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As filed with the Securities and Exchange Commission on January 18, 2001.
Registration No. 333-51924
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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] Pre-Effective Amendment No. 2 [ ] Post-Effective Amendment No. __
(Check appropriate box or boxes)
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Exact Name of Registrant as Specified in Charter:
NATIONWIDE MUTUAL FUNDS
Area Code and Telephone Number: (484) 530-1300
Address of Principal Executive Offices (Number, Street, City, State, Zip Code):
THREE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
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<CAPTION>
Name and Address of
Agent for Service: With copies to:
<S> <C> <C>
Elizabeth A. Davin, Esq. Eric E. Miller, Esq. Charles M. Weber, Esq.
Nationwide Mutual Funds Stradley Ronon Stevens & Young LLP Quarles & Brady LLP
One Nationwide Plaza 1-35-10 2600 One Commerce Square 411 East Wisconsin Avenue
Columbus, Ohio 43215 Philadelphia, Pennsylvania 19103 Milwaukee, Wisconsin 53202
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Approximate Date of Proposed Public Offering: As soon as practicable
after this Registration Statement becomes effective under the Securities Act of
1933, as amended.
Title of Securities Being Registered: Shares of beneficial interest,
without par value, in the Nationwide Value Opportunities Fund, a series of the
Registrant.
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The Registrant has previously registered an indefinite number of its
shares of beneficial interest, without par value, pursuant to Section 24(f)
under the Investment Company Act of 1940, as amended. Accordingly, no filing fee
is due in reliance on Section 24(f).
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The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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[PRINCIPAL PRESERVATION LETTERHEAD]
January 19, 2001
Dear Select Value Portfolio Shareholder:
I am writing to you about a matter of primary importance to all of our
Select Value Portfolio shareholders. We at Principal Preservation Portfolios,
Inc. ("Principal Preservation") have appreciated the confidence you have placed
in us and your support of the Select Value Portfolio. However, we believe that
your interests would be better served if the Select Value Portfolio would
combine with and become a part of the Nationwide Value Opportunities Fund (the
"Value Opportunities Fund") in a transaction structured as a tax-free
reorganization. The Value Opportunities Fund is a series of Nationwide Mutual
Funds, a large mutual fund family. The investment objective and strategies of
the Value Opportunities Fund are similar to those of the Select Value Portfolio,
and the Value Opportunities Fund's sub-adviser, NorthPointe Capital, LLC
("NorthPointe"), has been interim investment adviser for the Select Value
Portfolio since September 29, 2000. The Value Opportunities Fund also offers
both Class A and Class B shares like the Select Value Portfolio, and the two
funds have similar fee structures. The proposed transaction would make it
possible for you to enjoy the potential benefits that can arise from owning
shares in a larger combined fund, including a lower operating expense ratio, and
being part of a major fund complex with extensive distribution capabilities. At
the same time, you can continue to receive the advisory services of experienced
portfolio managers with a small cap value investment philosophy.
The enclosed Proxy Statement/Prospectus describes and seeks your
approval of two separate proposals. The first proposal seeks your approval of an
Agreement and Plan of Reorganization (the "Plan") involving the Select Value
Portfolio and the Value Opportunities Fund, and explains the similarities and
differences between the two funds. As a result of the transactions proposed in
the Plan (the "Reorganization"), substantially all of the assets of the Select
Value Portfolio would be transferred to the Value Opportunities Fund, and you
would receive shares of the Value Opportunities Fund in exchange for your Select
Value Portfolio shares. The Value Opportunities Fund shares you receive would be
the same class as the class of shares you own in the Select Value Portfolio
immediately prior to the time the Reorganization is completed. Immediately
following the transfer, we expect that the dollar value of your account will be
the same as it was immediately before the transfer. No sales charge would be
imposed on this exchange, and it is expected that you will not recognize any
gain or loss for federal income tax purposes on the exchange. The Board of
Directors of Principal Preservation has unanimously approved the transaction for
the reasons described in the Proxy Statement/Prospectus.
Primarily as a precautionary measure, the second proposal seeks your
approval of a new investment advisory agreement ("New Advisory Agreement")
between Principal Preservation, on behalf of the Select Value Portfolio, and
NorthPointe. The current interim investment advisory agreement with NorthPointe
will expire on February 26, 2001. If the Plan is not approved by the
shareholders or if the Plan is approved but the Reorganization is not completed
by such date, the New Advisory Agreement will be necessary to continue
NorthPointe's investment management of the Select Value Portfolio. The New
Advisory Agreement will not be implemented if the Plan is approved and the
Reorganization completed by February 26, 2001. Even if implemented, the New
Advisory Agreement will, unless otherwise terminated, expire on October 31, 2001
or on the closing date of the Reorganization, whichever occurs sooner. By
October 31, 2001, alternatives for the Select Value Portfolio will have been
considered, including a reorganization with another fund, a liquidation of the
Portfolio or the engagement of another advisor.
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It is important that you consider and vote on both proposals to permit
continuous investment management services for the Select Value Portfolio by
NorthPointe.
This package contains information about the proposals and includes all
the material you will need to vote by mail. The current prospectus for the Value
Opportunities Fund is enclosed for your convenience.
The Board of Directors of Principal Preservation has unanimously
approved the transaction and recommends that you vote "FOR" the Plan and "FOR"
the New Advisory Agreement. The Board believes that the Plan and, if necessary,
the New Advisory Agreement are in your best interests as a shareholder of the
Select Value Portfolio. Your vote is essential to approve the proposals.
Attached are answers to questions we anticipate some of you may have.
Please read the enclosed Proxy Statement/Prospectus carefully and cast your
votes by completing and returning the enclosed proxy card. To help avoid
additional expense, be sure to vote promptly. If you have any questions, please
call us at 1-800-826-4600 (option 2). We will be glad to help you.
Thank you for your consideration and continued support.
Sincerely,
Robert J. Tuszynski
President
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IMPORTANT INFORMATION TO HELP YOU
UNDERSTAND AND VOTE ON THE PROPOSALS
Although you should read the full text of the enclosed Proxy
Statement/Prospectus, we hope this brief overview will explain why the Principal
Preservation Board of Directors believes you should vote FOR (1) an Agreement
and Plan of Reorganization (the "Plan") involving the transfer of substantially
all of the assets of the Select Value Portfolio to the Nationwide Value
Opportunities Fund (the "Value Opportunities Fund"), a series of Nationwide
Mutual Funds ("Nationwide"), and the exchange of your shares in the Select Value
Portfolio for shares of the Value Opportunities Fund in a reorganization
expected to be tax-free (the "Reorganization"), and FOR (2) a new Investment
Advisory Agreement (the "New Advisory Agreement") with NorthPointe Capital, LLC
("NorthPointe") which would only be implemented to permit continued investment
management of the Select Value Portfolio if the Plan is not approved, or the
Reorganization is not completed by February 26, 2001.
WHY HAS YOUR BOARD OF DIRECTORS DECIDED TO RECOMMEND THE PLAN?
The Plan and Reorganization were unanimously approved by the Board of
Directors of Principal Preservation primarily because it would enable
the shareholders of the Select Value Portfolio to own shares of a
larger combined fund with similar investment objectives, strategies,
sales load and fee structures, and the same portfolio managers, and to
become part of a larger fund family and broader distribution network.
The Reorganization is also intended to be tax-free to the Select Value
Portfolio share holders. The Board considered alternatives to the
Reorganization, including merging the Select Value Portfolio with
another fund or attracting another experienced investment advisory firm
to manage the Select Value Portfolio on a more permanent basis than
envisioned by the current interim arrangement with NorthPointe, but
concluded that such alternatives may be difficult to implement and may
not be as beneficial as the Reorganization to the Select Value
Portfolio shareholders.
WHAT ARE THE ANTICIPATED ADVANTAGES OF THE REORGANIZATION TO SHAREHOLDERS?
The Reorganization will allow the shareholders to own shares of a fund
whose assets are managed by the same advisory firm (NorthPointe) and
portfolio managers as the Select Value Portfolio, but on a longer-term
basis. The Board believes that NorthPointe has sufficient depth of
experience, resources and personnel to manage the combined assets of
the two Funds. Moreover, the Value Opportunities Fund currently invests
primarily in small cap stocks on a value basis, as does the Select
Value Portfolio. As a result, the Board believes that shareholders
wanting to continue an investment in a fund like the Select Value
Portfolio should find the Value Opportunities Fund to be a suitable
alternative. The larger combined fund also offers the potential for
lower annual operating expenses and other economies of scale, and the
distribution network supporting the sale of the Nationwide funds should
foster further asset growth. The
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Value Opportunities Fund is also part of Nationwide's extensive family
of funds, which provides shareholders with a vast array of investment
options and services.
DO THE VALUE OPPORTUNITIES FUND'S INVESTMENT OBJECTIVES AND POLICIES RESEMBLE
THOSE OF THE SELECT VALUE PORTFOLIO?
Yes. Both the Value Opportunities Fund and the Select Value Portfolio
(collectively, the "Funds") seek capital appreciation by investing on a
"value" basis primarily in equity securities of companies with smaller
market capitalizations. However, the Value Opportunities Fund may tend
to invest in stocks of larger companies than does the Select Value
Portfolio, and may invest to a greater degree than the Select Value
Portfolio in stocks of foreign companies, special situation companies
and turnarounds, and in other securities.
HOW DO THE EXPENSE STRUCTURES OF THE TWO FUNDS COMPARE?
Both Funds offer Class A shares (with a front-end sales load and lower
annual operating expenses) and Class B shares (with a contingent
deferred sales charge imposed on redemptions and higher annual
operating expenses). The sales load structures for the Class A shares
and Class B shares are somewhat different for the two Funds. The
maximum sales load on purchases of Class A shares of the Select Value
Portfolio is 5.25% of the offering price, which declines to 5.00% for
purchases of $25,000 to $50,000, 4.75% for purchases of $50,000 to
$100,000, and so on. There is no sales load on purchases of $1,000,000
or more. In contrast, the maximum sales load on purchases of Class A
shares of the Value Opportunities Fund is 5.75%, which declines to
4.50% for purchases of $50,000 to $100,000, and so on, down to 0.25%
for purchases of $25,000,000 or more.
A contingent deferred sales charge ranging from 5% to 1% is charged if
Class B shares of the Select Value Portfolio or the Value Opportunities
Fund are redeemed within six years of purchase. The Funds' CDSC
schedules are very similar. However, the contingent deferred sales
charge for redemptions of Class B shares of the Select Value Portfolio
that have been held for more than two, but less than three, years is
4%, while only 3% for the Value Opportunities Fund, and the Class B
shares of the Select Value Portfolio convert into Class A shares
automatically after eight years following purchase, while the Class B
shares of the Value Opportunities Fund convert into Class A shares
automatically after seven years.
The management fees of the two Funds also differ. The management fee
paid by the Select Value Portfolio is at the annual rate of 0.75% of
the first $250 million of its average daily net assets, and 0.65%
thereafter. The management fee paid by the Value Opportunities Fund is
at the annual rate of 0.70% of the first $250 million of its average
daily net assets, 0.675% of the next $750 million, 0.65% of the next $1
billion, 0.625% of the next $3 billion and 0.60% thereafter. As a
result, until the
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Fund reaches $250 million, the management fees for the Value
Opportunities Fund are lower (by 0.05%) than the management fees for
the Select Value Portfolio; between $250 million and $1 billion, they
are higher (by 0.25%); and at all asset levels above $1 billion, they
are equal or lower.
NO SALES CHARGE WILL BE IMPOSED ON THE VALUE OPPORTUNITIES FUND SHARES
YOU RECEIVE, AND NO REDEMPTION CHARGE WILL BE IMPOSED ON THE SELECT
VALUE PORTFOLIO SHARES YOU EXCHANGE, IN THE REORGANIZATION.
The annual operating expenses of the Select Value Portfolio (as a
percentage of average daily net assets) for the year ended October 31,
2000, net of contractual fee waivers and expense reimbursements, were
1.40% for Class A shares and 2.15% for Class B shares, and without fee
waivers and expense reimbursements were 2.18 % for Class A shares and
2.93% for Class B shares. Ziegler and NorthPointe have contractually
committed to continue these waivers and reimbursements through February
26, 2001 (unless the Reorganization is completed before that date), and
if the Reorganization is completed or abandoned after February 26, 2001
these waivers and reimbursements will continue until that later date.
The annualized operating expenses of the Value Opportunities Fund for
the period ending October 31, 2000, net of contractual fee waivers and
expense reimbursements, were 1.35% for Class A shares and 1.95% for
Class B shares, and without waivers and reimbursements were 6.59% for
Class A shares and 7.70% for Class B shares. Villanova Mutual Fund
Capital Trust, the adviser to the Value Opportunities Fund, has
contractually agreed to continue these waivers and reimbursements
through February 28, 2002.
WHAT ARE THE FEDERAL TAX IMPLICATIONS OF THE REORGANIZATION?
The Board of Directors of Principal Preservation expects to obtain a
legal opinion from its counsel that, subject to certain conditions, the
transaction will be tax-free for federal income tax purposes to
shareholders of the Select Value Portfolio and to each of the Funds.
However, you will recognize a capital gain (or loss) if you sell your
Select Value Portfolio shares before the Reorganization or if you sell
or exchange the Value Opportunities Fund shares you receive in the
Reorganization.
WHAT WILL BE THE SIZE OF THE VALUE OPPORTUNITIES FUND AFTER THE REORGANIZATION
AND WHAT IMPACT IS THAT EXPECTED TO HAVE ON THE SHAREHOLDERS OF THE SELECT VALUE
PORTFOLIO?
As of December 31, 2000, the net assets of the Select Value Portfolio
and the Value Opportunities Fund were approximately $9.9 million and
$10.0 million, respectively.
The net assets of the Value Opportunities Fund include approximately
$5.5 million in assets allocable to its Institutional Service Class
shares; the net assets of the Value Opportunities Fund allocable to its
Class A and Class B shares were approximately $4.5
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million. If the Reorganization had occurred on December 31, 2000, the
net assets of the combined Value Opportunities Fund after the
Reorganization would have been approximately $19.9 million (or $14.4
million considering only the assets allocable Class A and Class B
shares). As a result, current shareholders of the Select Value
Portfolio may derive benefits such as relatively lower risk and costs
that typically are associated with a larger fund with a more
diversified portfolio.
HOW WILL YOU DETERMINE THE NUMBER OF SHARES OF THE VALUE OPPORTUNITIES FUND THAT
I WILL RECEIVE IN THE REORGANIZATION?
As of the opening of trading on the closing date of the Reorganization,
Select Value Portfolio shareholders will receive the number of full and
fractional shares of the Value Opportunities Fund that is equal in
dollar value to the aggregate net asset value of their shares of the
Select Value Portfolio on that date. The closing date is expected to be
on or about February 23, 2001.
IF I PRESENTLY HOLD CLASS A OR CLASS B SHARES OF THE SELECT VALUE PORTFOLIO,
WHAT CLASS OF SHARES WILL I RECEIVE IN THE REORGANIZATION?
Like the Select Value Portfolio, the Value Opportunities Fund presently
issues its shares in two separate classes, one class (Class A) which
bears a front-end sales charge and a second class (Class B) which
carries a contingent deferred sales charge. Your shares of the Select
Value Portfolio will be exchanged for shares of the same class of the
Value Opportunities Fund.
WILL I HAVE TO TAKE ANY STEPS TO RECEIVE SHARES OF THE VALUE OPPORTUNITIES FUND
IN THE REORGANIZATION?
If the Reorganization is approved by shareholders of the Select Value
Portfolio at the meeting and subsequently is completed, you will
automatically receive the number of shares of the Value Opportunities
Fund which you are entitled to receive in exchange for your shares of
the Select Value Portfolio. You will not be required to take any steps
to receive these shares. If you hold certificates representing shares
of the Select Value Portfolio, you will have to turn in those
certificates, and you will not receive any certificates for the Value
Opportunities Fund. Instead, your shares will be held in non-
certificated form and you will receive a confirmation of the number of
shares of the Value Opportunities Fund issued to you.
WILL I BE ABLE TO MAKE ADDITIONAL INVESTMENTS IN THE VALUE OPPORTUNITIES FUND
AFTER THE REORGANIZATION?
You will be free to make additional investments in the Value
Opportunities Fund and other Nationwide funds after the Reorganization,
on the terms generally applicable to purchases of such shares by
current Value Opportunities Fund shareholders.
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WHY ARE YOU BEING ASKED TO APPROVE THE NEW ADVISORY AGREEMENT?
You are being asked to approve the New Advisory Agreement with
NorthPointe in case the Plan is not approved by the Select Value
Portfolio shareholders, or the Reorganization is not completed by
February 26, 2001. On that date, the current Interim Investment
Advisory Agreement (the "Interim Agreement") with NorthPointe will
expire as required by Rule 15a-4 under the Investment Company Act of
1940, as amended. Rule 15a-4 enabled Principal Preservation on behalf
of the Select Value Portfolio to enter into the Interim Agreement with
NorthPointe on September 29, 2000 without shareholder approval when the
previous advisory agreement with B.C. Ziegler and Company ("Ziegler")
was terminated. However, Rule 15a-4 only permits advisory agreements
that have not been approved by shareholders to be in effect for 150
days. The New Advisory Agreement will not be implemented if the
Reorganization is completed by February 26, 2001. Approval of the New
Advisory Agreement is essentially a precautionary measure to permit
NorthPointe to continue to manage the Select Value Portfolio. Approval
of the New Advisory Agreement would also be considered a ratification
of any management fees to which NorthPointe may be entitled under the
Interim Agreement.
WHAT ARE THE TERMS OF THE NEW ADVISORY AGREEMENT?
The New Advisory Agreement would only be implemented if the
shareholders approve it and the Reorganization is not completed by
February 26, 2001. The terms of the New Advisory Agreement are
substantially similar to those of the Interim Agreement and the
previous investment advisory agreement with Ziegler, except for certain
provisions required by Rule 15a-4 and the fact that the New Advisory
Agreement will only continue through the earlier of October 31, 2001 or
the closing date of the Reorganization (unless otherwise terminated).
If the New Advisory Agreement goes into effect on February 26, 2001
because the Plan has been rejected by shareholders, neither Ziegler nor
NorthPointe intend to waive fees or reimburse expenses, which could
result in a significant increase in the annual operating expenses of
the Select Value Portfolio. However, Ziegler and NorthPointe have
committed to waive fees or reimburse expenses if the Plan is approved
by shareholders until the Reorganization is completed or abandoned.
WHAT IF THERE ARE NOT ENOUGH VOTES TO REACH A QUORUM BY THE SCHEDULED DATE OF
THE SPECIAL SHAREHOLDER MEETING?
Although we expect to have a quorum for the meeting, if a quorum is not
obtained, the meeting will be adjourned to allow time to solicit
additional proxies from shareholders. We urge you to vote promptly
after reviewing the enclosed material so that the meeting is not
adjourned.
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HOW MANY VOTES AM I ENTITLED TO CAST?
You are entitled to one vote for each share (and a fractional vote for
each fractional share) of the Select Value Portfolio that you owned on
the record date. The record date is January 17, 2001.
HOW DO I VOTE MY SHARES?
Voting is easy. You can vote your shares by completing and signing the
enclosed proxy card and mailing it in the enclosed postage-paid
envelope. If you need any assistance or have any questions concerning
the proposal or how to vote your shares, please call Principal
Preservation at (800) 826-4600, option 2.
HOW DO I SIGN THE PROXY CARD?
Individual Accounts: Shareholders should sign exactly as their names appear
on the account registration shown on the card.
Joint Accounts: Both owners must sign exactly as their names appear in
the registration.
All Other Accounts: The person signing must indicate his or her capacity.
For example, a trustee for a trust or other entity
should sign, "Jane F. Doe, Trustee."
This material may be used only when preceded or accompanied by a prospectus.
B.C. Ziegler and Company, distributor. Member SIPC.
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PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
215 North Main Street
West Bend, Wisconsin 53095
(800) 826-4600
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
ON FEBRUARY 21, 2001
To the Shareholders of the Select Value Portfolio:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Meeting") of the Select Value Portfolio (the "Select Value Portfolio"), a
mutual fund portfolio of Principal Preservation Portfolios, Inc. ("Principal
Preservation"), will be held on Wednesday, February 21, 2001, at 2:00 p.m.,
Central Time, at the West Bend Inn, 2520 West Washington Street, West Bend,
Wisconsin. The purpose of the Meeting is to consider and act upon the following
proposals:
1. To approve an Agreement and Plan of Reorganization (the "Plan")
between Principal Preservation on behalf of the Select Value
Portfolio, and Nationwide Mutual Funds, on behalf of the
Nationwide Value Opportunities Fund (the "Value Opportunities
Fund"), and the consummation of the transactions contemplated
therein. Pursuant to the Plan, the Value Opportunities Fund would
acquire substantially all of the assets, net of the liabilities,
of the Select Value Portfolio, and, in exchange, would issue to
the Select Value Portfolio Class A and B shares of the Value
Opportunities Fund having an aggregate net asset value equal to
the aggregate net asset value of the Select Value Portfolio assets
so acquired. Upon this transfer, the Select Value Portfolio would
dissolve and distribute the shares of the Value Opportunities Fund
pro rata to its shareholders. The Select Value Portfolio
shareholders would thereby become shareholders of the Value
Opportunities Fund and own the same class of shares they held in
the Select Value Portfolio.
2. To approve a new investment advisory agreement (the "New Advisory
Agreement") between Principal Preservation, on behalf of the
Select Value Portfolio, and NorthPointe Capital, LLC, the current
investment adviser to the Select Value Portfolio, which would be
implemented only if Proposal 1 is not approved, or if the
transactions contemplated by the Plan are not completed by
February 26, 2001.
3. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
The Board of Directors of Principal Preservation has fixed the close of
business on January 17, 2001, as the record date for the determination of
shareholders of the Select Value Portfolio entitled to notice of, and to vote
at, the Meeting and any adjournments thereof.
By Order of the Board of Directors
/s/ Kathleen Cain
----------------------------------------------
Kathleen Cain, Secretary
January 19, 2001
YOUR VOTE IS IMPORTANT -- PLEASE RETURN YOUR PROXY CARD PROMPTLY
SHAREHOLDERS ARE URGED TO INDICATE VOTING INSTRUCTIONS ON THE ENCLOSED PROXY
CARD, DATE AND SIGN IT, AND RETURN IT IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IN
ORDER TO AVOID THE ADDITIONAL EXPENSE OF A SECOND SOLICITATION, WE ASK YOUR
COOPERATION IN MAILING YOUR PROXY PROMPTLY, NO MATTER HOW LARGE OR SMALL YOUR
HOLDINGS MAY BE.
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SELECT VALUE PORTFOLIO (A SERIES
OF PRINCIPAL PRESERVATION PORTFOLIOS, INC.)
NATIONWIDE VALUE OPPORTUNITIES FUND
(A SERIES OF NATIONWIDE MUTUAL FUNDS)
-------------------------------------------------
PROXY STATEMENT/PROSPECTUS
JANUARY 19, 2001
-------------------------------------------------
This Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies by the Board of Directors of Principal Preservation
Portfolios, Inc. ("Principal Preservation") for use at a Special Meeting of
Shareholders of the Select Value Portfolio, a series of Principal Preservation,
to be held at 2:00 p.m., Central Time, on Wednesday, February 21, 2001, at the
West Bend Inn, 2520 West Washington Street, West Bend, Wisconsin (the
"Meeting").
The primary purpose of the Meeting is to consider and vote on the
Agreement and Plan of Reorganization (the "Plan") involving the Select Value
Portfolio and the Nationwide Value Opportunities Fund (the "Value Opportunities
Fund"), a series of Nationwide Mutual Funds ("Nationwide"). A copy of the Plan
is attached hereto as Appendix A.
Pursuant to the Plan, substantially all of the assets of the Select
Value Portfolio net of its liabilities would be transferred to and acquired by
the Value Opportunities Fund in exchange solely for shares of beneficial
interest in the Value Opportunities Fund. Shares of the Value Opportunities Fund
received by the Select Value Portfolio in the transaction would then be
distributed pro rata to shareholders of the Select Value Portfolio, and the
Select Value Portfolio would be dissolved and discontinued as a separate mutual
fund portfolio of Principal Preservation. It is expected that the dollar value
of each Select Value Portfolio shareholder's account in the Value Opportunities
Fund immediately after these proposed transactions (the "Reorganization") would
be the same as the dollar value of such shareholder's account in the Select
Value Portfolio immediately prior to the Reorganization. Holders of Class A
shares of the Select Value Portfolio will receive Class A shares of the Value
Opportunities Fund, and holders of Class B shares of the Select Value Portfolio
will receive Class B shares of the Value Opportunities Fund. The Reorganization
is intended to qualify as a tax-free reorganization so that shareholders of the
Select Value Portfolio will not recognize any gain or loss through the exchange
of shares in the Reorganization. No sales charge or commission will be imposed
upon the Value Opportunities Fund shares issued, or the Select Value Portfolio
shares surrendered, in the Reorganization.
Primarily as a precautionary measure, you are also being asked to
consider and vote on a new Investment Advisory Agreement (the "New Advisory
Agreement") for the Select Value Portfolio with NorthPointe Capital, LLC
("NorthPointe") as investment adviser. A copy of the New Advisory Agreement is
attached hereto as Appendix B. Approval of this proposal is necessary because
the current Interim Investment Advisory Agreement (the "Interim Agreement") with
NorthPointe will expire on February 26, 2001, and if the Reorganization is not
completed by that date, the Select Value Portfolio would be left without an
investment adviser. Shareholder approval of the New Advisory
<PAGE> 12
Agreement will also be treated as a ratification of any management fees to which
NorthPointe may be entitled under the Interim Agreement. The terms and
conditions of the New Advisory Agreement are substantially similar (and the rate
of the management fees payable thereunder are identical) to those of the Interim
Agreement and of the previous investment advisory agreement with B.C. Ziegler
and Company ("Ziegler"), except that the New Advisory Agreement will only
continue through the earlier of October 31, 2001 or the closing date of the
Reorganization (unless otherwise terminated). Currently, Ziegler and NorthPointe
waive fees and reimburse expenses under the Interim Agreement, but neither
Ziegler nor NorthPointe intend to waive fees or reimburse expenses if the New
Advisory Agreement goes into effect because the Plan is not approved by
shareholders. However, Ziegler and NorthPointe have committed to continue their
fee waivers and expense reimbursements if the New Advisory Agreement goes into
effect because, even though shareholders approve the Plan, the Reorganization is
not completed by February 26, 2001.
The Value Opportunities Fund is a series of Nationwide, an open-end,
series management investment company. The investment objective of the Value
Opportunities Fund is long-term capital appreciation through investment in
common stocks or their equivalents. The Value Opportunities Fund invests
primarily in stocks of U.S. and foreign companies that it considers to be
undervalued. Under normal conditions, the Value Opportunities Fund will invest
at least 65% of its total assets in equity securities of companies whose equity
market capitalizations at the time of investment are similar to the market
capitalizations of companies in the Russell 2000 Index, known as small cap
companies. The investment objective and principal strategies of the Value
Opportunities Fund are similar to those of the Select Value Portfolio, although
there are some differences. (The Value Opportunities Fund and the Select Value
Portfolio are collectively referred to herein as the "Funds.")
The principal executive office of Nationwide and the Value
Opportunities Fund is located at Three Nationwide Plaza, Columbus, Ohio 43215,
telephone: (800) 848-0920. The principal executive office of Principal
Preservation and the Select Value Portfolio is at 215 North Main Street, West
Bend, Wisconsin 53095, telephone: (800) 826-4600.
This Proxy Statement/Prospectus sets forth concisely the information
that shareholders of the Select Value Portfolio should know before voting on the
Plan and the Reorganization (Proposal 1) and the New Advisory Agreement
(Proposal 2). It also constitutes an offering of shares of the Value
Opportunities Fund. Please read this Proxy Statement/Prospectus carefully and
retain it for future reference.
Proxy materials are expected to be mailed to shareholders of the Select
Value Portfolio on or about January 22, 2001.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THE VALUE OPPORTUNITIES FUND SHARES TO BE ISSUED IN THE REORGANIZATION OR
DETERMINED IF THIS PROXY STATEMENT/ PROSPECTUS IS TRUTHFUL OR COMPLETE. TO STATE
OTHERWISE IS A CRIME.
A Statement of Additional Information of the Value Opportunities Fund,
dated January 19, 2001, relating to this Proxy Statement/Prospectus (the
"Reorganization SAI") has been filed with the Securities and Exchange Commission
(the "SEC" or the "Commission") and is incorporated herein by reference. Copies
of the Reorganization SAI may be obtained without charge by writing to
Nationwide Advisory Services, Inc. at P.O. Box 1492, Columbus, Ohio 43216-1492,
or by calling (800) 848-0920.
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In addition, the Prospectus of the Value Opportunities Fund, dated
January 3, 2000 (as amended February 9, 2000, and as supplemented) (the "Value
Opportunities Fund Prospectus"), the Statement of Additional Information of the
Value Opportunities Fund, dated January 3, 2000 (as amended September 29, 2000)
(the "Value Opportunities Fund SAI"), and the Annual Report of the Value
Opportunities Fund for the period ended October 31, 2000 (the "Value
Opportunities Fund Annual Report") have been filed with the Commission and are
incorporated by reference herein. The Value Opportunities Fund Prospectus and
excerpts from the Value Opportunities Fund Annual Report (containing information
on, and a discussion of, the Fund's performance and financial highlights for the
period ended October 31, 2000) accompany this Proxy Statement/Prospectus, and
the Value Opportunities Fund SAI and the Value Opportunities Fund Annual Report
may be obtained without charge by writing to or calling Nationwide Advisory
Services, Inc. at the above address or telephone number.
The Prospectus and Statement of Additional Information of the Select
Value Portfolio, each dated May 1, 2000 (as supplemented) (the "Select Value
Portfolio Prospectus" and the "Select Value Portfolio SAI," respectively), and
the Annual Report of the Select Value Portfolio for the year ended October 31,
2000 (the "Select Value Portfolio Annual Report") have been filed with the
Commission, are incorporated by reference herein and may be obtained without
charge by writing to Principal Preservation at 215 North Main Street, West Bend,
Wisconsin 53095 or calling (800) 826-4600.
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<PAGE> 14
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................6
INTRODUCTION, VOTING INFORMATION AND REQUIREMENTS....................................7
SYNOPSIS.............................................................................9
Introduction................................................................9
Proposal 1: The Plan......................................................10
Reasons for the Proposed Reorganization....................................11
Federal Tax Consequences...................................................13
Comparison of Value Opportunities Fund and Select Value Portfolio..........14
Proposal 2: The New Advisory Agreement....................................30
RISK FACTORS........................................................................32
Stock Market Risk..........................................................32
Stock Selection Risk.......................................................32
Small Cap Risk.............................................................32
Risks Related to Investing for Value.......................................33
Foreign Risk...............................................................33
Illiquid Securities........................................................34
Borrowing..................................................................34
Real Estate Securities.....................................................34
Special Situation Companies................................................35
Fixed Income Securities....................................................35
Changes to Investment Objective............................................35
Portfolio Turnover.........................................................36
Performance Information....................................................36
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES........................36
Investment Objectives......................................................36
Principal Strategies.......................................................36
Other Policies.............................................................37
PERFORMANCE OF THE VALUE OPPORTUNITIES FUND.........................................40
Management's Discussion of Fund Performance................................40
Average Annual (Compound) Total Return.....................................41
Fund Performance...........................................................41
PROPOSAL 1: APPROVAL OF THE PLAN AND REORGANIZATION................................42
Description of the Plan....................................................42
</TABLE>
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<PAGE> 15
<TABLE>
<S> <C>
Other Terms................................................................44
Related Party Transactions.................................................45
Section 7(a) Matters.......................................................46
Background to Reorganization...............................................47
Reasons for the Proposed Reorganization....................................48
Federal Tax Considerations.................................................50
PROPOSAL 2: APPROVAL OF A NEW ADVISORY AGREEMENT WITH
NORTHPOINTE................................................................52
Reasons and Background.....................................................52
Description of Interim Agreement...........................................52
Terms of New Advisory Agreement and Comparison with Interim
Agreement and Previous Agreement..................................53
Information Regarding NorthPointe..........................................55
Payments to Ziegler........................................................56
Board Considerations.......................................................56
DESCRIPTION OF SECURITIES TO BE ISSUED AND RIGHTS OF SHAREHOLDERS...................57
Value Opportunities Fund...................................................57
Select Value Portfolio.....................................................58
CAPITALIZATION......................................................................59
OWNERSHIP OF FUND SHARES............................................................60
Value Opportunities Fund...................................................60
Select Value Portfolio.....................................................60
MISCELLANEOUS.......................................................................61
Auditors...................................................................61
Interests of Experts and Counsel...........................................61
Other Matters..............................................................61
APPENDIX A - AGREEMENT AND PLAN OF REORGANIZATION..................................A-1
APPENDIX B - NEW INVESTMENT ADVISORY AGREEMENT.....................................B-1
</TABLE>
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<PAGE> 16
AVAILABLE INFORMATION
Nationwide has filed with the Commission a Registration Statement on
Form N-14 (the "Registration Statement") with respect to the shares of the Value
Opportunities Fund offered hereby. As permitted by the rules and regulations of
the Commission, this Proxy Statement/Prospectus omits certain information,
exhibits and undertakings contained in the Registration Statement. Such
additional information can be inspected at the principal offices of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048; and CitiCorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621. Copies of the Registration Statement can be obtained
from the Commission at prescribed rates by writing to the Commission at any such
address. For further information, reference is made to the Registration
Statement and to the exhibits thereto.
In addition to the above, the Value Opportunities Fund and the Select
Value Portfolio are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith, file reports and
other information with the SEC. Proxy materials, reports and other information
about the Value Opportunities Fund and the Select Value Portfolio which are of
public record also can be inspected and copied at public reference facilities
maintained by the Commission at the above addresses. Copies of these materials
can be inspected and copied at the Commission's principal and regional offices
described above and can be obtained at prescribed rates from the Public
Reference Branch, Office of Consumer Affairs and Information Services, SEC,
Washington, D.C. 20549. The Commission also maintains a Web site at
http:\\www.sec.gov that will contain certain other publicly available documents
about Nationwide, the Value Opportunities Fund, Principal Preservation and the
Select Value Portfolio.
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus
and, if given or made, such other information or representations must not be
relied upon as having been authorized by Nationwide and Principal Preservation.
This Proxy Statement/Prospectus does not constitute an offer to sell securities
in any state or other jurisdiction to any person to whom it would be unlawful to
make such offer in such state or jurisdiction.
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<PAGE> 17
INTRODUCTION, VOTING INFORMATION AND REQUIREMENTS
This Proxy Statement/Prospectus is being furnished to the shareholders
of the Select Value Portfolio in connection with the solicitation of proxies by
the Board of Directors of Principal Preservation to be used at a Special Meeting
of Shareholders of the Select Value Portfolio to be held on Wednesday, February
21, 2001, at 2:00 p.m., Central Time, at the West Bend Inn, 2520 West Washington
Street, West Bend, Wisconsin. The primary purpose (Proposal 1) of the Meeting is
to consider and vote on the Plan and the Reorganization contemplated thereby,
pursuant to which the Value Opportunities Fund would acquire substantially all
of the assets of the Select Value Portfolio, net of its liabilities, in exchange
for shares of beneficial interest of the Value Opportunities Fund, which shares
would be distributed, pro rata, on a class-for-class basis, to the shareholders
of the Select Value Portfolio. The Select Value Portfolio would then be
dissolved.
The secondary purpose (Proposal 2) of the Meeting is to consider and
vote on a New Advisory Agreement between Principal Preservation, on behalf of
Select Value Portfolio and NorthPointe. The purpose of the New Advisory
Agreement is to ensure the continuous daily management of the Select Value
Portfolio by NorthPointe after February 26, 2001 if the Plan is not approved, or
the Reorganization is not completed by February 26, 2001. Such approval will
also be treated as a ratification of the payment of any management fees to which
NorthPointe may be entitled under the Interim Agreement. The Interim Agreement
under which NorthPointe is currently providing investment advisory services to
the Select Value Portfolio will expire at the close of business on February 26,
2001, the last day of its 150-day term. If the proposed Reorganization has not
been completed by that date, the Select Value Portfolio would no longer have the
services of an investment adviser, currently NorthPointe, unless the New
Advisory Agreement is approved.
Solicitation of proxies will be conducted principally by the mailing of
this Proxy Statement/Prospectus and the accompanying proxy card. Proxies also
may be solicited in person, or by telephone or facsimile, or, without special
compensation, by officers of Principal Preservation or by officers and employees
of Ziegler, the distributor for the Select Value Portfolio. Upon request, the
Select Value Portfolio will reimburse brokers, dealers, banks and voting
trustees, or their nominees, for reasonable expenses incurred in forwarding
copies of the proxy materials to the beneficial owners of shares which such
persons hold of record. It is estimated that the total expenses to be incurred
by the Select Value Portfolio in connection with the Reorganization will be
approximately $50,000. However, Ziegler has agreed to pay all such expenses.
Any proxy which is properly executed and returned in time to be voted
at the Meeting will be voted in accordance with the instructions marked thereon.
In the absence of such instructions, the proxy will be voted "FOR" approval of
the Plan and "FOR" approval of the New Advisory Agreement. The duly appointed
proxies may, in their discretion, vote upon such other matters as may come
before the Meeting or any adjournments thereof. A shareholder may revoke his or
her proxy at any time prior to its exercise by delivering written
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<PAGE> 18
notice of revocation to the Secretary of Principal Preservation or by executing
and delivering a later dated proxy to Principal Preservation or by attending the
Meeting in person to vote the shares of the Select Value Portfolio held by such
shareholder.
The Principal Preservation Board of Directors has determined that the
shares of the Select Value Portfolio are to be voted as a separate series on the
proposals to approve the Plan and the New Advisory Agreement, and that holders
of shares of the other series of Principal Preservation are not entitled to vote
on either of the proposals.
The presence at the Meeting, in person or by proxy, of shareholders
representing one-third of all Select Value Portfolio shares outstanding (both
Class A and Class B combined) and entitled to vote on the proposals constitutes
a quorum for the transaction of business. Abstentions and broker non-votes
(proxies from brokers or other nominee owners indicating that such persons have
not received instructions from the beneficial owners or other persons entitled
to vote the shares as to a matter with respect to which the brokers or other
nominee owners do not have discretionary power to vote) will be treated as
present for purposes of determining the presence or absence of a quorum.
Approval of the Plan and the Reorganization contemplated thereby and of
the New Advisory Agreement will each require the affirmative vote of "a majority
of the outstanding voting securities" of the Select Value Portfolio, as defined
in the Investment Company Act of 1940, as amended (the "1940 Act"). Under the
1940 Act, a "majority of the outstanding voting securities" means the lesser of
(1) 67% or more of the Select Value Portfolio's shares (both Class A and Class B
combined) present at the Meeting, if shareholders who are the owners of more
than 50% of the Select Value Portfolio's outstanding shares (both Class A and
Class B combined) are present in person or by proxy, or (2) more than 50% of the
Select Value Portfolio's outstanding shares (both Class A and Class B combined).
Accordingly, abstentions and broker non-votes will have the same effect as votes
cast against approval of the Plan and of the New Advisory Agreement.
In the event that sufficient votes in favor of one or more of the
proposals are not received by the scheduled time of the Meeting, the persons
named as proxies in the enclosed proxy may propose and vote in favor of one or
more adjournments of the Meeting regarding any one or more of the proposals to
permit further solicitation of proxies without the necessity of further notice.
Any such adjournment will require the affirmative vote of a majority of the
shares present at the session of the Meeting to be adjourned.
Shareholders of record of the Select Value Portfolio at the close of
business on January 17, 2001 (the "Record Date") will be entitled to notice of
and to vote at the Meeting or any adjournment thereof. Each such shareholder
will be entitled to one vote for each share (and a fractional vote for each
fractional share) held by such shareholder on each matter presented at the
Meeting. As of the Record Date, there were a total of 686,477.671 Class A and B
shares of the Select Value Portfolio outstanding.
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<PAGE> 19
Under Maryland law, shareholders of the Select Value Portfolio will not
be entitled to any appraisal or similar rights in connection with the
Reorganization contemplated by the Plan. However, shareholders may redeem their
shares of the Select Value Portfolio at net asset value prior to the closing of
the proposed Reorganization in the manner specified in the Select Value
Portfolio Prospectus.
SYNOPSIS
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus (including a copy of the Plan and of the New
Advisory Agreement attached hereto as Appendices A and B, respectively), as well
as the Value Opportunities Fund Prospectus, which accompanies this Proxy
Statement/Prospectus and is incorporated by reference herein. The Value
Opportunities Fund Prospectus describes the investment objective and principal
strategies of the Value Opportunities Fund and provides information about the
shareholder fees and operating expenses of, management and other services
provided to, and purchases and redemptions of shares of, the Fund. This summary
is not intended to be complete and is qualified in all respects by reference to
the more detailed information appearing elsewhere in this Proxy
Statement/Prospectus, the Plan, the New Advisory Agreement and the Value
Opportunities Fund Prospectus.
