD DISCLOSURE REGARDING
GARTMORE FUNDS... WILL NAV BE DETERMINED BASED ON CLOSING TIME OF FOREIGN
EXCHANGES??]

The offering price for orders placed before the close of the New York
Stock Exchange, on each business day the Exchange is open for trading, will be
based upon calculation of the net asset value at the close of regular trading on
the Exchange. For orders placed after the close of regular trading on the
Exchange, or on a day on which the Exchange is not open for trading, the
offering price is based upon net asset value at the close of the Exchange on the
next day thereafter on which the Exchange is open for trading. The net asset
value of a share of each Fund on which offering and redemption prices are based
is the net asset value of that Fund, divided by the number of shares
outstanding, the result being adjusted to the nearer cent. The net asset value
of each Fund is determined by subtracting the liabilities of the Fund from the
value of its assets (chiefly composed of investment securities). Securities of
the Funds listed on national exchanges are valued at the last quoted sales price
on the principal exchange, or if there is no sale on that day, the securities
are valued at the prior day's closing prices as provided by an independent
pricing organization. Securities traded in the over-the-counter market are
valued at the last quoted sale price, or if there is no sale on that day, the
quoted bid price as provided by an independent pricing organization. U.S.
Government securities are valued at the quoted bid price as provided from an
independent pricing organization. Money market obligations with remaining
maturities of 10 days or less purchase by a non-money market fund are valued at
amortized cost in accordance with provisions contained in Rule 2a-7 of the 1940
Act. Other portfolio securities are valued at the quoted prices obtained from an
independent pricing organization which employs a combination of methods,
including among others, the obtaining and comparison of market valuations from
dealers who make markets and deal in such securities and the comparison of
valuations with those of other comparable securities in a matrix of such
securities. The pricing service activities and results are reviewed by an
officer of the Trust. Securities and other assets, for which such market

<PAGE> 109

prices are unavailable or for which an independent pricing organization does not
provide a value or provides a value that does not represent fair value in the
judgement of VSA or its designee, are valued at fair value in accordance with
procedures authorized by the Trustees. For the Money Market Fund, all securities
are valued at amortized cost, which approximates market value, in accordance
with Rule 2a-7 under the Investment Company Act of 1940.

A separate account redeems shares to make benefit or surrender payments
under the terms of its variable annuity contracts or variable life insurance
policies. Redemptions are processed on any day on which the Trust is open for
business and are effected at net asset value next determined after the
redemption order, in proper form, is received by the Trust's transfer agent,
NIS.

The Trust may suspend the right of redemption for such periods as are
permitted under the 1940 Act and under the following unusual circumstances: (a)
when the New York Stock Exchange is closed (other than weekends and holidays) or
trading is restricted; (b) when an emergency exists, making disposal of
portfolio securities or the valuation of net assets not reasonably practicable;
or (c) during any period when the SEC has by order permitted a suspension of
redemption for the protection of shareholders.

ADDITIONAL INFORMATION

DESCRIPTION OF SHARES

The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest of each Fund and to divide
or combine such shares into a greater or lesser number of shares without thereby
exchanging the proportionate beneficial interests in the Trust. Each share of a
Fund represents an equal proportionate interest in that Fund with each other
share. The Trust reserves the right to create and issue a number of different
funds and currently has authorized 16 separate funds. Shares of each fund would
participate equally in the earnings, dividends, and assets of that particular
fund. Upon liquidation of a Fund, shareholders are entitled to share pro rata in
the net assets of such Fund available for distribution to shareholders.

VOTING RIGHTS

Shareholders are entitled to one vote for each share held. Shareholders
may vote in the election of Trustees and on other matters submitted to meetings
of shareholders. Generally, amendment may be made to the Declaration of Trust
without the affirmative vote of a majority of the outstanding voting securities
of the Trust. The Trustees may, however, amend the Declaration of Trust without
the vote or consent of shareholders to:

(1) designate series of the Trust; or

(2) change the name of the Trust; or

(3) apply any omission, cure, correct, or supplement any ambiguous,
defective, or inconsistent provision to conform the Declaration of Trust to the
requirements of applicable federal laws or regulations if they deem it
necessary.

