SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /x/
Pre-Effective Amendment No. ----
Post-Effective Amendment No. 49
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 49
----
(Check appropriate box or boxes.)
TOUCHSTONE STRATEGIC TRUST FILE NOS. 811-3651 and 2-80859
------------------------------------------------------------------
(Exact name of Registrant as Specified in Charter)
221 East Fourth Street, Suite 300, Cincinnati, Ohio 45202
--------------------------------------------------------------------
(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code (513) 362-8000
-----------------------------------------------------------------
Jill T. McGruder, 221 East Fourth Street, Cincinnati, OH 45202
----------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
(check appropriate box)
[x] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
|
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
TOUCHSTONE STRATEGIC TRUST
------------------------
FORM N-1A
CROSS REFERENCE SHEET
----------------------
ITEM SECTION IN PROSPECTUS
---- ---------------------
1........................... Front Cover Page; Back Cover Page
2........................... Enhanced 30 Fund; Growth Opportunities Fund;
Value Plus Fund; Emerging Growth Fund; Small Cap
Growth Fund; Large Cap Growth Fund; Investment
Strategies and Risks
3........................... Enhanced 30 Fund; Growth Opportunities Fund;
Value Plus Fund; Emerging Growth Fund; Small Cap
Growth Fund; Large Cap Growth Fund; Investment
Strategies and Risks
4........................... Enhanced 30 Fund; Growth Opportunities Fund;
Value Plus Fund; Emerging Growth Fund; Small Cap
Growth Fund; Large Cap Growth Fund; Investment
Strategies and Risks
5.......................... None
6........................... The Funds' Management
7........................... Choosing a Class of Shares, Investing with
Touchstone, Distributions and Taxes
8............................ Investing with Touchstone
9........................... Financial Highlights
SECTION IN STATEMENT OF
ITEM ADDITIONAL INFORMATION
---- -----------------------
10.......................... Cover Page, Table of Contents
11.......................... The Trust
12.......................... Definitions, Policies and Risk
Considerations, Investment Restrictions,
Portfolio Turnover, Appendix
13.......................... Trustees and Officers; Code of Ethics; Proxy
Voting Procedures
14.......................... Principal Security Holders
15.......................... The Investment Adviser and Sub-Advisors, The
Distributor, Distribution Plans,
Custodian, Auditors, Transfer, Accounting and
Administrative Agent, Choosing a Share Class
16.......................... Securities Transactions
17.......................... The Trust, Choosing a Share Class
18.......................... Calculation of Share Price and Public
Offering Price, Other Purchase
Information, Redemption in Kind
19.......................... Taxes
20.......................... The Distributor
21.......................... Historical Performance Information
22.......................... Annual Report
|
PROSPECTUS AUGUST 1, 2003 TOUCHSTONE INVESTMENTS Emerging Growth Fund |
Small Cap Growth Fund
Each Fund is a series of Touchstone Strategic Trust ("the Trust"), a group of equity mutual funds. The Trust is part of the Touchstone Funds which also consists of Touchstone Investment Trust, a group of taxable bond and money market mutual funds, Touchstone Tax-Free Trust, a group of tax-free bond and money market mutual funds and Touchstone Variable Series Trust, a group of variable series funds. Each Touchstone Fund has a different investment goal and risk level. For further information about the Touchstone Funds, contact Touchstone at 1.800.543.0407.
The Securities and Exchange Commission has not approved the Funds' shares as an
investment or determined whether this Prospectus is accurate or complete.
Anyone who tells you otherwise is committing a crime.
Multiple Classes of Shares are Offered by this Prospectus
EMERGING GROWTH FUND
o If the stock market as a whole goes down
o Because securities of emerging growth companies may have limited
markets or financial resources and may have more frequent and larger
price changes than securities of more established companies
o Because securities of small cap and mid cap companies may be more
thinly traded and may have more frequent and larger price changes than
securities of large cap companies
o If the market continually values the stocks in the Fund's portfolio
lower than the portfolio managers believe they should be valued
o If the stocks in the Fund's portfolio are not undervalued as expected
o If the companies in which the Fund invests do not grow as rapidly as
expected
o Because the Fund may invest in the technology sector which at times
may be subject to greater market fluctuation than other sectors
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency.
