[Federal Register Volume 66, Number 30 (Tuesday, February 13, 2001)]
[Notices]
[Pages 10041-10042]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-3627]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24855; 812-12404]


Nationwide Mutual Funds, et al.; Notice of Application

February 7, 2001.
AGENCY: Securities and Exchange Commission (``SEC'' or ``Commission'').

ACTION: Notice of an application under section 17(b) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 17(a) 
of the Act.

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    Summary of Application: Applicants request an order to permit a 
series of Nationwide Mutual Funds (``Nationwide'') to acquire all of 
the assets, net of liabilities, of a series of Principal Preservation 
Portfolios, Inc. (``Principal Preservation'') (the ``Reorganization''). 
Because of certain affiliations, applicants may not rely on rule 17a-8 
under the Act.
    Applicants: Nationwide, Principal Preservation, Villanova Mutual 
Fund Capital Trust (``VMF''), and NorthPointe Capital, LLC 
(``NorthPointe'').
    Filing Dates: The application was filed on January 16, 2001. 
Applicants have agreed to file an amendment to the application during 
the notice period, the substance of which is reflected in this notice.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with copies of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on February 27, 2001, and should be accompanied by proof of 
service on Applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons may request notification of a hearing by writing to 
the SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 5th Street NW., Washington, DC 20549-
0609. Applicants, c/o Elizabeth A. Davin, Esq., Nationwide Mutual 
funds, 1-35-10, One Nationwide Plaza, Columbus, Ohio 43215.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at 
(202) 942-0634, or Nadya B. Roytblat, Assistant Director, at (202) 942-
0564 (Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 Fifth Street NW., Washington, DC 
20549-0102 (telephone (202) 942-8090).

Applicants' Representations

    1. Nationwide, an Ohio business trust, is an open-end management 
investment company registered under the Act. Nationwide currently 
offers thirty-seven series, including Nationwide Value Opportunities 
Fund (the ``Acquiring Fund''). Principal Preservation, a Maryland 
corporation, is an open-end management investment company registered 
under the Act. Principal Preservation currently offers nine series 
including Select Value Fund (the ``Acquired Fund,'' together with the 
Acquired Fund, the ``Funds'').
    2. VMF is an investment adviser registered under the Investment 
Advisers Act of 1940 (``Advisers Act'') and serves as investment 
adviser to the Acquiring Fund. VMF is a wholly-owned subsidiary of 
Villanova Capital, Inc. (``VCI''), a holding company. VCI is a 
subsidiary of Nationwide Financial Services. As of December 29, 2000, 
VMF owns approximately 13.3% of the Acquiring Fund's shares.
    3. NorthPointe is an investment adviser registered under the 
Advisers Act and serves as investment adviser to the Acquired Fund. 
NorthPointe also serves as the sub-adviser of the Acquiring Fund. 
NorthPointe is a majority-owned subsidiary of VCI.
    4. On December 12, 2000, and December 15, 2000, the board of 
trustees of Principal Preservation (``Principal Board''), and the board 
of trustees of Nationwide (``Nationwide Board'') and together with the 
Principal Board, the ``Boards''), respectively, including all of the 
trustees who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act (``Disinterested Trustees''), approved the 
agreement and plan of reorganization entered into between the Funds 
(``Plan''). Pursuant to the Plan, as a result of the Reorganization, 
the Acquiring Fund will acquire substantially all of the assets, net of 
liabilities, of the Acquired Fund in exchange for shares of the 
Acquiring Fund. The shares of the Acquiring Fund exchanged will have a 
total net asset value equal to the total net asset value of the 
Acquired Fund's shares determined as of the close of regular trading on 
the New York Stock Exchange on the business day preceding the day of 
the closing of the Reorganization (``Closing Date''). The value of the 
assets of the Acquired Fund will be determined according to the 
Acquired Fund's then-current prospectuses and statement of additional 
information. Contemporaneously with the distribution of the Acquiring 
Fund's shares pro rata to the Acquired Fund's shareholders, the 
Acquired Fund will satisfy its liabilities with its remaining assets 
and will be liquidated. Applicants anticipate the Closing Date will be 
on or around February 28, 2001.
    5. Applicants state that the investment objectives and strategies 
of the Acquired Fund are similar to those of the Acquiring Fund. The 
Acquiring Fund has four classes of shares: Class A, Class B, Class C, 
and Investor Service Class. The Acquired Fund has three classes, Class 
A, Class B and Class C. Only Class A and Class B shares will be 
involved in the Reorganization. Neither the Acquiring Fund nor the 
Acquired Fund currently offers Class C shares, and the Acquired Fund 
has no Class C shares issued or outstanding. Class A

