[Federal Register Volume 63, Number 32 (Wednesday, February 18, 1998)]
[Notices]
[Pages 8227-8229]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3929]


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SECURITIES AND EXCHANGE COMMISSION

[Rel. No. IC-23024; 812-10928]


Nationwide Investing Foundation III, et al.; Notice of 
Application

February 10, 1998.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of 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: Order requested to allow certain series of a 
registered open-end management investment company to acquire all of the 
assets of certain series of three registered open-end management 
investment companies. Because of certain affiliations, applicants may 
not rely on Rule 17a-8 under the Act.

APPLICANTS: Nationwide Investing Foundation III (``NIF III''), 
Nationwide Investing Foundation (``NIF''), Nationwide Investing 
Foundation II (``NIF II''), Financial Horizons Investment Trust 
(``FHIT''), and Nationwide Advisory Services, Inc. (``NAS'').

FILING DATES: The application was filed on December 24, 1997, and 
amended on February 6, 1998.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
persons will be issued unless the SEC orders a hearing. Interested 
persons may request a hearing by writing to the SEC's Secretary and 
serving applicants with a copy of the request, personally or by mail. 
Hearing requests should be received by the SEC by 5:30 p.m. on March 5, 
1998, 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 who wish to 
be notified of a hearing may request notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street NW., Washington, DC 20549. 
Applicants, Three Nationwide Plaza, Columbus, OH 43215.

FOR FURTHER INFORMATION CONTACT:
Lisa McCrea, Attorney Adviser, at (202) 942-0562, or Nadya B. Roytblat, 
Assistant Director, at (202) 942-0564 (Office of Investment Company 
Regulation, Division of Investment Management).

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 5th Street NW., Washington, DC 20549 
(tel. 202-942-8090).

Applicants' Representations

    1. NIF III, an Ohio business trust, is an open-end management 
investment company registered under the Act. NIF III consists of nine 
series: Nationwide Growth Fund, Nationwide Fund, Nationwide Bond Fund, 
Nationwide Money Market Fund, Nationwide Intermediate U.S. Government 
Bond Fund, Nationwide Mid Cap Growth Fund, (the ``NIF III Acquiring 
Series''), Nationwide Tax-Free Income Fund, Nationwide Long-Term U.S.

[[Page 8228]]

Government Bond Fund, and Nationwide S&P 500 Index Fund.\1\ NIF III 
plans to offer initially one class of shares, class D that carries a 
front-end sales charge, for each of its series, other than the 
Nationwide Money Market Fund, which will issue shares without class 
designation or sales charge.
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    \1\ NIF III's Nationwide Tax-Free Income Fund, Nationwide Long-
Term U.S. Government Bond Fund, and Nationwide S&P 500 Index Fund 
are not applicants for the relief requested.
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    2. NIF, a Michigan business trust, is an open-end management 
investment company registered under the Act. NIF currently offers four 
series: Nationwide Growth Fund, Nationwide Fund, Nationwide Bond Fund, 
and Nationwide Money Market Fund (the ``NIF Acquired Series''). Shares 
of Nationwide Growth Fund, Nationwide Fund, and Nationwide Bond Fund 
are subject to a front-end sales charge. NIF II, a Massachusetts 
business trust, is an open-end management investment company registered 
under the Act, and currently offers two series, Nationwide U.S. 
Government Income Fund (the ``NIF II Acquired Series''), and Nationwide 
Tax-Free Income Fund.\2\ Shares of the Nationwide U.S. Government 
Income Fund are subject to a contingent deferred sales charge. FHIT, a 
Massachusetts business trust, is an open-end management investment 
company registered under the Act. FHIT currently offers four series: 
Growth Fund, Cash Reserve Fund (the ``FHIT Acquired Series''), 
Municipal Bond Fund, and Government Bond Fund.\3\ Shares of the Growth 
Fund are subject to a contingent deferred sales charge. The NIF 
Acquired Series, NIF II Acquired Series, and FHIT Acquired Series 
together are the ``Acquired Series''.
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    \2\ NIF II's Nationwide Tax-Free Income Fund is not an applicant 
for the relief requested.
    \3\ FHIT's Municipal Bond Fund and Government Bond Fund are not 
applicants for the relief requested.
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    3. NAS is registered as an investment adviser under the Investment 
Advisers Act of 1940. NAS serves as investment adviser for NIF III and 
the Acquiring Series, and for NIF, NIF II, FHIT, and the Acquired 
Series. NAS is a wholly-owned subsidiary of Nationwide Life Insurance 
Company, which, in turn, is wholly-owned by Nationwide Financial 
Services, Inc. (``NFS''). NFS is controlled by the Nationwide 
Corporation, which is controlled by Nationwide Mutual Insurance 
Company.
    4. As of December 18, 1997, Nationwide Life Insurance Company, 
directly or indirectly owned, controlled or held the power to vote 31% 
of the outstanding shares of NIF's Nationwide Growth Fund, 24.1% of 
NIF's Nationwide Fund, 16.8% of NIF's Nationwide Bond Fund, 54.4% of 
NIF's Nationwide Money Market Fund, 15.8% of NIF II's Nationwide U.S. 
Government Income Fund, and 5.3% of FHIT's Growth Fund, and 73.5% of 
FHIT's Cash Reserve Fund. These shares of NIF, NIF II, and FHIT are 
owned by separate accounts of Nationwide Life Insurance Company, which 
vote these shares in accordance with instructions received from the 
underlying variable annuity contract owners. If no instructions are 
received from the underlying variable annuity contract owners, the 
separate accounts vote the shares in the same proportion as the votes 
cast on behalf of variable annuity contract owners who submit timely 
instructions.
    5. On November 7, 1997, the boards of trustees of NIF III, NIF, NIF 
II and FHIT (the ``Boards''), including the disinterested trustees, 
considered and unanimously approved Agreements and Plans of 
Reorganization between NIF III, NIF, NIF II and FHIT (the 
``Reorganization''). In the Reorganization, each of NIF, NIF II, and 
FHIT has agreed to sell all of its assets to the Acquiring Series, in 
exchange for assumption of the Acquired Series' liabilities and the 
issuance and delivery of class D shares of the corresponding Acquiring 
Series of NIF III (the NIF III Money Market Fund will issue and deliver 
shares without any class designation) equal in net asset value at the 
close of business at the Valuation Time (defined below) to the value of 
the shares of the corresponding Acquired Series. The Valuation Time is 
intended to be 4:00 p.m., Eastern Standard Time, on the day before the 
assets and liabilities of the Acquired Series are transferred to the 
corresponding Acquired Series.
    6. No sales charge will be incurred by shareholders of the Acquired 
Series in connection with their acquisition of corresponding Acquiring 
Series shares. Applicants state that the investment objectives, 
policies and restrictions of the Acquiring Series are substantially 
similar to those of the corresponding Acquired Series.
    7. The Boards determined that the Reorganization is in the best 
interests of NIF III, NIF, NIF II, and FHIT, and of the shareholders of 
the Acquired Series and the corresponding Acquiring Series, and that 
the interests of shareholders would not be diluted as a result of the 
Reorganization. In assessing the Reorganization, the factors considered 
by the Boards included: (a) The business objectives and purposes of the 
Reorganization, namely, becoming three separate business entities of 
NIF, NIF II, and FHIT into one business entity, NIF III; (b) the 
compatibility of the investment objectives, polices and restrictions 
between the respective Acquired Series and the corresponding Acquiring 
Series; (c) the terms and conditions, including the allocation of 
expenses of the Reorganization; (d) the tax-free nature of the 
Reorganization; and (e) the expense ratios of the Acquiring Series and 
the corresponding Acquired Series.
    8. NAS has agreed to pay for 50% of the Reorganization fees and 
expenses of NIF III, NIF, NIF II, and FHIT. NAS also has agreed to pay 
for 50% of proxy solicitation and other costs associated with the 
special meeting of shareholders of NIF, NIF II, and FHIT. NIF III bears 
its own organizational costs.
    9. On November 26, 1997, NIF III filed with the SEC its 
registration statement on Form N-14, containing a preliminary combined 
prospectus/proxy statement, which became effective on January 8, 1998. 
Applicants sent the prospectus/proxy statement to Acquired Series 
shareholders on or about January 12, 1998, for their approval at a 
special shareholder meeting to be held on February 16, 1988.
    10. The Reorganization is subject to the following conditions 
precedent: (a) That the shareholders of the Acquired Series approve the 
Agreement; (b) that the Acquired Series and the Acquiring Series 
receive opinions of counsel to the effect that the Reorganization will 
be tax-free for the Acquiring Series, the Acquired Series, and their 
shareholders; and (c) that applicants will receive from the SEC and 
exemption from section 17(a) of the Act for the Reorganization. 
Applicants agree not to make any material changes to the Agreement 
without prior SEC approval.