As with any mutual fund, there is no guarantee that the Fund will achieve its goal.
You can find more information about certain securities in which the Fund may invest and a more detailed description of risks under the heading "Investment Strategies and Risks" later in this Prospectus.
The bar chart and table below give some indication of the risks of investing in the Emerging Growth Fund. The bar chart shows the Fund's Class A performance from year to year. The bar chart does not reflect any sales charges, which would reduce your return. The return for other classes of shares offered by the Fund will differ from the Class A returns shown in the bar chart, depending on the expenses of that class.
EMERGING GROWTH FUND -- CLASS A TOTAL RETURNS
YEAR TOTAL RETURN
1995 22.56% Best Quarter:
4th Quarter 1999 +26.84%
1996 10.56%
Worst Quarter:
1997 32.20% 3rd Quarter 2002 -21.03%
1998 2.57%
1999 45.85%
2000 25.92%
2001 7.06%
2002 -23.51%
|
The year-to-date return for the Fund's Class A shares as of June 30, 2003 is 15.72%.
The table compares the Fund's average annual total returns to those of the Russell 2000 Index and the Russell 2500 Index. On March 31, 2003, the Fund changed its comparative index from the Russell 2000 Index to the Russell 2500 Index because the Russell 2500 Index more accurately reflects the Fund's portfolio composition. The table shows the effect of the applicable sales charge. The after-tax returns shown in the table are for Class A shares only. The after-tax returns for other classes of shares offered by the Fund will differ from the Class A after-tax returns.
The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2002
Since
Class
1 Year 5 Years Started1
----------------------------------------------------------------------------------------------
EMERGING GROWTH FUND CLASS A
Return Before Taxes -27.92% 7.79% 12.69%
Return After Taxes on Distributions2 -28.27% 5.20% 9.78%
Return After Taxes on Distributions and Sale of Fund Shares3 -17.12% 5.35% 9.33%
Russell 2000 Index4 -20.48% -1.36% 6.47%
Russell 2500 Index5 -17.79% 1.57% 9.16%
----------------------------------------------------------------------------------------------
EMERGING GROWTH FUND CLASS B
Return Before Taxes -28.72% -- -13.90%
Russell 2000 Index4 -20.48% -- -11.95%
Russell 2500 Index -17.79% -- -10.09%
----------------------------------------------------------------------------------------------
3
|
EMERGING GROWTH FUND CLASS C Return Before Taxes -25.72% 7.82% 12.25% Russell 2000 Index4 -20.48% -1.36% 6.47% Russell 2500 Index5 -17.79% 1.57% 9.16% ---------------------------------------------------------------------------------------------- |
1 Class A shares began operations on October 3, 1994, Class B shares began
operations on May 1, 2001 and Class C shares began operations on January 1,
1999. The Class C performance was calculated using the historical
performance of the Class C predecessor, which was another mutual fund that
began operations on October 3, 1994.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates, and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on the investor's tax
situation and may differ from those shown above. After-tax returns do not
apply to investors who hold shares in a tax-deferred account, such as an
individual retirement account or a 401(k) plan.
3 When the "Return After Taxes on Distributions and Sale of Fund Shares" is
higher, it is because of realized losses. If a capital loss occurs upon the
redemption of the Fund's shares, the capital loss is recorded as a tax
benefit, which increases the return and translates into an assumed tax
deduction that benefits the shareholder.
4 The Russell 2000 Index is a widely recognized unmanaged index of small cap
stock performance.
5 The Russell 2500 Index measures the performance of the 2,500 smallest
companies in the Russell 3000 Index, which represents approximately 17% of
the total market capitalization of the Russell 3000 Index. The Russell 3000
Index measures the performance of the 3,000 largest U.S. companies based on
total market capitalization, which represents approximately 98% of the
investable U.S. equity market.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
-------------------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price) 5.75%1 None None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or the amount redeemed, whichever is less) * 5.00% 2 1.00% 3
Wire Redemption Fee Up to $15 Up to $15 Up to $15
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
-------------------------------------------------------------------------------------------
Management Fees 0.80% 0.80% 0.80%
Distribution (12b-1) Fees 0.25 1.00 1.00%
Other Expenses 0.68 0.72 0.83%
Total Annual Fund Operating Expenses 1.73 2.52 2.63%
Fee Waiver and/or Expense Reimbursement4 0.23 0.27 0.38%
Net Expenses 1.50 2.25 2.25%
-------------------------------------------------------------------------------------------
|
* Purchases of $1 million or more do not pay a front-end sales charge, but may pay a contingent deferred sales charge of 1.00% if shares are redeemed within 1 year of their purchase. 1 You may pay a reduced sales charge on very large purchases. There is no initial sales charge on certain purchases in a Roth IRA, a Roth Conversion IRA or a qualified retirement plan.