<PAGE> 110

Shares have no pre-emptive or conversion rights. Shares, when issued, are
fully paid and nonassessable. In regard to termination, sale of assets, or
change of investment restrictions, the right to vote is limited to the holders
of shares of the particular Fund affected by the proposal. However, shares of
all funds vote together, and not by fund, in the election of Trustees. If an
issue must be approved by a majority as defined in the 1940 Act., a "majority of
the outstanding voting securities" means the lesser of (i) 67% or more of the
shares present at a meeting when the holders of more than 50% of the outstanding
shares are present or represented by proxy, or (ii) more than 50% of the
outstanding shares. For the election of Trustees only a plurality is required.

SHAREHOLDER INQUIRIES

All inquiries regarding the Trust should be directed to the Trust at the
telephone number or address shown on the cover page of this Prospectus.

TAX STATUS

Each Fund is treated as a separate entity for purpose of the regulated
investment company provisions of the Internal Revenue Code (the "Code"), and,
therefore, the assets, income, and distributions of each Fund are considered
separately for purposes of determining whether or not the Fund qualifies as a
regulated investment company.

Each Fund intends to qualify as a "regulated investment company" under
Subchapter M of the Code. If it qualifies as a regulated investment company, a
Fund will pay no federal income taxes on its taxable net investment income (that
is, taxable income other than net realized capital gains) and its net realized
capital gains that are distributed to shareholders. To qualify under Subchapter
M, a Fund must, among other things: (I) distribute to its shareholders at least
90% of its taxable net investment income (for this purpose consisting of taxable
net investment income and net realized short-term capital gains); (ii) derive at
least 90% of its gross income from dividends, interest, payments with respect to
loans of securities, gains from the sale or other disposition of securities, or
other income (including, but not limited to, gains from options, futures, and
forward contracts) derived with respect to its business of investing in
securities, and (iii) diversify its holdings so that, at the end of each fiscal
quarter of the Fund (a) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. Government securities and other securities, with those
other securities limited, with respect to any one issuer, to an amount no
greater in value than 5% of the Fund's total assets and to not more than 10% of
the outstanding voting securities of the issuer, and (b) not more than 25% of
the market value of the Fund's assets is invested in the securities of any one
issuer (other than U.S. Government securities or securities of other regulated
investment companies) or of two or more issuers that the Fund controls and that
are determined to be in the same or similar trades or businesses or related
trades or businesses. In meeting these requirements, a Fund may be restricted in
in the utilization of certain of the investment techniques described above and
in the respective Fund's Prospectus. As a regulated investment company, a Fund
will be subject to a 4% non-deductible excise tax measured with respect to
certain undistributed amounts of ordinary income and capital gain required to be
but not distributed under a prescribed formula. The formula requires payment to
shareholders during a calendar year of distributions representing at least 98%
of the Fund's taxable ordinary income for the calendar year and at least 98% of
the excess of its capital gains over capital losses realized during the one-year
period ending October 31 during such year, together with any undistributed,
untaxed

<PAGE> 111

amounts of ordinary income and capital gains from the previous calendar year.
The Funds expect to pay the dividends and make the distributions necessary to
avoid the application of this excise tax.

In addition, each Fund intends to comply with the diversification
requirements of Section 817(h) of the Code related to the tax-deferred status of
insurance company separate accounts. To comply with regulations under Section
817(h) of the code, each Fund will be required to diversify its investments so
that on the last day of each calendar quarter no more than 55% of the value of
its assets is represented by any one investment, no more than 70% is represented
by any two investments, no more than 80% is represented by any three investments
and no more than 90% is represented by any four investments. Generally, all
securities of the same issuer are treated as a single investment. For the
purposes of Section 817(h), obligations of the United States Treasury and each
U.S. Government instrumentality are treated as securities of separate issuers.
The Treasury Department has indicated that it may issue future pronouncements
addressing the circumstances in which a Policy owner's control of the
investments of a separate account may cause the Policy owner, rather than the
participating insurance company, to be treated as the owner of the assets held
by the separate account. If the Policy owner is considered the owner of the
securities underlying the separate account, income and gains produced by those
securities would be included currently in the Policy owner's gross income. It is
not known what standards will be set forth in such pronouncements or when, if at
all, these pronouncements may be issued. In the event that rules or regulations
are adopted, there can be no assurance that the Funds will be able to operate as
currently described, or that the Trust will not have to change the investment
goal or investment policies of a Fund. The Board of Trustees reserves the right
to modify the investment policies of a Fund as necessary to prevent any such
prospective rules and regulations from causing a Policy owner to be considered
the owner of the shares of the Fund underlying the separate account.

