[Federal Register Volume 66, Number 143 (Wednesday, July 25, 2001)]
[Notices]
[Pages 38771-38773]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-18518]


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

SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 25068; 812-12422]


Nationwide Mutual Funds and Villanova Mutual Fund Capital Trust

July 19, 2001.
AGENCY: Securities and Exchange Commission (``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.

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

SUMMARY OF APPLICATION: Applicants request an order to permit a series 
of Nationwide Mutual Funds (``Nationwide'') to acquire substantially 
all of the assets, net of liabilities, of another series of Nationwide 
(the ``Reorganization''). Because of certain affiliations, applicants 
may not rely on rule 17a-8 under the Act.

FILING DATE: The application was filed on January 30, 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 August 13, 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 Commission's Secretary.

ADDRESSES: Secretary, Commission 450 5th Street, NW., Washington, DC 
20549-0609. Applicants, c/o Elizabeth A. Davin, Esq., Nationwide Mutual 
Funds, One Nationwide Plaza, 1-35-16, Columbus, Ohio 43215.

FOR FURTHER INFORMATION CONTACT: Bruce R. MacNeil, Senior Counsel, at

[[Page 38772]]

(202) 942-0634, or Michael W. Mundt, Branch Chief, 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 
Commission's Public Reference Branch, 450 5th 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-nine series, including Nationwide Government Bond Fund 
(the ``Acquiring Fund'') and Nationwide Long-Term U.S. Government Bond 
Fund (the ``Acquired Fund,'' together with the Acquiring Fund, the 
``Funds'').
    2. Villanova Mutual Fund Capital Trust (``VMF'') is an investment 
adviser registered under the Investment Advisers Act of 1940 and serves 
as investment adviser to each Fund. VMF is a wholly-owned subsidiary of 
Villanova Capital, Inc., which is a subsidiary of Nationwide Financial 
Services (``NFS''). NFS controls Nationwide Life Insurance Company 
(``Nationwide Life''). As of June 15, 2001, Nationwide Life owned 5.9% 
of the Acquired Fund's shares. A separate account that funds the 
benefits provided under certain variable annuity contracts and/or 
variable life insurance contracts issued by Nationwide Life (``Separate 
Account'') owned 34.1% of the Acquiring Fund's shares as of June 15, 
2001.
    3. On December 15, 2000, the board of trustees of each Fund (each a 
``Board,'' and together the ``Boards''), including a majority of the 
trustees who are not ``interested persons,'' as defined in section 
2(a)(19) of the Act (``Disinterested Trustees''), approved an agreement 
and plan of reorganization entered into between the Funds (``Plan''). 
Under the Plan, on the date of the closing of the Reorganization 
(``Closing Date''), the Acquiring Fund will acquire all of the assets, 
net of liabilities, of the Acquired Fund in exchange for shares of 
designated classes of the Acquiring Fund that have a total net asset 
value equal to the total net asset value of the Acquired Fund's shares, 
determined as of the business day preceding the Closing Date 
(``Valuation Date''). The value of the assets of each Fund will be 
determined according to the respective Fund's then-current prospectus 
and statement of additional information. Following the Reorganization, 
the Acquired Fund will be liquidated. Applicants anticipate the Closing 
Date will be on or around August 15, 2001.
    4. Applicants state that the investment objectives of the Acquired 
Fund are identical to those of the Acquiring Fund, and that their 
investment policies and strategies are substantially similar. The Funds 
each offer Class A, Class B and Class D shares. The Acquiring Fund also 
offers Class C shares, but these shares will not be exchanged in the 
Reorganization. Class A shares are subject to a front-end sales charge 
and a rule 12b-1 distribution fee, and in certain circumstances, a 
contingent deferred sales charge. Class B shares are subject to a 
contingent deferred sales charge and a rule 12b-1 distribution fee. 
Class D shares are only subject to a front-end sales charge. For 
purposes of calculating any deferred sales charge, shareholders of the 
Acquired Fund will be deemed to have held shares of the Acquiring Fund 
since the date the shareholders initially purchased shares of the 
Acquired Fund. No sales charges will be imposed in connection with the 
Reorganization. The Funds will bear half of the expenses of the 
Reorganization on a pro rata basis, and VMF will bear half of the 
Reorganization expenses.
    5. The Boards, including a majority of the Disinterested Trustees, 
determined that the Reorganization was in the best interests of each 
Fund and its shareholders, and that the interests of each Fund's 
existing shareholders would not be diluted as a result of the 
Reorganization. In reviewing the Plan, the boards considered various 
factors, including: (a) The compatibility of the investment objectives, 
policies, restrictions and investments of the Funds; (b) the tax 
consequences of the Reorganization; (c) the comparative investment 
performance of the Funds; and (d) the expense ratios (after waivers and 
reimbursements) of both Funds and the pro forma expenses of the 
Acquiring Fund following the Reorganization.
    6. The Reorganization is subject to a number of conditions, 
including that: (a) Each Fund's shareholders will have approved the 
Plan; (b) an N-14 registration statement relating to the Reorganization 
will have become effective with the Commission; (c) the Funds will have 
received an opinion of counsel concerning the tax-free nature of the 
Reorganization; (d) the Acquired Fund will have declared dividends and 
other distributions that are payable through the close of business on 
the Valuation Date; and (e) applicants will have received from the 
Commission the exemptive relief requested by the application.
    7. The Plan may be terminated and the Reorganization abandoned at 
any time prior to the Closing Date by Nationwide, on behalf of either 
Fund, by resolution of the Fund's Board, if circumstances develop that, 
in the opinion of the Board, make proceeding with the Reorganization 
inadvisable. Applicants agree not to make any material changes to the 
Plan without prior approval of the Commission staff.
    8. A registration statement on Form N-14 with respect to the 
Reorganization, containing a proxy statement/prospectus, was filed with 
the Commission and was mailed to each Fund's shareholders on or about 
February 5, 2001. A special meeting of the Funds' shareholders was held 
on March 9, 2001, and each Fund's shareholders approved the Plan.

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 rule 17a-8 may not be available to 
exempt 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 
Nationwide Life owns more than 5% of the total outstanding shares of 
the Acquired Fund and may be deemed to control the Acquiring Fund 
because the Separate Account owns more than 25%

[[Page 38773]]

of the Acquiring Fund's shares. As a result, each Fund may be deemed to 
be an affiliated person of an affiliated person of the other 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) 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). Applicants state that the terms of the 
Reorganization are reasonable and fair and do not involve overreaching. 
Applicants also state that the investment objectives of the Acquired 
Fund are identical to those of the Acquiring Fund, and that their 
investment policies and strategies and similar. Applicants further 
state that the Boards, including a majority of the Disinterested 
Trustees, found that the participation of the 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. 01-18518 Filed 7-24-01; 8:45 am]
BILLING CODE 8010-01-M