2 You will pay a 5.00% contingent deferred sales charge if shares are redeemed
within 1 year of their purchase. The contingent deferred sales charge will be
incrementally reduced over time. After the 6th year, there is no contingent
deferred sales charge. The contingent deferred sales charge may be waived under
certain circumstances described in this Prospectus.
3 The 1.00% is waived if shares are held for 1 year or longer or under other
circumstances described in this Prospectus.
4 Touchstone Advisors has contractually agreed to waive a portion of its
advisory fee and/or reimburse certain Fund expenses in order to limit Net
Expenses to 1.50% for Class A shares and 2.25% for Class B and Class C shares
(the "Sponsor Agreement"). The Sponsor Agreement will remain in place until at
least March 31, 2004.
EXAMPLE. The following example should help you compare the cost of investing in the Emerging Growth Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same (except for the 10 year amounts for Class B shares, which reflect the conversion of Class B shares to Class A shares after 8 years). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
ASSUMING
ASSUMING REDEMPTION AT END OF PERIOD NO REDEMPTION
--------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares Class B Shares
--------------------------------------------------------------------------------
1 Year $ 719 $ 628 $ 228 $ 228
3 Years 1 $1,067 $ 959 $ 781 $ 759
5 Years 1 $1,439 $1,416 $1,361 $1,316
10 Years 1 $2,481 $2,835 2 $2,936 $2,835 2
--------------------------------------------------------------------------------
|
1 The examples for the 3, 5 and 10 year periods are calculated using the Total Annual Fund Operating Expenses before the limits agreed to under the Sponsor Agreement with Touchstone Advisors for periods after year 1. 2 Based on conversion to Class A shares after 8 years.
SMALL CAP GROWTH FUND
The Fund sub-advisors employ a growth-oriented approach to equity investment management and seek to invest in high quality, reasonably priced companies believed to have above average earnings growth prospects. The Fund's investments may include securities in the technology sector.
o If the stock market as a whole goes down
o If the market continually values the stocks in the Fund's portfolio
lower than a sub-advisor believes they should be valued
o If the companies in which the Fund invests do not grow as rapidly or
increase in value as expected
o Because securities of small cap companies may be more thinly traded
and may have more frequent and larger price changes than securities of
large cap companies
o Because the Fund may invest in the technology sector which at times
may be subject to greater market fluctuation than other sectors
o Because growth oriented funds may underperform when value investing is
in favor
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency.
As with any mutual fund, there is no guarantee that the Fund will achieve its goal.
You can find more information about certain securities in which the Fund may invest and a more detailed description of risks under the heading "Investment Strategies and Risks" later in this Prospectus.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
-----------------------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price) 5.75% 1 None None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or the amount redeemed, whichever is less) * 5.00%2 1.00%3
Wire Redemption Fee Up to $15 Up to $15 Up to $15
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
-------------------------------------------------------------------------------------------
Management Fees 1.25% 1.25% 1.25%
Distribution (12b-1) Fees 0.05% 0.19% 0.20%
Other Expenses 1.78% 5.01% 3.40%
Total Annual Fund Operating Expenses 3.08% 6.45% 4.85%
Fee Waiver and/or Expense Reimbursement4 1.13% 3.76% 2.16%
Net Expenses 1.95% 2.69% 2.69%
-------------------------------------------------------------------------------------------
|
* Purchases of $1 million or more do not pay a front-end sales charge,
but may pay a contingent deferred sales charge of 1.00% if shares are
redeemed within 1 year of their purchase.
1 You may pay a reduced sales charge on very large purchases. There is
no initial sales charge on certain purchases in a Roth IRA, a Roth
Conversion IRA or a qualified retirement plan.