INTRODUCTION
Shareholders of the Select Value Portfolio will be asked at the Meeting
to approve the Plan and the Reorganization contemplated thereby and as described
herein. If approved, the Reorganization is expected to be completed as of the
opening of business on or about February 23, 2001 or such other date as the
parties may determine, assuming that all conditions to closing have been
satisfied.
Shareholders of the Select Value Portfolio will also be asked at the
Meeting to approve the New Advisory Agreement with NorthPointe. If approved, the
New Advisory Agreement would only become effective if the Reorganization is not
approved and completed by February 26, 2001, which is the expiration date of the
Interim Agreement.
The Value Opportunities Fund is one of numerous series of Nationwide, a
registered open-end management investment company organized as an Ohio business
trust. Villanova Mutual Fund Capital Trust ("VMF") is the investment adviser for
the Value Opportunities Fund. NorthPointe is the sub-adviser for the Value
Opportunities Fund. Both VMF and NorthPointe are majority-owned subsidiaries of
Villanova Capital, Inc. ("Villanova"), 1200 River Road, Conshohocken,
Pennsylvania 19428. Villanova is controlled by Nationwide Financial Services,
Inc., ("NFS"). NFS, a holding company, has two classes of common stock
outstanding with different voting rights enabling Nationwide Corporation (the
holder of all outstanding Class B Common Stock) to control NFS. Nationwide
Corporation is also a holding company in the Nationwide Insurance Enterprise.
All of the common stock of Nationwide
9
<PAGE> 20
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. All of the Nationwide entities are located
at One Nationwide Place, Columbus, Ohio 43215. Nationwide Advisory Services,
Inc. ("NAS") is the distributor for the Value Opportunities Fund, Villanova SA
Capital Trust ("VSA") is its administrator, and Nationwide Investors Services,
Inc. ("NISI") is its transfer and dividend disbursing agent. VSA and NISI are
subsidiaries of Villanova. NAS is an indirect subsidiary of NFS.
The Select Value Portfolio is one of nine series of Principal
Preservation, a registered open-end management investment company organized as a
Maryland corporation. NorthPointe is the interim investment adviser for the
Select Value Portfolio pursuant to the Interim Agreement that expires on
February 26, 2001. Until September 29, 2000, Ziegler was the investment adviser
for the Portfolio. Ziegler is the distributor, administrator and
accounting/pricing agent for the Select Value Portfolio, and PFPC Global Fund
Services is its transfer and dividend disbursing agent.
PROPOSAL 1: THE PLAN
The Plan describes the essential terms of the proposed Reorganization
and is set forth in full as Appendix A to this Proxy Statement/Prospectus.
Pursuant to the Plan, substantially all of the assets of the Select Value
Portfolio net of its liabilities would be transferred to the Value Opportunities
Fund in exchange solely for the issuance to the Select Value Portfolio of shares
of beneficial interest of the Value Opportunities Fund. The Select Value
Portfolio would then immediately make a pro rata distribution of such Value
Opportunities Fund shares to the Select Value Portfolio shareholders. As a
result of the Reorganization, each Select Value Portfolio shareholder will
receive that number of full and fractional Value Opportunities Fund shares equal
in value to such shareholder's pro rata interest in the net assets transferred
to the Value Opportunities Fund as of the Valuation Date (as hereinafter
defined). The class(es) of shares of the Value Opportunities Fund to be received
by each shareholder will correspond to the class(es) of shares of the Select
Value Portfolio held by that shareholder.
Select Value Portfolio shareholders will not pay any sales load or
sales commissions on the Value Opportunities Fund shares they receive in the
Reorganization or on the Select Value Portfolio shares they surrender in the
Reorganization. Additionally, it is a condition precedent to the closing of the
Reorganization that Principal Preservation receive a legal opinion to the effect
that the Reorganization will qualify as a tax-free reorganization for federal
income tax purposes. Assuming the Reorganization so qualifies, shareholders of
the Select Value Portfolio will not recognize any income, gain or loss for
federal income tax purposes as a result of the exchange in the Reorganization of
their shares in the Select Value Portfolio for shares of the Value Opportunities
Fund. For further information about the tax consequences of the Reorganization,
see "Additional Information About the Plan - Federal Tax Consequences" below.
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<PAGE> 21
Contemporaneously with the closing and the distribution of Value
Opportunities Fund shares to the Select Value Portfolio shareholders, the Select
Value Portfolio will satisfy its liabilities (applying and liquidating assets
retained in the Reorganization for such purpose), dissolve and be discontinued
as a separate series of Principal Preservation. Accordingly, the shareholders of
the Select Value Portfolio will become shareholders of the Value Opportunities
Fund. It is expected that the value of each shareholder's account in the Value
Opportunities Fund immediately after the Reorganization would be the same as the
value of such shareholder's account in the Select Value Portfolio immediately
prior to the Reorganization.
Although each party to the Plan will bear its own out-of-pocket costs,
Ziegler has agreed to pay all of the expenses incurred by the Select Value
Portfolio. Additionally, NorthPointe and/or Villanova will pay the expenses of
the Value Opportunities Fund.
Completion of the Reorganization is subject to a number of conditions
which are customary for transactions of this kind. One condition is the issuance
of an order from the SEC that the Reorganization is exempt from Section 17(a) of
the 1940 Act, which prohibits an affiliated person of a mutual fund, or any
affiliated person of such person acting as principal, knowingly to sell any
security or other property to the mutual fund or to purchase from the mutual
fund any security or other property. The Select Value Portfolio and Value
Opportunities Fund may be "affiliated" because they have a common investment
adviser or sub-adviser (NorthPointe) and because VMF, an affiliate of
NorthPointe, owns more than 5% of the Value Opportunities Fund. The SEC will
generally issue an order exempting a transaction from Section 17(a) of the 1940
Act if evidence establishes that the terms of the proposed transaction 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 the mutual
fund concerned, as recited in its registration statement and reports filed under
the 1940 Act; and that the proposed transaction is consistent with the general
purposes of the 1940 Act. An application has been filed requesting an SEC order
exempting the Reorganization from Section 17(a) of the 1940 Act, and the parties
believe that the order will be issued.
REASONS FOR THE PROPOSED REORGANIZATION
Principal Preservation and Ziegler remain committed to serving the
shareholders of each Principal Preservation mutual fund. Ziegler or its
affiliate, Ziegler Asset Management, Inc., served as investment adviser to the
Select Value Portfolio from its inception in 1994 through September 2000.
However, during most of Select Value Portfolio's history, investment advisers
other than Ziegler which were experienced in employing a small cap, value
investment style have been retained to manage the Select Value Portfolio as
sub-advisers. Skyline Asset Management, L.P. was initially engaged to be
sub-adviser and served until its resignation in March 2000. Ziegler then assumed
responsibility for the direct management of the Select Value Portfolio's assets
until September 29, 2000 when the Board of Directors terminated the investment
advisory agreement with Ziegler following the resignation of the portfolio
manager of the Select Value Portfolio. At that time, the Board, at
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<PAGE> 22
Ziegler's recommendation, engaged NorthPointe as the new investment adviser for
the Select Value Portfolio. NorthPointe was selected because it was the
sub-adviser to the Value Opportunities Fund (a similarly managed fund) and had
expertise in managing mutual funds and other assets with a small cap, value
investment philosophy. On September 29, 2000, NorthPointe entered into the
Interim Agreement with Principal Preservation for the management of the Select
Value Portfolio. The Interim Agreement was approved by the Board of Directors of
Principal Preservation, but pursuant to Rule 15a-4 under 1940 Act, did not
require the approval by the Select Value Portfolio shareholders. Under Rule
15a-4, interim advisory agreements may continue for a maximum period of 150 days
after the termination of the agreement they replace, which means the Interim
Agreement will expire on February 26, 2001, unless earlier terminated.
Ziegler first discussed the Reorganization with the Board of Directors
of Principal Preservation during the summer of 2000 as being in the best,
long-term interests of the Select Value Portfolio shareholders. The
Reorganization would allow the Select Value Portfolio shareholders to remain in
a substantially similar fund managed by NorthPointe. Without the Reorganization,
a new investment adviser would eventually have to be identified and attracted to
manage the Select Value Portfolio on a more permanent basis, and the Board and
shareholders would have to meet to approve a new contract with that adviser, and
no assurance can be given that a qualified adviser will be attracted to manage
the Portfolio. Although NorthPointe has agreed to serve as investment adviser
for the Select Value Portfolio after February 26, 2001 under the New Advisory
Agreement if the Reorganization is not completed by that date, it has agreed to
do so only until October 31, 2001, and neither it nor Ziegler intend to waive
fees and/or reimburse expenses in order to maintain expense ratios at any
particular level if the Plan is not approved by shareholders.
The Board of Directors of Principal Preservation discussed and
considered a possible transaction between the Select Value Portfolio and Value
Opportunities Fund at meetings held on August 4 and September 27, 2000. The
Board approved the Reorganization in principle on November 10, 2000 and formally
approved the Plan on December 12, 2000, subject to Select Value Portfolio
shareholder approval. At these meetings, the Board of Directors requested and
reviewed information about Nationwide, the Value Opportunities Fund, VMF,
NorthPointe and NAS, asked questions of and received answers from management of
Nationwide, VMF and NorthPointe, made inquiries of Ziegler regarding the terms
of the Reorganization and its anticipated benefits to the Select Value Portfolio
shareholders, consulted with legal counsel, and considered alternatives,
including the possibility of entering into a long-term shareholder-approved
advisory agreement with NorthPointe or other qualified adviser or merging the
Select Value Portfolio with another similar fund.
In approving the Plan, the Board considered numerous factors,
including: the experience, investment philosophy, performance, personnel
resources and financial condition of VMF and NorthPointe, and the nature,
quality, scope and cost of advisory services to be provided by VMF and
NorthPointe; the distribution performance, resources and capabilities of NAS and
its affiliates, and the benefits of economies of scale that may potentially be
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<PAGE> 23
achieved through wider distribution of shares of the Value Opportunities Fund;
the similarity between the two Funds in terms of their investment objectives,
principal strategies and risks, portfolio management, fee and expense
structures; the terms of the Plan, including the structure of the Reorganization
as a tax-free transaction; the compensation to be paid to Ziegler in connection
with and following the Reorganization; alternatives to the Reorganization and
the consequences of those alternatives to the shareholders; and other factors
deemed relevant by the Board.
The Board believes the Reorganization offers the following benefits to
the Select Value Portfolio shareholders: the experience of the NorthPointe
portfolio managers who also manage the Value Opportunities Fund in small cap
value-oriented investing; a continuation of the shareholders' investment in a
small cap, value fund; the distribution resources and capabilities of NAS, its
affiliates and their related sales force and dealer network which are
anticipated to foster asset growth and promote greater efficiencies; potential
lower annual fund operating expenses; potential increased portfolio
diversification, greater buying power, lower transaction costs and other
economies of scale associated with a larger combined fund; the fact that the
Value Opportunities Fund offers both Class A and Class B shares, as does the
Select Value Portfolio, and the contingent deferred sales charge schedule for
the Class B shares of the Value Opportunities Fund is more favorable than that
for the Class B shares of the Select Value Portfolio; Nationwide offers many
different mutual fund series and exchange privileges are available for
shareholders of the Value Opportunities Fund (including the former Select Value
Portfolio shareholders) into most of these other series; and the broad range of
other services available to Nationwide shareholders.
For these and other reasons, the Board of Directors of Principal
Preservation, including the directors who are not "interested persons" of
Principal Preservation (as that term is defined in the 1940 Act), has concluded
that the Reorganization is fair to, and in the best interests of, the
shareholders of the Select Value Portfolio and that their economic interests
will not be diluted as a result of the Reorganization. The Board of Trustees of
Nationwide also approved the Reorganization and determined that the economic
interests of the existing shareholders of the Value Opportunities Fund will not
be diluted as a result of the Reorganization. The Nationwide Board believes the
Reorganization, which will significantly increase the current size of the Value
Opportunities Fund, presents the opportunity for economies of scale that in turn
may lower annual fund operating expenses.
THE BOARD OF DIRECTORS OF PRINCIPAL PRESERVATION UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS OF THE SELECT VALUE PORTFOLIO VOTE FOR APPROVAL OF THE PLAN
AND THE RE ORGANIZATION.
FEDERAL TAX CONSEQUENCES
A condition to completion of the Reorganization is the receipt of a
legal opinion from Quarles & Brady LLP that the Reorganization will constitute a
tax-free reorganization within the meaning of Section 368(a)(1)(C) of the
Internal Revenue Code of 1986, as amended (the
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<PAGE> 24
"Code"). Accordingly, no gain or loss will be recognized for federal income tax
purposes by the shareholders of the Select Value Portfolio or by the Select
Value Portfolio or the Value Opportunities Fund as a result of the
Reorganization.
COMPARISON OF VALUE OPPORTUNITIES FUND AND SELECT VALUE PORTFOLIO
Below is a brief comparison of the principal features of the Value
Opportunities Fund and the Select Value Portfolio. For more detailed information
about the Value Opportunities Fund, please refer to the Value Opportunities Fund
Prospectus which accompanies this Proxy Statement/Prospectus. For more detailed
information about the Select Value Portfolio, please refer to the Select Value
Portfolio Prospectus which was previously delivered to you.
INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
Summary
The investment objective and principal strategies of the Value
Opportunities Fund are similar to those of the Select Value Portfolio, although
there are some differences. As set out below, the Value Opportunities Fund and
the Select Value Portfolio each seek capital appreciation by investing primarily
in stocks of smaller capitalization companies that are considered undervalued.
However, the Value Opportunities Fund may tend to invest in stocks of larger
companies than does the Select Value Portfolio. While the Value Opportunities
Fund is required to invest in companies that are similar in size to those
included in the Russell 2000 Index, it typically considers investing in
companies with market capitalizations between $100 million and $13 billion. The
Select Value Portfolio is not restricted to investments in companies of any
particular size, but it typically considers investing in companies with market
capitalizations ranging from $100 million to $2.5 billion. At October 31, 2000,
the average market capitalization of the companies whose equity securities are
owned by the Value Opportunities Fund was about $1.9 billion, compared to $1.2
billion for the Select Value Portfolio.
The Value Opportunities Fund may invest to a greater degree than the
Select Value Portfolio in stocks of foreign companies, special situations
companies and turnarounds, and in other securities such as convertible
securities, preferred stocks, warrants and REITs. In addition, the Select Value
Portfolio may tend to invest more of its assets than the Value Opportunities
Fund in fixed-income securities and short-term instruments. See "Comparison of
Investment Objectives and Principal Strategies" starting on page 36.
Value Opportunities Fund
The investment objective of the Value Opportunities Fund is long-term
capital appreciation through investment in common stocks or their equivalents.
The Value Opportunities Fund seeks to achieve its objective by investing, under
normal market conditions, at least 65% of its total assets in equity securities
of companies with market capitalizations similar to those of companies in the
Russell 2000 Index, which are known as
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small cap companies. The Fund invests primarily in stocks of U.S. and foreign
companies, which it considers to be "value" companies. NorthPointe, as the
subadviser, believes that these companies have good earnings growth potential
and that the market has undervalued them. The Value Opportunities Fund may also
invest in unrecognized stocks and stocks of special situation companies and
turnarounds (companies that have experienced significant business problems but
which the subadviser believes have favorable prospects for recovery). The Value
Opportunities Fund may also invest in larger capitalization companies,
convertible securities, preferred stock, warrants and real estate investment
trusts (REITs).
In response to economic, political or unusual market conditions, the
Value Opportunities Fund may invest up to 100% of its assets in cash or money
market obligations.
Select Value Portfolio
The Select Value Portfolio's investment objective is maximum capital
appreciation by investing primarily in common stocks that its adviser considers
undervalued relative to earnings, book value or potential earnings growth.
Similar to the Value Opportunities Fund, the Select Value Portfolio seeks to
achieve its objective by investing in smaller sized companies with market
capitalizations of less than $2 billion, although the Portfolio is not
restricted to investments in companies of any particular size and thus is not
required to devote as much of its assets to small cap stocks as is the Value
Opportunities Fund. Under normal market conditions, the Select Value Portfolio
invests at least 65% of its total assets in common stocks of domestic issuers,
and may invest up to 5% of its total assets directly in securities of foreign
issuers not publicly held in the U.S. In addition, like the Value Opportunities
Fund, the Select Value Portfolio uses a value-oriented style of investing,
emphasizing companies with relatively low price/earning ratios, reasonable
financial strength and strong cash flows. Those companies tend to be out of
favor with investors. The Select Value Portfolio may invest up to 35% of its
total assets in high-quality, fixed-income securities and short-term investments
when the portfolio manager anticipates a severe downturn in the equity markets
to protect against capital losses.
RISK FACTORS
The primary risks of both the Value Opportunities Fund and the Select
Value Portfolio include market risk, stock selection risk, particularly risks
related to small cap stocks, and value investing risk. The investment practices
of the Value Opportunities Fund described above may result in risks which are
different from those currently associated with the investment practices of the
Select Value Portfolio. See "Risk Factors" starting on page 32.
PERFORMANCE
A comparison of the performance of the Select Value Portfolio to that
of the Value Opportunities Fund is of limited utility, since the Value
Opportunities Fund only commenced operations on December 30, 1999. See
"Performance of the Value Opportunities Fund"
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<PAGE> 26
below or request a copy of the Value Opportunities Fund Annual Report for more
information on the performance of the Value Opportunities Fund through October
31, 2000. The Select Value Portfolio commenced operations on August 23, 1994.
Please read the Select Value Portfolio Annual Report which was previously mailed
to you for more information on the performance of the Select Value Portfolio
through October 31, 2000.
SIZE OF FUNDS
At December 31, 2000, the Select Value Portfolio had an aggregate net
asset value of $9.9 million, compared to $10.0 million for the Value
Opportunities Fund. The aggregate net asset value for the Value Opportunities
Fund includes $5.5 million allocable to its Institutional Service Class shares,
which are not being issued in the Reorganization.
CLASSES OF SHARES
Both Funds offer, and have outstanding, Class A and Class B shares.
Class A shares of both Funds have front-end sales charges (a charge imposed on
purchases) and lower operating expenses than Class B shares. Class B shares have
contingent deferred sales charges (a charge imposed on sales or redemptions) and
higher operating expenses. There are differences between the two Funds with
regard to the front-end loads, contingent deferred sales charges and operating
expenses, as described under "Expenses" below. The Select Value Portfolio also
has Class C shares which have a small front-end sales charge, a small short-term
contingent deferred sales charge and higher operating expenses, but no Class C
shares are issued or outstanding and they are not presently being offered. The
Value Opportunities Fund does not currently offer Class C shares, although it
has Institutional Service Class shares which have no sales charges and lower
operating expenses but are only available to certain institutional investors.
16
<PAGE> 27
EXPENSES
The following table sets forth the fees and expenses that you may pay
if you buy and hold shares of the Funds, including pro forma fees and expenses
for the Value Opportunities Fund estimated by management (giving effect to the
Reorganization), for the fiscal year ended October 31, 2000.
<TABLE>
<CAPTION>
VALUE SELECT PRO FORMA
OPPORTUNITIES FUND VALUE PORTFOLIO COMBINED FUND
------------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM
YOUR INVESTMENT) Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
Maximum Sales Charge 5.75%(1) None 5.25%(1) None 5.75%(1) None
(Load) Imposed on
Purchases (as a percentage
of offering price)
Maximum Deferred Sales None (2) 5.00%(3) None (2) 5.00%(3) None (2) 5.00%(3)
Charge (Load)
Imposed Redemptions (as a
percentage of original pur
chase price or redemption
proceeds, whichever is less)
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
Management Fees 0.70% 0.70% 0.75% 0.75% 0.70% 0.70%
Distribution and/or Service 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
(12b-1) Fees
Other Expenses 5.64% 6.00% 1.18% 1.18% 1.40% 1.40%
----- ----- ----- ----- ----- -----
Total Annual Fund Operating 6.59% 7.70% 2.18% 2.93% 2.35% 3.10%
Expenses
Less: Fee Waivers and (5.24)% (5.75)% (0.78)% (0.78)% (1.00)% (1.15)%
Expense Reimbursements(4) ------- ------- ------- ------- ------- -------
Net Annual Fund Operating 1.35% 1.95% 1.40% 2.15% 1.35% 1.95%
Expenses
</TABLE>
-----------------------------------
(1) The maximum initial sales charge for the Value Opportunities Fund
applies to investments of up to $50,000 and is reduced for larger
investments. The maximum initial sales charge for the Select Value
Portfolio applies to investments of up to $25,000 and is reduced for
larger investments. No initial sales charge will be imposed on the
Class A shares issued to the Select Value Portfolio shareholders in the
Reorganization.
(2) A contingent deferred sales charge (CDSC) may be imposed on redemptions
of Class A shares of the Value Opportunities Fund purchased within
three years by employer-sponsored retirement plans without an initial
sales charge. The CDSC is 1% for the first year, 0.50% for the second
year and 0.25% in the third year. A CDSC of 0.50% is imposed on
redemptions of Class A shares of the Select Value Portfolio
17
<PAGE> 28
made within 180 days after the shares were purchased without an initial
sales charge because they were part of a $1 million investment or
because at the time the value of the account was at least $1 million.
(3) The CDSC on redemptions of Class B shares of both Funds is reduced for
each year that shares are held and is eliminated after six years. The
Class B shares of the Value Opportunities Fund are automatically
converted into Class A shares after seven years, and the Class B shares
of the Select Value Portfolio is automatically converted into Class A
shares after eight years. No CDSC will be imposed on the Class B shares
of the Select Value Portfolio that are surrendered in the
Reorganization in exchange for Class B shares of the Value
Opportunities Fund. A CDSC will apply to subsequent redemptions of
Class B shares of the Value Opportunities Fund that are received in the
Reorganization, but the former Select Value Portfolio shareholders will
be given credit for the period of time they owned the Class B shares of
the Select Value Portfolio surrendered in the Reorganization.
(4) The Select Value Portfolio's distributor and adviser have contractually
agreed to waive fees and reimburse expenses through February 26, 2001
(unless the Reorganization is completed earlier) or, if shareholders
approve the Plan, until the Reorganization is completed or abandoned,
to the extent necessary to ensure that the Select Value Portfolio's
annual expenses do not exceed 1.40% for Class A shares and 2.15% for
Class B shares. Beginning March 1, 2001, the Value Opportunities Fund's
adviser has contractually agreed to waive fees and reimburse expenses
through February 28, 2002 so that the Fund's annual operating expenses
do not exceed 1.35% for Class A shares and 1.95% for Class B shares.
EXAMPLE
The following Example is intended to help you compare the cost of investing in
the Funds (and investing in the combined Fund on a pro forma basis, giving
effect to the Reorganization) with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a Fund for the time periods
indicated and then redeem all of your shares at the end of those time periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same (with fee waivers and expense
reimbursements in effect for one year). Although your actual costs may be higher
or lower, based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 years 5 years 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Value Opportunities Fund:
Class A $705 $1,972 $3,199 $6,100
Class B 698 2,042 3,405 6,277
Select Value Portfolio:
Class A $660 $1,100 $1,565 $2,849
Class B 718 1,133 1,674 2,935
Pro Forma Combined Fund:
Class A(1) $705 $1,176 $1,673 $3,034
Class B 698 1,149 1,725 3,073
</TABLE>
(1) Because Select Value Portfolio shareholders will not have to pay a
sales load on the Class A shares of the Value Opportunities Fund they
receive in the Reorganization, the pro forma expenses they would pay on
a $10,000 investment in such Class A shares and assuming a 5% annual
return and redemption at the end of each time period, would be as
follows: $137 - 1 year, $638 - 3 years; $1,165 - 5 years; and $2,609 -
10 years. These lower expenses do not reflect any front-end sales load
paid at the time of initial investment in the Class A shares of the
Select Value Portfolio they surrender in exchange for Class A shares of
the Value Opportunities Fund in the Reorganization.
18
<PAGE> 29
You would pay the following expenses if you did not redeem your shares:
<TABLE>
<CAPTION>
1 YEAR 3 years 5 years 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Value Opportunities Fund:
Class B $198 $1,742 $3,205 $6,277
Select Value Portfolio:
Class B $218 $ 833 $1,474 $2,935
Pro Forma Combined Fund:
Class B $198 $ 849 $1,525 $3,073
</TABLE>
SALES CHARGES
Value Opportunities Fund
Class A Shares. The front-end sales charges imposed on purchases of
Class A shares of the Value Opportunities Fund are as follows:
<TABLE>
<CAPTION>
Sales Charge as Sales Charge as
Amount of Purchase % of Offering Price % of Amount Invested
------------------ ------------------- --------------------
<S> <C> <C>
less than $50,000 5.75% 6.10%
$50,000 to $99,999 4.50% 4.71%
$100,000 to $249,999 3.50% 3.63%
$250,000 to $499,999 2.50% 2.56%
$500,000 to $999,999 2.00% 2.04%
$1 million to $24,999,999 0.50% 0.50%
$25 million or more 0.25% 0.25%
</TABLE>
Under certain circumstances, employer-sponsored retirement plans
investing in Class A shares without a sales charge (other than those investing
through variable insurance products) may be charged a contingent deferred sales
charge if shares are redeemed within three years after purchase. The CDSC is 1%
for the first year, 0.50% for its second year, and 0.25% for the third year.
As more fully described in the Value Opportunities Fund Prospectus,
certain shareholders can reduce or eliminate the initial sales charge for Class
A shares. Investors can increase their investments in the Value Opportunities
Fund and add the value of Class A shares of other Nationwide funds to the value
of the Value Opportunities Fund Class A shares being purchased to reduce the
applicable sales charge. In addition, members of the family who live at the same
address can combine investments to reduce the sales charge. Investors can also
receive a discount by signing a non-binding letter of intent to purchase a
certain
19
<PAGE> 30
amount over a 13-month period (including prior purchases made within 90 days
from the written statement); and investors who use the proceeds of a Nationwide
Insurance policy to purchase Class A shares will only pay one-half the
applicable sales charge if the investment is made within 60 days after receiving
the proceeds. The Class A sales charge is waived for shares sold to any person
purchasing shares through an account with an unaffiliated brokerage firm that
has an agreement with NAS to waive sales charges for those persons; directors,
officers, full-time employees, sales representatives and their employees or any
investment advisory clients of a broker-dealer having a dealer/selling agreement
with NAS; employer-sponsored retirement plans, including pension, profit sharing
or deferred compensation plans which are qualified under Section 401(a), 403(b),
or 457 of the Internal Revenue Code; any person who pays for the shares with
proceeds from the sale of non- Nationwide mutual fund shares (which impose an
initial sales charge or contingent deferred sales charge) within 60 days of the
sale and who request the waiver when the shares are purchased; trustees and
retired trustees of Nationwide; directors, officers, full-time employees, sales
representatives and their employees, and retired directors, officers, employees
and sales representatives, their spouses, children or immediate relatives
(including mother, father, brothers, sisters, grandparents and grandchildren)
and immediate relatives of deceased employees of any member of Nationwide
Insurance and Nationwide Financial companies, or any investment advisory clients
of VMF, VSA, NAS and their affiliates; and directors, officers, full-time
employees, their spouses, children or immediate relatives and immediate
relatives of deceased employees of any sponsor group which may be affiliated
with Nationwide Insurance and Nationwide Financial companies from time to time.
These discount and waiver categories differ from those offered by the Select
Value Portfolio.
No front-end sales charge will be imposed on the Class A shares of the
Value Opportunities Fund issued to the Select Value Portfolio shareholders in
the Reorganization.
Class B Shares. Class B shares of the Value Opportunities Fund may be
purchased at net asset value without an initial sales charge. However, investors
must pay a contingent deferred sales charge if they sell Class B shares within
six years of purchase, unless a waiver applies. The CDSC applies if the sale
causes the value of the Class B shares in the investor's account to fall below
the total amount of all purchases of Class B shares made during the preceding
six years. The sales charge is applied to the original purchase price or the
current market value of the shares being sold, whichever is less. The amount of
the CDSC decreases over time as follows:
<TABLE>
<CAPTION>
Sale Within CDSC
----------- ----
<S> <C>
1 year 5%
2 years 4%
3 years 3%
4 years 3%
5 years 2%
6 years 1%
7 years or more None
</TABLE>
The CDSC is not imposed on Class B shares purchased through reinvested
dividends or distributions. Also, if Class B shares are sold and the proceeds
are reinvested in Class B shares within 30 days, NAS will deposit an amount
equal to the CDSC paid on the sale into the account. The CDSC is waived for
sales within one year of an investor's death or disability and for mandatory
withdrawals from IRA accounts after age 70 1/2.
20
<PAGE> 31
The Class B shares automatically convert to Class A shares after they
have been held for seven years.
The Class B shares of the Value Opportunities Fund issued in the
Reorganization will be subject to the CDSC schedule and conversion terms of the
Value Opportunities Fund (and not to the Select Value Portfolio's schedule and
terms). The former holders of Class B shares of the Select Value Portfolio who
receive Class B shares of the Value Opportunities Fund in the Reorganization
will be credited with the period of time they held Class B shares of the Select
Value Portfolio for purposes of determining the applicable CDSC imposed on their
redemptions of such Class B shares of the Value Opportunities Fund and the
conversion of such shares into Class A shares of the Value Opportunities Fund.
Select Value Portfolio
Class A Shares. The front-end sales charges imposed on purchases of
Class A shares of the Select Value Portfolio are as follows:
<TABLE>
<CAPTION>
Sales Charge as Sales Charge as
Amount of Purchase % of Offering Price % of Amount Invested
------------------ ------------------- --------------------
<S> <C> <C>
less than $25,000 5.25% 5.54%
$25,000 but less than $50,000 5.00% 5.26%
$50,000 but less than $100,000 4.75% 4.98%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 3.00% 3.09%
$500,000 but less than $1 million 2.00% 2.04%
$1 million or more None None
</TABLE>
Investors who purchase Class A shares without an initial sales charge
because the amount purchased or value of the account at time of purchase is at
least $1,000,000 will pay a CDSC of 0.50% if any such shares are sold within 180
days from the date of purchase.
As more fully described in the Select Value Portfolio Prospectus,
Principal Preservation permits certain categories of investors to purchase
shares of the Select Value Portfolio and other Principal Preservation portfolios
at a reduced sales charge. Investors can reduce the applicable sales charge by
increasing their investment in Class A shares of the Select Value Portfolio and
by adding their holdings in Class A shares of other Principal Preservation funds
to their investment in Class A shares of the Select Value Portfolio. Investors
can also reduce the sales charge by signing a non-binding statement of intention
to invest $25,000 or more over a 13-month period in any one or more Principal
Preservation funds. Members of a qualified group may also purchase Class A
shares at a reduced sales charge. The Class A sales
21
<PAGE> 32
charge is waived for shares sold to a 401(k) plan that has at least 50
participants; any state, county or city governmental authority or agency or any
non-profit organization provided that any such purchaser must purchase at least
$500,000 of Class A shares or the value of such purchaser's account at time of
purchase must be at least $500,000; directors and officers of Principal
Preservation; employees (and family members) of Ziegler, selling dealers and
sub- advisors to the Principal Preservation funds; persons who invest with
distributions from various investment trusts sponsored by Ziegler, principal and
interest payments on bonds issued by Ziegler Mortgage Securities, Inc. II or
interest payments on bonds underwritten by Ziegler; persons who participate in
certain qualified asset allocation programs, wrap fee programs or similar
programs administered by a broker-dealer, investment adviser, financial
institution or other service provider; and persons who reinvest the proceeds
from the sale of Class A shares of the same Principal Preservation fund within
90 days from the date of such sale. Certain shareholders of the Select Value
Portfolio who are currently permitted to purchase shares of the Principal
Preservation portfolios at a reduced sales charge or without a sales charge may
be subject to the ordinary sales charge upon purchasing shares in a Nationwide
fund.
Holders of Class A shares of the Select Value Portfolio who receive
Class A shares of the Value Opportunities Fund in the Reorganization will be
credited with the front-end sales load they previously paid for the Class A
shares of the Select Value Portfolio for purposes of reducing or eliminating the
sales charge imposed on exchanges into other Nationwide Funds. See "Exchanges"
below.
Class B Shares. Class B shares of the Select Value Portfolio may be
purchased without an initial sales charge. However, investors must pay a CDSC if
they sell Class B shares within six years of purchase. The CDSC is applied to
the original purchase price or the current market value at time of sale,
whichever is less. To reduce the CDSC, the first shares redeemed will be those,
if any, that are not subject to the CDSC or are subject to the lowest CDSC. The
amount of the CDSC decreases over time as follows:
<TABLE>
<CAPTION>
Sale Within CDSC
----------- ----
<S> <C>
1 year 5%
2 years 4%
3 years 4%
4 years 3%
5 years 2%
6 years 1%
7 years or more None
</TABLE>
The CDSC is waived for redemptions following the death or disability of
a shareholder, for mandatory or hardship redemptions from retirement plans, IRAs
and 403(b) plans, to meet certain retirement plan requirements, or for
systematic withdrawal plans not to exceed 10% annually.
22
<PAGE> 33
The Class B shares automatically convert to Class A shares after they
have been held for eight years.
Holders of Class B shares of the Select Value Portfolio who receive
Class B shares of the Value Opportunities Fund will be credited with the period
of time they held the Class B shares of the Select Value Portfolio for purposes
of determining the CDSC applicable to a redemption of their Class B shares of
the Value Opportunities Fund. Such holders will also become subject to the Value
Opportunities Fund CDSC schedule and conversion terms. MINIMUM PURCHASES
Value Opportunities Fund
The Value Opportunities Fund requires a minimum investment of $1,000 to
open an account (or $25 through the Automatic Asset Accumulation plan). The
minimum amount for additional investments is $100 (or $25 through the Automatic
Asset Accumulation plan).
Select Value Portfolio
The Select Value Portfolio also requires a minimum investment of $1,000
to open an account. The minimum is $500 for IRAs, Keogh plans, self-directed
retirement accounts and custodial accounts under the Uniform Gifts/Transfers to
Minors Act, and is $100 for purchases through the Systematic Purchase Plan.
Minimum subsequent investments are $50, or $25 for IRAs, Keogh plans,
self-directed retirement accounts and custodial accounts under the Uniform
Gifts/Transfers to Minors Act.
PURCHASE AND REDEMPTION PROCEDURES
Value Opportunities Fund
The purchase price of each share of the Value Opportunities Fund is its
net asset value ("NAV") next determined after the order is received, plus any
applicable sales charge. A separate NAV is calculated for each class of the
Fund. Generally, NAV is based on the market value of the securities owned by the
Fund less its liabilities. The NAV for a class is determined by dividing the
total market value of the securities owned by the Fund allocable to that class
by the total number of that class' outstanding shares. NAV is determined at the
close of regular trading on the New York Stock Exchange (usually 4:00 p.m.
Eastern time) on each day the Exchange is open for trading.
Shares may be purchased by mail (by enclosing a completed application
and a check or money order), by bank wire transfer (by calling first and faxing
in a completed application) or through an authorized broker-dealer or financial
intermediary (who may charge a fee for this service). Nationwide also has an
automated voice-response system available 24 hours per day, seven days per week
(called NAS NOW, 1-800-637-0012) and a website
23
<PAGE> 34
(www.nationwidefunds.com) for easy access to find information and your account.
Investors may also make purchases through NAS NOW or the website.
Shares of the Value Opportunities Fund may be sold (or redeemed) at the
net asset value (less any applicable sales charges) next determined after NAS
receives a properly completed order to sell. Orders to sell shares may be made
in writing (by mail or fax), by telephone (unless this privilege was declined by
the investor, in which case the redemption proceeds will be sent by wire
transfer), by NAS NOW, by on-line access to the website, or through an
authorized broker-dealer or financial intermediary (who may charge a fee for
this service). Shares may also be redeemed via an automatic withdrawal plan.
Checks for the redemption proceeds are mailed typically within three days
(unless the shares redeemed were recently purchased by check, in which case
payment of the redemption proceeds will be delayed until the check clears which
may take up to 10 days). Redemption proceeds may also be sent by bank wire
transfer at the holder's request, for a fee of $20.
A signature guarantee is required if the redemption is more than
$100,000, the account registration has changed in the past 30 days, the
redemption check is payable to anyone other than the registered shareholder or
is mailed to an address other than the address of record, or if the proceeds are
sent to a bank account not previously designated or changed in the past 30 days.
The Value Opportunities Fund may delay forwarding redemption proceeds
for up to seven days if the investor redeeming shares is engaged in excessive
trading, or if the amount of the redemption request would be disruptive to
efficient portfolio management or otherwise adversely affect the Fund.
Nationwide reserves the right to close an account with a value of less
than $250 but investors will be given 90 days to purchase additional shares to
avoid this action.
Select Value Portfolio
The purchase price of each share of the Select Value Portfolio is its
net asset value next determined after the order is received, plus any applicable
sales charge. A separate NAV is calculated for each class of the Portfolio. NAV
is determined by adding up the total value of the Portfolio's investments and
other assets and subtracting its liabilities or debts, and then dividing by the
number of outstanding shares. The Portfolio's investments are generally valued
at the closing price listed for the relevant security on the securities exchange
on which it trades. NAV is calculated each business day except on customary
national holidays which result in closing of the New York Stock Exchange. The
calculation is made as of the close of regular trading on the Exchange (4:00
p.m. Eastern time).
Shares may be purchased by mail, by personal delivery or through an
authorized broker-dealer or other financial service firm (who may charge a fee
for this service).
24
<PAGE> 35
Telephone and other automatic or on-line purchases are not currently available
(except for telephone exchanges).
Shares of the Select Value Portfolio may be redeemed at net asset value
next determined after the redemption order is received, less any applicable
sales charges. Shares may be redeemed by mail, by telephone, or through an
authorized broker-dealer or other financial service firm (who may charge a fee
for this service). Shares may also be redeemed via an automatic systematic
withdrawal plan. Checks for redemption proceeds are mailed typically within one
or two days (but not later than seven days). Redemption proceeds may also be
sent by bank wire transfer at the shareholder's request, for a fee of $12.
Signature guarantees are required if the redemption proceeds are to be
paid to anyone other than the registered holder or sent to an address other than
the address shown on Principal Preservation's records, if the proceeds are to be
sent to an address that has been changed in the past 30 days, or if the proceeds
are to be wired to a bank (unless the bank was previously designated on the
account application or subsequent authorization form and such application or
form contains a signature guarantee). A signature guarantee is also required for
requests to transfer the registration of shares.
Principal Preservation reserves the right to close out an account that
is below $500 for three months or more, after giving 60 days' notice, unless the
account holder makes additional investments to increase its value to $1,000 or
more.
EXCHANGES
Value Opportunities Fund
Shareholders may exchange shares of most funds within Nationwide,
including the Value Opportunities Fund, for shares of any other fund within
Nationwide, as long as they are the same class of shares, both accounts have the
same owner, and the first purchase in the new fund meets that fund's minimum
investment requirement. Exchanges between Class A shares and Class B shares are
not permitted. There is no CDSC for exchanges of Class B shares. For exchanges
involving Class A shares, investors may have to pay the difference between the
sales charges if the Class A shares being acquired have a higher sales charge.
The Value Opportunities Fund reserves the right to reject any exchange
request it believes will increase transaction costs, or otherwise adversely
affect other shareholders. Exchange activity may be specifically limited to 12
exchanges within one year or 1% of the Fund's net asset value.
Select Value Portfolio
Shareholders may exchange shares of any Principal Preservation mutual
fund for shares of the same Class of any other Principal Preservation mutual
fund in any state where the
25
<PAGE> 36
exchange legally may be made. If an exchange involves Class A shares, the
investor must pay the applicable front-end sales charge on the Class A shares
being acquired less any front-end sales charge paid on the Class A shares being
surrendered in the exchange. However, if the shares being exchanged represent an
investment held for at least six months in any Principal Preservation Fund
(other than the Cash Reserve Portfolio), then no additional front-end sales
charge will be imposed on the exchange. There is no CDSC for exchanges of Class
B shares.
Principal Preservation reserves the right to terminate the exchange
privilege of any shareholder who makes more than three exchanges in any 12-month
period or who makes more than one exchange during any calendar quarter.
General
An exchange of shares is considered a redemption of the shares of the
mutual fund from which you are exchanging, and a purchase of shares of the
mutual fund into which you are exchanging. Accordingly, all conditions on
redemptions apply to the shares being exchanged, and the conditions for
purchases apply to the shares received in the exchange. In addition, an exchange
qualifies as a sale for tax purchases, so that for federal income tax purposes,
the holder of shares will realize a gain or loss on that sale.