Applicants' Legal Analysis

    1. Section 17(a) of the Act, in relevant part, prohibits an 
affiliated person of a registered investment company, or any affiliated 
person of such a person, acting as principal, from knowingly selling 
any security or other property to the company, or purchasing from the 
company and security or other property.
    2. Section 2(a)(3) of the Act defines the term ``affiliated person 
of another person'' to include, in pertinent part, any person directly 
or indirectly owning, controlling, or holding with power to vote, 5% or 
more of the outstanding voting securities of such other person, and any 
person directly or indirectly controlling, controlled by, or under 
common control with such other person, and if such other person is an

[[Page 8229]]

investment company, any investment adviser thereof.
    3. Rule 17a-8 under the Act exempts from the prohibitions of 
section 17(a) mergers, consolidations, or purchases or sales of 
substantially all of the assets of registered investment companies that 
are affiliated persons solely by reason of having a common investment 
adviser, common directors/trustees, and/or common officers, provided 
that certain conditions are satisfied.
    4. Applicants believe that they may not rely on rule 17a-8 in 
connection with the Reorganization, because an affiliate of NAS, 
Nationwide Life Insurance Company, directly or through its separate 
accounts, owns, controls or holds the power to vote 5% or more of the 
outstanding voting securities of each of NIF's Nationwide Growth Fund, 
Nationwide Fund, Nationwide Bond Fund, Nationwide Money Market Fund, 
and NIF II's Nationwide U.S. Government Income Fund, and FHIT's Growth 
fund and Cash Reserve Fund. Applicants assert that NIF, NIF II, FHIT 
and each of the respective Acquired Series may be an affiliated person 
of Nationwide Life Insurance Company under section 2(a((3)(B) of the 
Act.
    5. Section 17(b) of the Act provides that the SEC may exempt a 
transaction from the provisions of section 17(a) if 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; the proposed transaction is 
consistent with the policy of each registered investment company 
concerned; and the proposed transaction is consistent with the general 
purposes of the Act.
    6. Applicants submit that the Reorganization satisfies the 
standards of section 17(b). Applicants believe the terms of the 
Reorganization are fair and reasonable and do not involve overreaching. 
Applicants state that the exchange is based on the relative net asset 
values of the relevant Funds' shares, and no sales charge will be 
incurred by shareholders of the Acquired Series in connection with 
their acquisition of corresponding Acquiring Series Shares. Applicants 
assert that the Reorganization is consistent with the investment 
objectives of the Acquired Series and the corresponding Acquiring 
Series.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-3929 Filed 2-17-98; 8:45 am]
BILLING CODE 8010-01-M