2 You will pay a 5.00% contingent deferred sales charge if shares are
redeemed within 1 year of their purchase. The contingent deferred
sales charge will be incrementally reduced over time. After the 6th
year, there is no contingent deferred sales charge. The contingent
deferred sales charge may be waived under certain circumstances
described in this Prospectus.
3 The 1.00% is waived if shares are held for 1 year or longer or under
other circumstances described in this Prospectus.
4 Touchstone Advisors has contractually agreed to waive a portion of its
advisory fee and/or reimburse certain Fund expenses in order to limit
Net Expenses to 1.95% for Class A shares and 2.70% or below for Class
B and Class C shares (the "Sponsor Agreement"). The Sponsor Agreement
will remain in place until at least March 31, 2004.
EXAMPLE. The following example should help you compare the cost of investing in the Small Cap Growth Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same (except for the 10 year amounts for
Class B shares, which reflect the conversion of Class B shares to Class A shares after 8 years). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year $ 762 $ 672 $ 272 $ 272 3 Years 1 $1,371 $1,773 $1,266 $1,573 5 Years 1 $2,005 $2,936 $2,263 $2,836 10 Years 1 $3,698 $5,837 2 $4,768 $5,837 2 -------------------------------------------------------------------------------- |
1 The examples for the 3, 5 and 10 year periods are calculated using the
Total Annual Fund Operating Expenses before the limits agreed to under the
Sponsor Agreement with Touchstone Advisors for periods after year 1.
2 Based on conversion to Class A shares after 8 years.
INVESTMENT STRATEGIES AND RISKS
DO THE FUNDS HAVE OTHER INVESTMENT STRATEGIES, IN ADDITION TO THEIR PRINCIPAL
SMALL CAP GROWTH FUND. The Small Cap Growth Fund may also invest in:
o Initial public offerings
o Securities of emerging growth companies
o Securities of foreign companies
o American depository receipts (ADRs), American depository shares (ADSs)
and other depository receipts
o Securities of companies in emerging market countries
o Cash equivalents
o They are organized under the laws of a foreign country
o They maintain their principal place of business in a foreign country
o The principal trading market for their securities is located in a foreign
country
o They derive at least 50%of their revenues or profits from operations in
foreign countries
o They have at least 50% of their assets located in foreign countries
Some sub-advisors may define the parameters for a foreign company differently.
AMERICAN DEPOSITORY RECEIPTS (ADRS), AMERICAN DEPOSITORY SHARES (ADSS) AND OTHER DEPOSITORY RECEIPTS. ADRs and ADSs are securities that represent an ownership interest in a foreign security. They are generally issued by a U.S. bank to U.S. buyers as a substitute for direct ownership of a foreign security and are traded on U.S. exchanges.
"SMALL CAP," "MID CAP" AND "LARGE CAP" COMPANIES. Generally companies are
categorized as follows:
o A small cap company has a market capitalization of less than $2
billion.
o A mid cap company has a market capitalization of between $2 billion
and $10 billion.
o A large cap company has a market capitalization of more than $10
billion
Some sub-advisors may define the parameters for a category differently.
UNDERVALUED STOCKS. A stock is considered undervalued if the sub-advisor
believes it should be trading at a higher price than it is at the time of
purchase. Factors considered may include:
o Price relative to earnings
o Price relative to cash flow
o Price relative to financial strength
EMERGING GROWTH COMPANIES include:
o Companies that the sub-advisor believes may have earnings that grow faster
than the U.S. economy in general due to new products, management changes at
the company or economic shocks such as high inflation or sudden increases
or decreases in interest rates
o Companies that the sub-advisor believes have unrecognized asset values,
undervalued growth or emerging growth
o Companies undergoing a turnaround
EMERGING MARKET COUNTRIES are countries other than Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. When a Fund invests in securities of a company in an emerging market country, it invests in securities issued by a company that meet one or more of the following criteria:
o It is organized under the laws of an emerging market country
o It maintains its principal place of business in an emerging market country
o The principal trading market for its securities is located in an emerging
market country
o It derives at least 50% of its revenues or profits from operations within
emerging market countries
o It has at least 50% of its assets located in emerging market countries
Some sub-advisors may define the parameters for an emerging market company differently.