OTHER SHAREHOLDER SERVICES
Value Opportunities Fund
Nationwide offers the following investment services to its
shareholders, among others:
Automatic Asset Accumulation. Investors can have automatic monthly
transfers of $25 or more from their personal checking accounts to their
Nationwide fund account and they can get started with as little as $25.
Automatic Asset Transfer. Investors can systematically transfer $25 or
more, monthly or quarterly, from one Nationwide fund to another, after
applicable minimum initial investments have been met.
Automatic Withdrawal Plan. Investors may receive checks for any fixed
amount of $50 or more automatically sent bi-monthly, monthly, quarterly, three
times per year, semi-annually or annually from their fund account.
Select Value Portfolio
Principal Preservation offers the following investment services to its
shareholders, among others:
26
<PAGE> 37
Systematic Purchase Plan. Investors may automatically transfer $100 or
more per month from their bank accounts to make purchases of shares of any
Principal Preservation portfolio. Investors can establish this systematic
purchase plan with an initial investment in the portfolio of $100 or more.
Systematic Withdrawal Plan. Investors may establish a systematic
withdrawal plan in which they would receive a fixed amount per month (but not
less than $150) from their account in a designated Principal Preservation
portfolio. Investors may only establish this plan if at the time the value of
their account in the portfolio is at least $10,000. The minimum for additional
investments is $1,000 in the portfolio while the systematic withdrawal plan is
in effect.
DIVIDENDS AND DISTRIBUTIONS
Value Opportunities Fund
The Value Opportunities Fund distributes any available income dividends
each quarter. The Fund distributes net realized capital gains at the end of each
calendar year. Generally, all income and capital gains distributions are
reinvested in shares of the Value Opportunities Fund. Shareholders may, however,
request a payment in cash in writing if distributions are in excess of $5. If
distribution checks are returned and marked as "undeliverable" or remain
uncashed for six months, the shareholder's account will be changed automatically
so that all future distributions are reinvested in the account. Checks that
remain uncashed for six months will be canceled and the money reinvested in the
Value Opportunities Fund as of the cancellation date. No interest is paid during
the time the check is outstanding.
Select Value Portfolio
The Select Value Portfolio declares and pays income dividends
quarterly. The Portfolio declares capital gains distributions annually and
normally pays them within 45 days after the end of the fiscal year. Unless
shareholders have elected in writing to receive dividends and capital gains
distributions in cash, they will be automatically reinvested in additional
shares of the Select Value Portfolio.
Taxation
Income dividends are taxable as ordinary income for federal income tax
purposes. Capital gains are taxable at different rates depending on whether they
are long-term or short- term capital gains. The tax treatment of dividends and
distributions is the same whether they are paid in cash or reinvested in
additional shares.
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MANAGEMENT AND OPERATIONS
Value Opportunities Fund
VMF, 1200 River Road, Conshohocken, Pennsylvania 19428, serves as the
investment adviser and supervises the daily business affairs of the Value
Opportunities Fund. VMF also monitors the subadviser's performance, subject to
the supervision and direction of the Trustees of Nationwide. VMF was organized
in 1999, and as of December 31, 2000, VMF and its affiliates had approximately
$23 billion in assets under management. VMF is a wholly-owned subsidiary of
Villanova, which in turn is an indirect subsidiary of Nationwide Corporation (a
company owned by Nationwide Mutual Insurance Company and Nationwide Mutual Fire
Insurance Company).
The Value Opportunities Fund pays a management fee to VMF based on the
following percentages of its average daily net assets: 0.70% on the first $250
million of assets; 0.675% on assets of more than $250 million up to $1 billion;
0.65% on assets of more than $1 billion up to $2 billion; 0.625% on assets of
more than $2 billion up to $5 billion; and 0.60% on assets of more than $5
billion. Compared to the fee schedule for the Select Value Portfolio set forth
below, the management fees for the Value Opportunities Fund are lower (by 0.05%)
on assets up to $250 million; higher (by 0.25%) on assets between $250 million
and $1 billion; and, at all asset levels above $1 billion, equal or lower.
NorthPointe, 101 West Big Beaver Road, Suite 1125, Troy, Michigan
48084, is the Fund's subadviser. Subject to the supervision of VMF and the
Trustees, NorthPointe manages the Value Opportunities Fund in accordance with
the Fund's investment objective and strategies. NorthPointe makes investment
decisions for the Value Opportunities Fund and, in implementing those investment
decisions, places purchase and sell orders for securities. NorthPointe was
organized in 1999 and managed approximately $420 million in assets as of
December 31, 2000. These assets are held in institutional accounts, including
the NorthPointe Small Cap Value Fund (a series of Nationwide), in addition to
the Value Opportunities Fund. NorthPointe is a majority owned subsidiary of
Villanova. VMF is responsible for paying the sub-advisory fees to NorthPointe,
which are equal to the advisory fees paid by the Value Opportunities Fund to
VMF.
Select Value Portfolio
Until September 29, 2000, Ziegler was the investment adviser for the
Select Value Portfolio. On that date, the advisory contract with Ziegler was
terminated by the Board of Directors of Principal Preservation, and NorthPointe
was retained as investment advisor for the Select Value Portfolio under the
Interim Agreement which will expire on February 26, 2001 unless the New Advisory
Agreement is approved by the shareholders of the Select Value Portfolio. Subject
to policies established by Principal Preservation's Board of Directors,
NorthPointe makes investment decisions on behalf of the Select Value Portfolio.
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The Select Value Portfolio pays an investment advisory fee to
NorthPointe based on the following percentages of its average daily net assets:
0.75% on the first $250 million of assets; and 0.65% on assets of more than $250
million. This fee is the same as the fee paid to Ziegler under the previous
investment advisory agreement.
PORTFOLIO MANAGERS
Jeffrey C. Petherick and Mary C. Champagne are co-portfolio managers of
both the Value Opportunities Fund and the Select Value Portfolio. Mr. Petherick
and Ms. Champagne joined NorthPointe in January 2000. Prior to that, from June
1995 through December 1999, they co-managed institutional and retail small cap
value equity investments at Loomis, Sayles & Company, L.P., including the Loomis
Sayles Small Cap Value Fund. Mr. Petherick joined Loomis, Sayles in 1990. Ms.
Champagne joined Loomis, Sayles in 1993.
DISTRIBUTOR
Value Opportunities Fund
NAS is the principal underwriter and distributor for the Value
Opportunities Fund and other Nationwide funds. Distribution fees and/or service
fees are paid by Class A and Class B shares to NAS pursuant to a distribution
plan adopted under Rule 12b-1 of the 1940 Act. Compensation to NAS under the
distribution plan accrues daily and is paid monthly. NAS then either retains
these fees or pays them to brokers for distribution or shareholder services. The
Value Opportunities Fund pays to NAS a distribution or service fee of 0.25% of
the average daily net assets of the Class A shares of the Value Opportunities
Fund and a fee of 1.00% (0.25% of which is a service fee) of the average daily
net assets of the Class B shares of the Value Opportunities Fund.
The Board of Trustees of Nationwide recently approved the appointment
of Villanova Distribution Services, Inc., an affiliate of NAS and Villanova, as
principal underwriter and distributor for the Value Opportunities Fund. That
appointment, which is contingent on the receipt of all regulatory approvals, is
expected to be effective on or about March 1, 2001.
Select Value Portfolio
Ziegler is the distributor for each of Principal Preservation's
portfolios, including the Select Value Portfolio. The Select Value Portfolio,
like Principal Preservation's other portfolios, is authorized under a
distribution plan pursuant to Rule 12b-1 under the 1940 Act to use a portion of
its assets to finance certain activities relating to the distribution of its
shares to investors, the maintenance of shareholder accounts and the provision
of other shareholder services.
Under the distribution plan, the Select Value Portfolio assesses a
service fee of up to 0.25 of 1% of the portfolio's average daily net assets for
each class of shares. In addition, the Select Value Portfolio assesses a
distribution fee of 0.75 of 1% of the portion of the Select Value Portfolio's
average daily net assets represented by the Class B shares.
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Because distribution and/or service fees are paid out of a Fund's
assets on an ongoing basis, over time, these fees will increase the cost of an
investment in the Fund and may cost more than paying other types of sales
charges.
OTHER SERVICE PROVIDERS TO THE FUNDS
Value Opportunities Fund
VSA, a wholly owned subsidiary of Villanova, provides various
administrative and accounting services to the Value Opportunities Fund. VSA has
entered into a sub-administration agreement with BISYS Fund Services Ohio, Inc.
("BISYS") to provide certain fund administration services. Nationwide Investors
Services, Inc., a wholly owned subsidiary of VSA, serves as the Value
Opportunities Fund's transfer agent, and BISYS is sub-transfer agent. The Value
Opportunities Fund's custodian is the Fifth Third Bank, 38 Fountain Square
Plaza, Cincinnati, Ohio 45263, which makes all receipts and disbursements under
a custody agreement. KPMG LLP, Two Nationwide Plaza, Columbus, Ohio 43215,
serves as the independent auditor for the Value Opportunities Fund. The Value
Opportunities Fund's legal counsel is Stradley Ronon Stevens & Young LLP,
Philadelphia, Pennsylvania.
Select Value Portfolio
Ziegler is the Select Value Portfolio's underwriter and distributor, as
well as its administrator and accounting/pricing agent. PFPC Global Fund
Services serves as transfer agent for the Select Value Portfolio and provides
other services related to disbursement of dividends. Firstar Bank, National
Association, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, serves as
custodian for the Select Value Portfolio and has custody of all securities and
cash of the Fund and attends to the collection of principal and income and
payment for and collection of proceeds of securities bought and sold by the
Fund. Arthur Andersen, LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin is
the independent auditor of the Select Value Portfolio. The Select Value
Portfolio's legal counsel is Quarles & Brady LLP, Milwaukee, Wisconsin.
PROPOSAL 2: THE NEW ADVISORY AGREEMENT
Shareholders of the Select Value Portfolio are also being asked to vote
on the New Advisory Agreement with NorthPointe, which is set forth in full as
Appendix B to this Proxy Statement/Prospectus. The New Advisory Agreement, if
approved by the Select Value Portfolio shareholders, will be implemented only if
the Reorganization is not completed by February 26, 2001, because the Interim
Agreement currently in effect for the Select Value Portfolio will expire on that
date.
The terms and conditions of the New Advisory Agreement are
substantially similar (and the rate of management fees thereunder is identical)
to those of the Interim Agreement and the previous investment advisory agreement
with Ziegler, except that the New Advisory
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Agreement will continue only through the earlier to occur of October 31, 2001 or
the closing date of the Reorganization (unless otherwise terminated), and
neither Ziegler nor NorthPointe intends to waive fees and/or reimburse expenses
for the Select Value Portfolio if the New Advisory Agreement goes into effect
because the Plan is not approved. Ziegler and NorthPointe have committed,
however, to waive fees and/or reimburse expenses until the Reorganization is
completed or abandoned if the New Advisory Agreement goes into effect because,
even though shareholders approve the Plan, the Reorganization is not be
completed by February 26, 2001.
Under the New Advisory Agreement, NorthPointe will serve as investment
adviser for the Select Value Portfolio and in such capacity will provide
professional investment management of the assets of the Portfolio (including
deciding what securities will be purchased and sold and when), subject to the
direction and control of the Board. NorthPointe will receive a management fee at
an annual rate equal to 0.75% of the first $250 million of the Select Value
Portfolio's average daily net assets, and 0.65% on assets in excess of $250
million.
The Board of Directors of Principal Preservation, including the
directors who are not "interested persons" of Principal Preservation, has
unanimously approved the New Advisory Agreement and recommends that it be
approved by the Select Value Portfolio shareholders. In approving the New
Advisory Agreement, the Board considered the resources, personnel, investment
philosophy, experience and performance of NorthPointe, the quality and scope of
the services to be provided by NorthPointe and the management fees to be paid to
NorthPointe (including a comparison of the services to be provided by, and the
fees to be paid to, NorthPointe to the services provided to, and fees paid by,
other comparable funds), terms of the New Advisory Agreement, the lack of viable
alternatives, and the fact that the New Advisory Agreement would only be in
effect if the Reorganization is not completed by February 26, 2001. If the
Select Value Portfolio shareholders do not approve the New Advisory Agreement
and if the Reorganization is not completed by February 26, 2001, the Select
Value Portfolio would be without an investment adviser and the Board would have
to take appropriate action to address these circumstances.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS OF THE
SELECT VALUE PORTFOLIO VOTE FOR APPROVAL OF THE NEW ADVISORY AGREEMENT IN ORDER
TO PERMIT THE SELECT VALUE PORTFOLIO TO CONTINUE TO RECEIVE THE ADVISORY
SERVICES OF NORTHPOINTE AFTER FEBRUARY 26, 2001, IF THE REORGANIZATION IS NOT
COMPLETED BY THAT DATE.
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RISK FACTORS
In evaluating whether to approve the Plan and invest in the Value
Opportunities Fund, shareholders should carefully consider the following summary
of risk factors relating to both the Value Opportunities Fund and the Select
Value Portfolio, in addition to the other information set forth in this Proxy
Statement/Prospectus. A complete description of risk factors for each Fund is
set forth in the prospectuses of the Funds and their respective statements of
additional information. The risks associated with investing in the Value
Opportunities Fund are similar to the risks associated with investing in the
Select Value Portfolio in that both Funds invest in equity securities of
smaller-sized companies on a value basis, although there are some differences in
the risks associated with the two Funds.
STOCK MARKET RISK
Both the Select Value Portfolio and the Value Opportunities Fund are
subject to the risk that the Funds could lose value if the individual stocks in
which each Fund has invested or the overall stock market goes down. Both Funds
invest primarily in equity securities. Individual stocks, as well as the overall
stock market, may experience short-term volatility and extended periods of
decline or little growth. Individual stocks are affected by a variety of
factors, such as corporate earnings, production, management, and sales, as well
as 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.
STOCK SELECTION RISK
The success of each Fund depends upon the advisor's ability to select
stocks that perform well. Both Funds are subject to the risk that these stock
selections may not achieve the desired appreciation in value, and may even
decline in value.
SMALL CAP RISK
Both Funds' investments in smaller-sized companies involve greater risk
and price volatility than investments in larger, more established companies. The
Select Value Portfolio focuses its investment strategy on smaller-sized
companies (although it is not restricted to investments in companies of any
particular size), while the Value Opportunities Fund normally invests at least
65% of its total assets in stocks of small cap companies comparable to the
companies represented in the Russell 2000 Index. The stocks of smaller
capitalization companies are usually less stable in price and less liquid than
the stocks of larger companies. 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
which do not yet have, and may never have, an established market,
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and market products or services which may become quickly obsolete. Small cap
companies may offer greater capital growth than larger companies do, but they
also involve greater risks, and investments in them should be considered
speculative.
RISKS RELATED TO INVESTING FOR VALUE
Different types of stocks tend to shift into and out of favor with
stock market investors depending on market and economic conditions. Because both
Funds focus generally on value investments, the performance of each Fund may at
times be better or worse than the performance of stock funds that focus on other
types of stocks, or which have a broader investment style. The returns of
"value" stocks may trail returns from the overall stock market and as a group
value stocks tend to go through cycles of either under or over performance in
comparison to the overall stock market.
FOREIGN RISK
The Value Opportunities Fund invests in stocks of foreign companies to
a greater extent than does the Select Value Portfolio, and such investments may
include securities of issuers in developing countries and emerging markets.
Investments in foreign securities involve risks in addition to those associated
with U.S. investments, including political and economic risks, currency
fluctuations, higher transaction costs, and delayed settlement.
Country - General securities market movements in any country in which
the Value Opportunities Fund has investments are likely to affect the value of
the Value Opportunities Fund's securities that trade in that country. These
movements will affect the Value Opportunities Fund's share price and
performance. The political, economic and social structures of some countries may
be less stable and more volatile than those in the U.S. The risks of investing
in these countries include the possibility of the imposition of exchange
controls, currency devaluations, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of assets,
punitive taxes and certain custody and settlement risks.
Company - Foreign companies are not subject to the same disclosure,
accounting, auditing and financial reporting standards and practices as U.S.
companies and their securities may not be as liquid as securities of similar
U.S. companies. Foreign stock exchanges, trading systems, brokers and companies
generally have less government supervision and regulation than in the U.S. The
Value Opportunities Fund may have greater difficulty voting proxies, exercising
shareholder rights, pursuing legal remedies and obtaining judgments with respect
to foreign investments in foreign courts as compared to U.S. companies in U.S.
courts.
Currency - Some of the Value Opportunities Fund's investments may be
denominated in foreign currencies. Changes in foreign currency exchange rates
will affect the value of what the Value Opportunities Fund owns and its share
price. Generally, when the U.S. dollar rises in value against a foreign
currency, an investment in that country loses value because the
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currency is worth fewer U.S. dollars. Devaluation of currency by a country's
government or banking authority has a significant impact on the value of any
securities denominated in that currency.
ILLIQUID SECURITIES
The Value Opportunities Fund may invest up to 15% 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.
The Select Value Portfolio may not invest more than 5% of its total
assets (valued at the time of investment) in restricted securities or securities
which are not readily marketable, including securities subject to legal or
contractual restrictions on resale, securities for which market quotations are
not readily available, or repurchase agreements which expire in excess of seven
days.
Illiquid securities involve the risks of potential delays on their
resale and uncertainty in valuation.
BORROWING
The Value Opportunities Fund may borrow money from banks in an amount
up to 33 1/3% of its total assets. The Fund may borrow up to an additional 5% of
its total assets for temporary or emergency purposes. The Value Opportunities
Fund will not purchase securities when bank borrowings exceed 5% of the Fund's
total assets.
The Select Value Portfolio will not borrow money except for temporary
or emergency purposes. If the Portfolio ever should borrow money it would only
borrow from banks and in an amount not exceeding 10% of its total assets. The
Portfolio will not pledge more than 15% of its net assets to secure such
borrowings. If the Portfolio's borrowings exceed 5% of its total assets, the
Portfolio will not purchase securities until its borrowings are reduced to less
than 5% of its total assets.
Borrowings may cause a Fund to incur additional expense, which would
reduce its returns.
REAL ESTATE SECURITIES
Although neither the Value Opportunities Fund nor the Select Value
Portfolio will invest directly in real estate, both Funds may invest in
securities of real estate investment trusts and other real estate industry
companies or companies with substantial real estate investments.
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The Value Opportunities Fund may invest in such securities to a greater extent
than will the Select Value Portfolio. Such securities may be subject to certain
risks involved in real estate ownership and the real estate industry. These
risks include (but are not limited to) 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.
SPECIAL SITUATION COMPANIES
The Value Opportunities Fund may invest in special situation companies,
which include those companies 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
these securities may decline significantly. Therefore, investments by the Value
Opportunities Fund in these securities may involve a greater degree of risk than
investments by other mutual funds that seek long-term growth of capital by
investing in better-known, larger companies.
FIXED INCOME SECURITIES
Each Fund may invest a portion of its total assets in high-quality,
fixed income securities and short-term investments, although the Select Value
Portfolio may invest in fixed-income securities to a greater extent than the
Value Opportunities Fund. Fixed income securities are subject to interest rate
risk and credit risk. Interest rate risk is the risk that an increase in
interest rates may decrease the value of the fixed income securities held by the
Fund. Usually, the prices of bonds fall when interest rates increase, and rise
when interest rates decrease. Typically, the longer a bond's maturity, the more
sensitive the bond is to price shifts as a result of changes in interest rates.
In addition, the longer a Fund holds a bond, the greater the chance that
interest rate changes will affect the bond's value. Credit risk (or default
risk) is the possibility that an issuer of a bond will be unable to make
required interest payments and/or to repay the principal of a security upon
maturity. The Select Value Portfolio seeks to limit the risks associated with
fixed income securities by investing in securities that are rated at the time of
purchase within the two highest rating categories assigned by Moody's or
Standard & Poor's, or unrated securities that, in the advisor's opinion, are of
comparable quality.
CHANGES TO INVESTMENT OBJECTIVE
Each Fund's investment objective may be changed without shareholder
approval.
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PORTFOLIO TURNOVER
The portfolio turnover rate for the Value Opportunities Fund for the 10
months ended October 31, 2000 was 119%, while the portfolio turnover rate for
the Select Value Portfolio for the year ended October 31, 2000 was 57.6%. A high
portfolio turnover, may result in significant brokerage commissions and other
transaction costs, which impact a Fund's return, and may result in the
realization of substantial net short-term capital gains which are taxed to
shareholders as ordinary income for federal income tax purposes.
PERFORMANCE INFORMATION
The Value Opportunities Fund only commenced operations on December 30,
1999. As a result, no long-term performance information is available for the
Value Opportunities Fund and thus Select Value Portfolio shareholders are unable
to compare effectively the performance of the Value Opportunities Fund to that
of the Select Value Portfolio.
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES
INVESTMENT OBJECTIVES
Both Funds generally seek capitalization through investment in stocks.
Value Opportunities Fund. The investment objective of the Value
Opportunities Fund is long-term capital appreciation through investment in
common stocks or their equivalents.
Select Value Portfolio. The investment objective of the Select Value
Portfolio is maximum capital appreciation by investing primarily in common
stocks that its adviser considers undervalued relative to earnings, book value,
or potential earnings growth.
PRINCIPAL STRATEGIES
Both Funds generally invest in stocks of small market capitalization
companies that are believed to be undervalued. However, the average market
capitalization of the companies whose stocks are owned by the Value
Opportunities Fund may tend to be larger than that of the Select Value
Portfolio. The Value Opportunities Fund may also invest more in foreign
securities, special situation companies and companies with larger market
capitalizations than does the Select Value Portfolio.
Value Opportunities Fund. Under normal market conditions at least 65%
of the total assets of the Value Opportunities Fund is invested in equity
securities of companies whose market capitalizations at the time of investment
are similar to those of companies in the Russell 2000 Index. The Russell 2000
Index, published by the Frank Russell Company, is an index of approximately
2,000 companies - known as "small cap" companies - which have
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small market capitalizations relative to the market capitalizations of other
U.S. companies. The Value Opportunities Fund may invest up to 35% of its total
assets in larger capitalization companies and may invest in securities of
foreign issuers regardless of the issuer's size.
The Value Opportunities Fund invests primarily in stocks of U.S. and
foreign companies that it considers to be value companies. These companies have
good earnings growth potential and the sub-adviser believes that the market has
undervalued them. The Value Opportunities Fund will also invest in unrecognized
stocks and stocks of special situation companies and companies that have
experienced significant business problems, but which the sub-adviser believes
have favorable prospects for recovery.
Smaller capitalization companies are often undervalued for one of the
following reasons: (1) institutional investors, which currently represent a
majority of the trading volume in the shares of publicly traded companies, are
often less interested in small capitalization companies because of the
difficulty of acquiring a meaningful position without purchasing a large
percentage of the company's outstanding equity securities; and (2) such
companies may not be regularly researched by securities analysts, which could
result in greater discrepancies in valuation.
Select Value Portfolio. The Select Value Portfolio pursues its
objective by investing in companies with market capitalizations of less than $2
billion, although the Select Value Portfolio is not restricted to investments in
companies of any particular size and thus is not required to devote as much of
its assets to small cap stocks as if the Value Opportunities Fund. The Select
Value Portfolio typically invests at least 65% of its total assets in the common
stocks of domestic issuers. Like the Value Opportunities Fund, the Select Value
Portfolio uses a value-oriented style of investing, emphasizing companies with
relatively low price/earnings ratios, reasonable financial strength and strong
cash flows.
The Select Value Portfolio attempts to replace stocks in the investment
portfolio when they have achieved certain performance targets or when the
portfolio manager otherwise believes they no longer show strong potential for
appreciation in value. In addition, the portfolio manager tries to replace
stocks of companies whose fundamentals have deteriorated to a point where the
original investment criteria are no longer valid.
OTHER POLICIES
The Value Opportunities Fund may invest to a greater extent in
convertible securities, preferred stocks, warrants and other securities than
will the Select Value Portfolio. However, the Select Value Portfolio may invest
to a greater extent in fixed-income securities than will the Value Opportunities
Fund.
Value Opportunities Fund. The Value Opportunities Fund may also invest
in convertible securities. Convertible securities include bonds, debentures,
notes, preferred stocks, and other securities. Convertibles are hybrid
securities that have characteristics of both
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bonds and stocks. They pay interest like bonds, but also offer the chance for
capital appreciation because they can be converted into common stock within a
set period of time, at a specified price or formula. However, convertibles are
generally more stable in price than the underlying common stock.
The Value Opportunities Fund also invests in preferred stocks, which
normally produce dividends at a fixed rate but do not participate in other
amounts that the issuer may distribute. Dividends on preferred stock may be
cumulative, and cumulative dividends must be paid before common shareholders
receive any dividends, making preferred stock less risky than common stock. Upon
liquidation, preferred stocks are entitled to a specified liquidation
preference, which generally equals the par on stated value, and are senior in
right of payment to common stock. Because preferred stocks do not represent a
liability of the issuer, they offer less protection of capital and assurance of
continued income than investments in corporate debt securities. In addition,
preferred stocks are subordinate in right of payment to all debt obligations and
creditors of the issuer.
The Value Opportunities Fund may also invest in warrants, which are
securities that give the purchaser 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.
The Value Opportunities Fund may also invest in real estate investment
trusts (REITs). 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.
The Value Opportunities Fund may also 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 Value Opportunities Fund seeks to increase its income through
investment of the cash collateral. The Value Opportunities 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 Value
Opportunities Fund to be the equivalent of cash.
The Value Opportunities Fund may also invest in Rule 144A securities,
which are privately offered securities that can be resold only to qualified
institutional buyers. Rule 144A securities are treated as illiquid, unless the
Value Opportunities Fund determines, according to its guidelines, that the
particular issue is liquid.
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The Value Opportunities Fund may also engage in foreign currency
exchange transactions to protect the value of specific portfolio positions or in
anticipation of changes in relative values of currencies in which its portfolio
holdings are denominated. For example, to protect against a change in the
foreign currency exchange rate, between the date on which the Value
Opportunities Fund contracts to purchase or sell a security and the settlement
date for the purchase or sale, or to "lock in" the equivalent of a dividend or
interest payment in another currency, the Value Opportunities Fund might
purchase or sell a foreign currency on a spot (cash) basis at the prevailing
spot rate. If conditions warrant, the Value Opportunities Fund may also enter
into private contracts to purchase or sell foreign currencies at a future date
and/or purchase exchange-listed and over the counter call and put options on
foreign currencies. Over-the-counter currency options are generally less liquid
than exchange-listed options, and will be treated as illiquid assets. The Value
Opportunities Fund may not be able to dispose of over-the-counter options
quickly.
In response to economic, political or unusual market conditions, the
Value Opportunities Fund may invest up to 100% of its assets in cash or money
market obligations. Should this occur, the Fund will not meet its investment
objectives, and may miss potential market upswings.
Select Value Portfolio. The Select Value Portfolio may invest up to 35%
of its total assets in high-quality, fixed-income securities and short-term
investments. Because investments in fixed income securities usually are not
beneficial to achieving its objective, the Select Value Portfolio usually does
not invest a significant portion of the Portfolio's total assets in fixed assets
unless the portfolio manager anticipates a severe downturn in the equity
markets. In expectation of such a downturn, the portfolio manager may
temporarily move a portion of the Select Value Portfolio's assets into fixed
income securities in order to protect against capital losses. The Select Value
Portfolio's investments in fixed income securities are limited to securities
which are rated at the time of purchase within the two highest rating categories
assigned by Moody's or Standard and Poor's, or unrated securities that, at the
time of purchase, the advisor judges to be of comparable quality to the
securities in Moody's and Standard and Poor's two highest categories.
The Select Value Portfolio may invest up to 5% of its total assets
directly in securities of foreign issuers not publicly traded in the United
States. In addition, the Select Value Portfolio may invest without regard to
this restriction in securities of foreign issuers represented by American
Depository Receipts (ADRs). ADRs are receipts issued by an American bank or
trust company and traded on a national securities exchange, evidencing ownership
of the underlying foreign securities or equity securities issued by Canadian
issuers.
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<PAGE> 50
PERFORMANCE OF THE VALUE OPPORTUNITIES FUND
The following provides information on the performance of the Value
Opportunities Fund for the period ended October 31, 2000, as excerpted from the
Value Opportunities Fund Annual Report:
MANAGEMENT DISCUSSION OF FUND PERFORMANCE
For the 10-month period ended October 31, 2000, the Nationwide Value
Opportunities Fund returned 17.23%a versus -0.47% for the Russell 2000 Small
Stock Index, the benchmark index. The Fund commenced operations on December 29,
1999.
At the start of the new millennium, the equity markets reverted back to
"old" standards. Market participants stopped chasing stocks simply because
prices were going up. Investors came back to the notion that "valuation does
matter." This shift in market sentiment was not only good for our investment
style, but healthy for the market as a whole.
In nearly every economic sector of the portfolio, good stock selection
has been the main reason we have outperformed the benchmark. In particular,
stocks in the consumer discretionary, finance, and health care sectors have
performed well. Our technology holdings have been the weakest performers,
consistent with the overall market. Given the fact that we focus on fundamental
stock picking and that we limit our sector exposures, sector selection had very
little impact on the portfolio.
The Fund's ten largest holdings for the year accounted for 14% of the
portfolio and were up, on average, 42% for the year. Everest Re, a reinsurance
company in the financial service sector, Health Management Associates, a
hospital management company in the health care sector; and Venator, a retailer
in the consumer discretionary sector, were up more than 90% combined in the
period and have added significantly to the portfolio's return. These positive
contributions were each offset slightly by the poor performance of our
technology holdings; for example, Symantec and Genesis Microchip were both down
more than 30% in the year-to-date period.
We believe the portfolio is well-positioned for what we see as a more
balanced, broader market going forward. The portfolio remains diversified across
all economic sectors in stocks that we believe show strong forward earnings
prospects at valuations substantially below what we consider fair value.
--------
(a)Performance of Class A shares after deducting the maximum sales charge
and assuming all distributions are reinvested. The performance includes a time
when the Fund invested in Russell 2000 futures contracts for a brief period of
time during the first quarter. The contracts comprised a significant portion of
the Fund's portfolio during that time. The Fund's relatively small asset size
and the highly favorable market conditions for the Russell 2000 futures
contracts held during this period had a positive material impact on the Fund
and, therefore, performance.
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<PAGE> 51
NorthPointe Capital, LLC - Subadviser
AVERAGE ANNUAL (COMPOUND) TOTAL RETURN
(FOR PERIOD ENDED OCTOBER 31, 2000)(4)
<TABLE>
<CAPTION>
Institutional
Class A(1) Class B(2) Service Class(3)
------- ------- -------------
Years
-----
<S> <C> <C> <C>
Life(4) 17.23% 18.79% 24.72%
</TABLE>
---------------------
All figures showing the effect of a sales charge reflect the maximum charge
possible, because it has the most dramatic effect on performance data.
(1) A 5.75% front-end sales charge was deducted.
(2) A 5.00% contingent deferred sales charge (CDSC) was deducted. The CDSC
declines to 0% after six years.
(3) Not subject to any sales charge.
(4) Fund commenced operations on December 29, 1999.
Investment return and principal value will fluctuate, and when redeemed, shares
may be worth more or less than original cost. Past performance is no guarantee
of future results.
FUND PERFORMANCE
[Line Graph shown here]
<TABLE>
<CAPTION>
Institutional
Class A Class B Service Class Russell 2000 CPI
------- ------- ------------- ------------ ---
<S> <C> <C> <C> <C> <C>
12/29/99 $ 9,425 $10,000 $10,000 $10,000 $10,000
10/31/00 11,723 11,879 12,472 9,953 10,354
</TABLE>
41
<PAGE> 52
Comparative performance of $10,000 invested in Nationwide Value Opportunities
Fund, Russell 2000 Small Stock Index (Russell 2000),(b) and the Consumer Price
Index (CPI)(c) over a 10-month period ended October 31, 2000. Unlike our Fund,
these indices do not reflect any fees, expenses or sales charges.
(b) The Russell 2000 is comprised of approximately 2,000 companies with
small market capitalizations relative to the market capitalization of
other U.S. companies.
(c) The CPI represents changes in prices of a basket of goods and services
purchased for consumption by urban households.
More information about the performance of the Value Opportunities Fund
is contained in the Value Opportunities Fund Annual Report, which is available
upon request.
PROPOSAL 1: APPROVAL OF THE PLAN AND REORGANIZATION
The Board of Directors of Principal Preservation unanimously recommends
that the shareholders of the Select Value Portfolio vote to approve the Plan and
the Reorganization contemplated thereby. The Board of Directors approved the
Plan out of the belief that the Plan is fair to, and in the best interests of,
the shareholders of the Select Value Portfolio.
DESCRIPTION OF THE PLAN
The terms and conditions under which the proposed Reorganization may be
consummated are set forth in the Plan. Significant provisions of the Plan are
summarized below; however, this summary is qualified in its entirety by
reference to the Plan, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus.
The Plan contemplates the transfer of substantially all of the assets
of the Select Value Portfolio, net of its liabilities, to the Value
Opportunities Fund in exchange solely for shares of beneficial interest in the
Value Opportunities Fund, and the immediate pro rata distribution of such shares
of the Value Opportunities Fund to the shareholders of the Select Value
Portfolio. If approved by the shareholders of the Select Value Portfolio, the
Reorganization would occur on or about February 23, 2001 (the "Closing Date") or
such other date as the parties may determine.
The Value Opportunities Fund would acquire substantially all of the
assets of the Select Value Portfolio, net of the liabilities, including without
limitation all cash, cash equivalents, securities, receivables and other
property owned by the Select Value Portfolio, but excluding cash and other
assets of the Select Value Portfolio sufficient to pay all of its accrued but
unpaid liabilities as of the Closing Date. The Value Opportunities Fund would
not assume any debts, liabilities, obligations or duties of the Select Value
Portfolio. Rather, the Select Value Portfolio will reserve sufficient assets to
pay all of its liabilities as of the Closing Date. Such liabilities may include
without limitation: (a) amounts owed to shareholders of the Select Value
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<PAGE> 53
Portfolio with respect to capital gains distributions and/or dividends declared
but remaining unpaid as of the Closing Date; and (b) accounts payable, taxes and
other accrued and unpaid expenses, if any, incurred in the normal operation of
the business of the Select Value Portfolio up to and including the Closing Date
and/or expected to be incurred following the Closing Date in connection with the
winding up and dissolution of the Select Value Portfolio.
In consideration for the assets of the Select Value Portfolio
transferred in the Reorganization, the Value Opportunities Fund would issue to
the Select Value Portfolio Class A and B shares of the Value Opportunities Fund
having an aggregate net asset value equal to the value of the assets so
transferred by the Select Value Portfolio. The assets of the Select Value
Portfolio and the per share net asset value of the Value Opportunities Fund
shares would be valued as of the close of business on the New York Stock
Exchange on the business day next preceding the Closing Date. All such
valuations would be conducted in accordance with the policies and procedures of
the Value Opportunities Fund as described in the accompanying Value
Opportunities Fund Prospectus, or in the Value Opportunities Fund SAI.
On the Closing Date, the Select Value Portfolio would distribute pro
rata to its shareholders of record the shares of the Value Opportunities Fund
received by the Select Value Portfolio. Such distribution would be accomplished
by opening accounts on the books of the Value Opportunities Fund in the names of
shareholders of the Select Value Portfolio and by transferring the shares
credited to the account of the Select Value Portfolio on the books of the Value
Opportunities Fund. Each account opened would represent the respective pro rata
number of Value Opportunities Fund shares due to each Select Value Portfolio
shareholder. Fractional shares of the Value Opportunities Fund would be rounded
to the nearest thousandth of a share. The class(es) of shares of the Value
Opportunities Fund to be received by each shareholder will correspond to the
class(es) of shares of the Select Value Portfolio held by that individual, such
that each shareholder will receive, for each class of Select Value Portfolio
owned by such shareholder, the number of shares of the corresponding Value
Opportunities Fund class that equals the net asset value of the shareholder's
Select Value Portfolio shares immediately prior to the Reorganization.
Accordingly, every shareholder of the Select Value Portfolio would own
shares of the Value Opportunities Fund immediately after the Reorganization,
corresponding with the class(es) of shares held previously, and the aggregate
net asset value of which is expected to be equal to the aggregate net asset
value of such shareholder's Select Value Portfolio shares immediately prior to
the Reorganization. Moreover, because the Value Opportunities Fund shares would
be issued at net asset value in exchange for the net assets of the Select Value
Portfolio, and the aggregate value of those assets would equal the aggregate
value of the Value Opportunities Fund shares issued in exchange therefor, the
net asset value per share of the Value Opportunities Fund would not change as a
result of the Reorganization. Thus, the Reorganization would not result in
economic dilution to any Select Value Portfolio or Value Opportunities Fund
shareholder.
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<PAGE> 54
Prior to the Closing Date, the Select Value Portfolio would declare and
pay a dividend to its shareholders of record, so that for the short taxable year
that ends on the Closing Date, it would have declared an aggregate amount of
dividends that: (a) is equal to at least the sum of its respective net capital
gain and 90% of its investment company taxable income for such year, and (b) is
sufficient to avoid any excise tax for the calendar year in which the Closing
Date occurs.
OTHER TERMS
Principal Preservation (on behalf of the Select Value Portfolio) and
Nationwide (on behalf of the Value Opportunities Fund) have each made
representations and warranties in the Plan that are customary in a matter such
as the Reorganization. Such representations and warranties do not survive the
Closing Date and Select Value Portfolio shareholders will not be liable for
breaches thereof. The consummation of the Reorganization is also subject to the
conditions precedent set forth in the Plan, including, without limitation, (a)
approval of the Reorganization by the Select Value Portfolio shareholders; (b)
receipt of a legal opinion of Quarles & Brady LLP that the Reorganization will
not result in recognition of gain or loss for federal income tax purposes by the
Value Opportunities Fund, the Select Value Portfolio or the Select Value
Portfolio shareholders; (c) the Registration Statement on Form N-14 shall have
become effective under the Securities Act of 1933, no stop orders suspending the
effectiveness thereof shall have been issued with respect thereto, and to the
knowledge of the parties to the Plan, no investigation or proceeding for that
purpose shall have been instituted or be pending, threatened or contemplated
under the Securities Act; (d) the valuation made by Nationwide of the Select
Value Portfolio's assets immediately prior to the Reorganization does not differ
by more than 0.05% from the corresponding valuation conducted by Principal
Preservation, in each case using the smaller of the two valuations as the base
line for calculating the percentage difference; (e) there shall have been no
material adverse changes in the financial condition, business, operation or
assets of either the Value Opportunities Fund or the Select Value Portfolio
(other than changes occurring in the ordinary course of business); and (f) the
SEC shall have issued an order under Section 17(b) of the 1940 Act exempting the
Reorganization from the provisions of Section 17(a) of the 1940 Act.
Notwithstanding approval of the Select Value Portfolio's shareholders,
the Reorganization may be terminated at any time prior to the Closing Date (i)
by mutual written consent of the parties; (ii) by either party if the closing
shall not have occurred by March 31, 2001; (iii) by either party upon a
misrepresentation, breach of warranty or failure to perform any agreement or
covenant by the other party in any of its representations, warranties,
agreements or covenants set forth in the Plan; or (iv) by Nationwide if at any
time the Board of Directors of Principal Preservation changes its recommendation
to the Select Value Portfolio shareholders.
Each party to the Plan shall bear its own legal, accounting and other
related expenses in connection with the Reorganization. However, neither the
Select Value Portfolio nor the Value Opportunities Fund is expected to incur any
costs, fees or expenses in connection with
44
<PAGE> 55
the Reorganization. Ziegler has agreed to pay the cost of soliciting the vote of
shareholders of the Select Value Portfolio on the transactions contemplated in
the Agreement, including costs of preparation, printing, and distribution of
proxy materials, legal and tax opinions, transfer and stamp taxes, and the costs
of printing and distributing prospectus supplements describing such matters, and
the fees of Quarles & Brady LLP, Principal Preservation's legal counsel, in
connection with the Reorganization. Also, NorthPointe and/or Villanova have
agreed to pay the Value Opportunities Fund's costs in connection with the
Reorganization including, without limitation, the fees of Stradley Ronon,
Stevens & Young LLP, Nationwide's legal counsel.
RELATED PARTY TRANSACTIONS
Ziegler would receive payments in connection with, and following, the
Reorganization pursuant to a separate agreement between Ziegler and NorthPointe.