OTHER TAX CONSEQUENCES

Foreign Transactions. Dividends and interest received by a Fund may be
subject to income, withholding, or other taxes imposed by foreign countries and
U.S. possessions that would reduce the yield on its securities. Tax conventions
between certain countries and the United States may reduce or eliminate these
foreign taxes, however, and many foreign countries do not impose taxes on
capital gains in respect of investments by foreign investors. Policy holders
will bear the cost of foreign tax withholding in the form of increased expenses
to the Fund but generally will not be able to claim a foreign tax credit or
deduction for foreign taxes paid by the Fund by reason of the tax-deferred
status of the policies.

A Fund's transactions, if any, in foreign currencies, forward contracts,
options and futures contracts (including options and forward contracts on
foreign currencies) will be subject to special provisions of the Code that,
among other things, may affect the character of gains and losses recognized by
the Fund (i.e., may affect whether gains or losses are ordinary or capital),
accelerate recognition of income to the Fund, defer Fund losses and cause the
Fund to be subject to hyper inflationary currency rules. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (a) will require a Fund to mark-to-market
certain types of its positions (i.e., treat them as if they were closed out) and
(b) may cause the Fund to recognize income without receiving cash with which to
pay dividends or make distributions in amounts necessary to satisfy the
distribution requirements for avoiding income and excise taxes. A

<PAGE> 112

Fund will monitor its transactions, will make the appropriate tax elections and
will make the appropriate entries in its books and records when it acquires any
foreign currency, forward contract, option, futures contract or hedged
investment so that (i) neither the Fund nor its shareholders will be treated as
receiving a materially greater amount of capital gains or distributions than
actually realized or received, (ii) the Fund will be able to use substantially
all of its losses for the fiscal years in which the losses actually occur, and
(iii) the Fund will continue to qualify as a regulated investment company.

Investment in Passive Foreign Investment Companies. If a Fund purchases
shares in certain foreign entities classified under the Code as "passive foreign
investment companies" ("PFICs"), such Fund may be subject to federal income tax
on a portion of an "excess distribution" or gain from the disposition of the
shares, even though the income may have to be distributed by the Fund to its
shareholders, the Contracts. In addition, gain on the disposition of shares in a
PFIC generally is treated as ordinary income even though the shares are capital
assets in the hands of the Fund. Certain interest charges may be imposed on the
Fund with respect to any taxes arising from excess distributions or gains on the
disposition of shares in a PFIC.

The Fund may be eligible to elect to include in its gross income its share
of earnings of a PFIC on a current basis. Generally, the election would
eliminate the interest charge and the ordinary income treatment on the
disposition of stock, but such an election may have the effect of accelerating
the recognition of income and gains by the Fund compared to a fund that did not
make the election. In addition, information required to make such an election
may not be available to the Fund.

On April 1, 1992 proposed regulations of the Internal Revenue Service were
published providing a mark-to-market election for shares in certain PFICs held
by regulated investment companies. If the Fund is able to make the foregoing
election in the first year in which it is permitted to do so, it may be able to
avoid the interest charge (but not the ordinary income treatment) on disposition
of the PFIC stock by each year marking-to-market the stock (that is, by treating
it as if it were sold for fair market value on the last day of the year). Such
an election could also result in acceleration of income to the Fund.

Derivative Instruments. The use of derivatives strategies, such as
purchasing and selling (writing) options and futures and entering into forward
currency contracts, involves complex rules that will determine for income tax
purposes the character and timing of recognition of the gains and losses a Fund
realizes in connection therewith. Gains from the disposition of foreign
currencies (except certain gains therefrom that may be excluded by future
regulations), and income from transactions in options, futures, and forward
currency contracts derived by a Fund with respect to its business of investing
in securities or foreign currencies, will qualify as permissible income.
However, income from the disposition of options and futures (other than those on
foreign currencies) will be subject to a 30% limitation if they are held for
less than three months. Income from the disposition of foreign currencies, and
options, futures, and forward contracts on foreign currencies, that are not
directly related to the Fund's principal business of investing in securities (or
options and futures with respect to securities) also will be subject to a 30%
limitation if they are held for less than three months.

If the Fund satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) for the offsetting hedging position during the
period of the hedge for purposes of determining whether the Fund satisfies the
30% limitation on the gross income that can be derived from the sale or other
disposition

<PAGE> 113

of securities or derivative instruments that were held for less than three
months. Thus, only the net gain (if any) from the designated hedge will be
included in gross income for purposes of that limitation. The Fund intends that,
when it engages in hedging strategies, the hedging transactions will qualify for
this treatment, but at the present time it is not clear whether this treatment
will be available for all of the Fund's hedging transactions. To the extent this
treatment is not available or is not elected by the Fund, it may be forced to
defer the closing out of certain options, futures, or forward currency contracts
beyond the time when it otherwise would be advantageous to do so, in order for
the Fund to continue to qualify as a regulated investment company.