[[Page 10042]]

shares of the Acquired and Acquiring Funds are subject to a front-end 
sales charge and a rule 12b-1 distribution fee. Class B shares are 
subject to a contingent deferred sales charge and a rule 12b-1 
distribution fee. No sales charges will be imposed in connection with 
the Reorganization. For purposes of calculating the deferred sales 
charge, shareholders of Class B of the Acquired Fund will be deemed to 
have held Class B shares of the Acquiring Fund since the date the 
shareholders initially purchased the shares of the Acquired Fund. 
NorthPointe and VCI will bear the Acquiring fund's costs associated 
with the Reorganization and B.C. Ziegler and Company (``Ziegler''), the 
Acquired Fund's distributor and administrator, will bear the Acquired 
Fund's costs.
    6. The Boards, including all of the Disinterested Trustees, 
determined that the Reorganization was in the best interests of each 
Fund and its shareholders, and that the interests of the existing 
shareholders of the Funds would not be diluted as a result of the 
Reorganization. In assessing the Reorganization, the Boards considered 
various factors, including: (a) The investment objectives and 
strategies of the Acquired Fund and the Acquiring Fund; (b) the 
investment advisory and other fees paid by the Acquiring Fund and the 
projected expense ratio of the Acquiring Fund; (c) the terms and 
conditions of the Plans; (d) the anticipated tax consequences of the 
Reorganization for the Funds and their shareholders; and (e) the 
benefits to Ziegler, VMF and its affiliates that could result from the 
Reorganization.
    7. The Reorganization is subject to a number of conditions 
precedent, including that: (a) The parties will have complied with all 
material aspects of the Plan on or before the Closing Date; (b) there 
will have been no material adverse changes to either the Acquiring or 
the Acquired Fund; (c) the Funds will have received opinions of counsel 
concerning the tax-free nature of the Reorganization; (d) the Acquired 
Fund's shareholders will have approved the Plan; (e) an N-14 
registration statement relating to the Reorganization will have become 
effective with the Commission; (f) the Acquired Fund shall have 
declared and paid dividends and other distributions on or before the 
Closing Date; and (g) applicants will have received from the Commission 
the exemptive relief requested by the Application.
    8. The Plan may be terminated and the Reorganization abandoned at 
any time prior to the Closing Date by the mutual consent of the 
parties. In addition, the plan may be terminated by either party under 
certain circumstances specified in the Plan. Applicants agree not to 
make any material changes to the Plan without prior approval of the 
Commission staff.
    9. A registration statement on Form N-14 and definitive proxy 
solicitation materials have been filed with the SEC and were mailed to 
the Acquired Fund's shareholders on January 23, 2001. A shareholders 
meeting of the Acquired Fund is scheduled for February 22, 2001.

Applicants' Legal Analysis

    1. Section 17(a) of the Act, in relevant part, prohibits an 
affiliated person of a registered investment company, or an affiliated 
person of such a person, acting as principal, from selling any security 
to, or purchasing any security from, the company. Section 2(a)(3) of 
the Act defines an ``affiliated person'' of another person to include: 
(a) Any person directly or indirectly owning, controlling, or holding 
with power to vote 5% or more of the outstanding voting securities of 
the other person; (b) any person 5% or more of whose securities are 
directly or indirectly owned, controlled, or held with power to vote by 
the other person; (c) any person directly or indirectly controlling, 
controlled by, or under common control with the other person; and (d) 
if the other person is an investment company, any investment adviser of 
that company.
    2. Rule 17a-8 under the Act exempts certain mergers, 
consolidations, and sales of substantially all of the assets of 
registered investment companies that are affiliated persons, or 
affiliated persons of an affiliated person, solely by reason of having 
a common investment adviser, common directors, and/or common officers, 
provided that certain conditions are satisfied.
    3. Applicants believe that they may not rely on rule 17a-8 in 
connection with the Reorganization because the Funds may be deemed to 
be affiliated by reasons other than having a common investment adviser, 
common directors, and/or common officers. Applicants state that the 
Acquiring Fund may be deemed to be an affiliated person of VMF because 
VMF owns more than 5% of the outstanding voting securities of the 
Acquiring Fund. Additionally, VMF and NorthPointe are under the common 
control of VCI. Therefore, the Acquiring Fund may be deemed an 
``affiliated person of an affiliated person'' of the Acquired Fund.
    4. Section 17(b) of the Act provides, in relevant part, that the 
Commission may exempt a transaction from the provisions of section 
17(a) if evidence establishes that the terms of the proposed 
transaction, including the consideration to be paid or received, are 
reasonable and fair and do not involve overreaching on the part of any 
person concerned, and that the proposed transaction is consistent with 
the policy of each registered investment company concerned and with the 
general purposes of the Act.
    5. Applicants request an order under section 17(b) of the Act 
exempting them from section 17(a) to the extent necessary to complete 
the Reorganization. Applicants submit that the Reorganization satisfies 
the standards of section 17(b) of the Act. Applicants state that the 
terms of the Reorganization are reasonable and fair and do not involve 
overreaching. Applicants state that the investment objectives and 
strategies of the Acquired Fund are similar to those of the Acquiring 
Fund. Applicants also state that the Boards, including all of the 
Disinterested Trustees, found that the participation of the Acquired 
and the Acquiring Funds in the Reorganization is in the best interests 
of each Fund and its shareholders and that such participation will not 
dilute the interests of the existing shareholders of each Fund. In 
addition, applicants state that the Reorganization will be on the basis 
of the Funds' relative net asset values.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-3627 Filed 2-12-01; 8:45 am]
BILLING CODE 8010-01-M