First, for a period of 72 months from the Closing Date, Ziegler would
receive from NorthPointe (or, as appropriate, an affiliate of NorthPointe) a
fee, payable monthly at an annual rate of 0.15% on the then aggregate net asset
value of the shares of the Value Opportunities Fund issued in the Reorganization
(the "Transaction Shares"), so long as the Value Opportunities Fund is subject
to fee waivers and expense reimbursements, or 0.20% so long as the Value
Opportunities Fund is not subject to fee waivers and expense reimbursements. For
purposes of calculating these fees, the value of Transaction Shares will
increase only as a result of appreciation in the market value of those shares
and through reinvestments of dividends declared in respect of those shares and
will decrease only as a result of depreciation in market value of those shares
and redemptions of those shares. As consideration for this fee, Ziegler would
render various services in completing the Reorganization, attempt to maintain
the Select Value Portfolio assets in the Value Opportunities Fund and,
consistent with its fiduciary obligations, cause the Value Opportunities Fund to
be approved as a participant investment option in Ziegler's retirement plan and
to remain as an investment option for at least two years. Also, at no time would
Ziegler, consistent with its fiduciary obligations, directly or indirectly
recommend or encourage, or cause anyone else to recommend or encourage, any
shareholder of the Value Opportunities Fund to redeem their shares in that Fund.
Second, under the terms of a Selected Dealer Agreement (the "Dealer
Agreement"), Ziegler would be entitled to receive a 12b-1 fees equal to 0.25%
payable with respect to the Transaction Shares as selling broker. In accordance
with the terms of the Dealer Agreement, the 0.25% 12b-1 fees may be paid to
Ziegler after the expiration of the above noted 72 month period, if Transaction
Shares remain invested in the Value Opportunities Fund after such time.
Finally, pursuant to the Dealer Agreement, Ziegler would receive the
reallowance of remaining 12b-1 fees on the Transaction Shares that are Class B
shares all contingent deferred sales charges collected on the redemption of such
Shares until the total of such payments to Ziegler is $48,000 or such lesser
amount as Ziegler shall pay to Putnam Lovell to eliminate
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<PAGE> 56
its Class B share financing arrangement regarding the Select Value Portfolio.
After Ziegler is reimbursed for the amount of the Class B share financing (up to
$48,000), Ziegler will be entitled to receive a 12b-1 fee equal to 0.25%
collected on the Transaction Shares and any additional shares of the Nationwide
Value Opportunities Fund for which Ziegler is named broker of record.
Any out-of-pocket costs incurred by Ziegler on its own behalf or on
behalf of the Select Value Portfolio as a result of the Reorganization will be
borne by Ziegler. Any out-of-pocket costs incurred by NorthPointe or Villanova
on their own behalf or on behalf of the Nationwide Value Opportunities Fund will
be borne by NorthPointe and/or Villanova. In addition, NorthPointe will
contribute to reduce Ziegler's out-of-pocket expenses by paying to Ziegler an
amount, if any, equal to $25,000, less the combined expenses borne by
NorthPointe and Villanova in connection with the Reorganization.
Ziegler has agreed to indemnify Nationwide, the Value Opportunities
Fund, NorthPointe and Villanova, and their respective officers, directors or
trustees, agents and assigns, from against any claims or liabilities that may
arise out of Ziegler's negligent actions or omissions in effecting the
Reorganization and Ziegler's grossly negligent actions or omissions in providing
management services to the Select Value Portfolio up to and through the Closing
Date, but with respect to the investment advisory services to the Select Value
Portfolio, only up to September 29, 2000.
NorthPointe has agreed to indemnify Nationwide, the Value Opportunities
Fund, Villanova and Ziegler, and their respective officers, directors or
trustees, agents and assigns, from and against any claims or liabilities that
may arise out of NorthPointe's grossly negligent actions or omissions in
providing investment advisory services to the Select Value Portfolio beginning
on September 29, 2000 and up to the Closing Date.
Villanova and NorthPointe have agreed to indemnify Nationwide, the
Value Opportunities Fund and Ziegler, and their respective officers, directors,
agents and assigns, from and against any claims or liabilities that may arise
out of the negligent actions or omissions of, respectively, Villanova and
NorthPointe in effecting the Reorganization.
SECTION 17(A) MATTERS
The parties have filed an application with the SEC requesting an order
exempting the Reorganization from the provisions of Section 17(a) of the 1940
Act. The Reorganization will not be completed until the SEC issues such order.
Section 17(a) generally prohibits any affiliated person of a registered
investment company, or any affiliated person of such affiliated person acting as
principal, knowingly to sell any security or other property to such investment
company or to purchase from such investment company from such investment
company. Rule 17a-8 exempts from Section 17(a) a merger, consolidation or
purchase or sale of substantially all of the assets involving registered
investment companies that may be affiliated persons, or affiliated persons of
affiliated persons, solely by reason of having a common investment
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<PAGE> 57
adviser, provided that certain conditions are satisfied. However, the parties
believe that Rule 17a-8 may not be available to exempt the Reorganization from
the prohibitions of Section 17(a) because the Value Opportunities Fund may be
deemed to be an affiliated person of an affiliated person of the Select Value
Portfolio for reasons other than having a common investment adviser.
The Value Opportunities Fund is an affiliated person of VMF because VMF
owns more than 5% of the voting securities of the Value Opportunities Fund, and
VMF is an affiliated person of NorthPointe because VMF and NorthPointe are
presumed to be under the common control of Villanova (which owns more than 50%
of each entity's outstanding voting securities). VMF, NorthPointe and Villanova
may be viewed as a single entity (the "Nationwide Companies") for purposes of
Section 17(a) due to Villanova's controlling position in VMF and NorthPointe and
the fact that each such entity shares common officers. Accordingly, the Value
Opportunities Fund would be an affiliated person of the Nationwide Companies
since the Nationwide Companies own more than 5% of the outstanding voting
securities of the Value Opportunities Fund. The Nationwide Companies would be an
affiliated person of the Select Value Portfolio because NorthPointe is the
Portfolio's investment adviser.
The affiliation described above has necessitated the parties' request
for an exemptive order from the SEC. Under Section 17(b) of the 1940 Act, the
SEC will grant the request if evidence establishes that: (1) 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; (2) the proposed transaction is consistent with the policy of each
registered investment company concerned, as recited in its registration
statement and reports filed under the 1940 Act; and (3) the proposed transaction
is consistent with the general purposes of the 1940 Act. Nationwide and
Principal Preservation believe that the evidence will establish that the
Reorganization meets all these requirements and that the SEC will issue an order
exempting it from the provisions of Section 17(a).
BACKGROUND TO REORGANIZATION
Principal Preservation and Ziegler remain committed to serving the
shareholders of each Principal Preservation mutual fund. Ziegler or its
affiliate, Ziegler Asset Management, Inc., served as investment adviser to the
Select Value Portfolio from its inception in 1994 through September 29, 2000.
Ziegler, however, has limited resources and experienced personnel dedicated to a
small cap, value investment style, which are required to manage the Select Value
Portfolio. For that reason Skyline Asset Management, L.P. was initially engaged
to be sub-adviser to the Select Value Portfolio. Skyline resigned as sub-adviser
as of March 1, 2000 and Ziegler then took responsibility for the direct
management of the Select Value Portfolio's assets. Leon Dodge, a Ziegler
officer, became portfolio manager.
In June 2000, Ziegler held discussions with VMF regarding its interest
in managing the Select Value Portfolio or the interest of Nationwide in
acquiring the Portfolio's assets. On July 11, 2000, Ziegler entered into a
letter of intent with VMF regarding the transfer of the Select Value Portfolio's
assets to the Value Opportunities Fund in a tax-free reorganization that
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<PAGE> 58
would be subject to approval by the Principal Preservation Board of Directors,
the Select Value Portfolio shareholders and the Nationwide Board of Directors.
In September 2000, Leon Dodge, the portfolio manager of the Select
Value Portfolio, announced his resignation from Ziegler. Mr. Dodge's resignation
left Ziegler without an experienced portfolio manager who could effectively
manage the Select Value Portfolio. In response, Ziegler requested NorthPointe to
manage the Select Value Portfolio on an interim basis. NorthPointe was selected
because it is the sub-adviser to the Value Opportunities Fund which has a
similar investment objective and similar principal strategies to those of the
Select Value Portfolio. NorthPointe agreed to serve as investment adviser under
the Interim Agreement which was approved by the Principal Preservation Board and
became effective on September 29, 2000.
The parties then prepared and negotiated the terms of the Plan
consistent with the letter of intent for the Reorganization, and drafted the
Registration Statement including this Proxy Statement/Prospectus.
The Board of Directors of Principal Preservation discussed the
possibility of a tax-free transaction with the Value Opportunities Fund at
meetings held on August 4 and September 27, 2000. The Board considered and
unanimously approved the Reorganization in principle at a meeting on November
10, 2000, and formally approved the Plan, subject to Select Value Portfolio
shareholder approval, at a meeting held on December 12, 2000. During such
meetings, the Board of Directors requested and reviewed information about
Nationwide, the Value Opportunities Fund, VMF, NorthPointe and NAS, asked
questions of and received answers from management of Nationwide, VMF and
NorthPointe, made inquiries of Ziegler regarding the terms of the Reorganization
and its benefits to the Select Value Portfolio shareholders, consulted with
legal counsel, and considered alternatives, including the possibility of
entering into a long-term shareholder-approved advisory agreement with
NorthPointe or other qualified adviser or merging the Select Value Portfolio
with another similar fund.
REASONS FOR THE PROPOSED REORGANIZATION
The Board of Directors of Principal Preservation has unanimously
determined that the interests of the shareholders of the Select Value Portfolio
will not be diluted as a result of the Reorganization, and that the
Reorganization is fair to, and in the best interests of, the shareholders of the
Select Value Portfolio. In reaching such conclusion, the Board of Directors
considered a number of factors, including the following:
(1) The similarity of the investment objectives and strategies of the
Funds, including the fact that both Funds invest primarily in
small cap stocks on a value basis;
(2) The fact that both Funds have the same adviser or sub-adviser
(NorthPointe), which has the requisite expertise in, and resources
available to devote to, small cap value investing;
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<PAGE> 59
(3) The Funds' fee and capital structures, and other shareholder
services, including the fact that both Funds offer Class A and
Class B shares, and the fact that the advisory fees and annual
operating expenses (net of waivers and reimbursements which extend
until February 28, 2002) of the Value Opportunities Fund are lower
than those of the Select Value Portfolio and competitive with
other comparable mutual funds;
(4) The distribution capabilities of the Value Opportunities Fund's
distributor and its anticipated ability to increase the size of
the Fund through new sales of shares;
(5) The structure of the Reorganization to be tax-free to the Select
Value Portfolio shareholders;
(6) The reputation of Nationwide Financial Services, Inc., Nationwide
Mutual Life Insurance Company and Nationwide Fire Insurance
Company, the parents of the investment adviser, sub-adviser,
distributor and transfer agent for the Value Opportunities Fund;
(7) The significant number of other investment options within the
Nationwide family of funds which would be available to the Select
Value Portfolio shareholders following the Reorganization;
(8) The fact that, under the Interim Agreement and Rule 15a-4 under
the 1940 Act, NorthPointe cannot continue to serve as the Select
Value Portfolio's investment adviser after February 26, 2001
unless the Select Value Portfolio shareholders approve the New
Advisory Agreement as proposed herein; and
(9) The potential benefits and detriments to the Select Value
Portfolio shareholders of alternatives to the Reorganization,
including continuing to operate the Fund on a long-term basis with
another investment adviser (under an agreement that would require
shareholder approval), or attracting another mutual fund to
acquire the Select Value Portfolio.
The unanimous decision by the Principal Preservation Board of Directors
to recommend that the shareholders of the Select Value Portfolio vote to approve
the Reorganization was made primarily because the Reorganization would be a
means of combining the Select Value Portfolio with a Fund having similar
investment objectives and policies and the same portfolio managers. The Board
further believes that the Reorganization should result in the reduction of
certain costs and expenses presently incurred, as the larger aggregate net
assets of the combined Fund may enable shareholders to benefit from economies of
scale by spreading certain fixed expenses over a larger asset base and
potentially resulting in a lower overall expense ratio if the Value
Opportunities Fund continues to grow. There can be no assurance, however, that
those economies of scale and a lower overall expense ratio will be achieved. See
"Comparison of the Funds - Expenses" above.
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<PAGE> 60
FEDERAL TAX CONSIDERATIONS
In the opinion of Quarles & Brady LLP, the principal Federal income tax
consequences that will result from the Reorganization, under currently
applicable law, are as follows: (i) the Reorganization will qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the Select Value Portfolio and the
Value Opportunities Fund will each be a "party to" the Reorganization within the
meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized
by the Select Value Portfolio upon the transfer of substantially all of its
assets to the Value Opportunities Fund in exchange solely for shares of the
Value Opportunities Fund; (iii) no gain or loss will be recognized by the Value
Opportunities Fund upon its receipt of substantially all of the assets of the
Select Value Portfolio in exchange solely for shares of the Value Opportunities
Fund; (iv) no gain or loss will be recognized by any shareholder of the Select
Value Portfolio upon the liquidation of the Select Value Portfolio and the
related surrender of their shares of the Select Value Portfolio in exchange for
shares of the Value Opportunities Fund; (v) the tax basis of the shares of the
Value Opportunities Fund to be received by a shareholder of the Select Value
Portfolio will be the same as the tax basis of the shares of the Select Value
Portfolio surrendered in the Reorganization; (vi) the holding period of the
shares of the Value Opportunities Fund to be received by a shareholder of the
Select Value Portfolio will include the holding period for which such
shareholder held the shares of the Select Value Portfolio exchanged therefor,
provided that such shares of the Select Value Portfolio are a capital asset in
the hands of such shareholder as of the Closing; (vii) the Value Opportunities
Fund's basis in the assets acquired from the Select Value Portfolio will be the
same as the basis of such assets in the hands of the Select Value Portfolio
immediately prior to the Reorganization; (viii) the holding period of the assets
of the Select Value Portfolio in the hands of the Value Opportunities Fund will
include the period during which such assets were being held by the Select Value
Portfolio; and (ix) the Value Opportunities Fund will succeed to and take into
account as of the Closing Date the items of the Select Value Portfolio described
in Section 381(c) of the Code, subject to the conditions and limitations
specified in Sections 381(b) and (c), 382, 383 and 384 of the Code and the
applicable Treasury Regulations thereunder.
The foregoing opinions are conditioned upon the accuracy, as of the
date hereof and as of the closing, of certain representations upon which Quarles
& Brady LLP has relied in rendering these opinions, which representations
include, but are not limited to, the following (taking into account for purposes
thereof any events that are part of the Reorganization): (A) there is no
agreement or intention on the part of the shareholders of the Select Value
Portfolio to redeem a number of the shares of the Value Opportunities Fund
received by them in the Reorganization that would reduce the Select Value
Portfolio shareholder's ownership of the Value Opportunities Fund to a number of
shares having a value, as of the Closing Date, of less than 50% of the value of
the formerly outstanding shares of the Select Value Portfolio as of the Closing
Date; (B) following the Reorganization, the Value Opportunities Fund will
continue the historic business of the Select Value Portfolio (for this purpose
"historic business" shall mean the business most recently conducted by Principal
Preservation on behalf of the Select Value Portfolio other than in connection
with the Reorganization) or use a significant
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<PAGE> 61
portion of the Select Value Portfolio's historic business assets in a business;
(C) each of Nationwide and Principal Preservation is a regulated investment
company within the meaning of Section 851 of the Code, and each of the Value
Opportunities Fund and the Select Value Portfolio is an investment company as
defined in Sections 368(a)(2)(F)(i) and (iii) of the Code; (D) Nationwide has no
plan or intention to redeem or reacquire any of the Value Opportunities Fund
shares issued in the Reorganization, except to the extent that the Value
Opportunities Fund is required by the 1940 Act to redeem any of its shares
presented for redemption; (E) Nationwide does not plan or intend to sell or
otherwise dispose of any of the assets of the Select Value Portfolio acquired in
the Reorganization, except for dispositions made in the ordinary course of its
business or dispositions necessary to maintain its status as a "regulated
investment company" under the Code and as a series of an open-end investment
company under the 1940 Act; (F) the fair market value of the Value Opportunities
Fund shares received by each Select Value Portfolio shareholder will be
approximately equal to the fair market value of the Select Value Portfolio
shares surrendered in exchange; (G) the fair market value of the Select Value
Portfolio assets transferred to the Value Opportunities Fund in the
Reorganization will be approximately equal to the fair market value of the Value
Opportunities Fund shares received in exchange, and the Value Opportunities Fund
will acquire at least 90% of the fair market value of the net assets and at
least 70% of the fair market value of the gross assets held by the Select Value
Portfolio immediately prior to the Reorganization; and (H) the parties have
entered into the Agreement and are completing the Reorganization for valid
business purposes.
Prior to the Reorganization, the Value Opportunities Fund does not
intend to distribute to shareholders any previously undistributed ordinary
income or net capital gains. Shareholders of the Select Value Portfolio who
receive Value Opportunities Fund shares in the Reorganization could potentially
be taxed on this income or gain when it is distributed after the Reorganization
is completed.
THE FOREGOING DESCRIPTION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
REORGANIZATION IS MADE WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES
OF ANY SHAREHOLDER OF THE SELECT VALUE PORTFOLIO. SELECT VALUE PORTFOLIO
SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
CONSEQUENCES TO THEM OF THE REORGANIZATION, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
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<PAGE> 62
PROPOSAL 2: APPROVAL OF A NEW ADVISORY
AGREEMENT WITH NORTHPOINTE
REASONS AND BACKGROUND
You are also being asked to approve at the Meeting a New Advisory
Agreement with NorthPointe, the full text of which is set forth as Appendix B
attached to this Proxy Statement/Prospectus. If approved, the New Advisory
Agreement would only by implemented if the Reorganization has not been approved,
or, if approved, has not been completed by February 26, 2001. If the New
Advisory Agreement is not approved, the Select Value Portfolio would be without
an investment adviser to manage its assets after February 26, 2001, if the
Reorganization has not then been approved and completed. Approval of the New
Advisory Agreement is essentially a precautionary measure, designed to ensure
that the Select Value Portfolio continues to receive daily investment management
services from NorthPointe (the current investment adviser for the Portfolio) in
the event the Reorganization has not occurred by February 26, 2001. Shareholder
approval of the New Advisory Agreement will also be treated as a ratification of
any management fees to which NorthPointe may be entitled under the Interim
Agreement.
NorthPointe has served as interim investment adviser for the Select
Value Portfolio since September 29, 2000, under an Interim Agreement approved by
the Board of Directors of Principal Preservation pursuant to Rule 15a-4 under
the 1940 Act. The Board approved the Interim Agreement following the resignation
in September 2000 of Leon Dodge, the portfolio manager of the Select Value
Portfolio, from Ziegler, which left Ziegler without an experienced portfolio
manager who could effectively manage the Select Value Portfolio. In response,
Ziegler approached NorthPointe to manage the Select Value Portfolio. NorthPointe
has expertise in managing small cap value portfolios, and manages the Value
Opportunities Fund which has a similar investment objective and similar
investment policies to those of the Select Value Portfolio.
DESCRIPTION OF INTERIM AGREEMENT
As required by Rule 15a-4, the terms and conditions of the Interim
Agreement were identical in all material respects to the previous investment
advisory agreement with Ziegler, including the rate of the management fee,
except for the date of effectiveness, termination, escrow and certain other
terms envisioned by Rule 15a-4.
Under Rule 15a-4 the Interim Agreement may not continue for more than
150 days from September 29, 2000 (or after February 26, 2001). In approving the
Interim Agreement, the Board of Directors of Principal Preservation determined
that the scope and quality of services NorthPointe is providing to the Select
Value Portfolio under the Interim Agreement are at least equivalent to the scope
and quality of services Ziegler was providing under the previous investment
advisory agreement.
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<PAGE> 63
Under the Interim Agreement, compensation payable to NorthPointe is
being held in an interest-bearing escrow account. Such compensation for the
period from September 29, 2000 to October 31, 2000 amounted to $18,548. Pursuant
to Rule 15a-4, the Interim Agreement provides that if shareholders of the Select
Value Portfolio approve the New Advisory Agreement with NorthPointe no later
than 150 days from the termination of the previous agreement with Ziegler,
NorthPointe is entitled to the compensation held in the interest-bearing escrow
account (including interest earned). If shareholders of the Select Value
Portfolio do not approve the New Advisory Agreement with NorthPointe within that
period, the Interim Agreement provides that NorthPointe is entitled to be paid,
out of the interest- bearing escrow account, the lesser of the total amount held
in the interest-bearing escrow account (plus interest earned on that amount) or
any costs incurred by NorthPointe in performing its duties under the Interim
Agreement prior to its termination (plus interest earned on the amount while in
the interest-bearing escrow account). However, because NorthPointe has agreed to
waive fees until February 26, 2001 under the Interim Agreement so that the
annual operating expenses of the Select Value Portfolio as a percentage of
average daily net assets do not exceed 1.40% for Class A shares and 2.15% for
Class B shares, it is not likely that NorthPointe will receive any amounts out
of escrow.
TERMS OF NEW ADVISORY AGREEMENT AND COMPARISON WITH INTERIM AGREEMENT AND
PREVIOUS AGREEMENT
The New Advisory Agreement is substantially similar to, and has the
same management fee rate as, the Interim Agreement and the previous agreement
with Ziegler. The principal differences between the agreements relate to their
effective and termination dates, the inclusion in the Interim Agreement of
certain provisions required by Rule 15a-4 and applicable contractual fee
waivers. Specifically, the New Advisory Agreement provides that it will not be
implemented until February 26, 2001 and then only if the Reorganization has not
been approved by shareholders or, if approved, has not been completed by that
date. If implemented, the New Advisory Agreement will continue through the
earlier to occur of October 31, 2001 or the closing date of the Reorganization,
unless otherwise terminated. Moreover, NorthPointe will not agree under the New
Advisory Agreement to waive its management fees beyond February 26, 2001 if
shareholders do not approve the Plan. Ziegler has likewise determined to
discontinue its fee waivers and expense reimbursements if the Plan is not
approved by shareholders. The absence of fee waivers and expense reimbursements
will likely mean an increase of at least 0.75% to the expense ratios for the
Class A and Class B shares of the Select Value Portfolio. Notwithstanding the
above, NorthPointe and Ziegler have committed to waive fees and/or reimburse
expenses to maintain the expense ratios for Class A and Class B shares of the
Select Value Portfolio at current levels if the Plan is approved.
Under the terms of the New Advisory Agreement, NorthPointe has agreed
to provide advisory services and to provide or cause to be provided certain
administrative services. The advisory services to be provided by NorthPointe
under the New Advisory Agreement are identical to those currently provided by
NorthPointe under the Interim Agreement and those provided by Ziegler under the
previous advisory agreement. Under the New Advisory
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<PAGE> 64
Agreement, NorthPointe will provide professional investment management with
respect to the investment of the assets of the Select Value Portfolio and
supervise and arrange the purchase and sale of securities held in its portfolio.
NorthPointe will decide what securities and other investments are to be
purchased or sold by the Select Value Portfolio and when, and will implement
such decisions through the placement of orders for the execution of portfolio
transactions with or through brokers or dealers as it may select consistent with
Principal Preservation's policy to obtain "best execution." In making such
selection, NorthPointe is also authorized to consider whether the broker
provides brokerage and/or research services to the Select Value Portfolio and/or
other accounts of NorthPointe. The commissions paid to such brokers may be
higher than another broker would have charged if a good faith determination is
made by NorthPointe that the commission is reasonable in relation to the
services provided, viewed in terms of either that particular transaction or
NorthPointe's overall responsibilities as to the accounts as to which it
exercises investment discretion.
NorthPointe will provide the services under the New Advisory Agreement
in accordance with the Select Value Portfolio's investment objectives, policies
and restrictions, as stated in the current prospectus and statement of
additional information of the Select Value Portfolio. NorthPointe will not be
subject to liability to Principal Preservation, Select Value Portfolio or any
shareholder of the Select Value Portfolio for any act or omission in the course
of, or in connection with rendering services under, the New Advisory Agreement,
and will be indemnified from any liability arising from its conduct under the
New Advisory Agreement, in each case so long as there is no wilful misfeasance,
bad faith, gross negligence or reckless disregard of its duties on the part of
NorthPointe.
The rate of management fees payable under the New Advisory Agreement by
the Select Value Portfolio is equal to the rate payable under the current
Interim Agreement and previous advisory agreement with Ziegler. The management
fee is payable monthly at the annual rate equal to 0.75% of the first $250
million of the average daily net assets of the Select Value Portfolio and 0.65%
on assets in excess of $250 million. However, unlike the Interim Agreement and
the previous advisory agreement with Ziegler, NorthPointe will not agree to
waive its management fees under the New Advisory Agreement if the Plan is not
approved by shareholders of the Select Value Portfolio. As under the previous
advisory agreement with Ziegler, the New Advisory Agreement with NorthPointe
provides that NorthPointe pays all expenses incurred by it in connection with
its activities under the New Advisory Agreement, other than the cost of
securities (including brokerage commissions, if any) purchased for the Select
Value Portfolio.
The New Advisory Agreement will be implemented only if the
Reorganization is not completed by February 26, 2001 and then will continue only
through the earlier to occur of October 31, 2001 or until the Reorganization is
completed, unless otherwise terminated as provided therein. Principal
Preservation would terminate the New Advisory Agreement for, among other
reasons, a sale or reorganization of the Select Value Portfolio with another
mutual fund, the replacement of NorthPointe with a new adviser, or the
liquidation of the Select Value Portfolio, all of which would require
shareholder approval.
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<PAGE> 65
If the New Advisory Agreement is not approved, and the Reorganization
is not completed by February 26, 2001, the Select Value Portfolio will not have
an investment adviser until another advisory contract is approved by
shareholders. This result could have a material adverse effect on the Select
Value Portfolio.
INFORMATION REGARDING NORTHPOINTE
NorthPointe is a Michigan limited liability company formed in 1999 and
located at 101 West Big Beaver Road, Suite 1125, Troy, Michigan 48084. It is a
federally registered investment adviser. In addition to serving as the
investment adviser for the Select Value Portfolio, NorthPointe is the
sub-adviser for the Value Opportunities Fund and manages other advisory
accounts, including the NorthPointe Small Cap Value Fund, a series of Nationwide
with net assets of approximately $25 million as of December 31, 2000.
NorthPointe receives a sub-advisory fee of 0.85% of the average daily net assets
of the Northpointe Small Cap Value Fund. As of December 31, 2000, NorthPointe
had approximately $420 million under its discretionary management.
Jeffrey C. Petherick and Mary C. Champagne, two officers of
NorthPointe, are co-portfolio managers of the Select Value Portfolio as well as
the Value Opportunities Fund. Mr. Petherick and Ms. Champagne joined NorthPointe
in January 2000. From June 1995 through December 1999, they co-managed
institutional and retail small cap value equity investments at Loomis, Sayles &
Company, L.P., including the Loomis Sayles Small Cap Value Fund. Mr. Petherick
joined Loomis, Sayles in 1990, and Ms. Champagne joined Loomis, Sayles in 1993.
NorthPointe is a majority-owned subsidiary of Villanova, with the
balance of its shares owned by certain of its employees. Information regarding
the principal executive officer, managing director and other owners of
NorthPointe is set forth below. The address of each such person is the same as
NorthPointe's unless otherwise shown.
<TABLE>
<CAPTION>
Name Position at NorthPointe Principal Occupation
---- ----------------------- --------------------
<S> <C> <C>
Paul J. Hondros Chief Executive Officer, President President and Chief Executive
and Member of the Investment Officer of Villanova Mutual
Committee Fund Capital Trust, Villanova SA
Capital Trust, and Villanova
Capital, Inc.
1200 River Road
Conshohocken, PA 19428
Michael P. Hayden Managing Director and owner of Managing Director, NorthPointe
20% of the Class B ownership
interests of NorthPointe
</TABLE>
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<PAGE> 66
<TABLE>
<CAPTION>
Name Position at NorthPointe Principal Occupation
---- ----------------------- --------------------
<S> <C> <C>
Jeffrey C. Petherick Portfolio Manager, Member of the Portfolio Manager, NorthPointe
Investment Committee and owner
of 30% of the Class B ownership
interest of NorthPointe
Mary C. Champagne Portfolio Manager, Member of the Portfolio Manager, NorthPointe
Investment Committee and owner
of 30% of the Class B ownership
interest of NorthPointe
Peter J. Cahill Portfolio Manager, Research Portfolio Manager and Research
Analyst, Member of the Investment Analyst, NorthPointe
Committee and owner of 20% of
the Class B ownership interest of
NorthPointe
</TABLE>
PAYMENTS TO ZIEGLER
During the fiscal year ended October 31, 2000, Ziegler was paid $55,050
under the previous Investment Advisory Agreement which was terminated on
September 29, 2000. Ziegler also received from the Select Value Portfolio $4,001
in administrative fees, $19,000 in accounting and pricing service fees, $14,520
in 12b-1 fees, $12,082 in commissions on sales of shares for the Select Value
Portfolio shares. Ziegler reimbursed $76,911 to the Select Value Portfolio
during the fiscal year. For executing portfolio transactions for the Select
Value Portfolio as a broker-dealer during the fiscal year ended October 31,
2000, Ziegler received $780 in commissions, which represented about 2.5% of the
aggregate brokerage commissions paid by the Select Value Portfolio.
BOARD CONSIDERATIONS
In determining whether to approve the Interim Agreement and New
Advisory Agreement with NorthPointe, the Board of Directors, including a
majority of the directors who are not "interested persons" of Principal
Preservation, determined that the scope and quality of services to be provided
under both the Interim Agreement and the New Advisory Agreement were at least
equivalent to those provided under the previous advisory agreement with Ziegler.
The Board believes that the NorthPointe personnel have significant experience in
the small cap, value investment style and in managing mutual funds, and that
NorthPointe has adequate financial and other resources to manage the Select
Value Portfolio. In addition, the Board was advised that it was not anticipated
that there would be changes in the personnel who provide the portfolio
management services to the Select Value Portfolio during the terms of both the
Interim Agreement and the New Advisory Agreement. The Board considered the fact
that there were no material differences between the terms and conditions of the
Interim
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<PAGE> 67
Agreement and New Advisory Agreement and the previous advisory agreement with
Ziegler, other than the dates of effectiveness and termination provisions, the
applicable fee waivers and, with respect to the Interim Agreement, the escrow
provisions and other terms envisioned by Rule 15a-4. The Board also compared the
management fees by the Select Value Portfolio to the fees paid by other
comparable funds, and considered the lack of viable alternatives to the New
Advisory Agreement. The Board considered both the Interim Agreement and New
Advisory Agreement as part of its overall approval of the Reorganization and
Plan.
Based upon the considerations set forth above, the Board has determined
that the New Advisory Agreement is in the best interests of the Select Value
Portfolio and its shareholders. ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS
THAT THE SHAREHOLDERS OF THE SELECT VALUE PORTFOLIO VOTE FOR APPROVAL OF THE NEW
ADVISORY AGREEMENT, WHICH, IF SO APPROVED, WOULD ONLY BECOME EFFECTIVE IF THE
REORGANIZATION IS NOT COMPLETED BY FEBRUARY 26, 2001.
DESCRIPTION OF SECURITIES TO BE ISSUED AND RIGHTS OF SHAREHOLDERS
VALUE OPPORTUNITIES FUND
Nationwide is an open-end management investment company organized on
October 30, 1997 by a Declaration of Trust, subsequently amended, under the laws
of Ohio. Nationwide offers shares in numerous separate series, each with its own
investment objective. Nationwide Value Opportunities Fund, which is one of these
series, is a diversified fund as defined in the 1940 Act.
The Value Opportunities Fund currently has three classes of shares of
beneficial interest, without par value: Class A shares, Class B shares, and
Institutional Service Class shares. Shares of a particular class give the
holders of those shares an interest only in the assets of that class. In a
liquidation of the Fund, shares of the same class will share pro rata in the
distribution of the net assets of the Fund with all other shares of that class.
Shares of a particular class are equal in all respects to the other shares of
that class. Each share has one vote and each fractional share has a
proportionate fractional vote on each matter presented to that class of
shareholders. When Value Opportunities Fund shares are issued and paid for in
accordance with the terms of the Agreement, they will be fully paid and
non-assessable by Nationwide. Shares may be exchanged or converted as described
in the Value Opportunities Fund Prospectus and Statement of Information, but
will have no other preference, conversion, exchange or preemptive rights.
Neither its Declaration of Trust, the 1940 Act, nor any other authority requires
Nationwide to hold an annual or special meeting of shareholders except, under
certain circumstances, to amend the Declaration of Trust, the Investment
Advisory Agreement, fundamental investment objectives, investment policies,
investment restrictions, to elect and remove Trustees, to reorganize the Trust
or any series or class thereof and to act upon certain other business matters.
With respect to termination, a sale of assets, the change of fundamental
investment objectives, policies and restrictions or the approval of an
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<PAGE> 68
investment advisory agreement, the right to vote is limited to the holders of
shares of the particular fund affected by the proposal.
Unless a shareholders' meeting is required by the 1940 Act or other
applicable law, Nationwide does not intend to have an annual or special meeting
of shareholders. However, as represented to the SEC, Nationwide will call a
special meeting of shareholders for the purpose of considering the removal of
one or more Trustees upon written request from shareholders holding ten percent
or more of the outstanding votes of Nationwide, and Nationwide will assist those
shareholders in communicating with other shareholders as required by Section
16(c) of the 1940 Act. At such a meeting, a quorum of shareholders (constituting
a majority of votes attributable to all outstanding shares of Nationwide), by
majority vote, has the power to remove one or more Trustees.
SELECT VALUE PORTFOLIO
Principal Preservation is a diversified, open-end, management
investment company. It was organized in 1984 as a Maryland corporation. The
authorized capital stock of Principal Preservation consists of one billion
shares of common stock, with a par value of $.001 per share. Shares of Principal
Preservation are currently divided into nine series of mutual fund portfolios
(including the Select Value Portfolio), each with distinct investment
objectives, policies and strategies. Shares of each series are further divided
into classes. The Select Value Portfolio currently has three classes of shares:
Class A shares, Class B shares and Class C shares, although no Class C shares
are issued or outstanding. The Board of Directors of Principal Preservation may
authorize the issuance of additional series and, within each series, individual
classes, and may increase or decrease the number of shares in each series or
class.
The separate classes of shares within the Select Value Portfolio and
all other mutual fund portfolios of Principal Preservation have identical
dividend, liquidation and other rights. However, each class bears its separate
distribution and shareholder serving expenses and may have its own sales load
structure. At the discretion of the Board, each class may pay a different share
of other expenses (not including advisory or custodial fees or other expenses
related to the management of the Portfolio's assets) if the separate classes
incur those expenses in different amounts or if one class receives services of a
different kind or to a different degree than another class within each
Portfolio. Each Portfolio allocates all other expenses to each class of its
shares on the basis of the net asset value of that class in relation to the net
asset value of the Portfolio.
Each share of the Select Value Portfolio, when issued and fully paid
for, is duly authorized, validly issued, fully paid and non-assessable. Shares
are redeemable and exchangeable as described in the Select Value Portfolio
Prospectus and SAI. Shares have no preference, pre-emptive, subscription or
conversion rights.
Each share has one vote (and each fractional share has a corresponding
fractional vote) on each matter presented to shareholders. All shares vote
together on matters that affect all
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<PAGE> 69
shareholders uniformly such as the election of directors. On matters affecting a
particular Portfolio (such as approval of advisory contracts and changes in
fundamental investment policies), a separate vote of the shares of that series
is required. On matters that uniquely affect a particular class of shares (such
as an increase in 12b-1 fees for that class), a separate vote by the
shareholders of that class of shares is required.
As a Maryland corporation, Principal Preservation is not required to
hold, and in the future does not plan to hold annual shareholder meetings unless
required by law or deemed appropriate by the Board of Directors. However,
special meetings may be called for purposes such as electing or removing
directors, changing fundamental policies or approving an investment advisory
contract.
CAPITALIZATION
The following table shows the capitalization of the Class A and Class B
shares of the Select Value Portfolio and the Value Opportunities Fund,
respectively, as of December 31, 2000, and the unaudited pro forma
capitalization of the Class A and Class B shares of the Value Opportunities Fund
as of that date giving effect to the Reorganization:
<TABLE>
<CAPTION>
VALUE PRO FORMA
SELECT VALUE PORTFOLIO OPPORTUNITIES FUND COMBINED FUND
---------------------- ------------------ -------------
Class A Class B Class A Class B Class A Class B
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Assets $8,560,439 $1,421,493 $3,548,090 $969,176 $12,108,529 $2,360,669
Net Asset Value $13.90 $13.69 $13.27 $13.27 $13.27 $13.27
Per Share
Shares Outstanding 615,917 103,818 267,292 73,038 912,474 177,895
</TABLE>
The Value Opportunities Fund also has outstanding Institutional Service
Class shares. At December 31, 2000, the net assets of the Institutional Service
Class shares were $5,533,771, the net asset value per Institutional Service
Class share was $13.33, and the number of outstanding Institutional Service
Class shares was 415,113.
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<PAGE> 70
OWNERSHIP OF FUND SHARES
VALUE OPPORTUNITIES FUND
As of December 29, 2000, no person was known to own of record or
beneficially 5% or more of the outstanding shares of any class of the Value
Opportunities Fund, other than as set forth below:
<TABLE>
<CAPTION>
Holder No. of Shares/Class Percentage of Class Owned Percentage of Fund Owned
------ ------------------- ------------------------- ------------------------
<S> <C> <C> <C>
Villanova Mutual Fund Capital Trust 33,699.652 (Class A) 12.3% 4.4%
1200 River Road 33,408.577 (Class B) 45.4% 4.4%
Conshohocken, PA 19428 33,563.534 (Inst. Serv.) 8.1% 4.4%
----------- -----
100,671.763 13.2%
Charles Schwab & Co. Inc. 100,905,907 (Class A) 36.9% 13.2%
Special Custody Acct for the
Exclusive Benefit of Customers
101 Montgomery Street
San Francisco, CA 94104
Nationwide Life Insurance Co. QPVA 235,753.050 (Inst. Serv.) 58.8% 31.0%
P.O. Box 182029
Columbus, OH 43218
Smith Barney Inc. 106,991.577 (Inst. Serv.) 25.8% 14.0%
333 West 47th Street
Seventh Floor
New York, NY 10001
</TABLE>
The Value Opportunities Fund is not "controlled" (as defined in the
1940 Act) by any person.
To the knowledge of Nationwide, the beneficial ownership of shares of
the Value Opportunities Fund by the officers and trustees of Nationwide as a
group constituted less than 1% of the outstanding shares of the Value
Opportunities Fund.
SELECT VALUE PORTFOLIO
As of December 29, 2000, no person was known to own of record or
beneficially 5% or more of the outstanding shares of any class of the Select
Value Portfolio, other than Diversified Investment Advisors Collective Trust, 4
Manhattanville Road, Purchase, NY 10577, which owned of record 179,149.693 Class
A shares of the Select Value Portfolio, or 29.1% of the outstanding Class A
shares and 24.6% of the total outstanding shares of the Portfolio on that date.
The Select Value Portfolio is not "controlled" (as defined in the 1940 Act) by
any person.
To the knowledge of Principal Preservation, the beneficial ownership of
shares of the Select Value Portfolio by the officers and directors of Principal
Preservation as a group constituted less than 1% of the outstanding shares of
the Select Value Portfolio.
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<PAGE> 71
MISCELLANEOUS
AUDITORS
The firm of Arthur Andersen LLP provides independent accounting and
auditing services to all of the Principal Preservation funds, including the
Select Value Portfolio. Arthur Andersen LLP has no direct or indirect financial
interest in Principal Preservation or the Select Value Portfolio, except for the
fees it receives as auditors and independent public accountants. No
representative of Arthur Andersen LLP is expected to be present at the Meeting.
Nationwide's auditors/independent accountants are KPMG LLP. KPMG LLP
has no direct or indirect financial interest in Nationwide or the Value
Opportunities Fund, except for the fees it receives in its capacity as auditors
and accountants.
INTERESTS OF EXPERTS AND COUNSEL
No expert or counsel named herein has a substantial interest in
Principal Preservation, Nationwide, either Fund, the Reorganization, or any
other transaction contemplated by this Proxy Statement/Prospectus.
OTHER MATTERS
The Board of Directors of Principal Preservation has not been informed
and is not aware that any other matter will be brought before the Meeting.
However, unless expressly indicated otherwise on the enclosed form of proxy,
proxies may be voted with discretionary authority with respect to any other
matter that may properly be presented at the Meeting or any adjournment thereof.
Shareholders of any mutual fund series of Principal Preservation wishing to
submit proposals for inclusion in a proxy statement and form of proxy for any
future shareholder meetings should send their written proposals to the Secretary
of Principal Preservation, 215 North Main Street, West Bend, Wisconsin 53095.