TAX CONSEQUENCES TO SHAREHOLDERS

Since shareholders of the Funds will be the Accounts, no discussion is
included herein as to the Federal income tax consequences at the level of the
holders of the Contracts. For information concerning the Federal income tax
consequences to such holders, see the Prospectuses for such Contracts.

FINANCIAL STATEMENTS

The Report of Independent Accountants and Financial Statements of the
Funds for the period ended December 31, 1999 are incorporated by reference to
the Trust's Annual Report. Copies of the Annual Report and Semi-Annual Report
are available without charge upon request by writing the Trust or by calling
toll free 1-800-848-6331.

<PAGE> 114
APPENDIX A

BOND RATINGS

STANDARD & POOR'S DEBT RATINGS

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

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

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

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

2. Nature of and provisions of the obligation.

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

INVESTMENT GRADE

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

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

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

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

<PAGE> 115

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.

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.

<PAGE> 116

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.

FITCH/IBCA INVESTORS SERVICE, INC. BOND RATINGS

Fitch/IBCA 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.

<PAGE> 117

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

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

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

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

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

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

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

BBB Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely
to have adverse impact on these bonds, and therefore, impair
timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with
higher ratings.

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

<PAGE> 118

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

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

B Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
capacity for continued payment is contingent upon a sustained,
favorable business and economic environment.

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

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

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

DDD, Bonds are in default on interest and/or principal payments.
DD Such bonds are extremely speculative, and should be valued on
&D the basis of their ultimate recovery value in liquidation or
reorganization of the obligor. `DDD' represents the highest
potential for recovery of these bonds, and `D' represents the
lowest potential for recovery.

DUFF & PHELPS, INC. LONG-TERM DEBT RATINGS

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

<PAGE> 119

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

<S> <C>
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 investment. BBB-
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.

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.

</TABLE>

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.

<PAGE> 120

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:

<TABLE>

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

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

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

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

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

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

</TABLE>

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:

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

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

<PAGE> 121

Note rating symbols and definitions are as follows:

<TABLE>

<S> <C>
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.

</TABLE>

MOODY'S SHORT-TERM RATINGS

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

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

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

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

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

MOODY'S NOTE RATINGS

<TABLE>

<S> <C>
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.
</TABLE>

<PAGE> 122

<TABLE>

<S> <C>
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.

</TABLE>

FITCH/IBCA SHORT-TERM RATINGS

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

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

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

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

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

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

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

C High default risk. Default is a real possibility, Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable
business and economic environment.

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

<PAGE> 123

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.

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

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

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

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

Good Grade
-----------

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

Satisfactory Grade
------------------

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

Non-investment Grade
--------------------

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

<PAGE> 124

Default
-------

<S> <C>
D-5 Issuer failed to meet scheduled principal and/or interest payments.

</TABLE>

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.

96
<PAGE> 125
PART C

OTHER INFORMATION

ITEM 23. EXHIBITS

(a) (1) Amended Declaration of Trust - previously filed with
Post-Effective Amendment and hereby incorporated by
reference.

(b) Bylaws - previously filed with Post-Effective Amendment
and hereby incorporated by reference.

(d) (1) Investment Advisory Agreement for the funds
previously filed with Post-Effective Amendment to
the Registration Statement, and herein incorporated
by reference.

(a) Amendment to Investment Advisory Agreement
previously filed with Post-Effective Amendment
to the Registration Statement, and herein
incorporated by reference.

(2) Subadvisory Agreements for the Small Company Fund.

(a) Subadvisory Agreement with The Dreyfus
Corporation. - previously filed with Post-
Effective Amendment to the Registration
Statement, and herein incorporated by reference.
(b) Subadvisory Agreement with Neuberger Berman LLC
- previously filed with Post- Effective
Amendment to the Registration Statement, and
herein incorporated by reference.
(c) Subadvisory Agreement with Strong Capital
Management, Inc. - previously filed with
Post-Effective Amendment to the Registration
Statement, and herein incorporated by reference.
(d) Subadvisory Agreement with Lazard Asset
Management - previously filed with Post-Effective
Amendment to the Registration Statement, and
herein incorporated by reference.