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<PAGE> 72
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
SELECT VALUE PORTFOLIO
REVOCABLE PROXY FOR SPECIAL MEETING OF SHAREHOLDERS. THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Franklin P. Ciano, Robert J. Tuszynski or Peter
D. Ziegler, and each of them, proxy, with full power of substitution, to vote
all shares of stock the undersigned is entitled to vote at the Special Meeting
of Shareholders of the Select Value Portfolio to be held at the West Bend Inn,
2520 West Washington Street, West Bend, Wisconsin at 2:00 p.m., on Wednesday,
February 21, 2001 or at any adjournment thereof, with respect to the matters set
forth on this proxy and described in the Notice of Special Meeting and Proxy
Statement/Prospectus, receipt of which is hereby acknowledged.
SHARES LISTED BELOW REPRESENT AN AGGREGATE TOTAL OF ALL SELECT VALUE
PORTFOLIO SHARES REGISTERED IN THE NAME PRINTED BELOW.
Dated: , 2001
------------------------------------------------------
------------------------------------------------------
(Please sign exactly as name appears at left.)
(If stock is owned by more than one person, all owners
should sign. Persons signing as executors,
administrators, trustees or in similar capacities
should so indicate.)
***
Shares represented by this proxy will be voted as directed by the
stockholder.
IF NO DIRECTION IS SUPPLIED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
Please vote by filling in the appropriate boxes below, as shown, using blue
or black ink or dark pencil.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. To approve an Agreement and Plan of Reorganization (the "Plan") [ ] [ ] [ ]
providing for (a) the transfer of substantially all of the assets of
the Select Value Portfolio (net of its liabilities) to the Nationwide
Value Opportunities Fund in exchange solely for shares of Nationwide
Value Opportunities Fund, followed by (b) the distribution of shares of
Nationwide Value Opportunities Fund, pro rata, to the Select Value
Portfolio shareholders in dissolution of the Select Value Portfolio.
2. To approve a new Investment Advisory Agreement between Principal [ ] [ ] [ ]
Preservation Portfolios, Inc., on behalf of the Select Value Portfolio,
and NorthPointe Capital, LLC, which would be implemented only if
Proposal 1 is not approved, or if the transactions contemplated by the
Plan are not completed by February 26, 2001.
3. In their discretion, the proxies are authorized to vote on such other
matters as may properly come before the meeting.
</TABLE>
<PAGE> 73
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement") is made as
of this 15th day of December, 2000, by and between Principal Preservation
Portfolios, Inc., a Maryland corporation ("Principal Preservation"), on behalf
of the Select Value Portfolio, and Nationwide Mutual Funds, an Ohio business
trust ("Nationwide"), acting on behalf of the Nationwide Value Opportunities
Fund (the "Value Opportunities Fund").
R E C I T A L S
WHEREAS, Principal Preservation is registered with the Securities and
Exchange Commission (the "SEC") as an open-end, series, management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
currently has designated nine separate series or investment portfolios,
including the Select Value Portfolio, and offers separate classes of shares of
its series;
WHEREAS, Nationwide is registered with the SEC as an open-end, series,
management investment company under the 1940 Act, currently has designated 37
separate series or investment portfolios, including the Value Opportunities
Fund, and offers separate classes of shares of its series;
WHEREAS, the Board of Directors of Principal Preservation and the Board
of Trustees of Nationwide have each approved this Agreement and the
Reorganization;
WHEREAS, the Select Value Portfolio and the Value Opportunities Fund
have similar investment objectives and principal strategies and currently are
managed by the same investment adviser or sub-adviser;
WHEREAS, the parties desire to provide for the reorganization of the
Select Value Portfolio through the acquisition by Nationwide on behalf of the
Value Opportunities Fund of substantially all of the property, assets and
goodwill of the Select Value Portfolio in exchange for Class A and Class B
shares of beneficial interest of the Value Opportunities Fund; the distribution
of such shares of beneficial interest of the Value Opportunities Fund to the
shareholders of the Select Value Portfolio according to their respective
interests; and the dissolution of the Select Value Portfolio as soon as
practicable thereafter; and
WHEREAS, this Agreement is intended to be, and is adopted as, a plan of
reorganization and liquidation within the meaning of Section 368(a)(1)(C) of
the Internal Revenue Code of 1986, as amended (the "Code").
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AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings set forth below:
1.1 "AGREEMENT" means this Agreement and Plan of
Reorganization, together with all schedules and exhibits attached hereto, as the
same may be amended from time to time in accordance with the terms hereof.
1.2 "CLOSING" means the closing of the Reorganization and the
other transactions contemplated by this Agreement as defined in Section 3 of
this Agreement.
1.3 "CLOSING DATE" means February 23, 2001, or such other
date as the parties may mutually determine in writing, provided that all of the
conditions precedent to Closing have then been satisfied (or waived).
1.4 "CODE" means the Internal Revenue Code of 1986, as
amended.
1.5 "CUSTODIAN" means The Fifth Third Bank, acting in its
capacity as custodian for the Value Opportunities Fund, including the assets of
the Select Value Portfolio being transferred to the Value Opportunities Fund.
1.6 "EFFECTIVE TIME" means 8:00 a.m. Central Time on the
Closing Date.
1.7 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended, and all of the rules and regulations adopted thereunder by the SEC.
1.8 "EXCLUDED ASSETS" shall have the meaning set forth in
Section 2.4 of this Agreement.
1.9 "1940 ACT" means the Investment Company Act of 1940, as
amended, and all of the rules and regulations adopted thereunder by the SEC.
1.10 "NATIONWIDE" means Nationwide Mutual Funds, an Ohio
business trust.
1.11 "NATIONWIDE PROSPECTUS/SAI" means the Prospectus and/or
Statement of Additional Information (as the case may be), each dated January 3,
2000, as amended on February 9, 2000 and as supplemented on March 27, 2000 (as
may be further supplemented hereafter), of Nationwide relating to the Value
Opportunities Fund.
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1.12 "PERSON" means an individual or a corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization, or other entity, as the context requires.
1.13 "PRINCIPAL PRESERVATION" means Principal Preservation
Portfolios, Inc., a Maryland corporation.
1.14 "PRINCIPAL PRESERVATION PROSPECTUS/SAI" means the
Prospectus and/or Statement of Additional Information (as the case may be), each
dated May 1, 2000, as supplemented on September 29, 2000 (as may be further
supplemented hereafter), of Principal Preservation relating to the Select Value
Portfolio.
1.15 "REORGANIZATION" means the transactions described in and
contemplated by this Agreement, including the transfer of the Select Value
Portfolio Assets (other than the Excluded Assets) to the Value Opportunities
Fund in exchange for, and against delivery to the Select Value Portfolio, of
Value Opportunities Fund Shares and the distribution of the Value Opportunities
Fund Shares to the Select Value Portfolio Shareholders in liquidation of the
Select Value Portfolio.
1.16 "REQUIRED SELECT VALUE PORTFOLIO SHAREHOLDER VOTE" shall
have the meaning specified in Section 7.4 of this Agreement.
1.17 "SEC" means the United States Securities and Exchange
Commission.
1.18 "SECURITIES ACT" means the Securities Act of 1933, as
amended, and all rules and regulations adopted thereunder by the SEC.
1.19 "SELECT VALUE PORTFOLIO" means the Select Value
Portfolio, a designated series or investment portfolio of Principal
Preservation.
1.20 "SELECT VALUE PORTFOLIO ASSETS" means the portfolio
securities, cash, cash equivalents, dividend and interest receivables, and other
properties, rights and assets owned by the Select Value Portfolio on the close
of business on the Valuation Date.
1.21 "SELECT VALUE PORTFOLIO SHAREHOLDERS" means the holders
of record of the issued and outstanding shares of common stock of the Select
Value Portfolio as of the close of business on the Valuation Date.
1.22 "SELECT VALUE PORTFOLIO SHAREHOLDER MEETING" means a
meeting of the shareholders of the Select Value Portfolio to be convened in
accordance with applicable law and the Articles of Incorporation and Bylaws of
Principal Preservation to consider and vote upon the approval of this Agreement
and the Reorganization contemplated hereby.
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1.23 "SELECT VALUE PORTFOLIO SHARES" means the issued and
outstanding shares of common stock of the Select Value Portfolio, including both
Class A shares and Class B shares.
1.24 "VALUE OPPORTUNITIES FUND" means the Nationwide Value
Opportunities Fund, a designated series or investment portfolio of Nationwide.
1.25 "VALUE OPPORTUNITIES FUND SHARES" means the shares of
beneficial interest, without par value, of the Value Opportunities Fund,
including both Class A shares and Class B shares, to be issued pursuant to this
Agreement, as described in Section 2.1 hereof.
1.26 "VALUATION DATE" shall have the meaning set forth in
Section 2.2(a) of this Agreement.
1.27 "NORTHPOINTE" means NorthPointe Capital, LLC, the interim
investment adviser to the Select Value Portfolio and the sub-adviser to the
Value Opportunities Fund.
2. REORGANIZATION OF THE SELECT VALUE PORTFOLIO
2.1 TRANSFER OF SELECT VALUE PORTFOLIO ASSETS; ISSUANCE OF
VALUE OPPORTUNITIES FUND SHARES. Subject to the terms and conditions set forth
herein, and in reliance upon the representations and warranties contained
herein, at the Effective Time, Principal Preservation on behalf of the Select
Value Portfolio agrees to sell, convey, transfer and deliver all of the Select
Value Portfolio Assets (except the Excluded Assets) to the Custodian on behalf
of the Value Opportunities Fund in consideration of, in exchange for, and
against delivery to the Select Value Portfolio of, that number of Value
Opportunities Fund Shares (including, if applicable, fractional shares rounded
to the nearest thousandth of one whole share) having an aggregate net asset
value equal to the value of the Select Value Portfolio Assets (exclusive of the
Excluded Assets), all determined as provided in Section 2.2 of this Agreement.
As of the Effective Time and upon delivery of such assets to the Custodian, the
Value Opportunities Fund shall receive good and marketable title to such assets
free and clear of all liens, security interests, pledges, charges, claims or
encumbrances of any and every kind. The Value Opportunities Fund Shares so
delivered to the Select Value Portfolio shall consist of the number of both
Class A and Class B shares of the Value Opportunities Fund determined in
accordance with Section 2.2(c) of this Agreement, based on the relative value of
the Select Value Portfolio Assets (exclusive of the Excluded Assets)
attributable to the Class A and Class B shares of the Select Value Portfolio, in
aggregate, outstanding as of the close of business on the New York Stock
Exchange on the Valuation Date (after processing purchase and redemption
requests received prior to such close of business). Immediately following
receipt of the Value Opportunities Fund Shares, the Select Value Portfolio shall
distribute such shares to the Select Value Portfolio Shareholders in liquidation
of the Select Value Portfolio, with the Select Value Portfolio Shareholders who
owned Class A shares of the Select Value Portfolio receiving Class A shares of
the Value Opportunities Fund and the Select Value Portfolio
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Shareholders who owned Class B shares of the Select Value Portfolio receiving
Class B shares of the Value Opportunities Fund.
2.2 COMPUTATION OF NET ASSET VALUE.
(a) When Determined. The net asset value of the
Value Opportunities Fund Shares and the value of the Select Value Portfolio
Assets shall, in each case, be determined as of the close of business on the New
York Stock Exchange on the business day next preceding the Closing Date (the
"Valuation Date").
(b) Valuations. The net asset value of the Value
Opportunities Fund Shares (for each of Class A and Class B) shall be the net
asset value per share of each class, computed in accordance with the practices
and procedures of the Value Opportunities Fund described in the Nationwide
Prospectus/SAI. The value of the Select Value Portfolio Assets shall be computed
in accordance with the practices and procedures of the Value Opportunities Fund
described in the Nationwide Prospectus/SAI; provided, however, that such
computation is consistent with the practices and policies of the Select Value
Portfolio and in the event of any inconsistency the parties hereto shall confer
and mutually agree on the valuation. Based on the value of the Select Value
Portfolio Assets to be delivered to the Custodian pursuant to Section 2.1
hereof, Principal Preservation shall determine the aggregate value of each of
the Class A and Class B shares of the Select Value Portfolio outstanding as of
the close of business on the New York Stock Exchange on the Valuation Date. The
stock transfer books of the Select Value Portfolio shall be permanently closed
as of the close of business on the Valuation Date, and only purchase orders and
requests for the redemption of shares of the Select Value Portfolio received in
proper form prior to the close of business on the New York Stock Exchange on the
Valuation Date shall be accepted by the Select Value Portfolio. Purchase orders
and redemption requests received thereafter shall be deemed to be purchase and
redemption requests for the Value Opportunities Fund (assuming that the
transactions contemplated by this Agreement have been consummated).
(c) Value Opportunities Fund Shares. The number of
Value Opportunities Fund Shares (including fractional shares, if any) to be
issued hereunder shall be determined separately for each class. The number of
Class A shares of the Value Opportunities Fund (including fractional shares, if
any) to be issued shall be determined by dividing the aggregate value of the
Class A shares of the Select Value Portfolio determined in accordance with
Section 2.2(b) hereof, by the net asset value of a Value Opportunities Fund
Class A share, determined in accordance with Section 2.2(b) hereof. The number
of Class B shares of the Value Opportunities Fund (including fractional shares,
if any) to be issued shall be determined by dividing the value of the Select
Value Portfolio Class B shares determined in accordance with Section 2.2(b)
hereof, by the net asset value of a Value Opportunities Fund Class B share,
determined in accordance with Section 2.2(b) hereof.
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(d) Computations. All computations of value shall
be made by NorthPointe (or such other Person as is responsible for regularly
pricing the Value Opportunities Fund's portfolio securities). Nationwide shall
cause NorthPointe (or such other Person) to deliver to Principal Preservation a
copy of its valuation report at or prior to the Closing. Securities for which
market quotes are not available shall be valued as mutually agreed by Nationwide
and Principal Preservation.
(e) Shadow Valuation. Promptly following the date
of this Agreement, Principal Preservation and Nationwide shall each cause a
valuation of the Select Value Portfolio Assets to be conducted in accordance
with their respective valuation policies and practices as of the close of
business on a mutually acceptable date, which in any event shall not be more
than 30 days after the date of this Agreement. This shadow pricing procedure
shall be repeated as of the close of business on a mutually acceptable date
which is not more than 10 days prior to the Valuation Date.
2.3 LIST OF ASSETS.
(a) The Select Value Portfolio Assets shall consist
of all property and rights, including without limitation all cash, cash
equivalents, securities and dividend and interest receivables owned by the
Select Value Portfolio and shown as an asset on the Select Value Portfolio's
books as of the close of business on the Valuation Date.
(b) Promptly following the signing of this
Agreement, the Select Value Portfolio will provide the Value Opportunities Fund
and the Custodian with a list of its assets as of a date agreed upon by the
parties. On the Closing Date, the Select Value Portfolio will provide the Value
Opportunities Fund with a list of the Select Value Portfolio Assets.
2.4 EXCLUDED ASSETS. There shall be deducted from the
assets of the Select Value Portfolio described in Section 2.3 all cash, cash
equivalents and securities in an amount estimated by Principal Preservation to
be sufficient to pay all liabilities of the Select Value Portfolio that have
accrued but remain unpaid as of the close of business on the Valuation Date,
including, without limitation: (a) amounts owed or to be owed to any Select
Value Portfolio Shareholder, including declared but unpaid dividends and capital
gains distributions; and (b) accounts payable, taxes and other accrued and
unpaid expenses, if any, incurred in the normal operation of the business of the
Select Value Portfolio up to and including the Closing Date and estimated to be
incurred after the Closing Date in connection with winding up the affairs of,
and dissolving, the Select Value Portfolio (together the "Excluded Assets").
2.5 DECLARATION OF DIVIDENDS AND CAPITAL DISTRIBUTIONS BY
THE SELECT VALUE PORTFOLIO. On or prior to the Valuation Date, the Select Value
Portfolio will declare a dividend to shareholders of record of the Select Value
Portfolio as of or prior to the Valuation Date so that, for the short taxable
year of the Select Value Portfolio ending on the date on which the Select Value
Portfolio is completely dissolved and discontinued, the Select Value Portfolio
will have declared an aggregate amount of dividends which: (a) is equal to at
least the sum of its
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net capital gain (within the meaning of Section 852(b)(3) of the Code) and
ninety percent (90%) of its investment company taxable income (determined under
Section 852(b)(2) of the Code, but without regard to Section 852(b)(2)(D) of the
Code) for such taxable year; and (b) is sufficient to avoid any excise tax on
the Select Value Portfolio under Section 4982 of the Code for the calendar year
in which the Closing Date occurs, provided that the dividends that have been so
declared but have not been paid on or before such Valuation Date are in fact
paid by the Select Value Portfolio prior to the end of such calendar year to the
shareholders of the Select Value Portfolio as of the record date for determining
shareholders entitled to receive payment of such dividend.
2.6 DISSOLUTION. Contemporaneously with the Closing, the
Select Value Portfolio shall be dissolved and Principal Preservation shall pay
or make provisions for all of the Select Value Portfolio's debts, liabilities,
taxes and obligations of any kind, including those relating to the Excluded
Assets as described in Section 2.4 hereof, and distribute all remaining assets,
including the Value Opportunities Fund Shares received by it in the
Reorganization and the balance, if any, of the Excluded Assets, pro rata to the
Select Value Portfolio Shareholders in accordance with their ownership of Class
A or Class B shares of the Select Value Portfolio, and the Select Value
Portfolio shall cease to be a designated series of shares of Principal
Preservation.
2.7 ISSUANCE OF VALUE OPPORTUNITIES FUND SHARES. On the
Closing Date, Principal Preservation shall instruct Nationwide Investors
Services, Inc. ("NISI"), the transfer agent of the Value Opportunities Fund, to
record on the books and records of the Value Opportunities Fund the interest of
each of the Select Value Portfolio Shareholders in the Value Opportunities Fund
Shares, in accordance with their pro rata interest in the Class A and Class B
shares of the Select Value Portfolio in the name of such Select Value Portfolio
Shareholder. Upon dissolution of the Select Value Portfolio, all Select Value
Portfolio Shares then issued and outstanding shall thereupon be cancelled on the
books of Principal Preservation. Nationwide or NISI shall forward a confirmation
of to each of the Select Value Portfolio Shareholders of their ownership of the
Value Opportunities Fund Shares. No redemption or repurchase of such Value
Opportunities Fund Shares credited to any Select Value Portfolio Shareholder in
respect of his or her Select Value Portfolio Shares which are represented by an
unsurrendered stock certificate shall be permitted until such certificate has
been surrendered to Nationwide or NISI for cancellation, or if such certificate
is lost or misplaced, until a lost certificate affidavit has been executed and
delivered to Nationwide or NISI.
2.8 LIABILITIES AND EXPENSES. The Select Value Portfolio will
use its best efforts to discharge all of its debts, liabilities, obligations and
taxes when and as due prior to the Closing Date. An unaudited Statement of
Assets and Liabilities of the Select Value Portfolio will be prepared by the
Treasurer of the Select Value Portfolio, as of the close of business on the
Valuation Date. The Statement of Assets and Liabilities of the Select Value
Portfolio will be prepared in conformity with generally accepted accounting
principles consistently applied from the prior audited period (except for
year-end adjustments). The
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Value Opportunities Fund shall not assume any liability of the Select Value
Portfolio on or after the Closing Date.
2.9 TERMINATION, WINDING UP. After the Closing, the Select
Value Portfolio shall not conduct any business except in connection with the
winding up of its affairs and shall file, or make provision for filing of, all
reports it is required by law to file. After the Closing, the Select Value
Portfolio shall cease to be a designated series of Principal Preservation under
Maryland law and its shares shall be deregistered under the Securities Act and
applicable state securities laws.
2.10 BOOKS AND RECORDS. Copies of all books and records of or
pertaining to the Select Value Portfolio, including those concerning its
obligations under the 1940 Act, the Code, state blue sky laws or otherwise
concerning this Agreement, will at Closing be delivered to the Value
Opportunities Fund. Following the Closing, Select Value Portfolio shall be
entitled to have access to such books and records as necessary to prepare
required reports, tax returns and other documents, and, to the extent required
by applicable laws, to retain copies of such books and records.
3. CLOSING
3.1 CLOSING DATE. The closing of the Reorganization and the
other transactions contemplated hereby (the "Closing") shall take place at the
Effective Time. The Closing Date shall take place no later than ten (10)
calendar days following approval by Principal Preservation shareholders of this
Agreement and the Reorganization and the satisfaction of all conditions
precedent to Closing (except those which by their terms can be satisfied only at
Closing); or such other time as may be agreed to by Nationwide and Principal
Preservation in writing.
3.2 PORTFOLIO SECURITIES. Portfolio securities held by the
Select Value Portfolio and represented by a certificate or written instrument
shall be presented by it or on its behalf to the Custodian for examination no
later than two (2) business days preceding the Valuation Date. Such portfolio
securities (together with any cash or other assets) to be transferred to the
Value Opportunities Fund pursuant to Section 2.1 hereof shall be delivered by
the Select Value Portfolio to the Custodian at or prior to the Effective Time in
conformity with applicable custody provisions under the 1940 Act and duly
endorsed in proper form for transfer in such condition as to constitute good
delivery thereof in accordance with the custom of brokers. The portfolio
securities shall be accompanied by all necessary federal and state stock
transfer stamps or a check for the appropriate purchase price of such stamps.
Portfolio securities and instruments deposited with a securities depository, as
defined in Rule 17f-4 under the 1940 Act, or with a qualified foreign custodian
under Rule 17f-5 of the 1940 Act shall be delivered at or prior to the Effective
Time by book entry in accordance with customary practices of such depositories
and the Custodian. The cash delivered shall be in the form of a Federal Funds
wire, pursuant to the instructions provided prior to the Closing Date by
Nationwide or the Custodian.
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3.3 POSTPONEMENT OF VALUATION. In the event that on the
Valuation Date (a) the New York Stock Exchange or the Nasdaq Stock Market shall
be closed to trading or trading thereon shall be restricted or (b) trading or
the reporting of trading on the New York Stock Exchange or the Nasdaq Stock
Market shall be disrupted so that, in the judgment of both Nationwide and
Principal Preservation, accurate appraisal of the value of the net assets of the
Value Opportunities Fund or the Select Value Portfolio is impracticable, the
Valuation Date shall be postponed until the first business day after the day
when trading shall have been fully resumed without restriction or disruption and
reporting shall have been restored and accurate appraisal of the value of the
net assets of the Value Opportunities Fund and the Select Value Portfolio is
practicable in the judgment of Nationwide and Principal Preservation. The
Closing Date shall be postponed as necessary to coordinate with any such
postponement of the Valuation Date.
3.4 THE SELECT VALUE PORTFOLIO SHAREHOLDERS. Principal
Preservation shall deliver to Nationwide (a) at the Closing, a list, certified
by its Secretary, of the names, addresses and taxpayer identification numbers of
the Select Value Portfolio Shareholders of record and the record number and
class of outstanding Select Value Portfolio Shares owned by each shareholder,
all as of the close of business on the Valuation Date (after giving effect to
the payment of dividends and any reinvestment of such dividends, described in
Section 2.5 of this Agreement), and (b) as soon as practicable after the Closing
all original documentation (including Internal Revenue Service forms,
certificates, certifications and correspondence) relating to the Select Value
Portfolio Shareholders' taxpayer identification numbers and their liability for
or exemption from back-up withholding. Nationwide shall cause NISI to issue and
deliver to Select Value Portfolio Shareholders a confirmation evidencing
delivery of Value Opportunities Fund Shares to be credited on the Closing Date
to the Select Value Portfolio Shareholders as provided in Section 2.7 of this
Agreement. At the Closing, each party shall deliver to the other such bills of
sale, assignments, assumption agreements, receipts or other documents as such
other party or its counsel may reasonably request to effect the consummation of
the transactions contemplated by the Agreement.
4. COVENANTS OF PRINCIPAL PRESERVATION AND NATIONWIDE
4.1 REGISTRATION STATEMENT. Principal Preservation will
prepare and Nationwide will file with the SEC a registration statement on Form
N-14 under the Securities Act, relating to the Value Opportunities Fund Shares
to be issued to the Select Value Portfolio shareholders pursuant to the
Reorganization ("Registration Statement"). The Registration Statement shall
include a combined proxy statement/prospectus, notice of meeting, form of proxy
and statement of additional information ("Proxy Materials") that complies in all
material respects with the applicable provisions of Section 14(a) of the
Exchange Act, Section 20(a) of the 1940 Act and Section 6 of the Securities Act.
Nationwide will assist Principal Preservation with the preparation of, and will
be entitled to review and revise, the Proxy Materials included in the
Registration Statement. Nationwide will further provide Principal Preservation
with such other information and documents relating to the Value Opportunities
Fund as are reasonably necessary for the preparation of the Registration
Statement.
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4.2 SHAREHOLDERS MEETING. Principal Preservation will call a
meeting of shareholders of the Select Value Portfolio to consider and act upon
this Agreement and take all other action necessary to obtain approval of the
Reorganization contemplated hereby. Principal Preservation will prepare, with
assistance from Nationwide, the Proxy Materials to be used in connection with
such meetings, and Nationwide will furnish Principal Preservation with a current
effective prospectus relating to the Value Opportunities Fund Shares for
inclusion in the Proxy Materials and with such other information relating to the
Value Opportunities Fund as is reasonably necessary for the preparation and
distribution of the Proxy Materials. Promptly following the effective date of
the Registration Statement, Principal Preservation will mail to each shareholder
of record of the Select Value Portfolio entitled to vote at the Select Value
Portfolio Shareholder Meeting the Proxy Materials (other than the statement of
additional information).
4.3 SHAREHOLDER INFORMATION. Prior to the Closing Date,
Principal Preservation will provide Nationwide with such information as
Nationwide reasonably requests concerning the beneficial ownership of the shares
of the Select Value Portfolio.
4.4 COOPERATION. Subject to the provisions of this Agreement,
Nationwide and Principal Preservation will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the Reorganization contemplated by
this Agreement.
4.5 EARNING AND PROFITS. As promptly as practicable, but in
any case within 60 days after the Closing Date, Principal Preservation shall
furnish or cause to be furnished to Nationwide, such information as Nationwide
reasonably requests to enable Nationwide to determine the Select Value
Portfolio's earnings and profits for federal income tax purposes that will be
carried over to the Value Opportunities Fund pursuant to Section 381 of the
Code.
4.6 FINAL TAX RETURNS. As soon after the Closing Date as is
reasonably practicable, Principal Preservation shall prepare and file all
federal and other tax returns and reports of the Select Value Portfolio required
by law to be filed with respect to all periods ending through and after the
Closing Date but not theretofore filed and shall deliver copies of the same to
Nationwide.
4.7 AUTHORIZATIONS TO CONTINUE THE VALUE OPPORTUNITIES FUND.
Nationwide agrees to use all reasonable efforts to obtain the approvals and
authorizations required by the Securities Act, the 1940 Act and such of the
state Blue Sky and securities laws as it may deem appropriate to enable it to
continue its operations and the operations of the Value Opportunities Fund
after the Closing Date.
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5. REPRESENTATIONS AND WARRANTIES OF PRINCIPAL PRESERVATION
Principal Preservation, on behalf of the Select Value Portfolio,
represents and warrants to Nationwide as follows:
5.1 CAPITALIZATION; SELECT VALUE PORTFOLIO SHARES. The
capitalization of Principal Preservation consists of 1,000,000,000 shares of
capital stock, par value $.001 per share, currently divided into nine separate
series and offering different classes of shares within each series. The Select
Value Portfolio is a diversified separate series of Principal Preservation and
has a total of 55,000,000 shares authorized for issuance, consisting of
25,000,000 authorized shares of Class A Common Stock, 25,000,000 authorized
shares of Class B Common Stock and 5,000,000 shares of Class C Common Stock.
There are no shares of Class C Common Stock of the Select Value Portfolio issued
or outstanding. All issued and outstanding shares of the Select Value Portfolio
are, and at the Closing Date will be, duly and validly issued, fully paid,
non-assessable, fully transferable and entitled to full voting rights. All such
shares will, at the time of Closing, be held by the Persons and in the amounts
and classes set forth in the list of shareholders of record provided to the
Value Opportunities Fund pursuant to Section 3.4 hereof. The Select Value
Portfolio does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of its shares, nor is there outstanding any
security convertible into any of its shares.
5.2 TITLE. The Select Value Portfolio has, and at the Closing
Date will have, good and marketable title to the Select Value Portfolio Assets,
subject to no liens, security interests, pledges, charges, claims or other
encumbrances of any kind, and full right, power and authority to sell, convey,
assign, deliver and otherwise transfer the Select Value Portfolio Assets
hereunder, and upon delivery and payment for the Select Value Portfolio Assets,
the Value Opportunities Fund will acquire clear title thereto, subject to no
restrictions on the full transfer thereof, including such restrictions as might
arise under the Securities Act (other than Rule 144A, privately placed or
illiquid securities, if any). No financing statement covering all or any portion
of assets and naming the Select Value Portfolio, as debtor, has been filed in
any public office, and the Select Value Portfolio has not signed any financing
statement or security agreement as debtor or borrower which financing statement
or security agreement covers all or any portion of the Select Value Portfolio
Assets.
5.3 PROXY MATERIALS. Beginning on the effective date of the
Registration Statement, at the time of the Select Value Portfolio Shareholders
Meeting (and any adjournment thereof) and on the Closing Date, the written
information provided by Principal Preservation for inclusion in the Proxy
Materials shall be accurate and complete in all material respects, shall comply
in all material respects with the provisions of the Securities Act, the Exchange
Act and the 1940 Act, and shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statement therein, in light of the circumstances under which it was
made, not misleading; provided, however, that no representation or warranty is
made with respect to written information regarding Nationwide or the Value
Opportunities Fund included in the Proxy Materials.
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5.4 NO DISTRIBUTION. The Select Value Portfolio is not
acquiring the Value Opportunities Fund Shares for the purpose of making any
distribution thereof other than in accordance with the terms of this Agreement.
5.5 AUTHORITY.
(a) Principal Preservation has the full legal power and
authority to enter into and perform this Agreement, and, except for obtaining
the requisite approval of the Select Value Portfolio's shareholders as described
in Section 7.4 hereof, the execution, delivery and performance of this Agreement
and the consummation of the Reorganization contemplated by this Agreement in
accordance with its terms have been duly and validly authorized and will not
violate any provision of law, or the articles of incorporation or bylaws of
Principal Preservation, or result in the forfeiture or cancellation of any
license, permit, consent, approval, accreditation or authorization respecting
the Select Value Portfolio and required in order for the Value Opportunities
Fund to carry on the business of the Select Value Portfolio following the
Closing, or result, or with the passage of time will result, in the violation,
breach, termination, cancellation or acceleration of any provision of or
constitute a default under or result in the creation of any lien, claim or
encumbrance pursuant to any court order, judgment, decree, order or any
indenture, license, permit, authorization, contract or other instrument to which
Principal Preservation is a party or by which any of its properties may be
bound, which would have a material adverse effect on the Select Value Portfolio
Assets or the business of the Select Value Portfolio. Principal Preservation
agrees to obtain, prior to the Closing Date, all consents, approvals,
authorizations or orders of any kind, which shall be required to sell and
transfer to the Value Opportunities Fund the Select Value Portfolio Assets and
to consummate the Reorganization contemplated by this Agreement.
(b) The Board of Directors of Principal Preservation
has taken all necessary action to authorize and approve the execution, delivery
and performance of this Agreement and all of the transactions contemplated
hereby and, when executed and delivered and approved by the requisite number of
shareholders of the Select Value Portfolio as described in Section 7.4 hereof,
this Agreement will constitute the legal, valid and binding obligation of
Principal Preservation, enforceable against Principal Preservation in accordance
with its terms.
5.6 OPERATIONS. Except as disclosed on Schedule 5.6 attached
hereto, there has not been any material adverse change in the business,
operations, financial position and assets of the Select Value Portfolio (other
than changes occurring in the ordinary course of business), and the business of
the Select Value Portfolio has been conducted in the usual, regular and ordinary
manner in material compliance with the requirements of all federal and state
laws. Furthermore, between the date of this Agreement and the Effective Time,
Principal Preservation will continue to operate the business of the Select Value
Portfolio as it is presently conducted. Except as disclosed on Schedule 5.6
attached hereto, the following is true with respect to the Select Value
Portfolio and the operation of the Select Value Portfolio's business:
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(a) All transactions involving the Select Value
Portfolio have been accurately and fully recorded in the books and records of
the Select Value Portfolio and will continue to be so recorded until the
Effective Time;
(b) The Select Value Portfolio has not sold,
exchanged, conveyed or otherwise disposed, or subjected to lien, pledge,
hypothecation, mortgage, or other encumbrance, any assets or properties other
than sales or other transactions in the ordinary course of business, nor will
the Select Value Portfolio do so from the date of this Agreement until the
Effective Time;
(c) The Select Value Portfolio has paid, and will
continue to pay, its debts, obligations and liabilities, including taxes, fees,
levies and assessments in the ordinary course as they have matured and will
mature through the close of business on the Valuation Date;
(d) The Select Value Portfolio has not incurred, and
will not incur from the date hereof until the Effective Time, any material debt,
obligation or liability (other than those incurred in the ordinary course of its
business) which presently subjects, or with the passage of time or upon default
will subject, its assets to any lien, claim, charge, or other encumbrance;
(e) The Select Value Portfolio has not altered,
amended, terminated or discharged and will not alter, amend, terminate or
discharge from the date hereof until the Effective Time, any written or oral
contract, commitment or agreement to which the Select Value Portfolio is
presently a party which is required to be listed on Schedule 5.9 hereto, nor
waived, nor will waive from the date hereof until the Effective Time, any
material right with respect thereto, nor permitted or consented, nor will permit
or consent from the date hereof until the Effective Time, to such alteration,
amendment, termination or discharge, nor committed, nor will commit or cause
from the date hereof until the Effective Time, a breach or default in any of the
provisions thereof;
(f) The Select Value Portfolio has not entered, and
will not enter from the date hereof until the Effective Time, into any written
or oral contract except in the ordinary course of business at the prices and
upon the terms consistent with its past practices and which do not violate any
representation, warranty or covenant of this Agreement;
(g) The Select Value Portfolio has materially
complied with all laws applicable to the conduct of its business and will
continue to do so until the Effective Time.
(h) There has not occurred any transaction or event,
nor is any anticipated which does or may adversely affect the Select Value
Portfolio's business or the Select Value Portfolio Assets in any material
respect (other than changes occurring in the ordinary course of business), and
Principal Preservation will immediately notify Nationwide upon the occurrence of
any such event of which it becomes aware prior to the Effective Time.
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5.7 RIGHT TO INSPECT THE BOOKS AND RECORDS. Principal
Preservation shall make available and Nationwide and its agents, attorneys,
accountants, employees, contractors and other authorized representatives shall
have the right, during normal business hours and upon reasonable notice, to the
extent that Nationwide reasonably deems appropriate, to examine the books and
records of the Select Value Portfolio, and to make such tests, surveys,
investigations and other inspections in such manner as Nationwide may reasonably
deem necessary, provided that such inspection will not interfere with the
conduct of the Select Value Portfolio's business.
5.8 [Intentionally omitted.]
5.9 MATERIAL AGREEMENTS. Schedule 5.9 attached hereto lists
all material contracts, agreements, understandings or other commitments of the
Select Value Portfolio. The Select Value Portfolio has delivered or made
available to Nationwide complete and accurate copies of all documents referred
to on Schedule 5.9 attached hereto, each of which is in effect and legal, valid
and enforceable against the Select Value Portfolio and, to the knowledge of
Principal Preservation, legal, valid and enforceable against the other party in
accordance with its terms.
5.10 REGULATORY COMPLIANCE. Principal Preservation and the
Select Value Portfolio have all licenses, permits, approvals, authorizations and
registrations required by any federal, state and local laws, authorities and
agencies in connection with the operation of the Select Value Portfolio's
business as presently being conducted and the ownership of its assets ("Select
Value Portfolio's Regulatory Approvals"), the lack of which would have a
material adverse effect on the Select Value Portfolio. All such Select Value
Portfolio's Regulatory Approvals are in full force and effect, and to the
knowledge of Principal Preservation, no suspension or cancellation of any of
them is threatened or pending. Except for the approval of the requisite number
of shareholders of the Select Value Portfolio of the Agreement and the
Reorganization as described in Section 7.4 hereof, there are no approvals or
consents of any third parties necessary or required for Principal Preservation
validly and legally to enter into this Agreement and to perform its obligations
hereunder.
5.11 ORGANIZATION AND QUALIFICATION OF PRINCIPAL PRESERVATION
AND THE SELECT VALUE PORTFOLIO. Principal Preservation is duly organized and
validly existing as a corporation in good standing under the laws of Maryland,
has full corporate power and authority to own its assets and to conduct its
business as it is now being conducted, and is duly qualified or registered to do
business and is in good standing in each jurisdiction which requires such
qualification or registration or is subject to no material liability by reason
of its failure to be so qualified. The Select Value Portfolio is a duly
designated series of capital stock of Principal Preservation. Complete and
correct copies as of the date hereof of the articles of incorporation and bylaws
of Principal Preservation have previously been delivered or made available to
Nationwide.
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5.12 CERTAIN SEC FILINGS, MATERIALS AND FINANCIAL
STATEMENTS.
(a) Principal Preservation has heretofore furnished
or made available to Nationwide complete copies of all proxy statements,
registration statements, prospectuses, supplements, statements of additional
information, reports, documents or other materials relating to the Select Value
Portfolio filed by or on behalf of the Select Value Portfolio with the SEC on or
after May 1, 2000, (collectively, the "Select Value Portfolio SEC Materials").
The Select Value Portfolio SEC Materials (i) were prepared in all material
respects in accordance with the applicable requirements of the Securities Act,
the 1940 Act, the Exchange Act and the rules and regulations under each of them,
(ii) as of their respective dates did not contain any untrue statement of a
material fact, and (iii) as of their respective dates did not omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) Principal Preservation has previously furnished
or made available to Nationwide the audited annual and unaudited interim
financial statements listed on Schedule 5.12(b) attached hereto with respect to
the Select Value Portfolio for all such periods on or after November 1, 1999
(the "Select Value Portfolio Financial Statements"). Such Select Value Portfolio
Financial Statements are true and correct in all material respects and present
fairly the financial position and results of operations of the Select Value
Portfolio for the periods then ended, all in conformity with generally accepted
accounting principles applied on a consistent basis, except for year-end
adjustments and as otherwise noted therein.
5.13 ABSENCE OF CERTAIN CHANGES. Between the date of the
latest Select Value Portfolio Financial Statements and the date hereof: (a)
there has been no material adverse change in the financial condition, results of
operation, business, assets or liabilities of the Select Value Portfolio (other
than changes occurring in the ordinary course of business, including without
limitation changes in the value of the assets of the Select Value Portfolio as a
result of any market correction) or the status of the Select Value Portfolio as
a regulated investment company under the Code; and (b) there has not been any
change in accounting methods, principles or practices of the Select Value
Portfolio having a material adverse effect on the financial condition or results
of operations of the Select Value Portfolio, nor any resignation of the
independent certified public accountants and auditors of the Select Value
Portfolio due to a conflict or disagreement with management of the Select Value
Portfolio or otherwise.
5.14 LITIGATION. No litigation, claim, action, proceeding
or investigation is pending or, to the knowledge of Principal Preservation,
threatened or probable of assertion against or relating to Principal
Preservation or the Select Value Portfolio, before any court or governmental or
regulatory authority or body acting in an investigative or adjudicative capacity
seeking injunctive relief or monetary damages which (a) involves or relates to,
or could otherwise affect, the Select Value Portfolio, and (b) which, if
adversely determined, could have material adverse effect on the Reorganization
or on the business, results of operations or financial position of the Select
Value Portfolio. Neither the directors of Principal
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Preservation nor any affiliates of Principal Preservation is subject to any
outstanding order, writ, injunction or decree relating to the Select Value
Portfolio or which has had or could reasonably be expected to have a material
adverse effect on the business or operations of the Select Value Portfolio or
the Select Value Portfolio's compliance with applicable laws. In connection with
the Select Value Portfolio, no person (as defined therein) is disqualified from,
or has any investigation pending which could result in her, him or its being
disqualified from, serving or acting in any capacity that is the subject of
Section 9 of the 1940 Act. To the knowledge of Principal Preservation, neither
Principal Preservation nor the Select Value Portfolio is under investigation for
violation of any law or regulation related to or affecting its business or
operations.
5.15 CERTAIN ADDITIONAL REPRESENTATIONS AND WARRANTIES AS
TO THE SELECT VALUE PORTFOLIO.