(3) Subadvisory Agreements for the Income Fund.

(a) Subadvisory Agreement with NCM Capital Management
Group, Inc. previously filed with Post-Effective
Amendment to the Registration Statement, and
herein incorporated by reference.
(b) Subadvisory Agreement with Smith Graham & Co.
Asset Managers, L.P. - previously filed with
Post-Effective Amendment to the Registration
Statement, and herein incorporated by reference.

(4) Subadvisory Agreements for the Balanced Fund,
Strategic Growth Fund, Strategic Value Fund, Equity
Income Fund, High Income Bond Fund, Small Cap Value
Fund, Global Equity Fund, Mid Cap Index Fund,
Nationwide Select Advisers Small Cap Growth Fund.

(a) Subadvisory Agreement with Strong Capital
Management, Inc. for the Strategic Growth Fund
and Strategic Value Fund previously filed with
Post-Effective Amendment to the Registration
Statement, and herein incorporated by reference.

C-1
<PAGE> 126
(b) Subadvisory Agreement with Federated Investment
Counseling for the Equity Income Fund and High
Income Bond Fund previously filed with
Post-Effective Amendment to the Registration
Statement, and herein incorporated by reference.
(c) Subadvisory Agreement with The Dreyfus
Corporation for the Small Cap Value Fund
previously filed with Post-Effective Amendment to
the Registration Statement, and herein
incorporated by reference.
(d) Subadvisory Agreement with J.P. Morgan Investment
Management Inc. for the Global Equity Fund
previously filed with Post-Effective Amendment to
the Registration Statement, and herein
incorporated by reference.
(e) Subadvisory Agreement with The Dreyfus
Corporation for the Mid Cap Index Fund previously
filed with Post-Effective Amendment to the
Registration Statement, and herein incorporated
by reference.
(f) Subadvisory Agreements with Franklin Advisers,
Inc., Miller Anderson & Sherrerd and Neuberger
Berman, LLC for the Nationwide Select Advisers
Small Cap Growth Fund previously filed with
Post-Effective Amendment to the Registration
Statement, and herein incorporated by reference.

(g) Proposed Subadvisory Agreement with Turner
Investment Partners, Inc. for the Growth Focus
Fund previously filed with Post-Effective
Amendment to the Registration Statement, and
herein incorporated by reference.
(h) Proposed Subadvisory Agreement with J.P. Morgan
Investment Management Inc. for the Balanced Fund
previously filed with Post-Effective Amendment
to the Registration Statement, and herein
incorporated by reference.
(i) Proposed Subadvisory Agreement with Miller
Anderson and Sherrerd for the Multi Sector Bond
Fund previously filed with Post-Effective
Amendment to the Registration Statement, and
herein incorporated by reference.

(e) Not Applicable

(f) Not applicable.

(g) Custody Agreement - previously filed with Registration
Statement and Post-Effective Amendment, and herein
incorporated by reference.

(h) (1) Fund Administration Agreement for the Funds
previously filed with Post-Effective Amendment to
the Registration Statement and herein incorporated
by reference.

(a) Amendment to Fund Administration Agreement
previously filed with Post-Effective Amendment
to the Registration Statement, and herein
incorporated by reference.

(2) Transfer and Dividend Disbursing Agent Agreement
-previously filed with the Trust's Registration
Statement herein incorporated by reference.

(a) Amendment to Transfer and Dividend Disbursing
Agent Agreement previously filed with
Post-Effective Amendment to the Registration
Statement, and herein incorporated by reference.

(3) Administrative Services Plan & Form of Servicing
Agreement previously filed with Post-Effective
Amendment to the Registration Statement, and herein
incorporated by reference.

(i) Opinion and consent of counsel - previously filed with
Post-Effective Amendment to the Registration Statement,
and herein incorporated by reference.

(j) Consent of PricewaterhouseCoopers- Independent Accountants
previously filed with Post-Effective Amendment to the
Registration Statement, and herein incorporated by
reference.

(k) Not applicable.

(l) Not applicable.

(m) Not applicable.

(n) Not applicable.

(o) Not Applicable.

(p) (1) Code of Ethics for Nationwide Family of Funds
previously filed with Post-Effective Amendment
to the Registration Statement, and herein
incorporated by reference.

(2) Code of Ethics for Villanova Mutual Fund Capital
Trust and Villanova SA Capital Trust previously
filed with Post-Effective Amendment to the
Registration Statement, and herein incorporated
by reference.