(a) True and correct copies of all of the investment
advisory or sub- advisory agreements and underwriting agreements to which Select
Value Portfolio is a party and all other material agreements with respect to the
Select Value Portfolio (i) have been delivered or made available to Nationwide
(ii) are and will remain in full force and effect through the Closing Date, and
(iii) were duly approved and comply in all respects with the 1940 Act, the
Exchange Act, the Investment Advisers Act of 1940 (the "Advisers Act"), all
state securities laws, all requirements of the National Association of
Securities Dealers, Inc. (the "NASD"), and the rules and regulations thereunder.
(b) B.C. Ziegler and Company ("Ziegler") is the
principal underwriter for the Select Value Portfolio and until September 29,
2000, was the investment adviser for the Select Value Portfolio. To the
knowledge of Principal Preservation, Ziegler is and has been (i) duly registered
or licensed as broker-dealer under the 1934 Act and the securities laws of each
state or other jurisdiction wherein the nature of its activities in connection
with such agreement requires such registration or licensing, (ii) a member in
good standing of the NASD, (iii) a member in good standing in the Securities
Investors Protection Corporation, with all assessments due thereto having been
paid, or is not required to be such a member, and (iv) duly registered as an
investment adviser under the Advisers Act.
(c) There are no judgments, special consent judgments
or SEC orders on or with regard to Principal Preservation or the Select Value
Portfolio or, to the knowledge of Principal Preservation, with regard to its
investment adviser, distributor, transfer agent or custodian currently in effect
which have had or could reasonably be expected to have a material adverse effect
on the business or operations of the Select Value Portfolio as presently
conducted. All orders of exemption issued to Principal Preservation or the
Select Value Portfolio by any regulatory agency, including the SEC and the
Internal Revenue Service, which are necessary for the conduct of the business of
Principal Preservation or the Select Value Portfolio have been obtained and are
currently in full force and effect, no proceeding has been commenced to revoke
any such order and, to the knowledge of Principal Preservation, no such
proceeding is contemplated by any such regulatory agency.
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(d) Principal Preservation is and will continue
through the Closing Date to be duly registered with the SEC as a series,
open-end management investment company under the 1940 Act, and since the
inception of the Select Value Portfolio and with respect to the Select Value
Portfolio, has been and is in compliance with the 1940 Act, including the
requirements to file semi-annual or annual reports with the SEC; the
prospectuses, statements of additional information and, as applicable, sales
materials of Principal Preservation on behalf of the Select Value Portfolio have
been duly filed with the SEC, applicable state securities authorities and the
NASD (where required to be so filed); and Principal Preservation on behalf of
the Select Value Portfolio has filed with the SEC and other applicable federal
or state agencies or authorities such notices or reports required under
applicable federal or state laws, rules or regulations for the sale of its
shares, the conduct of its business or the ownership of its assets, except, in
each case, where the failure to file any such notice or report could not
reasonably be expected to have a material adverse effect on the Select Value
Portfolio.
(e) Shares of the Select Value Portfolio have been
duly authorized for sale and are, and since inception of the Select Value
Portfolio have been, duly qualified for sale (or exempt from qualification)
under the securities laws of all 50 states and any other jurisdictions in which
shares of the Select Value Portfolio have been offered or sold.
(f) Shares of the Select Value Portfolio have been
duly registered under the Securities Act by means of a registration statement
(or post-effective amendment thereto) on Form N-1A, said registration statement
has become effective under the Securities Act, no stop order suspending the
effectiveness of such registration statement has been issued, no proceedings for
that purpose have been instituted or threatened by the SEC and such registration
statement has remained and continues to remain effective. Such registration
statement has, at all times when a prospectus with respect to the securities to
which such registration statement relates has been required to be delivered,
complied in all material respects with the requirements of the Securities Act
and the 1940 Act, and such registration statement has not included at any time
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Copies of
the current prospectus, statement of additional information and registration
statement of Principal Preservation on behalf of the Select Value Portfolio have
been delivered or made available to Nationwide.
(g) The independent public accountants for the Select
Value Portfolio who have certified the financial statements of the Select Value
Portfolio which have been filed with the SEC have been selected and ratified in
accordance with the applicable provisions of the 1940 Act.
(h) The Select Value Portfolio has complied and will
continue to comply through the Closing Date (and thereafter as reasonably
necessary to timely deposit all withheld taxes) in all material respects with
all applicable laws regarding the withholding of
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taxes, including (without limitation), if applicable, withholding of federal
income taxes under Sections 1441, 1442 and 3406 of the Code.
(i) The Select Value Portfolio has properly prepared,
executed and timely filed, or caused to be timely filed a proper request for
extension with respect to, all federal, state and local tax returns for income,
franchise, sales, withholding, excise and other taxes required to be filed by it
and has paid all taxes, assessments, fees and other governmental charges shown
on said returns or by assessment or otherwise required to be paid by it. All of
such returns are complete and accurate in all material respects and have been
prepared in accordance with all applicable legal requirements. No material tax
liabilities, disallowances or assessments relating to the business or assets of
the Select Value Portfolio have been assessed or proposed and the Select Value
Portfolio is not aware of any reasonable basis for any such assessment. No tax
return filed on behalf of the Select Value Portfolio is currently being audited
by the Internal Revenue Service or by any state or local tax authority. The
reserves and provisions, if any, for taxes on the books of the Select Value
Portfolio are adequate for the payment of all taxes for the purposes and the
periods to which they pertain, including through the Effective Time. Without in
any way limiting the representations and warranties set forth above or in other
Sections of this Agreement, the Select Value Portfolio qualifies as a "regulated
investment company" under Section 851 (Subchapter M) of the Code, and has so
qualified during its entire existence. The Select Value Portfolio will, at the
Closing, satisfy, and consummation of the Reorganization contemplated by this
Agreement will not cause it to fail to satisfy for any period, the requirements
of Subchapter M of the Code. The Select Value Portfolio is not and has not been
liable for tax under Section 4982 of the Code. The Select Value Portfolio has
fully complied in all material respects with all applicable laws regarding all
applicable information reporting requirements, including, but not limited to,
Section 6042 of the Code. The Select Value Portfolio has satisfied the
requirements of Section 852(a) of the Code for each of its tax years during its
entire existence. Principal Preservation will provide to Nationwide at Closing a
statement of the respective tax bases of all Select Value Portfolio Assets being
transferred to the Value Opportunities Fund in the Reorganization, certified by
the Treasurer of Principal Preservation.
(j) The minute books of Principal Preservation
contain complete and accurate records, in all material respects, of all meetings
and other corporate actions of its shareholders and boards of directors where
any matters pertaining to the Select Value Portfolio were addressed or
considered, including all committees thereof. Copies of all such portions of the
minute books shall be made available to Nationwide as reasonably requested and
as necessary to allow for the administration of the Value Opportunities Fund
following the Closing Date.
(k) The portfolio securities of the Select Value
Portfolio have at all times during the Select Value Portfolio's existence been
valued in accordance with Section 2(a)(41) of the 1940 Act, Rule 2a-4 thereunder
and Principal Preservation's valuation procedures with respect to the Select
Value Portfolio. There have been no material miscalculations of the net asset
value of the Select Value Portfolio.
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(l) The portfolio securities of the Select Value
Portfolio include only those securities described in the Principal Preservation
Prospectus/SAI and those portfolio securities purchased or disposed of after the
date of the latest Select Value Portfolio Financial Statements in the ordinary
course of business, all of which are consistent with the investment objectives,
policies and restrictions of the Select Value Portfolio.
(m) The Select Value Portfolio does not have any
unamortized or unpaid organizational fees or expenses.
(n) Neither Principal Preservation nor the Select
Value Portfolio is under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code.
6. REPRESENTATIONS AND WARRANTIES OF NATIONWIDE
Nationwide, on behalf of the Value Opportunities Fund, represents and
warrants to Principal Preservation as follows:
6.1 CAPITALIZATION. The capitalization of Nationwide
consists of an unlimited number of shares of beneficial interest, without par
value. The Value Opportunities Fund offers Class A, Class B and Institutional
Service Class shares. The Value Opportunities Fund Shares to be issued and
delivered to the Select Value Portfolio for the account of the Select Value
Portfolio Shareholders pursuant to the terms of this Agreement will, at the
Closing Date, have been duly authorized and, when so issued and delivered, will
be duly and validly issued, fully paid, non-assessable, fully transferable,
entitled to full voting rights, duly registered with the SEC pursuant to an
effective Registration Statement on Form N-14, and duly registered or qualified
for sale pursuant to the blue sky laws of each state where a Select Value
Portfolio Shareholder resides, except where exempt from such state registration
or qualification requirements. No shareholder of Value Opportunities Fund will
have any preemptive right or right of subscription or purchase in respect of any
such Value Opportunities Fund Shares.
6.2 AUTHORITY OF THE VALUE OPPORTUNITIES FUND.
(a) Nationwide has the full legal power and authority
to enter into and perform this Agreement and the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by this Agreement in accordance with their terms will not violate
any provision of law, trust instruments or bylaws of Nationwide or result in the
forfeiture or cancellation of any license, permit, consent, approval,
accreditation or authorization respecting the Value Opportunities Fund or its
business, or result in the violation, breach, termination, cancellation or
acceleration of any provision of or constitute a default under or result in the
creation of any lien, claim or encumbrance pursuant to any indenture, license,
permit, authorization, court order, judgment, decree, contract or other
instrument to which the Value Opportunities Fund is a party or by which any of
its properties may be bound.
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(b) The trustees of Nationwide have taken all
necessary action to authorize and approve the execution, delivery and
performance of this Agreement and all of the transactions contemplated hereby,
and when executed and delivered this Agreement will constitute the legal, valid
and binding obligation of Nationwide, enforceable against Nationwide in
accordance with its terms.
6.3 ORGANIZATION AND QUALIFICATION OF NATIONWIDE AND THE
VALUE OPPORTUNITIES FUND. Nationwide is a duly organized and validly existing
business trust in full force and effect under the laws of Ohio, has full power
and authority to own its assets and to conduct its business as it is now being
conducted, and is duly qualified or registered to do business and is in good
standing in each jurisdiction which requires such qualification or registration
or is subject to no material liability by reason of its failure to be so
qualified. The Value Opportunities Fund is a duly designated series of shares of
beneficial interest of Nationwide, consisting of three classes: Class A, Class B
and Institutional Service Class shares. Complete and correct copies as of the
date hereof of the Declaration of Trust and Bylaws of Nationwide have previously
been delivered or made available to Principal Preservation.
6.4 CERTAIN SEC FILINGS, MATERIALS AND FINANCIAL
STATEMENTS OF THE VALUE OPPORTUNITIES FUND.
(a) Nationwide has heretofore furnished or made
available to Principal Preservation complete copies of all proxy statements,
registration statements, prospectuses, supplements, statements of additional
information, reports, documents or other materials relating to the Value
Opportunities Fund, filed with the SEC on or after December 30, 1999
(collectively, the "Nationwide SEC Materials"). The Nationwide SEC Materials (i)
were prepared in all materials respects in accordance with the applicable
requirements of the Securities Act, the Exchange Act, the 1940 Act, and the
rules and regulations under each of them, (ii) as of their respective dates did
not contain any untrue statement of a material fact, and (iii) as of their
respective dates did not omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) Nationwide has previously furnished or made
available to Principal Preservation the audited annual and unaudited interim
financial statements listed on Schedule 6.4 attached hereto with respect to the
Value Opportunities Fund for all such periods on or after January 1, 2000 (the
"Value Opportunities Fund Financial Statements"). Such Value Opportunities Fund
Financial Statements are true and correct and present fairly the financial
position and results of operations of the Value Opportunities Fund for the
periods then ended, all in conformity with generally accepted accounting
principles applied on a consistent basis, except for year-end adjustments and as
otherwise noted therein.
6.5 ABSENCE OF CERTAIN CHANGES OR EVENTS WITH RESPECT TO
THE VALUE OPPORTUNITIES FUND. Between the date of the latest Value Opportunities
Fund Financial Statements and the date hereof: (a) there has been no material
adverse change in the financial condition, results of operations, business,
assets or liabilities of the Value Opportunities Fund
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(other than changes occurring in the ordinary course of business, including
without limitation changes in the value of the assets of the Value Opportunities
Fund as a result of any market correction) or the status of the Value
Opportunities Fund as a regulated investment company under the Code; and (b)
there has not been any change in accounting methods, principles or practices of
the Value Opportunities Fund having a material adverse effect on the financial
condition or results of operations of the Value Opportunities Fund, nor any
resignation of the independent certified public accountants and auditors of the
Value Opportunities Fund due to a conflict or disagreement with management of
the Value Opportunities Fund or otherwise.
6.6 LITIGATION. No litigation, claim, action, proceeding or
investigation is pending or, to the knowledge of Nationwide, threatened or
probable of assertion against or relating to Nationwide or the Value
Opportunities Fund, before any court or governmental or regulatory authority or
body acting in an investigative or adjudicative capacity seeking injunctive
relief or monetary damages which (a) involves or relates to, or could otherwise
affect, the Value Opportunities Fund, and (b) which, if adversely determined,
could have material adverse effect on the Reorganization contemplated by this
Agreement or on the business, results of operations or financial position of the
Value Opportunities Fund. Neither trustees of Nationwide nor any affiliates of
Nationwide is subject to any outstanding order, writ, injunction or decree
relating to the Value Opportunities Fund or which has had or could reasonably be
expected to have a material adverse effect on the business or operations of the
Value Opportunities Fund or the Value Opportunities Fund's compliance with
applicable laws. In connection with the Value Opportunities Fund, no person (as
defined therein) is disqualified from, or has any investigation pending which
could result in her, him or its being disqualified from, serving or acting in
any capacity that is the subject of Section 9 of the 1940 Act. To the knowledge
of Nationwide, neither Nationwide nor the Value Opportunities Fund is under
investigation for violation of any law or regulation related to or affecting its
business or operations.
6.7 REGULATORY COMPLIANCE. Nationwide and the Value
Opportunities Fund have all permits, licenses, permits, approvals,
authorizations and registrations required by any federal, state and local laws,
authorities and agencies in connection with the operation of the Value
Opportunities Fund's business as presently conducted and the ownership of its
assets ("Value Opportunities Fund's Regulatory Approvals"), the lack of which
would have a material adverse effect on the Value Opportunities Fund. All such
Value Opportunities Fund's Regulatory Approvals are in full force and effect,
and to the knowledge of Nationwide, no suspension or cancellation of any of them
is threatened.
6.8 INFORMATION IN REGISTRATION STATEMENT ON FORM N-14. The
Registration Statement, including the Proxy Materials, when effective, shall
comply in all material respects with the provisions of the Securities Act, the
Exchange Act, the 1940 Act and the regulations thereunder, and shall not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statement therein, in
light of the circumstances under which such statement was made, not misleading;
provided
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however, that no representation or warranty is made with respect to
written information regarding Principal Preservation or the Select Value
Portfolio included in the Proxy Materials.
6.9 CERTAIN ADDITIONAL REPRESENTATIONS AND WARRANTIES AS
TO THE VALUE OPPORTUNITIES FUND.
(a) True and correct copies of all of the
investment advisory or sub-advisory agreements and underwriting agreements to
which the Value Opportunities Fund is a party or is subject and all other
material agreements with respect to the Value Opportunities Fund (i) have been
delivered or made available to Principal Preservation, (ii) are in full force
and effect, and (iii) comply in all respects with the 1940 Act, the Exchange
Act, the Advisers Act, all state securities laws, all requirements of the NASD,
and the rules and regulations thereunder.
(b) Nationwide Advisory Services, Inc. ("NAS")
is the principal underwriter for the Value Opportunities Fund, and has been for
all periods on or after January 3, 2000. To the knowledge of Nationwide, NAS is
and has been (i) duly registered or licensed as broker-dealer under the 1934 Act
and the securities laws of each state or other jurisdiction wherein the nature
of its activities in connection with such agreement requires such registration
or licensing, (ii) a member in good standing of the NASD, and (iii) a member in
good standing in the Securities Investors Protection Corporation, with all
assessments due thereto having been paid, or is not required to be such a
member. Villanova Mutual Fund Capital Trust ("VMFCT") and NorthPointe are the
investment adviser and sub-adviser, respectively, for the Value Opportunities
Fund.
(c) There are no judgments, special consent
judgments or SEC orders on or with regard to Nationwide or the Value
Opportunities Fund or, to the knowledge of Nationwide, with regard to its
adviser, sub-adviser, distributor, administrator, transfer agent or custodian,
currently in effect which have had or could reasonably be expected to have a
material adverse effect on the business or operations of the Value Opportunities
Fund as presently conducted. All orders of exemption issued to Nationwide or the
Value Opportunities Fund, by any regulatory agency, including the SEC and the
Internal Revenue Service, which is necessary for the conduct of the business of
Nationwide or the Value Opportunities Fund have been obtained and are currently
in full force and effect, no proceeding has been commenced to revoke any such
order and, to the knowledge of Nationwide, no such proceeding is contemplated by
any such regulatory agency.
(d) Nationwide is, and will continue to be
through the Closing Date, duly registered with the SEC as a series, open-end
management investment company under the 1940 Act, and since the inception of the
Value Opportunities Fund and with respect to the Value Opportunities Fund, has
been and is in compliance with the 1940 Act, and the SEC regulations promulgated
thereunder, including the requirements to file semi-annual or annual reports
with the SEC; the prospectuses, statements of additional information and, as
applicable, sales materials of Nationwide on behalf of the Value Opportunities
Fund have been duly filed
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with the SEC, applicable state securities authorities and the NASD (where
required to be so filed); and Nationwide on behalf of the Value Opportunities
Fund has filed with the SEC and other applicable federal or state agencies or
authorities such notices or reports required under applicable federal or state
laws, rules or regulations for the sale of its shares, the conduct of its
business or the ownership of its assets, except, in each case, where the failure
to file any such notice or report could not reasonably be expected to have a
material adverse effect on the Value Opportunities Fund.
(e) Shares of the Value Opportunities Fund have been
duly authorized for sale and are, and for at least all periods on or after
January 3, 2000, have been, duly qualified for sale under the securities laws of
all 50 states and any other jurisdiction in which shares of the Value
Opportunities Fund have been offered or sold.
(f) Shares of the Value Opportunities Fund have been
duly registered under the Securities Act by means of a registration statement
(or post-effective amendment thereto) on Form N-1A, such registration statement
has become effective under the Securities Act, no stop order suspending the
effectiveness of such registration statement has been issued, no proceedings for
that purpose have been instituted or threatened by the SEC and such registration
statement has remained and continues to remain effective. Such registration
statement has, at all times when a prospectus with respect to the securities to
which such registration statement relates has been required to be delivered,
complied in all material respects with the requirements of the Securities Act
and the 1940 Act, and such registration statement has not included at any time
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Copies of
the current prospectus, statement of additional information and registration
statement of Nationwide on behalf of the Value Opportunities Fund have been
delivered or made available to Principal Preservation.
(g) The independent public accountants for the Value
Opportunities Fund who have certified the financial statements of the Value
Opportunities Fund which have been filed with the SEC have been selected and
ratified in accordance with the applicable provisions of the 1940 Act.
(h) The Value Opportunities Fund has fully complied
in all material respects with all applicable laws regarding the withholding of
taxes, including (without limitation), if applicable, withholding of federal
income taxes under Sections 1441, 1442 and 3406 of the Code.
(i) The Value Opportunities Fund has and will have on
or prior to the Closing Date properly prepared, executed and timely filed, or
caused to be timely filed a proper request for extension with respect to, all
federal, state and local tax returns for income, franchise, sales, withholding,
excise and other taxes applicable to it and has paid and will have paid all
taxes, assessments, fees and other governmental charges shown on said returns
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or by assessment or otherwise required to be paid by it or on account of its
properties and assets as of or prior to the Closing Date. All of such returns
are complete and accurate in all material respects and have been prepared in
accordance with all applicable legal requirements. No material tax liabilities,
disallowances or assessments relating to the business or assets of any of the
Value Opportunities Fund have been assessed or proposed or will have
been assessed or proposed as of the Closing Date and the Value Opportunities
Fund is not aware of any basis for any such assessment. No tax return filed on
behalf of the Value Opportunities Fund is currently being audited by the
Internal Revenue Service or by any state or local tax authorities. The reserves
and provisions, if any, for taxes on the books of the Value Opportunities Fund
are adequate for the payment of all taxes for the purposes and periods to which
they pertain. Without in any way limiting the representations and warranties set
forth above or in other Sections of this Agreement, the Value Opportunities Fund
qualifies as a "regulated investment company" under Section 851 (Subchapter M)
of the Code, and has so qualified during its entire existence. The Value
Opportunities Fund is not and has not been liable for tax under Section 4982 of
the Code. The Value Opportunities Fund has fully complied in all material
respects with all applicable laws regarding all applicable information reporting
requirements, including, but not limited to, Section 6042 of the Code. The Value
Opportunities Fund has satisfied the requirements of Section 852(a) of the Code
for each of its tax years during its entire existence.
(j) The minute books of Nationwide contain complete
and accurate records, in all material respects, of all meetings and other
corporate actions of its shareholders and board of trustees where any matters
pertaining to the Value Opportunities Fund were addressed or considered,
including all committees thereof.
(k) The portfolio securities of the Value
Opportunities Fund have at all times during the Value Opportunities Fund's
existence been valued in accordance with Section 2(a)(41) of the 1940 Act, Rule
2a-4 thereunder and Nationwide's valuation procedures for the Value
Opportunities Fund. There have not been any material miscalculations of the net
asset value of the Value Opportunities Fund.
(l) The portfolio securities of the Value
Opportunities Fund include only those securities described in the Nationwide
Prospectus/SAI and those portfolio securities purchased or disposed of after the
date of the latest Value Opportunities Fund Financial Statements in the ordinary
course of business, all of which are consistent with the investment objectives,
policies and restrictions of the Value Opportunities Fund.
(m) Neither Nationwide nor the Value Opportunities
Fund is under the jurisdiction of a court in a Title II or similar case within
the meaning of Section 368(a)(3)(A) of the Code.
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6.10 REPRESENTATIONS REGARDING THE REORGANIZATION.
(a) Nationwide has no plan or intention to reacquire
any of the shares of the Value Opportunities Fund issued in the Reorganization,
except to the extent required by the 1940 Act to redeem any of such shares
presented for redemption.
(b) The Value Opportunities Fund has no plan or
intention to sell or otherwise dispose of any of the Select Value Portfolio
assets to be acquired in the Reorganization pursuant to Section 2.1 hereof,
other than in the ordinary course of its business and to the extent necessary to
maintain its status as a "regulated investment company" under the Code.
(c) Following the Reorganization, the Value
Opportunities Fund intends to continue the "historic business" of the Select
Value Portfolio (within the meaning of Section 1.368-1(d) of the Income Tax
Regulations under the Code).
6.11 CONDITION OF VMFCT AND NORTHPOINTE. To the knowledge
of Nationwide:
(a) Each of VMFCT and NorthPointe is registered as an
investment adviser under the Advisers Act and in all states where it is required
to be so registered. Each of VMFCT and NorthPointe is in material compliance
with all laws, rules and regulations applicable to its business of providing
management and other services to Nationwide and the Value Opportunities Fund.
Neither VMFCT nor NorthPointe nor any affiliated person of VMFCT or NorthPointe
is ineligible to serve as an employee, officer, director, member of an advisory
board, investment advisor, depositor or principal underwriter of any registered
investment company by reason of a conviction of a felony or misdemeanor,
described in Section 9(a)(1) of the 1940 Act and is not subject to any order
issued by the SEC under Section 9(b) of the 1940 Act.
(b) No litigation, proceeding or governmental
investigation or inquiry is pending or threatened against VMFCT or NorthPointe
that, if determined against VMFCT or NorthPointe, would be reasonably likely to
have a material adverse effect on Nationwide or the Value Opportunities Fund or
on NorthPointe's ability to provide management and other services to Nationwide
or the Value Opportunities Fund.
6.12 OPERATIONS. There has not been any material adverse
change in the business, operations, financial position, properties or other
assets of the Value Opportunities Fund (other than changes occurring in the
ordinary course of business), and the business of the Value Opportunities
Fund has been conducted in the usual, regular and ordinary manner in material
compliance with the requirements of all applicable federal and state laws.
Furthermore, between the date hereof and the Effective Time, Nationwide
will continue to operate the business of the Value Opportunities Fund as
presently conducted, and Nationwide has no plan or intention to make any
significant changes in the business of the Value
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Opportunities Fund following the Effective Time. The following is true with
respect to the Value Opportunities Fund and operation of the Value Opportunities
Fund's business:
(a) All transactions involving the Value
Opportunities Fund have been accurately and fully recorded in the books and
records of the Value Opportunities Fund;
(b) The Value Opportunities Fund has not sold,
exchanged, conveyed or otherwise disposed of, or subjected to lien, pledge,
hypothecation or other encumbrance, any assets other than sales or other
transactions in the ordinary course of business;
(c) The Value Opportunities Fund has paid its debts,
obligations and liabilities, including taxes, fees, levies and assessments in
the ordinary course as they have matured;
(d) The Value Opportunities Fund has not incurred any
material debt, obligation or liability (other than those incurred in the
ordinary course of its business) which presently subjects, or with the passage
of time or upon default will subject, its assets to any lien, claim, charge or
other encumbrance;
(e) The Value Opportunities Fund has not altered,
amended, terminated or discharged any written or oral material contract,
commitment or agreement to which the Value Opportunities Fund is presently a
party which is required to be listed on Schedule 6.15 hereto, nor waived any
material right with respect thereto, nor permitted or consented to such
alteration, amendment, termination or discharge, nor committed or caused a
breach or default in any of the provisions thereof;
(f) The Value Opportunities Fund has not entered into
any written or oral contract except in the ordinary course of business at the
prices and upon the terms consistent with its past practices and which do not
violate any representation, warranty or covenant of this Agreement;
(g) The Value Opportunities Fund has materially
complied with all laws applicable to the conduct of its business; and
(h) There has not occurred any transaction or event,
nor is any anticipated, which does or may adversely affect the Value
Opportunities Fund's business or the Value Opportunities Fund's assets in any
material respect (other than changes occurring in the ordinary course of
business), and Nationwide will, immediately notify Principal Preservation upon
the occurrence of any such event of which Nationwide becomes aware prior to the
Effective Time.
6.13 RIGHT TO INSPECT THE BOOKS AND RECORDS. Nationwide
shall make available and Principal Preservation and its agents, attorneys,
accountants, employees, contractors and other authorized representatives shall
have the right, during normal business
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hours and upon reasonable notice to the extent Principal Preservation reasonably
deems appropriate, to examine the books and records of the Value Opportunities
Fund, and to make such tests, surveys, investigations and other inspections in
such manner as Principal Preservation may reasonably deem necessary, provided
that such inspection shall not interfere with the conduct of the Value
Opportunities Fund's business.
6.14 [Intentionally omitted.]
6.15 MATERIAL AGREEMENTS. Schedule 6.15 attached hereto
lists all material contracts, agreements, understandings or other commitments of
the Value Opportunities Fund. The Value Opportunities Fund has delivered or made
available to Principal Preservation complete and accurate copies of all
documents referred to on Schedule 6.15 attached hereto, each of which is in
effect and valid and enforceable against the Value Opportunities Fund and, to
the knowledge of Nationwide, valid and enforceable against the other party in
accordance with its terms.
6.16 THIRD PARTY CONSENTS. Except for the effectiveness of
the Registration Statement and registration with the SEC of the Value
Opportunities Fund Shares to be issued in the Reorganization, there are no
approvals or consents of any third parties necessary or required for Nationwide
validly and legally to enter into this Agreement and to perform its obligations
hereunder.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PRINCIPAL PRESERVATION
The obligations of Principal Preservation under this Agreement are, at
the option of Principal Preservation, subject to the fulfillment at or prior to
the Closing Date of each of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS, WARRANTIES AND
COVENANTS. The representations and warranties of Nationwide set forth in Section
6 hereof shall be true and correct in all material respects as of the date when
made and as of the Closing Date. Nationwide shall have duly performed and
complied in all materials respects with all agreements, covenants and conditions
required by this Agreement to be performed or complied with by it prior to or on
the Closing Date. Nationwide shall have delivered to Principal Preservation a
certificate of its Chairman or Treasurer dated as of the Closing Date to the
effect set forth in this Section 7.1.
7.2 NO ADVERSE CHANGES. There shall have been no material
adverse change since the date hereof in the financial condition, business,
operations or assets of the Value Opportunities Fund (other than those occurring
in the ordinary course of business).
7.3 APPROVAL OF LEGAL MATTERS BY COUNSEL. There shall
have been furnished to counsel for the Principal Preservation, certified copies
of such corporate records of Nationwide relating to the Value Opportunities Fund
and copies of such documents as such
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counsel may reasonably have requested. All legal matters and proceedings in
connection with this Agreement and the transactions contemplated hereby shall be
reasonably satisfactory to counsel for Principal Preservation.
7.4 APPROVAL BY SELECT VALUE PORTFOLIO SHAREHOLDERS. All
necessary approvals of the shareholders of the Select Value Portfolio with
respect to the Reorganization under this Agreement shall have been obtained. The
Select Value Portfolio Shareholder Meeting shall have been duly called and held
in accordance with the provisions of the 1940 Act, the Maryland General
Corporation Law and the Articles of Incorporation and Bylaws of Principal
Preservation, including compliance with the notice and quorum requirements
thereunder, and at such meeting this Agreement and the Reorganization
contemplated hereby shall have been approved by the affirmative vote of the
lesser of: (a) 67% or more of the Select Value Portfolio shares present at the
Select Value Portfolio Shareholder Meeting and entitled to vote, provided
shareholders who are the owners of more than 50% of the Select Value Portfolio
shares outstanding and entitled to vote on this Agreement and the Reorganization
contemplated hereby at the Select Value Portfolio Shareholder Meeting are
present at such Meeting in person or by proxy; or (b) more than 50% of the
Select Value Portfolio shares outstanding and entitled to vote on approval of
the Agreement at the Select Value Portfolio Shareholder Meeting (the "Required
Select Value Portfolio Shareholder Vote").
7.5 RECEIPT OF CLOSING DOCUMENTS. Principal Preservation
shall have received all of the closing documents referred to in Section 9.2
hereof.
7.6 TAX OPINION. Principal Preservation shall have
received a favorable opinion from Quarles and Brady LLP (based on such
representations as such firm may reasonably request), addressed to Principal
Preservation, which opinion may be relied upon by the shareholders of the Select
Value Portfolio, with respect to the federal income tax consequences of the
Reorganization, substantially in the form attached hereto as Exhibit A.
7.7 LEGAL OPINION. Principal Preservation shall have
received an opinion from counsel to Nationwide, dated as of the Closing Date,
substantially in the form attached hereto as Exhibit B.
7.8 REGISTRATION STATEMENT. The Registration Statement on
Form N-14 shall have become effective under the Securities Act, no stop orders
suspending the effectiveness thereof shall have been issued, and no
investigation or proceeding for that purpose shall have been instituted or
threatened under the Securities Act.
7.9 RELATED AGREEMENT. That certain agreement of even
date herewith between Ziegler and Villanova Capital, Inc. shall have been
executed and delivered.
7.10 NO ADVERSE PROCEEDINGS. There shall be no action,
suit, proceeding or claim instituted or threatened by Nationwide or any third
party relating to the transactions
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contemplated by this Agreement which would delay or materially adversely affect
the consummation of the transactions contemplated hereby.
7.11 DIFFERENCES IN SHADOW VALUATIONS. The shadow
valuations of the assets of the Select Value Portfolio conducted by Principal
Preservation pursuant to Section 2.2(e) of this Agreement shall not differ by
more than 0.05% from the corresponding valuations conducted by Nationwide, in
each case using the smaller of the two corresponding valuations as the base line
for computing the percentage variation.
7.12 EXEMPTIVE ORDER. The SEC shall have issued an order
exempting the transactions contemplated by this Agreement from Section 17(a) of
the 1940 Act.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF NATIONWIDE
The obligations of Nationwide under this Agreement are, at its option,
subject to the fulfillment at or prior to the Closing Date of each of the
following conditions:
8.1 ACCURACY OF REPRESENTATIONS, WARRANTIES AND
COVENANTS. The representations and warranties of Principal Preservation set
forth in Section 5 hereof shall be true and correct in all material respects as
of the date when made and as of the Closing Date. Principal Preservation shall
have duly performed and complied in all material respects with all agreements
and covenants required by this Agreement to be performed or complied with by it
prior to or on the Closing Date. Principal Preservation shall have delivered to
Nationwide on the Closing Date a certificate of its President or Vice President
dated as of the Closing Date to the effect set forth in this Section 8.1.
8.2 APPROVAL BY SELECT VALUE PORTFOLIO SHAREHOLDERS. The
Required Select Value Portfolio Shareholder Vote shall have been obtained.
8.3 NO ADVERSE CHANGES. There shall have been no material
adverse changes since the date hereof in the financial condition, business,
operations or assets of the Select Value Portfolio (other than changes occurring
in the ordinary course of business).
8.4 APPROVAL OF LEGAL MATTERS BY COUNSEL. There shall
have been furnished to counsel for Nationwide certified copies of such corporate
and business records of the Select Value Portfolio and copies of such documents
as such counsel may reasonably have requested. All legal matters and proceedings
in connection with this Agreement and the transactions contemplated hereby and
thereby shall have been reasonably satisfactory to counsel for Nationwide.
8.5 NO ADVERSE PROCEEDINGS. There shall be no action,
suit, proceeding or claim instituted or threatened by Principal Preservation or
any third party relating to the transactions contemplated by this Agreement
which would delay or materially adversely affect the consummation of the
transactions hereby.
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8.6 STATEMENT OF SELECT VALUE PORTFOLIO ASSETS. The
Select Value Portfolio shall have delivered to the Value Opportunities Fund a
statement of Select Value Portfolio Assets and its liabilities, together with a
list of the Select Value Portfolio's securities and other assets showing the
respective adjusted bases and holding periods thereof for income tax purposes,
as of the Valuation Date, certified by the Treasurer of Principal Preservation.
8.7 DIFFERENCES IN SHADOW VALUATIONS. The shadow
valuations of the assets of the Select Value Portfolio conducted by Principal
Preservation pursuant to Section 2.2(e) of this Agreement shall not differ by
more than 0.05% from the corresponding valuations conducted by Nationwide, in
each case using the lower of the two corresponding valuations as the base line
for calculating the percentage difference.
8.8 CERTAIN SELECT VALUE PORTFOLIO ASSETS. At the close
of business on the Valuation Date, the Select Value Portfolio Assets shall
include no assets that the Value Opportunities Fund, by reason of charter
limitations or otherwise, may not legally acquire. Principal Preservation shall
provide and Nationwide shall review a list of the assets of the Select Value
Portfolio promptly following the date hereof and inform Principal Preservation
of any assets which may not be acquired by the Value Opportunities Fund.
8.9 REGISTRATION STATEMENT. The Registration Statement on
Form N-14 shall have become effective under the 1933 Act, no stop orders
suspending the effectiveness thereof shall have been issued and no investigation
or proceeding for that purpose shall have been instituted or threatened under
the 1933 Act.
8.10 LEGAL OPINION. Nationwide shall have received a legal
opinion from Quarles & Brady LLP, counsel to Principal Preservation dated as of
the Closing Date, substantially in the form attached hereto as Exhibit C.
8.11 TAX OPINION. Nationwide shall have received a
favorable opinion from Quarles & Brady LLP (based on such representations as
such firm may reasonably request) addressed to Nationwide, with respect to the
federal income tax consequences of the Reorganization, substantially in the form
attached hereto as Exhibit A.
8.12 SHAREHOLDERS LIST. The Select Value Portfolio shall
have delivered to the Value Opportunities Fund a list of the Select Value
Portfolio Shareholders and the number and class of shares of common stock of the
Select Value Portfolio they held as of the close of business on the Valuation
Date, certified by the Secretary of Principal Preservation.
8.13 DECLARATION OF DIVIDEND. Principal Preservation shall
have declared and paid a dividend or dividends and/or other distributions that,
together with all previous such dividends or distributions, shall have the
effect of distributing to the Select Value Portfolio Shareholders all of Select
Value Portfolio's investment company taxable income (computed without regard to
any deduction for dividends paid) and all of its net capital gain (after
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reduction for any capital loss carry-forward and computed without regard to any
deduction for dividends paid) for all taxable years ending on or before the
Closing Date.
8.14 EXEMPTIVE ORDER. The SEC shall have issued an order
exempting the transactions contemplated by this Agreement from Section 17(a) of
the 1940 Act.
9. CLOSING DOCUMENTS
9.1 DOCUMENTS TO BE DELIVERED TO NATIONWIDE. Principal
Preservation agrees to deliver to Nationwide on the Closing Date the following:
(a) BILLS OF SALE, ASSIGNMENTS AND TRANSFERS.
Good and sufficient bills of sale, assignments, instruments of conveyance, and
other instruments of transfer, duly executed by Principal Preservation, in the
forms satisfactory to Nationwide and its counsel, with covenants or warranties
as shall be necessary to assign and transfer to and vest in the Value
Opportunities Fund good and merchantable title to all the Select Value Portfolio
Assets, free and clear of any and all liabilities, liens, claims and
encumbrances except those specifically permitted by this Agreement.
(b) OFFICER'S CERTIFICATES. Certificate of the
President or Vice President of Principal Preservation, dated as of the Closing
Date, certifying that the conditions precedent set forth in Section 7.1 have
been fulfilled.
(c) CERTIFICATES OF SECRETARY. Certificate of
the Secretary of Principal Preservation dated as of the Closing Date certifying
(i) the accuracy and effectiveness of articles of incorporation of Principal
Preservation, (ii) the accuracy and effectiveness of bylaws of Principal
Preservation, (iii) the adoption, accuracy and effectiveness of board and
shareholder resolutions contemplated hereby, and (iv) the incumbency of certain
officers of Principal Preservation and the genuineness of the specimen
signatures of those officers of Principal Preservation executing documents.
(d) LIEN SEARCH. Good and sufficient evidence
reasonably satisfactory to counsel for Nationwide that (i) there are no chattel
mortgages, security interests, judgments, claims or other liens outstanding
against any of the Select Value Portfolio Assets except those specifically
permitted by this Agreement and (ii) the Select Value Portfolio has good,
marketable title to all of the Select Value Portfolio Assets.
(e) CERTIFICATE OF GOOD STANDING. Certificate of
Good Standing regarding Principal Preservation issued as of a recent date
(within 30 days of the Closing Date) by the Maryland Department of Assessments
and Taxation.
(f) COUNSEL'S OPINIONS. Opinions of counsel,
addressed to Nationwide, dated as of the Closing Date, substantially in the
forms attached hereto as Exhibits A and C.
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(g) OTHER DOCUMENTS. Such other documents and
showings as shall reasonably be required by Nationwide and its counsel.
9.2 DOCUMENTS TO BE DELIVERED TO PRINCIPAL PRESERVATION.
Nationwide agrees to deliver to Principal Preservation on the Closing Date the
following:
(a) OFFICER'S CERTIFICATE. Certificate of the
Chairman or Treasurer of Nationwide, dated as of the Closing Date, certifying
that the conditions precedent set forth in Section 8.1 have been fulfilled.
(b) CERTIFICATE OF SECRETARY OF NATIONWIDE. A
Certificate of the Secretary of Nationwide dated as of the Closing Date
certifying (i) the accuracy and effectiveness of Declaration of Trust of
Nationwide, (ii) the accuracy and effectiveness of Bylaws of Nationwide, (iii)
the adoption, accuracy and effectiveness of the trustee resolutions contemplated
hereby, and (iv) the incumbency of certain officers of Nationwide and
genuineness of the specimen signatures of those officers of Nationwide executing
documents.
(c) ISSUANCE OF SHARES. The Value Opportunities
Fund Shares to be issued pursuant hereto (or a share deposit receipt
representing such shares).
(d) CERTIFICATE OF FULL FORCE AND EFFECT.
Certificate of Full Force and Effect regarding Nationwide issued as of a recent
date by the Ohio Secretary of State.
(e) COUNSEL'S OPINIONS. Opinions of counsel,
addressed to Principal Preservation, dated as of the Closing Date, substantially
in the forms attached hereto as Exhibits A and B.
(f) OTHER DOCUMENTS. Such other documents and
showings as shall reasonably be required by Principal Preservation and its
counsel.
10. FURTHER AGREEMENTS
10.1 EXPENSES. No costs, fees or expenses will be paid by
the Select Value Portfolio or the Value Opportunities Fund in connection with
this Agreement and the transactions contemplated hereby. Each of the parties
hereto represents and warrants that it has not incurred any obligation or
liability, contingent or otherwise, for broker's, finder's or advisor's fees in
connection with the transactions provided for herein and each agrees to hold the
others harmless from and against all such liability arising out of contracts,
express or implied, which may be asserted against the non-contracting parties.
10.2 RECOMMENDATION AND SOLICITATION OF SHAREHOLDER VOTE.
Principal Preservation will recommend that shareholders of the Select Value
Portfolio approve the Reorganization, and will use its best efforts to solicit
the Required Select Value Portfolio Shareholder Vote.
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10.3 INFORMATION TO BE FURNISHED. Nationwide will furnish
Principal Preservation with copies of all written comments or the substance of
oral communications received from the staff of the SEC with regard to the
Registration Statement, and the parties will cooperate with each other in
revising, if necessary, the Registration Statement to comply with such comments.
Nationwide shall not file the Registration Statement or any amendment without
the prior consent of Principal Preservation or its counsel.
10.4 CONDUCT OF BUSINESS OF THE SELECT VALUE PORTFOLIO AND
THE VALUE OPPORTUNITIES FUND. From and after the date of this Agreement and
through the Closing Date, Principal Preservation shall, with regard to the
Select Value Portfolio: (a) maintain its books, accounts and records in
accordance with generally accepted accounting principles and practices
consistently applied; (b) materially comply with all laws applicable to the
conduct of its business; (c) conduct its business only in the usual, regular and
ordinary course and in substantially the same manner as heretofore conducted,
and not introduce any method of operation in respect of such business, except in
a manner consistent with prior practice; (d) without the written consent of
Nationwide, make no change in its bylaws which would materially affect the
Select Value Portfolio; (e) use its best efforts to preserve its business
organization intact, and to preserve the goodwill of the Select Value Portfolio
shareholders and others having business relations with it; (f) not take any
action which would, or with the passage of time could, jeopardize its
qualification as a "regulated investment company" under Section 851 of the Code;
and (g) except as contemplated by this Agreement, not enter into any other
transactions other than in the ordinary course of business.
From and after the date of this Agreement and through the
Closing Date, Nationwide shall with regard to the Value Opportunities Fund: (a)
maintain its books, accounts and records in accordance with generally accepted
accounting principles and practices consistently applied; (b) materially comply
with all laws applicable to the conduct of its business; (c) conduct its
business only in the usual, regular and ordinary course and in substantially the
same manner as heretofore conducted, and not introduce any method of operation
in respect of such business, except in a manner consistent with prior practice;
(d) without the written consent of Principal Preservation, make no change in its
agreement and declaration of trust or bylaws that would materially affect the
Value Opportunities Fund; (e) use its best efforts to preserve its business
organization intact, and to preserve the goodwill of its investors and others
having business relations with it; (f) not take any action which would, or with
the passage of time could, jeopardize its qualification as a "regulated
investment company" under Section 851 of the Code; and (g) except as
contemplated by this Agreement, not enter into any other transactions that may
have a material adverse effect on the Value Opportunities Fund or the
Reorganization, other than in the ordinary course of business.
10.5 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES OR
COVENANTS. Except as set forth below, none of the representations, warranties or
covenants in this Agreement or in any certificate or investment delivered
pursuant to this Agreement shall survive the Closing Date and no party shall,
therefore, have any recourse therefor against any other party in
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connection therewith. This Section shall not limit any covenant or agreement of
the parties which by its terms contemplates performance after the Closing Date.
10.6 OBLIGATIONS OF PARTIES.
(a) Nationwide and Principal Preservation hereby
acknowledge and agree that the Value Opportunities Fund is a separate investment
portfolio of Nationwide, that Nationwide is executing this Agreement on behalf
of the Value Opportunities Fund, and that, subject to Section 10.1, any amounts
payable by Nationwide under or in connection with this Agreement shall be
payable solely from the revenues and assets of the Value Opportunities Fund.
(b) Nationwide and Principal Preservation hereby
acknowledge and agree that the Select Value Portfolio is a separate investment
portfolio of Principal Preservation, that Principal Preservation is executing
this Agreement on behalf of the Select Value Portfolio, and that, subject to
Section 10.1, any amounts payable by Principal Preservation under or in
connection with this Agreement shall be payable solely from the revenues and
assets of the Select Value Portfolio.
10.7 UPDATING OF SCHEDULES. The Schedules which have been
delivered by Principal Preservation to Nationwide prior to the execution of this
Agreement have been prepared by Principal Preservation and will be updated by
Principal Preservation to include information as of such date as may be
requested by Nationwide from time to time and delivered to Nationwide with any
and all changes specifically marked so that all such Schedules are true,
accurate and complete in all respects at the time of Closing. The Schedules
which have been delivered by Nationwide to Principal Preservation prior to the
execution of this Agreement have been prepared by Nationwide and will be updated
by Nationwide to include information as of such date as may be requested by
Principal Preservation from time to time and delivered to Principal Preservation
with any and all changes specifically marked so that all such Schedules are
true, accurate and complete in all respects at the time of Closing.
10.8 FINAL TAX RETURNS AND FORMS 1099 OF THE SELECT VALUE
PORTFOLIO
(a) After the Closing, Principal Preservation
shall prepare, or shall cause its agents to prepare, any federal, state or local
tax returns, including any Forms 1099, required to be filed by Principal
Preservation with respect to the Select Value Portfolio's final taxable years
and shall further cause such tax returns and Forms 1099 to be duly filed with
the appropriate taxing authorities.
(b) Notwithstanding the provisions hereof, any
expenses incurred by Principal Preservation or the Select Value Portfolio (other
than for payment of taxes) in connection with the preparation and filing of said
tax returns and Forms 1099 after the Closing, shall be borne to the extent such
expenses have been accrued by the Select Value
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Portfolio in the ordinary course without regard to the Reorganization
contemplated by this Agreement; any excess expenses shall be borne by the Value
Opportunities Fund at the time such tax returns and Forms 1099 are prepared
pursuant to and agreement between Principal Preservation and Nationwide.
10.9 COOPERATION AND EXCHANGE OF INFORMATION. Nationwide
and Principal Preservation will provide each other and their respective
representatives with such cooperation and information as either of them
reasonably may request of the other in filing any tax returns, amended return or
claim for refund, determining a liability for taxes or a right to a refund of
taxes or participating in or conducting any audit or other proceeding in respect
of taxes. Such cooperation and information shall include providing copies of
relevant tax returns or portions thereof, together with accompanying schedules
and related work papers and documents relating to rulings or other
determinations by taxing authorities. Each party shall make its employees and
officers available on a mutually convenient basis to provide explanations of any
documents or information provided hereunder to the extent, if any, that such
party's employees are familiar with such documents or information. Each party
will retain for a period of six (6) years following the Closing all returns,
schedules and work papers and all material records or other documents relating
to tax matters of the Select Value Portfolio and the Value Opportunities Fund
for its taxable period first ending after the Closing and for all prior taxable
periods. Any information obtained under this Section 10.9 shall be kept
confidential except as may be otherwise necessary in connection with the filing
of returns or claims for refund.
11. TERMINATION
11.1 GENERAL PROVISIONS. This Agreement may not be
terminated at any time prior to the Closing Date by any party, except that this
Agreement may be terminated:
(a) By mutual written consent of the parties
hereto:
(b) By either Nationwide, on the one hand, or
Principal Preservation, on the other hand, by written notice to the other, if
the Closing shall not have occurred on or before March 31, 2001, or such later
date to which the parties shall have extended this Agreement by mutual written
consent;
(c) By Nationwide, if there has been a
misrepresentation, breach of warranty or failure to perform any agreement or
covenant on the part of Principal Preservation in any of its representations,
warranties, agreements or covenants set forth in this Agreement resulting in the
failure of any condition in Section 8 hereof;
(d) By Principal Preservation, if there has been
a misrepresentation, breach of warranty or failure to perform any agreement or
covenant on the part of Nationwide in any of its representations, warranties,
agreements or covenants set forth in this Agreement resulting in the failure of
any condition in Section 7 hereof: and;
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(e) By Nationwide at any time if the Board of
Directors of Principal Preservation changes its recommendations to the
shareholders of the Select Value Portfolio.
Any termination of this Agreement pursuant to this Section 11.1 shall be by
notice in writing to the other party.
11.2 EFFECT OF TERMINATION. In the event of the
termination of this Agreement pursuant to Section 11.1 hereof or if the Closing
does not occur by reason of any of the conditions in Sections 7 and 8 hereof not
being satisfied, then there shall be no other liability on the part of any party
(or its trustees, directors, officers, agents or shareholders) to the other (or
its trustees, directors, officers, agents or shareholders); provided, however,
that such termination shall not preclude liability attaching to a party who has
caused the termination hereof by willful act or willful failure to act in
violation of the terms and provisions of this Agreement.
12. AMENDMENT
This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
13. WAIVER
Any terms or provisions of this Agreement may be waived in writing at
any time by the party which is entitled to the benefits thereof, or their
respective counsel. The failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect such party's right
at a later time to enforce the same. No waiver by any party of a condition or of
the breach of any term, covenant, representation or warranty of this Agreement,
whether by conduct or otherwise, in any one or more instances shall be deemed to
be or construed as a further or continuing waiver of any such condition or beach
or a waiver of any other condition or of the breach of any other term, covenant,
representation or warranty of this Agreement.
14. MISCELLANEOUS PROVISIONS
14.1 HEADINGS. The Article and Section headings contained
in this Agreement will have reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
14.2 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Wisconsin, except to
the extent affected by the Maryland General Corporate Law and the 1940 Act.
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14.3 NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered, telegraphed or mailed by registered or
certified mail (return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by such
party by like notice):
<TABLE>
<S> <C>
(a) If to Nationwide or the Nationwide Mutual Funds
Value Opportunities 1200 River Road
Fund at: Conshohocken, Pennsylvania 19428
Attention: Treasurer
with a copy to: Stradley Ronon Stevens & Young LLP
2600 One Commerce Square
Philadelphia, Pennsylvania 19103
Attention: Eric E. Miller
(b) If to Principal Preservation Principal Preservation Portfolios, Inc.
or the Select Value 215 North Main Street
Portfolio: West Bend, Wisconsin 53095
Attention: President
with a copy to: Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Attention: Conrad G. Goodkind
</TABLE>
Written notice given by any other method shall be deemed effective only when
actually received by the party to whom given.
14.4 FURTHER ASSURANCE. Each of the parties hereto hereby
agrees that after the Closing Date it will from time to time, upon the
reasonable request of another party hereto, take such further action as the
other may reasonably request to carry out the transfer and sale of assets
contemplated by this Agreement, including, without limitation, the execution and
delivery of all further evidences and instruments of transfer and assignment.
14.5 EXECUTION AND COUNTERPARTS. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original and all of which shall together constitute one agreement.
14.6 MISCELLANEOUS. This Agreement (a) constitutes the
entire agreement and supersedes all other prior agreements and undertakings,
both written and oral, between the parties, with respect to the subject matter
hereof; (b) is not intended to confer upon any other person any rights or
remedies hereunder, it being expressly agreed that there are no third party
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beneficiaries of this Agreement; (c) shall be binding upon and inure to the
benefit of the Value Opportunities Fund and the Select Value Portfolio, and
their respective permitted successors and assigns; and (d) neither this
Agreement nor any interest herein may be assigned by any party without the prior
written consent of the other.
14.7 PUBLICITY. Neither the parties to this Agreement nor
their respective directors, trustees, officers, stockholders, employees or
agents shall issue any press release or other announcement with respect to this
Agreement, or otherwise make any disclosures relating thereto to the press
without the prior consent of the other parties, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required where such release, announcement or disclosure is required by
applicable law or the rules or regulations of a securities exchange, other
self-regulatory authority or governmental agency.
14.8 LIABILITY OF NATIONWIDE BOARD OF TRUSTEES. The
obligations of Nationwide entered into in the name or on behalf thereof by any
of Nationwide's Trustees, representatives, or agents are not made individually,
but only in their capacities with respect to Nationwide. Such obligations are
not binding upon any of the Trustees, shareholders, or representatives of
Nationwide personally, but bind only the assets of Nationwide. All persons
dealing with the Value Opportunities Fund must look solely to the assets of
Nationwide belonging to such series for the enforcement of any claims against
Nationwide hereunder.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
(ON BEHALF OF THE SELECT VALUE PORTFOLIO)
By:
-----------------------------------------
John Mulherin, President and CEO
NATIONWIDE MUTUAL FUNDS
(ON BEHALF OF THE NATIONWIDE VALUE OPPORTUNITIES
FUND)
By:
-----------------------------------------
Title:
-----------------------------------------
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<PAGE> 112
APPENDIX B
INVESTMENT ADVISORY AGREEMENT
THIS AGREEMENT is made as of the 15th day of December, 2000, by and
between PRINCIPAL PRESERVATION PORTFOLIOS, INC., a Maryland corporation ("PPP"),
on behalf of its Select Value Portfolio (the "Fund"), and NORTHPOINTE CAPITAL,
LLC (the "Advisor").
W I T N E S S E T H:
A. On September 29, 2000, PPP, on behalf of the Fund, and the
Advisor entered into an Interim Investment Advisory Agreement (the "Interim
Agreement") in compliance with Rule 15a-4 under the Investment Company Act of
1940, as amended (the "Act");
B. Under Rule 15a-4, the Interim Agreement may continue for a
period of up to 150 days from its effective date (until February 26, 2001);
C. PPP has proposed a tax-free reorganization (the
"Reorganization") with respect to the Fund which involves the transfer of
substantially all of its assets to the Nationwide Value Opportunities Fund (the
"Nationwide Fund") in exchange solely for shares of the Nationwide Fund followed
by the distribution of shares to the Fund's shareholders in liquidation of the
Fund;
D. The Reorganization is subject to approval by the shareholders
of the Fund at a special meeting to be held on February 16, 2001, and if so
approved, the Reorganization is expected to be completed on or about February
19, 2001; and
E. This Agreement, if approved by the shareholders of the Fund,
will become effective on February 26, 2001, but only if the Reorganization is
not completed by such date.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed by and between
the parties hereto as follows:
1. IN GENERAL
PPP hereby appoints the Advisor to act as investment advisor
for the Fund, subject to the terms and conditions set forth in this Agreement.
The Advisor agrees to provide professional investment management with respect to
the investment of the assets of the Fund and to supervise and arrange the
purchase and sale of securities held in the portfolio of the Fund.
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2. DUTIES AND OBLIGATIONS OF THE ADVISOR WITH RESPECT TO
MANAGEMENT OF THE FUND
(a) Subject to the succeeding provisions of this section
and subject to the direction and control of the Board
of Directors of PPP, the Advisor shall:
(i) Decide what securities shall be purchased or
sold by the Fund and when; and
(ii) Arrange for the purchase and the sale of
securities held in the portfolio of the Fund
by placing purchase and sale orders for the
Fund.
(b) Any purchases or sales of portfolio securities on
behalf of the Fund shall at all times conform to, and
be in accordance with, any requirements imposed by:
(1) the provisions of the Act and of any rules or
regulations in force thereunder; (2) any other
applicable provisions of law; (3) the provisions of
the Articles of Incorporation and By-Laws of PPP as
amended from time to time; (4) any policies and
determinations of the Board of Directors of PPP; and
(5) the fundamental policies of the Fund, as
reflected in its prospectus and statement of
additional information (the "Registration Statement")
under the Act, or as amended by the share holders of
the Fund.
(c) The Advisor shall also administer the affairs of the
Fund and, in connection therewith, shall be
responsible for (i) maintaining the Fund's books and
records, (other than financial or accounting books
and records maintained by any accounting services
agent and such records maintained by the Fund's
custodian or transfer agent); (ii) preparing for the
Fund (or assisting counsel and/or auditors in the
preparation of) all required tax returns, proxy
statements and reports to the Fund's shareholders and
Directors and reports to and other filings with the
Securities and Exchange Commission ("SEC") and other
governmental agency (the Fund agreeing to supply or
cause to be supplied to the Advisor all necessary
financial and other information in connection with
the foregoing); (iii) preparing such applications and
reports as may be necessary to register or maintain
the Fund's registration and/or the registration of
the shares of the Fund under the securities or "blue
sky" laws of the various states selected by the
Fund's distributor (the Fund agreeing to pay all
filing fees or other similar fees in connection
therewith); (iv) responding to all inquiries or other
communications of shareholders, if any, which are
directed to the Advisor, or if any such inquiry or
communication is more properly to be responded to by
the Fund's custodian, transfer agent or accounting
services agent, overseeing
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their response thereto; (v) overseeing all
relationships between the Fund and its custodian(s),
transfer agent(s) and accounting services agent(s),
including the negotiation of agreements and the
supervision of the performance of such agreements;
and (vi) authorizing and directing any of the
Advisor's directors, officers and employees who may
be elected as Directors or officers of PPP to serve
in the capacities in which they are elected. All
services to be furnished by the Advisor under this
Agreement may be furnished through the medium of any
such Directors, officers or employees of the Advisor.
The Advisor may also, at its own cost and expense,
engage or contract with others for the provision of
the services described in this Section 2(c), subject
to the approval of the PPP Board of Directors which
shall not be unreasonably withheld.
(d) The Advisor shall give the Fund the benefit of its
best judgment and effort in rendering services
hereunder. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of
obligations or duties ("disabling conduct") hereunder
on the part of the Advisor (and its officers,
directors, agents, employees, controlling persons,
shareholders and any other person or entity
affiliated with the Advisor) the Advisor shall not be
subject to liability to PPP, the Fund or to any
shareholder of the Fund for any act or omission in
the course of, or connected with rendering services
hereunder or under this Agreement, including without
limitation, any error of judgment or mistake of law
or for any loss suffered by any of them in connection
with the matters to which this Agreement related,
except to the extent specified in Section 36(b) of
the Act concerning loss resulting from a breach of
fiduciary duty with respect to the receipt of
compensation for services. Furthermore, the Advisor
shall not be subject to liability to PPP, the Fund or
to any shareholder of the Fund for any act or
omission of B.C. Ziegler and Company ("Ziegler") or
any other advisors or sub-advisors in the course of,
or connected with, rendering services under the terms
of any prior investment advisory agreements ("Prior
Agreements"). Except for such disabling conduct, PPP
shall indemnify the Advisor (and its officers,
directors, agents, employees, controlling persons,
shareholders and any other person or entity
affiliated with the Advisor) from any liability
arising from the Advisor's conduct under this
Agreement or the Interim Agreement or Ziegler's or
any other advisor's or sub-advisor's conduct under
the terms of the Prior Agreements to the extent
permitted by PPP's Articles of Incorporation, By-Laws
and applicable law.
(e) Nothing in this Agreement shall prevent the Advisor
or any affiliated person (as defined in the Act) of
the Advisor from acting as investment advisor or
manager and/or principal underwriter for any other
person, firm or corporation and shall not in any way
limit or restrict the advisor
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or any such affiliated person from buying, selling or
trading any securities for its or their own accounts
or the accounts of others for whom it or they may be
acting, provided, however, that the Advisor expressly
represents that it will undertake no activities
which, in its judgment, will adversely affect the
performance of its obligations to the Fund under this
Agreement.
(f) It is agreed that the Advisor shall have no
responsibility or liability for the accuracy or
completeness of PPP's Registration Statement under
the Act or the Securities Act of 1933 except for
information supplied by the Advisor for inclusion
therein.
3. BROKER-DEALER RELATIONSHIPS
In connection with its duties set forth in Section 2(a)(ii) of
this Agreement to arrange for the purchase and the sale of securities held by
the Fund by placing purchase and sale orders for the Fund, the Advisor shall
select such broker-dealers ("brokers") as shall, in the Advisor's judgment,
implement the policy of PPP to achieve "best execution," i.e., prompt and
efficient execution at the most favorable securities price. In making such
selection, the Advisor is also authorized to consider whether the broker
provides brokerage and/or research services to the Fund and/or other accounts of
the Advisor. The commissions paid to such brokers may be higher than another
broker would have charged if a good faith determination is made by the Advisor
that the commission is reasonable in relation to the services provided, viewed
in terms of either that particular transaction or the Advisor's overall
responsibilities as to the accounts as to which it exercises investment
discretion. The Advisor shall use its judgment in determining that the amount of
commissions paid are reasonable in relation to the value of brokerage and
research services provided and need not place or attempt to place a specific
dollar value on such services or on the portion of commission rates reflecting
such services. To demonstrate that such determinations were in good faith, and
to show the overall reasonableness of commissions paid, the Advisor shall be
prepared to show that commissions paid (i) were for purposes contemplated by
this Agreement; (ii) provide lawful and appropriate assistance to the Advisor in
the performance of its decision-making responsibilities; and (iii) were within a
reasonable range as compared to the rates charged by qualified brokers to other
institutional investors as such rates may become known from available
information. PPP recognizes that, on any particular transaction, a higher than
usual commission may be paid due to the difficulty of the transaction in
question. The Advisor is also authorized to consider sales of Fund shares as a
factor in the selection of brokers to execute brokerage and principal
transactions, subject to the requirements of "best execution," as defined above.
It is recognized that the services provided by such brokers
may be useful to the Advisor in connection with the Advisor's services to other
clients. On occasions when the Advisor deems the purchase or sale of a security
to be in the best interests of the Fund as well as other clients of the Advisor,
the Advisor, to the extent permitted by applicable laws and regulations, may,
but shall be under no obligation to, aggregate the securities to be sold or
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purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of securities so
sold or purchased, as well as the expenses incurred in the transaction, will be
made by the Advisor in the manner the Advisor considers to be the most equitable
and consistent with its fiduciary obligations to the Fund and to such other
clients.
4. ALLOCATION OF EXPENSES
The Advisor agrees that it will furnish the Fund, at the
Advisor's expense, with all office space and facilities, and equipment and
clerical personnel necessary for carrying out its duties under this Interim
Agreement. The Advisor will also pay all compensation of all directors, officers
and employees of PPP who are affiliated persons of the Advisor. All costs and
expenses not expressly assumed by the Advisor under this Agreement shall be paid
by PPP, including, but not limited to (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation and expenses of its
directors other than those affiliated with the Advisor; (v) legal and audit
expenses; (vi) fees and expenses of the Fund's custodian, shareholder servicing
or transfer agent and accounting services agent; (vii) expenses incident to the
issuance of its shares, including stock certificates and issuance of shares on
the payment of, or reinvestment of, dividends; (viii) fees and expenses incident
to the registration under Federal or state securities laws of the Fund or its
shares; (ix) expenses of preparing, printing and mailing reports and notices
proxy material and prospectuses to shareholders of the Fund; (x) all other
expenses incidental to holding meetings of the Fund's shareholders; (xi) dues or
assessments of or contributions to the Investment Company Institute or any
successor or other industry association; (xii) such non-recurring expenses as
may arise, including litigation affecting PPP and the legal obligations which
PPP may have to indemnify its officers and Directors with respect thereto; and
(xiii) all expenses which PPP or the Fund agrees to bear in any distribution
agreement or in any plan adopted by PPP and/or the Fund pursuant to Rule 12b-1
under the Act.
5. COMPENSATION OF THE ADVISOR
(a) PPP agrees to pay the Advisor and the Advisor agrees
to accept as full compensation for all services
rendered by the Advisor as such, an annual management
fee, payable monthly and computed on the value of the
average daily net asset value of the Fund as shown on
Schedule A attached hereto. The method of determining
net assets of the Fund for purposes hereof shall be
the same as the method of determining net assets for
purposes of establishing the offering and redemption
price of the Fund's shares. If this Agreement shall
be effective for only a portion of a month, the fee
shall be prorated for the portion of such month
during which this Agreement is in effect.
(b) In the event the expenses of the Fund (including the
fees of the Advisor and amortization of organization
expenses but excluding interest, taxes,
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brokerage commissions, extraordinary expenses and
sales charges and distribution fees) for any fiscal
year exceed the limits set by applicable regulations
of state securities commissions, the Advisor will
reduce its fee by the amount of such excess. Any such
reductions are subject to readjustment during the
year. The payment of the management fee at the end of
any month will be reduced or postponed or, if
necessary, a refund will be made to the Fund so that
at any time will there be any accrued but unpaid
liability under this expense limitation.
6. DURATION AND TERMINATION
(a) This Agreement shall go into effect on the date set
forth on Schedule A attached hereto (provided it has
then been approved by the holders of a majority of
the outstanding voting securities of the Fund (as
defined in the Act)) and shall, unless terminated as
hereinafter provided, continue in effect until
October 31, 2001 or the date on which the
Reorganization is completed, whichever is earlier to
occur.
(b) This Agreement may be terminated by the Advisor at
any time without penalty upon giving PPP sixty (60)
days' written notice (which notice may be waived by
PPP) and may be terminated by PPP at any time without
penalty upon giving the Advisor sixty (60) days'
written notice (which written notice may be waived by
the Advisor), provided that such termination by PPP
shall be directed or approved by the Board of
Directors of PPP or a majority of the outstanding
voting securities of the Fund (as defined in the
Act). This Agreement shall automatically terminate in
the event of its assignment (as defined in the Act).
7. SERVICES NOT EXCLUSIVE
The services furnished by the Advisor hereunder are not to be
deemed exclusive, and the Advisor shall be free to furnish similar services to
others so long as its services under this Agreement are not impaired thereby. It
is understood that the action taken by the Advisor under this Agreement may
differ from the advice given or the timing or nature of action taken with
respect to other clients of the Advisor, and that a transaction in a specific
security may not be accomplished for all clients of the Advisor at the same time
or at the same price.
8. AMENDMENT
This Agreement may be amended by mutual consent of the
parties, provided that the terms of each such amendment shall be approved by the
Board of Directors of PPP or by a vote of a majority of the outstanding voting
securities of the Fund (as defined in the Act).
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9. CONFIDENTIALITY
Subject to the duties of the Advisor and PPP to comply with
applicable law, including any demand of any regulatory or taxing authority
having jurisdiction, the parties hereto shall treat as confidential all
information pertaining to the Fund and PPP and the actions of the Advisor and
the Fund in respect thereof.
10. NOTICES
Any notice that is required to be given by the parties to each
other under the terms of this Agreement shall be in writing, delivered, or
mailed postpaid to the other party, or transmitted by facsimile with
acknowledgment of receipt, to the parties at the following addresses or
facsimile numbers, which may from time to time be changed by the parties by
notice to the other party:
(a) If to the Advisor:
NorthPointe Capital, LLC
201 West Big Beaver Road
Suite 1000, 10th Floor
Troy, MI 48084
Attention: Michael Hayden
Facsimile: 248-457-1201
With a copy to:
Villanova Capital, Inc.
1200 River Road
Conshohocken, PA 19428
Attention: Legal Department
Facsimile: 484-530-1323
(b) If to PPP or the Fund:
Principal Preservation Portfolios, Inc.
215 North Main Street
West Bend, WI 53095
Attention: Robert J. Tuszynski
Facsimile: 262-334-0388
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With a copy to:
Quarles & Brady LLP
411 East Wisconsin Avenue
Milwaukee, WI 53202
Attention: Conrad G. Goodkind
Facsimile: 414-271-3552
11. JURISDICTION
This Agreement shall be governed by and construed to be in
accordance with the substantive laws of the State of Wisconsin without reference
to choice of law principles thereof and in accordance with the Act. In the case
of any conflict, the Act shall control.
12. COUNTERPARTS
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, all of which shall together
constitute one and the same instrument.
13. CERTAIN DEFINITIONS
For the purposes of this Agreement, "interested person,"
"majority of the outstanding voting securities," "affiliated person,"
"assignment" shall have their respective meanings as set forth in the Act,
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission.
14. CAPTIONS
The captions herein are included for convenience of reference
only and shall be ignored in the construction or interpretation hereof.
15. SEVERABILITY
If any provision of this Agreement shall be held or made
invalid by a court decision or applicable law, the remainder of this Agreement
shall not be affected adversely and shall remain in full force and effect.
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IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by duly authorized persons and their seals to be
hereunto affixed, all as of the day and year first above written.
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
(ON BEHALF OF THE SELECT VALUE PORTFOLIO)
By:
----------------------------------------
Title:
-------------------------------------
NORTHPOINTE CAPITAL, LLC
By:
----------------------------------------
Title:
-------------------------------------
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SCHEDULE A
PRINCIPAL PRESERVATION PORTFOLIOS, INC.
INVESTMENT ADVISORY AGREEMENT
ON BEHALF OF
SELECT VALUE PORTFOLIO
COMPENSATION
a. Effective Date: February 26, 2001 (as of the close of
trading), but only if the Reorganization has not been
completed by such date.
b. Management Fee: The management fee for this Portfolio,
calculated in accordance with paragraph 5, shall be at an
annual rate of 0.75 of 1% of the first $250 million of the
average daily net assets of the Portfolio, and 0.65 of 1% on
average daily net assets in excess of $250 million.
<PAGE> 122
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 19, 2001
FOR THE REORGANIZATION
OF THE
SELECT VALUE PORTFOLIO
(A SERIES OF PRINCIPAL PRESERVATION PORTFOLIOS, INC.)
INTO
NATIONWIDE VALUE OPPORTUNITIES FUND
(A SERIES OF NATIONWIDE MUTUAL FUNDS)
Nationwide Mutual Funds
Three Nationwide Plaza
Columbus, Ohio 43215
This Statement of Additional Information is not a prospectus, and
should be read in conjunction with the Proxy Statement/Prospectus dated January
19, 2001, relating to the reorganization of the Select Value Portfolio, a mutual
fund portfolio of Principal Preservation Portfolios, Inc. ("Principal
Preservation"), into the Nationwide Value Opportunities Fund (the "Value
Opportunities Fund"), a series of Nationwide Mutual Funds ("Nationwide"). In
connection with the Reorganization, the Value Opportunities Fund would acquire
substantially all of the assets (net of liabilities) of the Select Value
Portfolio. In consideration of the Select Value Portfolio's transfer of assets
to the Value Opportunities Fund, the Value Opportunities Fund would issue to the
Select Value Portfolio shares of the Value Opportunities Fund having an
aggregate net asset value equal to the aggregate value of the assets transferred
by the Select Value Portfolio. Class A shares of the Value Opportunities Fund
would be issued for the Select Value Portfolio assets allocated to the Class A
shares of the Select Value Portfolio, and Class B shares of the Value
Opportunities Fund would be issued for the Select Value Portfolio assets
allocated to the Class B shares of the Select Value Portfolio. The Select Value
Portfolio would thereafter distribute the shares of the Value Opportunities Fund
so received to its shareholders on a pro rata basis, and the Select Value
Portfolio subsequently would be liquidated and discontinued. As a result of the
Reorganization, shareholders of the Select Value Portfolio would become
shareholders of the Value Opportunities Fund. It is expected that the aggregate
net asset value of the shares of the Value Opportunities Fund received by each
shareholder of the Select Value Portfolio in the Reorganization would be equal,
immediately following the Reorganization, to the aggregate net asset value of
the shares of the Select Value Portfolio held by such shareholder immediately
prior to the Reorganization. The Reorganization is expected to be tax-free to
the Select Value Portfolio shareholders.
The information otherwise required to be set forth in this Statement of
Additional Information is included in: (i) the Statement of Additional
Information of the Value Opportunities Fund, dated January 3, 2000 (as amended
September 29, 2000) (the "Value Opportunities Fund SAI"); (ii) the Statement of
Additional Information of the Select Value Portfolio, dated May 1, 2000; (iii)
the Annual Report to Shareholders of the Value Opportunities Fund for the period
ended October 31, 2000 (the "Value Opportunities Fund Annual Report"); and (iv)
the Annual Report to Shareholders of the Select Value Portfolio for the year
ended October 31, 2000 (the "Select Value Portfolio Annual Report"). The Value
Opportunities Fund SAI, the Select Value Portfolio SAI, the Value Opportunities
Fund Annual Report, and the Select Value Portfolio Annual Report are
incorporated by reference herein.
A copy of the Proxy Statement/Prospectus, the Prospectus of the Value
Opportunities Fund, dated January 3, 2000 (as amended February 9, 2000, and as
supplemented), the Value Opportunities Fund SAI and the Value Opportunities Fund
Annual Report may be obtained free of charge by writing to Nationwide Advisory
Services, Inc., P.O. Box 1492, Three Nationwide Plaza, Columbus, Ohio 43215, or
by calling toll free 1-800-848-0920. A copy of the Prospectus of the Select
Value Portfolio, dated May 1, 2000 (as supplemented), the Select Value Portfolio
SAI and the Select Value Portfolio Annual Report may be obtained free of charge
by writing to Principal Preservation Portfolios, Inc., 215 North Main Street,
West Bend, Wisconsin 53095, or by calling 1-800-826-4600.
<PAGE> 123
ADDITIONAL INFORMATION ABOUT NATIONWIDE AND
THE VALUE OPPORTUNITIES FUND
For additional information about Nationwide and the Value Opportunities
Fund, please see the Value Opportunities Fund SAI, which is incorporated by
reference herein.
ADDITIONAL INFORMATION ABOUT PRINCIPAL PRESERVATION AND
THE SELECT VALUE PORTFOLIO
For additional information about Principal Preservation and the Select
Value Portfolio, please see the Select Value Portfolio SAI, which is
incorporated by reference herein.
EXPERTS
The audited financial statements of the Value Opportunities Fund
incorporated by reference into this Statement of Additional Information have
been audited by KPMG LLP, independent public accountants, as indicated in their
report with respect thereto, which also is incorporated by reference into this
Statement of Additional Information, in reliance upon the authority of said firm
as experts in accounting and auditing in giving said report.
The audited financial statements of the Select Value Portfolio
incorporated by reference into this Statement of Additional Information have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, which also is incorporated by
reference into this Statement of Additional Information, in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
HISTORICAL FINANCIAL STATEMENTS
The following audited historical financial statements and footnotes
thereto of the Value Opportunities Fund, together with the Report of the
Independent Accountants thereon, are incorporated herein by reference from the
Value Opportunities Fund Annual Report:
(1) Statement of Assets and Liabilities for the Value
Opportunities Fund as of October 31, 2000;
(2) Statement of Operations for the Value Opportunities Fund for
the period from December 29, 1999 to October 31, 2000;
(3) Statement of Changes in Net Assets for the Value Opportunities
Fund for the period from December 29, 1999 to October 31,
2000;
(4) Statement of Investments of the Value Opportunities Fund as of
October 31, 2000;
(5) Financial Highlights for the Value Opportunities Fund; and
(6) Notes to Financial Statements.
2
<PAGE> 124
The following audited historical financial statements and footnotes
thereto of the Select Value Portfolio, together with the Report of the
Independent Accountants thereon, are incorporated herein by reference from the
Select Value Portfolio Annual Report:
(1) Balance Sheet for the Select Value Portfolio as of October 31,
2000;
(2) Statement of Operations for the Select Value Portfolio for the
year ended October 31, 2000;
(3) Statement of Changes in Net Assets for the Select Value
Portfolio for the year ended October 31, 2000 and for the ten
months ended October 31, 1999;
(4) Schedule of Investments of the Select Value Portfolio as of
October 31, 2000;
(5) Financial Highlights for the Select Value Portfolio; and
(6) Notes to Financial Statements.
PRO FORMA FINANCIAL STATEMENTS
Set forth below are the following unaudited pro forma financial
statements:
(1) Unaudited Pro Forma Combining Statement of Assets and
Liabilities for the Value Opportunities Fund and Select Value
Portfolio as of October 31, 2000 (assuming the Reorganization
had been consummated on that date);
(2) Unaudited Pro Forma Combining Statement of Operations for the
Value Opportunities Fund and Select Value Portfolio for the
period ended October 31, 2000 (assuming the Reorganization had
been consummated on December 29, 1999 which is the inception
date of the Value Opportunities Fund);
(3) Unaudited Pro Forma Combining Schedule of Portfolio
Investments of the Value Opportunities Fund and Select Value
Portfolio as of October 31, 2000 (assuming the Reorganization
had been consummated on that date); and
(4) Notes to Pro Forma Financial Statements (Unaudited).
These unaudited pro forma financial statements should be read in
conjunction with, and are qualified in their entirety by, the historical
financial statements of the Value Opportunities Fund and Select Value Portfolio
incorporated by reference into this Statement of Additional Information. These
unaudited pro forma financial statements are intended for information purposes
only, and are not necessarily indicative of the future financial position or
future results of the Value Opportunities Fund.
3
<PAGE> 125
NATIONWIDE VALUE OPPORTUNITIES FUND/PRINCIPAL PRESERVATION SELECT VALUE
PORTFOLIO PRO FORMA COMBINING STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Principal
Nationwide Preservation
Value Opportunities Select Value Pro Forma Pro Forma
Fund (a) Portfolio Adjustments Combined
---------------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at value $ 7,014,485 $ 9,540,925 $ - $ 16,555,410
Cash and cash equivalents 671,045 213 19,528 (b) $ 690,786
Other assets 9,420 213 - $ 9,633
Receivables: $ -
Interest and dividends 3,132 8,595 - $ 11,727
Capital Shares Sold - 22,259 - $ 22,259
Reimbursements 19,528 - (19,528) (b) $ -
---------------------- ----------------- ------------- ----------------
Total Assets 7,717,610 9,572,205 - 17,289,815
---------------------- ----------------- ------------- ----------------
LIABILITIES:
Payables:
Capital shares redeemed - 19,580 - 19,580
Investments securities purchased 8,668 12,261 - 20,929
Accrued liabilities:
Investment advisory fees 4,065 5,715 - 9,780
Administration fees 6,352 732 - 7,084
Distribution fees 1,041 2,445 - 3,486
Transfer agent fees 472 5,440 - 5,912
Other 44,363 13,494 - 57,857
---------------------- ----------------- ------------- ----------------
Total Liabilities 64,961 59,667 - 124,628
---------------------- ----------------- ------------- ----------------
NET ASSETS $ 7,652,649 $ 9,512,538 $ - $ 17,165,187
====================== ================= ============= ================
NET ASSETS:
Paid in capital $ 7,143,478 $ 7,528,747 $ - $ 14,672,225
Accumulated undistributed
(distributions in excess of) net
investment income 7,295 (7,809) - (514)
Accumulated net realized loss
on investments (68,884) (81,856) - (150,740)
Net unrealized appreciation
of investments 570,760 2,073,456 - 2,644,216
---------------------- ----------------- ------------- ----------------
Net Assets $ 7,652,649 $ 9,512,538 $ - $ 17,165,187
====================== ================= ============= ================
Shares of beneficial interest
outstanding ($.001 par value;
unlimited number of
shares authorized):
Class A Shares 198,921 605,723 61,819 (d) 866,463
Class B Shares 60,795 93,396 8,145 (d) 162,336
Institutional Service Class Shares 357,524 - - 357,524
Net Asset Value:
Class A Shares $ 12.37 $ 13.63 $ 12.37
Class B Shares $ 12.36 $ 13.44 $ 12.36
Institutional Service Class Shares $ 12.42 $ - $ 12.42
Offering Price Per Share
(100% (100%-Maximum Sales Charge)) $ 13.12 $ 14.39 $ 13.12
Maximum sales charge - Class A 5.75% 5.25% 5.75%
====================== ================= ============= ================
Cost of investments $ 6,443,725 $ 7,467,469 $ - $ 13,911,194
====================== ================= ============= ================
</TABLE>
(a) Fund commenced operations on December 29, 1999.
(b) Reflects payment of amounts owed by the Investment Advisor prior to the
Reorganization.
(d) Represents the difference between total additional shares
to be issued and current Nationwide Value Opportunities Fund shares
outstanding.
See accompanying notes to pro forma financial statements.
<PAGE> 126
NATIONWIDE VALUE OPPORTUNITIES FUND/PRINCIPAL PRESERVATION SELECT VALUE
PORTFOLIO PRO FORMA COMBINING STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 29, 1999 TO OCTOBER 31, 2000 AND
FOR THE TWELVE MONTHS ENDED OCTOBER 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Nationwide Principal
Value Preservation
Opportunities Select Value Pro Forma Pro Forma
Fund (a) Portfolio Adjustments Combined
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest $ 19,849 $ 70,873 $ -- $ 90,722
Dividends $ 37,856 $ 68,608 -- 106,464
----------- ----------- ----------- -----------
Total investment income 57,705 139,481 -- 197,186
EXPENSES:
Investment advisory fees 20,249 73,598 (4,907)(b) 88,940
Administration fees 63,115 4,733 7,152 (b) 75,000
Administrative servicing fees 361 -- -- 361
Distribution fees 6,535 33,869 -- 40,404
Custodian fees 7,418 5,684 (3,000)(d) 10,102
Printing and postage 24,375 7,275 (7,000)(d) 24,650
Professional fees 13,320 33,087 (25,057)(d) 21,350
Registration expenses 35,863 25,598 (20,000)(d) 41,461
Transfer agent fees 2,562 30,280 2,625 (d) 35,467
Trustees' fees 175 1,463 -- 1,638
Other 12,500 7,697 (2,000)(d) 18,197
Total expenses 186,473 223,284 (52,187)(d) 357,570
Less expense reimbursements (150,154) (76,911) 52,187 (d) (174,878)
----------- ----------- ----------- -----------
Net expenses 36,319 146,373 0 182,692
----------- ----------- ----------- -----------
Net investment income $ 21,386 $ (6,892) $ -- $ 14,494
=========== =========== =========== ===========
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on
investments transactions $ (68,885) $ 538,660 $ -- $ 469,775
Change in net unrealized
appreciation of:
Investments 570,760 1,862,681 0 2,433,441
Net realized and unrealized gain
on investments 501,875 2,401,341 0 2,903,216
----------- ----------- ----------- -----------
Net increase in net assets
from operations $ 523,261 $ 2,394,449 $ -- $ 2,917,710
=========== =========== =========== ===========
</TABLE>
(a) Fund commenced operations on December 29, 1999.