(3) Code of Ethics for Nationwide Advisory Services,
Inc. previously filed with Post-Effective
Amendment to the Registration Statement, and
herein incorporated by reference.

(q) Power of Attorney dated February 9, 2000 - previously
filed with Post-Effective Amendment No. 32 to the
Registration Statement filed on February 16, 2000, and
herein 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 X, Section 2 of the Declaration
of Trust. See Item 24(b)1 above.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

C-2
<PAGE> 127

(a) Villanova Mutual Fund Capital Trust, ("VMF"), the investment
adviser of the Trust, also serves as investment adviser to
Nationwide Mutual Funds and Nationwide Asset Allocation 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

C-3
<PAGE> 128

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.

Director and President
----------------------

Employers Life Insurance Company of
Wausau
Nationwide Advisory Services, Inc.
Nationwide Investor Services, Inc.
Nationwide Financial Services (Bermuda)
Ltd.

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
Villanova Capital, Inc.

C-4

<PAGE> 129

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.

C-5

<PAGE> 130
Paul J. Hondros Director
--------
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.

President and Chief Executive Officer
--------------------------------------
Villanova Capital, Inc.
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust
Dimon R. McFerson NorthPointe Capital, LLC

Chairman and Chief Executive Officer 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
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

C-6
<PAGE> 131
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.

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

C-7
<PAGE> 132
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

C-8
<PAGE> 133
------------------------------------
Nationwide Properties, Ltd.
Nationwide Realty Investors, Ltd.
Nationwide Services Company, LLC.

Chairman and Chief Executive Officer
------------------------------------
Nationwide Insurance Company of
Florida

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.

C-9
<PAGE> 134
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

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.

C-10
<PAGE> 135
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

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
Villanova Capital, Inc.
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

C-11
<PAGE> 136
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

C-12
<PAGE> 137
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

C-13
<PAGE> 138
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
Wausau Preferred Health Insurance
Company
Director
--------
Healthcare First, Inc.
Morley Financial Services, Inc.
Nationwide Global Holdings, Inc.
Nationwide Investors Services, Inc.
Villanova Capital, 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.

C-14
<PAGE> 139
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

James R. Donatell Executive Vice President-Sales and Distribution
-----------------------------------------------
Villanova Capital, Inc.
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust

Gregory J. Nowak Executive Vice President-Mergers
and Acquisitions
--------------------------------
Villanova Capital, Inc.
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust

Dilip Kulkarni Senior Vice President and Chief
Technology Officer
---------------------------------
Villanova Capital, Inc.
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust

James F. Laird, Jr. Senior Vice President-Product Development
-----------------------------------------
Villanova Capital, Inc.
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust

Vice President and General Manager
----------------------------------
Nationwide Advisory Services, Inc.
Nationwide Investors Services, Inc.

Treasurer
---------
Nationwide Mutual Funds
Nationwide Separate Account Trust
Nationwide Asset Allocation Trust

William H. Miller Senior Vice President-Chief Investment Officer
----------------------------------------------
Villanova Capital, Inc.
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust

Caroline Churchill Vice President-Marketing
------------------------
Villanova Capital, Inc.
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust

Kevin S. Crossett Vice President-Associate General Counsel
----------------------------------------
Villanova Capital, Inc.
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company

Christopher P. Donigan Vice President-Human Resources
------------------------------
Villanova Capital, Inc.
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust

Judy L. Howard Vice President-Chief Financial Officer
--------------------------------------
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust

Vice President-Finance Officer
------------------------------
Villanova Capital, Inc.

Glenn W. Soden Associate Vice President and Secretary
--------------------------------------
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust

Assistant Secretary
--------------------
Villanova Capital, Inc.

Carol L. Dove Assistant Treasurer
-------------------
Villanova Capital, Inc.
Villanova Mutual Fund Capital Trust
Villanova SA Capital Trust

Michael D. Maier Assistant Treasurer
-------------------
Villanova Capital, Inc.
Villanova Mutual Fund Capital Trust
Villanova SA Capital 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:

NorthPointe Capital, LLC
Columbia Center One
10th Floor, Suite 1000
201 West Big Beaver Road
Troy, Michigan 48084

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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<PAGE> 140
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) Information for the Subadvisers

(1) The Dreyfus Corporation

The Dreyfus Corporation ("Dreyfus") acts as subadvisor to the Small
Company Fund, the Small Cap Value Fund and the Mid Cap Index Fund and
as adviser or subadviser to a number of other registered investment
companies. The list required by this Item 26 of officers and
directors of Dreyfus, together with information as to their other
business, profession, vocation or employment of a substantial nature
during the past two years, is incorporated by reference to Schedule A
and D of Form ADV filed by Dreyfus (SEC File No. 801-8147).