(b) Reflects adjustment to investment advisory fees, administration fees,
shareholder servicing fees, distribution fees and/or related reimbursements
based on the surviving Fund's revised fee schedule.
(d) Reduction reflects the estimated benefit of combining operations.
See accompanying notes to pro forma financial statements.
<PAGE> 127
NATIONWIDE VALUE OPPORTUNITIES FUND/PRINCIPAL PRESERVATION
SELECT VALUE PORTFOLIO
PRO FORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS
OCTOBER 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
Shares/Principal Amount
---------------------------------------------------------
Nationwide Principal Preservation
Value Opportunities Select Value Pro Forma
Fund Portfolio Combined
------------------- ---------------------- ---------
<S> <C> <C> <C>
Common Stock (93.6%)
ADVERTISING AGENCIES (0.9%)
R H DONNELLEY CORP* 3,300 3,600 6,900
AEROSPACE (1.0%)
ALLIANT TECHSYSTEMS INC* 1,000 1,000
GOODRICH B F CO 1,900 1,900
AIR TRANSPORT (0.8%)
ATLAS AIR INC* 1,600 2,100 3,700
APPLIANCES & HOUSEHOLD DURABLES (0.3%)
YORK INTL CORP NEW 1,600 1,600
AUTO PARTS & EQUIPMENT (0.3%)
VISTEON CORP 3,000 3,000
AUTO PARTS: AFTER MARKET (0.9%)
SUPERIOR INDS INTL INC 2,000 2,500 4,500
AUTO TRUCKS & PARTS (0.9%)
OSHKOSH TRUCK CORP 1,600 2,200 3,800
BANKS: OUTSIDE NEW YORK CITY (4.8%)
CULLEN FROST BANKERS INC 4,100 3,800 7,900
CITY NATL CORP 1,000 1,000
BANCWEST CORP NEW 5,500 5,500
COMMERCE BANCORP INC NJ 800 800
HUDSON UNITED BANCORP 2,100 2,100
STERLING BANCSHARES INC 19,000 19,000
BEVERAGES/SOFT DRINK (0.3%)
WHITMAN CORP NEW 3,700 3,700
BIOTECHNOLOGICAL RESEARCH & PRODUCTION (0.4%)
EDWARDS LIFESCIENCES COR* 2,300 2,800 5,100
BIOTECHNOLOGICAL RESEARCH & PRODUCTION (1.6%)
IDEXX LABS INC* 3,700 4,400 8,100
INVITROGEN CORP* 400 600 1,000
BUILDING MATERIALS (0.2%)
VULCAN MATLS CO 800 800
BUILDING: CEMENT (0.2%)
SOUTHDOWN INC 400 400
CASINOS & GAMBLING (0.2%)
STATION CASINOS INC* 2,200 2,200
CHEMICALS (0.3%)
CYTEC INDS INC* 1,300 1,300
COMPUTER SERVICES SOFTWARE & SYSTEM (1.6%)
AMERICAN MGMT SYS INC* 2,900 2,900
CACI INTL INC 10,100 10,100
COMPUTER SOFTWARE & SERVICE (0.8%)
CERIDIAN CORP* 3,100 3,100
SYMANTEC CORP* 1,500 1,500
CONSUMER ELECTRONICS (0.3%)
ELECTRONIC ARTS INC 1,000 1,000
CONSUMER PRODUCTS (0.5%)
SNAP ON INC 3,600 3,600
COSMETICS (1.0%)
ALBERTO CULVER CO 3,300 2,900 6,200
DIVERSIFIED FINANCE (1.1%)
HELLER FINANCIAL INC 1,400 4,800 6,200
DIVERSIFIED PRODUCTION (0.8%)
PENTAIR INC 4,400 4,400
DRUGS (1.2%)
DURA PHARMACEUTICALS INC* 1,600 1,600
PHARMACEUTICAL PROD DEV* 2,100 2,800 4,900
DRUGS & PHARMACEUTICALS (1.8%)
</TABLE>
<TABLE>
<CAPTION>
Market Value
--------------------------------------------------------
Nationwide Principal Preservation
Value Opportunities Select Value Pro Forma
Fund Portfolio Combined
------------------- ---------------------- ---------
<S> <C> <C> <C>
Common Stock (93.6%)
ADVERTISING AGENCIES (0.9%)
R H DONNELLEY CORP* 74,663 81,450 156,113
--------
AEROSPACE (1.0%)
ALLIANT TECHSYSTEMS INC* 89,938 89,938
GOODRICH B F CO 77,781 77,781
--------
167,719
--------
AIR TRANSPORT (0.8%)
ATLAS AIR INC* 58,000 76,125 134,125
--------
APPLIANCES & HOUSEHOLD DURABLES (0.3%)
YORK INTL CORP NEW 43,500 43,500
--------
AUTO PARTS & EQUIPMENT (0.3%)
VISTEON CORP 53,063 53,063
--------
AUTO PARTS: AFTER MARKET (0.9%)
SUPERIOR INDS INTL INC 68,125 85,156 153,281
--------
AUTO TRUCKS & PARTS (0.9%)
OSHKOSH TRUCK CORP 65,800 90,475 156,275
--------
BANKS: OUTSIDE NEW YORK CITY (4.8%)
CULLEN FROST BANKERS INC 136,581 126,588 263,169
CITY NATL CORP 34,375 34,375
BANCWEST CORP NEW 112,406 112,406
COMMERCE BANCORP INC NJ 48,450 48,450
HUDSON UNITED BANCORP 46,988 46,988
STERLING BANCSHARES INC 326,563 326,563
--------
831,950
--------
BEVERAGES/SOFT DRINK (0.3%)
WHITMAN CORP NEW 48,100 48,100
--------
BIOTECHNOLOGICAL RESEARCH & PRODUCTION (0.4%)
EDWARDS LIFESCIENCES COR* 30,906 37,625 68,531
--------
BIOTECHNOLOGICAL RESEARCH & PRODUCTION (1.6%)
IDEXX LABS INC* 88,800 105,600 194,400
INVITROGEN CORP* 30,425 45,638 76,063
--------
270,463
--------
BUILDING MATERIALS (0.2%)
VULCAN MATLS CO 33,600 33,600
--------
BUILDING: CEMENT (0.2%)
SOUTHDOWN INC 28,350 28,350
--------
CASINOS & GAMBLING (0.2%)
STATION CASINOS INC* 35,475 35,475
--------
CHEMICALS (0.3%)
CYTEC INDS INC* 45,013 45,013
--------
COMPUTER SERVICES SOFTWARE & SYSTEM (1.6%)
AMERICAN MGMT SYS INC* 62,713 62,713
CACI INTL INC 208,313 208,313
--------
271,025
--------
COMPUTER SOFTWARE & SERVICE (0.8%)
CERIDIAN CORP* 77,500 77,500
SYMANTEC CORP* 58,594 58,594
--------
136,094
--------
CONSUMER ELECTRONICS (0.3%)
ELECTRONIC ARTS INC 50,000 50,000
--------
CONSUMER PRODUCTS (0.5%)
SNAP ON INC 92,025 92,025
--------
COSMETICS (1.0%)
ALBERTO CULVER CO 91,575 80,475 172,050
--------
DIVERSIFIED FINANCE (1.1%)
HELLER FINANCIAL INC 40,950 140,400 181,350
--------
DIVERSIFIED PRODUCTION (0.8%)
PENTAIR INC 131,175 131,175
--------
DRUGS (1.2%)
DURA PHARMACEUTICALS INC* 55,100 55,100
PHARMACEUTICAL PROD DEV* 65,756 87,675 153,431
--------
208,531
--------
DRUGS & PHARMACEUTICALS (1.8%)
</TABLE>
See notes to pro forma financial statements.
<PAGE> 128
<TABLE>
<CAPTION>
Shares/Principal Amount
---------------------------------------------------------
Nationwide Principal Preservation
Value Opportunities Select Value Pro Forma
Fund Portfolio Combined
------------------- ---------------------- ---------
<S> <C> <C> <C>
Common Stock (93.6%)
MEDICIS PHARMACEUTICAL C* 800 1,500 2,300
MYLAN LABS INC 2,200 2,700 4,900
EATING PLACES (0.6%)
BRINKER INTL INC 2,400 400 2,800
ELECTRONIC-EQUIPMENT AND COMPONENTS (0.0%)
AMETEK INC NEW 100 100
ELECTRONICS / COMPUTERS (2.3%)
APW LTD* 8,600 8,600
ELECTRONICS: TECHNOLOGY (2.7%)
LITTON INDS INC* 1,400 1,400
PRIMEX TECHNOLOGIES INC 8,300 8,300
SCANSOURCE INC* 1,700 1,700
SENSORMATIC ELECTRS CORP* 3,800 3,800
ELECTRONICS:SEMI-CONDUCTORS/COMPON (0.7%)
ARROW ELECTRS INC* 3,800 3,800
ELECTRONIC-SEMICONDUCTOR (0.8%)
ADVANCED MICRO DEVICES I* 1,700 1,700
CIRRUS LOGIC CORP* 1,500 1,500
GENESIS MICROCHIP INC 3,000 3,000
ENGINEERING & CONTRACTING SERVICES (0.3%)
JACOBS ENGR GROUP INC DE* 1,400 1,400
FINANCIAL/MISCELLANEOUS (2.4%)
RADIAN GROUP INC 1,000 4,700 5,700
FINANCE COMPANIES (1.6%)
AMERICAN CAPITAL STRATEG 3,000 9,500 12,500
FINANCE SMALL LOAN (0.5%)
AMERICREDIT CORP* 3,000 3,000
FINANCIAL DATA PROCESSING SERVICES (0.7%)
NOVA CORP GA* 1,300 1,300
SUNGARD DATA SYS INC* 1,900 1,900
FINANCIAL INFORMATION SERVICES (0.3%)
MULTEX COM INC* 1,500 2,400 3,900
FINANCIAL/ MISCELLANEOUS (0.8%)
METRIS COS INC 2,300 2,000 4,300
FOOD (1.6%)
HORMEL FOODS CORP 4,800 5,400 10,200
INTERSTATE BAKERIES CORP 2,100 2,100
UNIVERSAL FOODS CORP 3,300 3,300
GAS-DISTRIBUTION (0.7%)
WGL HLDGS INC 1,800 2,700 4,500
HEALTH AND PERSONAL CARE (1.4%)
APRIA HEALTHCARE GROUP I* 5,200 6,400 11,600
HEALTH CARE FACILITIES (0.6%)
HEALTH MGMT ASSOC INC NE* 5,200 5,200
HOME BUILDING (0.8%)
CENTEX CORP* 1,300 1,500 2,800
PULTE CORP 800 800
HOTELS/ MOTELS (0.3%)
HILTON HOTELS CORP 5,000 5,000
HOUSEHOLD FURNISHINGS & APPLIANCES (0.1%)
SPRINGS INDS INC 1,000 1,000
IDENTIFICATION CONTROL (1.5%)
ARTESYN TECHNOLOGIES INC* 6,400 6,400
IDENTIFICATION CONTROL & FILTER DEVICES (2.0%)
CUNO INC* 1,000 1,000
FLOWSERVE CORP 4,700 4,700
C&D TECHNOLOGIES INC 3,900 3,900
INSURANCE / LIFE (0.4%)
AMERUS GROUP CO 2,700 2,700
</TABLE>
<TABLE>
<CAPTION>
Market Value
--------------------------------------------------------
Nationwide Principal Preservation
Value Opportunities Select Value Pro Forma
Fund Portfolio Combined
------------------- ---------------------- ---------
<S> <C> <C> <C>
Common Stock (93.6%)
MEDICIS PHARMACEUTICAL C* 58,900 110,438 169,338
MYLAN LABS INC 61,600 75,600 137,200
---------
306,538
---------
EATING PLACES (0.6%)
BRINKER INTL INC 94,200 15,700 109,900
---------
ELECTRONIC-EQUIPMENT AND COMPONENTS (0.0%)
AMETEK INC NEW 2,175 2,175
---------
ELECTRONICS / COMPUTERS (2.3%)
APW LTD* 397,213 397,213
---------
ELECTRONICS: TECHNOLOGY (2.7%)
LITTON INDS INC* 72,713 72,713
PRIMEX TECHNOLOGIES INC 243,294 243,294
SCANSOURCE INC* 81,175 81,175
SENSORMATIC ELECTRS CORP* 68,400 68,400
---------
465,581
---------
ELECTRONICS:SEMI-CONDUCTORS/COMPON (0.7%)
ARROW ELECTRS INC* 121,600 121,600
---------
ELECTRONIC-SEMICONDUCTOR (0.8%)
ADVANCED MICRO DEVICES I* 38,463 38,463
CIRRUS LOGIC CORP* 64,688 64,688
GENESIS MICROCHIP INC 42,750 42,750
---------
145,900
---------
ENGINEERING & CONTRACTING SERVICES (0.3%)
JACOBS ENGR GROUP INC DE* 57,925 57,925
---------
FINANCIAL/MISCELLANEOUS (2.4%)
RADIAN GROUP INC 70,875 333,113 403,988
---------
FINANCE COMPANIES (1.6%)
AMERICAN CAPITAL STRATEG 66,188 209,594 275,781
---------
FINANCE SMALL LOAN (0.5%)
AMERICREDIT CORP* 80,625 80,625
---------
FINANCIAL DATA PROCESSING SERVICES (0.7%)
NOVA CORP GA* 20,394 20,394
SUNGARD DATA SYS INC* 97,138 97,138
---------
117,531
---------
FINANCIAL INFORMATION SERVICES (0.3%)
MULTEX COM INC* 19,406 31,050 50,456
FINANCIAL/ MISCELLANEOUS (0.8%)
---------
METRIS COS INC 74,463 64,750 139,213
---------
FOOD (1.6%)
HORMEL FOODS CORP 80,700 90,788 171,488
INTERSTATE BAKERIES CORP 29,400 29,400
UNIVERSAL FOODS CORP 65,175 65,175
---------
266,063
---------
GAS-DISTRIBUTION (0.7%)
WGL HLDGS INC 45,900 68,850 114,750
---------
HEALTH AND PERSONAL CARE (1.4%)
APRIA HEALTHCARE GROUP I* 104,000 128,000 232,000
---------
HEALTH CARE FACILITIES (0.6%)
HEALTH MGMT ASSOC INC NE* 103,025 103,025
---------
HOME BUILDING (0.8%)
CENTEX CORP* 48,100 55,500 103,600
PULTE CORP 26,650 26,650
---------
130,250
---------
HOTELS/ MOTELS (0.3%)
HILTON HOTELS CORP 47,500 47,500
---------
HOUSEHOLD FURNISHINGS & APPLIANCES (0.1%)
SPRINGS INDS INC 23,563 23,563
---------
IDENTIFICATION CONTROL (1.5%)
ARTESYN TECHNOLOGIES INC* 260,000 260,000
---------
IDENTIFICATION CONTROL & FILTER DEVICES (2.0%)
CUNO INC* 25,375 25,375
FLOWSERVE CORP 94,588 94,588
C&D TECHNOLOGIES INC 230,588 230,588
---------
350,550
---------
INSURANCE / LIFE (0.4%)
AMERUS GROUP CO 71,213 71,213
---------
</TABLE>
See notes to pro forma financial statements.
<PAGE> 129
<TABLE>
<CAPTION>
Shares/Principal Amount
---------------------------------------------------------
Nationwide Principal Preservation
Value Opportunities Select Value Pro Forma
Fund Portfolio Combined
------------------- ---------------------- ---------
<S> <C> <C> <C>
Common Stock (93.6%)
INSURANCE PROPERTY-CASUALTY (0.5%)
EVEREST RE GROUP LTD 1,500 1,500
INSURANCE: MULTI-LINE (2.8%)
GALLAGHER ARTHUR J & CO 2,600 2,600
CNA SURETY CORP 4,300 4,300
OLD REP INTL CORP 2,500 2,500
STANCORP FINL GROUP INC 2,200 2,700 4,900
INVESTMENT MANAGEMENT COMPANIES (2.5%)
AFFILIATED MANAGERS GROU* 1,200 1,200
GABELLI ASSET MGMT INC* 9,800 9,800
MACHINERY: CONSTRUCTION & HANDLING (1.3%)
STEWART & STEVENSON SVCS 4,000 5,600 9,600
MACHINERY: OIL WELL EQUIP & SERV (0.8%)
NABORS INDS INC 1,600 1,600
NATIONAL-OILWELL INC* 2,200 2,200
MACHINERY:INDUSTRIAL/SPECIALTY (0.2%)
ACTUANT CORP 8,600 8,600
MANUFACTURING/ DIVERSIFIED (2.3%)
ENGELHARD CORP 5,500 4,800 10,300
OLIN CORP 4,500 6,100 10,600
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (4.7%)
OWENS & MINOR INC NEW 4,900 6,200 11,100
POLYMEDICA CORP* 900 1,200 2,100
DENTSPLY INTL INC NEW 7,500 7,500
COOPER COS INC 1,500 5,500 7,000
METAL FABRICATION (0.3%)
MAVERICK TUBE CORP* 3,000 3,000
MULTI-SECTOR COMPANIES (0.3%)
ITT INDS INC IND 1,800 1,800
NETWORKING PRODUCTS (0.3%)
ACCORD NETWORKS LTD 6,500 6,500
OFFSHORE DRILLING (0.2%)
SANTA FE INTL CORP 800 800
OIL & GAS (1.9%)
NEWFIELD EXPL CO* 1,400 7,100 8,500
OIL: CRUDE PRODUCERS (0.3%)
NOBLE AFFILIATES INC 1,500 1,500
OIL-FIELD SERVICES (0.5%)
KEY ENERGY SVCS INC* 5,300 4,800 10,100
PAPER (0.3%)
BOWATER INC 1,000 1,000
PRODUCTION TECHNOLOGY EQUIPMENT (0.2%)
LAM RESEARCH CORP 2,000 2,000
PUBLISHING:MISCELLANEOUS (0.4%)
DONNELLEY R R & SONS CO 3,100 3,100
REAL ESTATE INVESTMENT TRUST (4.9%)
JONES LANG LASALLE INC* 4,100 5,000 9,100
MACK CALI RLTY CORP 3,100 3,400 6,500
CAMDEN PPTY TR* 1,400 2,500 3,900
HOST MARRIOTT CORP NEW 6,600 6,600
LIBERTY PPTY TR 2,100 2,100
PACIFIC GULF PPTYS INC 3,200 3,200
PRENTISS PPTYS TR 3,400 4,600 8,000
SIMON PPTY GROUP INC NEW 1,400 1,400
RENTAL & LEASING SERVICES: COMMERCIAL (1.1%)
UNITED RENTALS INC* 4,300 4,600 8,900
</TABLE>
<TABLE>
<CAPTION>
Market Value
--------------------------------------------------------
Nationwide Principal Preservation
Value Opportunities Select Value Pro Forma
Fund Portfolio Combined
------------------- ---------------------- ---------
<S> <C> <C> <C>
INSURANCE PROPERTY-CASUALTY (0.5%)
EVEREST RE GROUP LTD 87,938 87,938
---------
INSURANCE: MULTI-LINE (2.8%)
GALLAGHER ARTHUR J & CO 164,125 164,125
CNA SURETY CORP 49,988 49,988
OLD REP INTL CORP 65,000 65,000
STANCORP FINL GROUP INC 89,650 110,025 199,675
---------
478,788
---------
INVESTMENT MANAGEMENT COMPANIES (2.5%)
AFFILIATED MANAGERS GROU* 72,150 72,150
GABELLI ASSET MGMT INC* 352,800 352,800
---------
424,950
---------
MACHINERY: CONSTRUCTION & HANDLING (1.3%)
STEWART & STEVENSON SVCS 96,000 134,400 230,400
---------
MACHINERY: OIL WELL EQUIP & SERV (0.8%)
NABORS INDS INC 81,440 81,440
NATIONAL-OILWELL INC* 64,350 64,350
---------
145,790
---------
MACHINERY:INDUSTRIAL/SPECIALTY (0.2%)
ACTUANT CORP 31,175 31,175
---------
MANUFACTURING/ DIVERSIFIED (2.3%)
ENGELHARD CORP 114,813 100,200 215,013
OLIN CORP 79,875 108,275 188,150
---------
403,163
---------
MEDICAL & DENTAL INSTRUMENTS & SUPPLIES (4.7%)
OWENS & MINOR INC NEW 74,113 93,775 167,888
POLYMEDICA CORP* 51,750 69,000 120,750
DENTSPLY INTL INC NEW 260,156 260,156
COOPER COS INC 53,625 196,625 250,250
---------
799,044
---------
METAL FABRICATION (0.3%)
MAVERICK TUBE CORP* 46,688 46,688
---------
MULTI-SECTOR COMPANIES (0.3%)
ITT INDS INC IND 58,613 58,613
---------
NETWORKING PRODUCTS (0.3%)
ACCORD NETWORKS LTD 56,063 56,063
---------
OFFSHORE DRILLING (0.2%)
SANTA FE INTL CORP 29,200 29,200
---------
OIL & GAS (1.9%)
NEWFIELD EXPL CO* 52,850 268,025 320,875
---------
OIL: CRUDE PRODUCERS (0.3%)
NOBLE AFFILIATES INC 55,031 55,031
---------
OIL-FIELD SERVICES (0.5%)
KEY ENERGY SVCS INC* 47,700 43,200 90,900
---------
PAPER (0.3%)
BOWATER INC 54,125 54,125
---------
PRODUCTION TECHNOLOGY EQUIPMENT (0.2%)
LAM RESEARCH CORP 38,750 38,750
---------
PUBLISHING:MISCELLANEOUS (0.4%)
DONNELLEY R R & SONS CO 66,650 66,650
---------
REAL ESTATE INVESTMENT TRUST (4.9%)
JONES LANG LASALLE INC* 52,275 63,750 116,025
MACK CALI RLTY CORP 84,088 92,225 176,313
CAMDEN PPTY TR* 40,075 71,563 111,638
HOST MARRIOTT CORP NEW 70,125 70,125
LIBERTY PPTY TR 55,519 55,519
PACIFIC GULF PPTYS INC 85,000 85,000
PRENTISS PPTYS TR 86,275 116,725 203,000
SIMON PPTY GROUP INC NEW 31,238 31,238
---------
848,856
---------
RENTAL & LEASING SERVICES: COMMERCIAL (1.1%)
UNITED RENTALS INC* 92,450 98,900 191,350
---------
</TABLE>
See notes to pro forma financial statements.
<PAGE> 130
<TABLE>
<CAPTION>
Shares/Principal Amount
---------------------------------------------------------
Nationwide Principal Preservation
Value Opportunities Select Value Pro Forma
Fund Portfolio Combined
------------------- ---------------------- ---------
<S> <C> <C> <C>
Common Stock (93.6%)
RESTAURANTS (1.8%)
RUBY TUESDAY INC 13,600 13,600
IHOP CORP* 6,300 6,300
RETAIL (5.8%)
CHARMING SHOPPES INC* 4,900 4,900
FAMILY DLR STORES INC 4,200 4,200
FOOTSTAR INC* 2,400 2,400 4,800
GADZOOKS INC* 14,000 14,000
HARCOURT GEN INC 400 400
WHITEHALL JEWELLERS INC* 8,650 8,650
MSC INDL DIRECT INC* 11,000 11,000
VENATOR GROUP INC* 7,700 6,600 14,300
SAVING & LOAN (2.1%)
DIME BANCORP INC NEW 2,200 3,000 5,200
FIRSTFED FINL CORP* 3,100 3,100
GREENPOINT FINL CORP 2,500 2,500
GOLDEN ST BANCORP INC* 2,900 2,900
SECURITIES BROKERAGE & SERVICES (0.6%)
LEGG MASON INC 1,400 1,400
KNIGHT TRADING GROUP INC* 1,100 1,100
SHOES (0.5%)
REEBOK INTL LTD 4,200 4,200
STEEL (1.5%)
CARPENTER TECHNOLOGY COR 2,500 2,600 5,100
HARSCO CORP 1,800 3,400 5,200
TELECOMMUNICATIONS EQUIPMENT (1.9%)
BELDEN INC 12,500 12,500
TEXTILES/APPAREL MANUFACTURING (2.0%)
GILDAN ACTIVEWEAR INC* 7,300 7,300
RUSSELL CORP 2,600 2,600
V F CORP 2,000 2,000
TRANSPORTATION (2.1%)
KIRBY CORP* 2,000 2,000
TIDEWATER INC 1,900 5,100 7,000
UTILITIES - ELECTRIC (2.2%)
SCANA CORP NEW 3,500 3,500
WISCONSIN ENERGY CORP 5,600 5,600
IDACORP INC 1,600 2,000 3,600
UTILITIES: GAS DISTRIBUTORS (1.3%)
NEW JERSEY RES* 1,400 2,200 3,600
QUESTAR CORP 3,000 3,000
UTILITIES: TELECOMMUNICATION (0.1%)
INTERMEDIA COMMUNICATION* 900 900
</TABLE>
<TABLE>
<CAPTION>
Market Value
--------------------------------------------------------
Nationwide Principal Preservation
Value Opportunities Select Value Pro Forma
Fund Portfolio Combined
------------------- ---------------------- ---------
<S> <C> <C> <C>
Common Stock (93.6%)
RESTAURANTS (1.8%)
RUBY TUESDAY INC 184,450 184,450
IHOP CORP* 133,088 133,088
---------
317,538
---------
RETAIL (5.8%)
CHARMING SHOPPES INC* 30,013 30,013
FAMILY DLR STORES INC 81,638 81,638
FOOTSTAR INC* 86,100 86,100 172,200
GADZOOKS INC* 254,625 254,625
HARCOURT GEN INC 22,420 22,420
WHITEHALL JEWELLERS INC* 69,200 69,200
MSC INDL DIRECT INC* 163,625 163,625
VENATOR GROUP INC* 108,763 93,225 201,988
---------
995,708
---------
SAVING & LOAN (2.1%)
DIME BANCORP INC NEW 53,763 73,313 127,075
FIRSTFED FINL CORP* 79,050 79,050
GREENPOINT FINL CORP 74,375 74,375
GOLDEN ST BANCORP INC* 75,763 75,763
---------
356,263
---------
SECURITIES BROKERAGE & SERVICES (0.6%)
LEGG MASON INC 72,713 72,713
KNIGHT TRADING GROUP INC* 32,931 32,931
---------
105,644
---------
SHOES (0.5%)
REEBOK INTL LTD 90,563 90,563
---------
STEEL (1.5%)
CARPENTER TECHNOLOGY COR 77,500 80,600 158,100
HARSCO CORP 36,338 68,638 104,975
---------
263,075
---------
TELECOMMUNICATIONS EQUIPMENT (1.9%)
BELDEN INC 324,219 324,219
---------
TEXTILES/APPAREL MANUFACTURING (2.0%)
GILDAN ACTIVEWEAR INC* 253,675 253,675
RUSSELL CORP 41,600 41,600
V F CORP 54,625 54,625
---------
349,900
---------
TRANSPORTATION (2.1%)
KIRBY CORP* 36,875 36,875
TIDEWATER INC 87,756 235,556 323,313
---------
360,188
---------
UTILITIES - ELECTRIC (2.2%)
SCANA CORP NEW 92,750 92,750
WISCONSIN ENERGY CORP 105,350 105,350
IDACORP INC 78,900 98,625 177,525
---------
375,625
---------
UTILITIES: GAS DISTRIBUTORS (1.3%)
NEW JERSEY RES* 55,913 87,863 143,775
QUESTAR CORP 81,188 81,188
---------
224,963
---------
UTILITIES: TELECOMMUNICATION (0.1%)
INTERMEDIA COMMUNICATION* 19,913 19,913
---------
</TABLE>
See notes to pro forma financial statements.
<PAGE> 131
NATIONWIDE VALUE OPPORTUNITIES FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF COMBINATION:
The unaudited Pro Forma Combined Statements of Assets and Liabilities,
Statements of Operations, and Schedules of Portfolio Investments reflect the
accounts of the Nationwide Value Opportunities Fund and the Principal
Preservation Select Value Portfolio as if the proposed reorganization occurred
as of and for the fiscal year ended October 31, 2000. These statements have been
derived from books and records utilized in calculating daily net asset value at
October 31, 2000.
The Agreement and Plan of Reorganization provides that at the time the
reorganization becomes effective, substantially all of the assets of the Select
Value Portfolio net of its liabilities will be transferred to and acquired by
the Value Opportunities Fund. Shares of the Value Opportunities Fund received by
the Select Value Portfolio in the transaction would then be distributed pro rata
to shareholders of the Select Value Portfolio, and the Select Value Portfolio
would be dissolved and discontinued as a separate mutual fund portfolio of
Principal Preservation Portfolios, Inc. The pro forma statements give effect to
the proposed transfer described above.
Under the purchase method of accounting for business combinations under
generally accepted accounting principles, the basis on the part of the Value
Opportunities Fund, of the assets of the Select Value Portfolio will be the fair
market value of such assets on the closing date of the transaction. It is
anticipated that Value Opportunities Fund will recognize no gain or loss for
federal tax purposes on its issuance of shares in the reorganization, and the
basis to the Value Opportunities Fund of the assets of the Select Value
Portfolio received pursuant to the reorganization will equal the fair market
value of the consideration furnished, and costs incurred (if any), by the Value
Opportunities Fund in the reorganization. For accounting purposes, the Value
Opportunities Fund is the surviving Fund of this reorganization. The pro forma
statements reflect the combined results of operations of the Select Value
Portfolio and the Value Opportunities Fund. However, should such reorganization
be effected, the statements of operations of the Value Opportunities Fund will
not be restated for precombination period results.
The Pro Forma Combined Statements of Assets and Liabilities, Statements
of Operations, and Schedules of Portfolio Investments should be read in
conjunction with the historical financial statements of the Value Opportunities
Fund and the Select Value Portfolio incorporated by reference in the Statement
of Additional Information.
<PAGE> 132
NATIONWIDE VALUE OPPORTUNITIES FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Select Value Portfolio and the Value Opportunities Fund are
separate portfolios, respectively, of the Principal Preservation Portfolios,
Inc. and Nationwide Mutual Funds, which are registered as open-end management
investment companies under the Investment Company Act of 1940.
Service Providers:
Villanova Mutual Fund Capital Trust (the "Adviser") will serve as the
combined Fund's investment adviser. The Adviser is a wholly-owned subsidiary of
Villanova Capital Inc. ("Villanova"), which in turn is an indirect subsidiary of
Nationwide Corporation. NorthPointe Capital, LLC ("NorthPointe") will serve as
sub-adviser to the combined Fund. NorthPointe is a majority owned subsidiary of
Villanova. Nationwide Advisory Services ("NAS") serves as the distributor of the
Value Opportunity Fund, Villanova SA Capital Trust ("VSA") is its administrator,
and Nationwide Investors Services, Inc ("NISI") is its transfer and dividend
disbursing agent. NAS, VSA and NISI are all subsidiaries of Villanova.
Select Value Portfolio:
The Select Value Portfolio issues two classes of shares, Class A shares
and Class B shares, which have identical rights and privileges except with
respect to fees paid under shareholder servicing or distribution plans, expenses
allocable exclusively to each class of shares, voting rights on matters
affecting a single class of shares, and the exchange privilege of each class of
shares. Class A shares are subject to an initial sales charge. Class B shares
are subject to a contingent deferred sales charge.
Under the terms of an interim investment advisory agreement dated
September 29, 2000, between the Select Value Portfolio and NorthPointe,
NorthPointe is entitled to receive a fee based on the average daily net assets
of the portfolio at the rate of .75% of the first $250,000,000 of the
portfolio's average daily net assets, and .65% on the average net assets
exceeding $250,000,000. Such fees are accrued daily and paid monthly. For the
period from November 1, 1999 to September 29, 2000, B.C. Ziegler and Company
("BZC") was the investment advisor to the Select Value Portfolio. Fees payable
to BZC were calculated at a rate identical to the rate used in determining fees
payable to NorthPointe. For the year ended October 31, 2000 total investment
advisory fees incurred by the Select Value Portfolio were $73,598, all of which
were waived.
2
<PAGE> 133
NATIONWIDE VALUE OPPORTUNITIES FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Value Opportunities Fund:
The Value Opportunities Fund issues three classes of shares, Class A
shares, Class B shares and Institutional Service Class shares which have
identical rights and privileges except with respect to fees paid under
shareholder servicing or distribution plans, expenses allocable exclusively to
each class of shares, voting rights on matters affecting a single class of
shares, and the exchange privilege of each class of shares. Class A shares are
subject to an initial sales charge. Class B shares are subject to a contingent
deferred sales charge. Institutional Service Class shares are offered without a
sales charge.
Under the terms of the investment advisory agreement between the Value
Opportunities Fund and the Adviser, the Adviser is entitled to receive a fee
based on the average daily net assets of the fund at the following rates:
<TABLE>
<CAPTION>
ASSETS FEE
------ ---
<S> <C>
Up to $250 million .70%
$250 million - $1 billion .675%
$1 billion - $2 billion .65%
$2 billion - $5 billion .625%
$5 billion + .60%
</TABLE>
NorthPointe serves as the sub-investment adviser to the Value Opportunities Fund
and receives fees from the Adviser. For the period ended October 31, 2000 total
advisory fees incurred the Value Opportunities Fund were $20,249, all of which
were waived.
Pro Forma Adjustments and Pro Forma Combined Columns:
The pro forma adjustments and pro forma combined columns of the
statements of operations reflect the adjustments necessary to show expenses at
the rates which would have been in effect if the Select Value Portfolio was
included in the Value Opportunities Fund for the period from December 29, 1999,
to October 31, 2000. Investment Advisory, Administration and 12b-1 fees in the
pro forma combined column are calculated at the rates in effect for the Value
Opportunities Fund based upon the combined net assets of the Select Value
Portfolio and the Value Opportunities Fund.
The pro forma Statements of Assets and Liabilities and Schedules of
Portfolio Investments give effect to the proposed transfer of such assets as if
the reorganization had occurred at October 31, 2000.
The Adviser does not intend to dispose of any portfolio securities to
be transferred to the Value Opportunities Fund by the Select Value Portfolio in
the Reorganization, except for dispositions in the ordinary course of business
following the Reorganization. The Adviser believes that none of the portfolio
securities so transferred will be inconsistent with the investment objective,
policies or restrictions of the Value Opportunities Fund requiring their
disposition.
3
<PAGE> 134
NATIONWIDE VALUE OPPORTUNITIES FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. PORTFOLIO VALUATION, SECURITIES TRANSACTIONS AND RELATED INCOME:
Securities are valued at market value. Short-term investments maturing
in 60 days or less are valued at amortized cost, which approximates market
value.
Security transactions are accounted for on a trade date basis. Net
realized gains or losses from sales of securities are determined on the specific
identification cost method. Interest income and expenses are recognized on the
accrual basis. Dividends are recorded on the ex-divided date. Interest income,
including any discount or premium, is accrued as earned using the effective
interest method.
4
<PAGE> 135
NATIONWIDE MUTUAL FUNDS
NATIONWIDE VALUE OPPORTUNITIES FUND
Part C. Other Information
Item 15. Indemnification
Section 1713.13 of the Ohio Revised Code provides that no liability to
third persons for any act, omission or obligation shall attach to the
trustees, officers, employees or agents of a business trust organized
under Ohio statutes. Reference is made to Article V, Section 5.2 of the
Registrant's Declaration of Trust filed as Exhibit No. 2 to its
Registration Statement on Form N-1A, as amended (Reg. No. 333-40455 and
File No. 811-08495), with respect to the indemnification of
Registrant's Trustees and officers, which is incorporated herein by
reference. The Trustees are also covered by an errors and omissions
policy provided by the Trust covering actions taken by the Trustees in
their capacity as Trustees.
Item 16. Exhibits
See Exhibit Index following the Signature Page of this Registration
Statement, which Exhibit Index is incorporated herein by this reference.
Item 17. Undertakings
(1) Not applicable.
(2) Not applicable.
Registrant undertakes that it will file, by post-effective amendment,
an opinion of counsel supporting the tax consequences of the Reorganization
within a reasonable time after receipt of such opinion.
C-1
<PAGE> 136
SIGNATURES
As required by the Securities Act of 1933, this Pre-Effective Amendment
No. 2 to the Registration Statement on Form N-14 has been signed on behalf of
the Registrant, in the City of Columbus, and State of Ohio, on the 18th day of
January, 2001.
NATIONWIDE MUTUAL FUNDS
By: /s/ GERALD HOLLAND
------------------------------
Gerald Holland, Treasurer
As required by the Securities Act of 1933, this Pre-Effective Amendment
No. 2 to the Registration Statement on Form N-14 has been signed on this 18th
day of January, 2001 by the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JOSEPH J. GASPER* Trustee and Chairman (Principal Executive Officer)
-----------------------------------------------
Joseph J. Gasper
/s/ GERALD HOLLAND Treasurer (Principal Financial and Accounting Officer)
-----------------------------------------------
Gerald Holland
/s/ CHARLES E. ALLEN* Trustee
-----------------------------------------------
Charles E. Allen
/s/ PAULA M. J. CHOLMONDELEY* Trustee
-----------------------------------------------
Paula M. J. Cholmondeley
/s/ C. BRENT DEVORE* Trustee
-----------------------------------------------
C. Brent Devore
/s/ ROBERT M. DUNCAN* Trustee
-----------------------------------------------
Robert M. Duncan
/s/ BARBARA HENNIGAR* Trustee
-----------------------------------------------
Barbara Hennigar
/s/ PAUL J. HONDROS* Trustee
-----------------------------------------------
Paul J. Hondros
/s/ THOMAS J. KERR, IV* Trustee
-----------------------------------------------
Thomas J. Kerr, IV
/s/ DOUGLAS F. KRIDLER* Trustee
-----------------------------------------------
Douglas F. Kridler
</TABLE>
<PAGE> 137
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ ARDEN L. SHISLER* Trustee
------------------------------------------------------
Arden L. Shisler
/s/ DAVID C. WETMORE* Trustee
------------------------------------------------------
David C. Wetmore
By: /s/ KEVIN S. CROSSETT
---------------------------------------------------
Kevin S. Crossett, Attorney-in-Fact
</TABLE>
<PAGE> 138
NATIONWIDE MUTUAL FUNDS
EXHIBIT TO INDEX
TO
REGISTRATION STATEMENT ON FORM N-14
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
(1) Amended Declaration of Trust*
(2) Amended By-Laws*
(3) None
(4) Agreement and Plan of Reorganization (included as Appendix A to the Proxy Statement/Prospectus,
which is part of the Registration Statement on Form N-14)
(5) None
(6)(a) Investment Advisory Agreement with Villanova Mutual Fund Capital Trust*
(6)(b) Investment Sub-Advisory Agreement with NorthPointe Capital, LLC*
(7)(a) Distribution Agreement between Nationwide Mutual Funds and Nationwide Advisory Services,
Inc.*
(7)(b) Form of Selected Dealer Agreements*
(7)(c) Form of Selling Agreement for Banks*
(8) None
(9) Custody Agreement*
(10)(a) Amended Distribution Plan*
(10)(b) Rule 12b-1 Agreement*
(10)(c) Underwriting Agreement*
(10)(d) Amended Rule 18f-3 Plan*
(11) Opinion of Counsel regarding the legality of securities being registered***
(12) Form of Opinion of Counsel regarding certain tax matters and consequences to shareholders**
(13)(a) Transfer Agent/Dividend Disbursing Agent Agreement*
(13)(b) Fund Administration Agreement*
(13)(c) Administrative Services Plan and Services Agreement*
(14)(a) Consent of Independent Accountants (KPMG LLP)***
(14)(b) Consent of Independent Accountants (Arthur Andersen LLP)***
(14)(c) Consent of Counsel (included within in Exhibits 11 and 12, respectively)
(15) None
(16) Power of Attorney dated as of July 26, 2000***
</TABLE>
<PAGE> 139
-----------------
* Previously filed as part of the Registrant's Registration Statement on
Form N-1A (Reg. No. 333-40455 and 1940 Act File No. 811-08495), or an
amendment thereto, and incorporated herein by reference.
** Final opinion to be filed by post-effective amendment to this Registration
Statement on Form N-14.
*** Previously filed as part of this Registration Statement on Form N-14
(Reg. No. 333-51924), or an amendment thereto, and incorporated herein by
reference.