(2) Neuberger Berman, LLC

Neuberger Berman, LLC ("Neuberger Berman") acts as subadviser to the
Small Company Fund and the Small Cap Growth Fund of the Registrant
and investment adviser or subadviser to a number of other registered
investment companies. The list required by this Item 26 of officers
and directors of Neuberger Berman, together with information as to
their other business, profession, vocation or employment of a
substantial nature during the past two years, is incorporated by
reference to Schedules A and D of Form ADV filed by Neuberger Berman
(SEC File No. 801-3908).

(3) Strong Capital Management, Inc.

Strong Capital Management, Inc. ("Strong"), acts as subadviser to the
Small Company Fund, the Strategic Growth Fund and the Strategic Value
Fund and investment adviser or subadviser to a number of other
registered investment companies. The list required by this Item 26 of
officers and directors of Strong, together with information as to
their other business, profession, vocation or employment of a
substantial

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<PAGE> 141

nature during the past two years, is incorporated by reference to
Schedules A and D of Form ADV filed by Strong (SEC File No.
801-10724).

(4) Credit Suisse Asset Management, LLC

Credit Suisse Asset Management, LLC ("Credit Suisse") acts as
subadviser to the Small Company Fund and investment adviser to a
number of other registered investment companies. Credit Suisse
renders investment advice to a wide variety of individual and
institutional investors. The list required by this Item 26 of
officers and directors of Credit Suisse, together with information as
to their other business, profession, vocation or employment of a
substantial nature during the past two years, is incorporated by
reference to Schedules A and D of Form ADV filed by Credit Suisse
(SEC File No. 801-37170).

(5) Lazard Asset Management

Lazard Asset Management ("Lazard") acts as subadviser to the Small
Company Fund and investment adviser to a number of other registered
investment companies. Lazard renders investment advice to a wide
variety of individual and 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 two years, is
incorporated by reference to Schedules A and D of Form ADV filed by
Lazard (SEC File No. 801-6568).

(6) NCM Capital Management Group, Inc.

NCM Capital Management Group, Inc. ("NCM") is a registered investment
adviser which provides investment advisory services to individuals
and institutional clients, including acting as subadviser to the
Income Fund. NCM also serves as subadviser to other investment
companies registered under the Investment Company of 1940; these
investment companies are unaffiliated with NCM except as a result of
these subadvisory relationships. The list required by Item 26 of
Officers and directors of NCM, together with information as to their
other business, profession, vocation or employment of a substantial
nature during the past two years is incorporated by reference to
Schedule A and D of Form ADV filed by NCM (SEC File No. 801-28196).

(7) Smith Graham & Co. Asset Managers, L.P.

Smith Graham & Co. Asset Managers, L.P. ("Smith Graham") acts as
subadviser to the Income Fund and is a registered investment adviser
which offers investment advisory services to corporations, pension
and profit sharing plans, as well as foundations, Taft Hartley plans,
banks, thrift institutions, trust, estates and/or charitable
organizations and individuals. Smith Graham also serves as subadviser
to the American Odyssey Short-Term Bond Fund, an investment company
registered under the Investment Company of 1940; this investment
company is unaffiliated with Smith Graham except as a result of this
subadvisory relationship. The list required by Item 26 of Officers
and directors of Smith Graham together with information as to their
other business, profession, vocation or employment of a substantial
nature during the past two years is incorporated by reference to
Schedule A and D of Form ADV filed by Smith Graham (SEC File No.
801-36485).

(8) Schafer Capital Management , Inc.

Schafer Capital Management, Inc., acts as subadviser to the Strategic
Value Fund and as investment adviser to certain other clients. David
K. Schafer, a director and officer of Schafer Capital Management,
Inc., is also Chairman of the Board of Schafer Cullen Capital
Management, Inc., 645 Fifth Ave, New York, New York 10022.

James D. Cullen, an officer of Schafer Capital Management Inc., is
also President of Schafer Cullen Capital Management, Inc.

Schafer Cullen Capital Management , Inc. is a registered investment
adviser under the Investment Advisers Act of 1940, as amended.

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<PAGE> 142

(9) Federated Investment Counseling

Federated Investment Counseling, the Subadviser to Equity Income Fund
and High Income Bond Fund, is a registered investment adviser under
the Investment Advisers Act of 1940. It is a subsidiary to Federated
Investors. The Subadvisor serves as investment adviser to a number of
investment companies and private accounts. Total assets under
management or administered by the Subadviser and other subsidiaries
of Federated Investors is approximately $110 billion. The list
required by Item 26 of Officers and directors of Federated Investment
Counseling, together with information as to their other business,
profession, vocation or employment of a substantial nature during the
past two years is incorporated by reference to Schedule A and D of
Form ADV filed by Federated Investment Counseling (SEC File No.
801-34611).

(10) J.P. Morgan Investment Management, Inc. ("JPMIM"), a registered
investment adviser, and a wholly owned subsidiary of J. P. Morgan &
Co. Incorporated, is subadviser to the Global 50 Fund. Beginning May
1, 2000, JPMIM will also be subadviser to the Balanced Fund. 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.

(11) Franklin Advisers, Inc. is subadviser to the Small Cap Growth Fund.
The list required by this Item 26 of the officers and directors of
Franklin Advisers, Inc.("Franklin"), together with information as to
any other business, profession, vocation or employment of a
substantial nature engaged in by such officers and directors during
the past two years is incorporated by reference to Schedule A and D
of Form ADV filed by Franklin pursuant to the Investment Advisers Act
of 1940 (SEC File No. 801-26292).

(12) Miller, Anderson & Sherrerd, LLP is subadviser to the Small Cap
Growth Fund and beginning May 1, 2000 will be subadviser to the Multi
Sector Bond Fund. The list required by this Item 26 of the officers
and directors of Miller, Anderson & Sherrerd, LLP ("MAS"), together
with information as to any other business, profession, vocation or
employment of a substantial nature engaged in by such officers and
directors during the past two years is incorporated by reference to
Schedule A and D of Form ADV filed by MAS pursuant to the Investment
Advisers Act of 1940 (SEC File No. 801-10437).

(13) Turner Investment Partners, Inc. ("Turner") is subadviser to the
Growth Focus Fund II. The list required by this Item 26 of the
officers and directors of Turner, together with information as to any
other business, profession, vocation or employment of a substantial
nature engaged in by such officers and directors during the past two
years is incorporated by reference to Schedule A & D of Form ADV
filed by Turner pursuant to the Investment Advisers Act of 1940 (SEC
File No. 801-36220).

(14) Gartmore Global Partners ("Gartmore") acts as subadviser to the
Emerging Markets Fund II, International Growth Fund II, Global
Leaders Fund II, and European Growth Fund II and as investment
adviser to certain other clients. The list required by this Item 26
of the officers and directors of Gartmore, together with information
as to their other business, profession, vocation or employment of a
substantial nature during the past two years, is incorporated by
reference to Schedules B and D of Form ADV filed by Gartmore (SEC
File No. 801-48811).

ITEM 27. PRINCIPAL UNDERWRITERS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.

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<PAGE> 143

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
(a) Not applicable.

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<PAGE> 144

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this Post-Effective
Amendment No. 37 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 twentieth day of June, 2000.

NATIONWIDE SEPARATE ACCOUNT TRUST

By: JAMES F. LAIRD, JR.
---------------------
James F. Laird, Jr., Treasurer

PURSUANT TO THE REQUIREMENT OF THE SECURITIES ACT OF 1933, THIS POST-EFFECTIVE
AMENDMENT NO. 37 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THE TWENTIETH DAY OF JUNE,
2000.

Signature & Title
-----------------
Principal Executive Officer

JOSEPH J. GASPER*
-----------------
Joseph J. Gasper, Trustee and Chairman

ROBERT J. WOODWARD, JR.*
------------------------
Robert J. Woodward, Jr., Trustee and Vice 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

ROBERT M. DUNCAN*
-----------------
Robert M. Duncan, Trustee

THOMAS J. KERR, IV*
-------------------
Thomas J. Kerr, IV, Trustee

DOUGLAS F. KRIDLER*
-------------------
Douglas F. Kridler, Trustee

SUE DOODY*
----------
Sue Doody, Trustee

ARDEN L SHISLER*
----------------
Arden L. Shisler, Trustee

DAVID C. WETMORE*
-----------------
David C. Wetmore, Trustee

*By: JAMES F. LAIRD, JR.
-------------------
James F. Laird, Jr., Attorney-In-Fact

C-18