o Small Cap Companies. Small cap stock risk is the risk that stocks of
smaller companies may be subject to more abrupt or erratic market movements
than stocks of larger, more established companies. Small companies may have
limited product lines or financial resources, or may be dependent upon a
small or inexperienced management group. In addition, small cap stocks
typically are traded in lower volume, and their issuers typically are
subject to greater degrees of changes in their earnings and prospects.
o Mid Cap Companies. Mid cap stock risk is the risk that stocks of mid-sized
companies may be subject to more abrupt or erratic market movements than
stocks of larger, more established companies. Mid-sized companies may have
limited product lines or financial resources, and may be dependent upon a
particular niche of the market.
o Emerging Growth Companies. Investment in emerging growth companies is
subject to enhanced risks because these companies generally have limited
product lines, markets or financial resources and often exhibit a lack of
management depth. These securities can be difficult to sell and are usually
more volatile than securities of larger, more established companies.
o Initial Public Offerings (IPOs). IPO risk is the risk that the market value
of IPO shares will fluctuate considerably due to factors such as the
absence of a prior public market, unseasoned trading, the small number of
shares available for trading and limited information about the issuer. The
purchase of IPO shares may involve high transaction costs. IPO shares are
subject to market risk and liquidity risk (i.e., the potential that a Fund
may be unable to dispose of the IPO shares promptly or at a reasonable
price). When a Fund's asset base is small, a significant portion of its
performance could be attributable to investments in IPOs, because such
investments would have a magnified impact on the Fund. As a Fund's assets
grow, the effect of investments in IPOs on the Fund's performance probably
will decline, which could reduce performance.
o Technology Securities. The value of technology securities may fluctuate
dramatically and technology securities may be subject to greater than
average financial and market risk. Investments in the high technology
sector include the risk that certain products may be subject to competitive
pressures and aggressive pricing and may become obsolete and the risk that
new products will not meet expectations or even reach the market.
FOREIGN INVESTING. Investing in foreign securities poses unique risks such as
fluctuation in currency exchange rates, market illiquidity, price volatility,
high trading costs, difficulties in settlement, regulations on stock exchanges,
limits on foreign ownership, less stringent accounting, reporting and disclosure
requirements, and other considerations. Diplomatic, political or economic
developments, including nationalization or appropriation, could affect
investments in foreign securities. In the past, equity and debt instruments of
foreign markets have had more frequent and larger price changes than those of
U.S. markets.
o Emerging Market Countries. Investments in a country that is still
relatively underdeveloped involves exposure to economic structures
that are generally less diverse and mature than in the U.S. and to
political and legal systems which may be less stable. In the past,
markets of developing countries have had more frequent and larger
price changes than those of developed countries. Economic or political
changes may cause larger price changes in these securities than in
other foreign securities.
INVESTMENT STYLE RISK. Different investment styles tend to shift in and out of favor depending upon market and economic conditions as well as investor sentiment. A Fund may outperform or underperform other funds that employ a different investment style. Examples of different investment styles include growth and value investing. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company's growth of earnings potential. Also, since growth companies usually invest a high portion of earnings in their business, growth stocks may lack the dividends of some value stocks that can cushion stock prices in a falling market. Growth oriented funds may underperform when value investing is in favor. Value stocks are those that are undervalued in comparison to their peers due to adverse business developments or other factors. Value investing carries the risk that the market will not recognize a security's inherent value for a long time, or that a stock judged to be undervalued may actually be appropriately priced or overvalued. Value oriented funds may underperform when growth investing is in favor.
THE FUNDS' MANAGEMENT
o Level of knowledge and skill
o Performance as compared to its peers or benchmark
o Consistency of performance over 5 years or more
o Level of compliance with investment rules and strategies
o Employees, facilities and financial strength
o Quality of service
Touchstone Advisors will also continually monitor the performance of the Funds' sub-advisors through various analyses and through in-person, telephone and written consultations with the sub-advisors. Touchstone Advisors discusses its expectations for performance with the sub-advisors. Touchstone Advisors provides written evaluations and recommendations to the Board of Trustees, including whether or not a sub-advisor's contract should be renewed, modified or terminated.
Touchstone Advisors has been registered as an investment advisor under the Investment Advisers Act of 1940, as amended, since 1994. As of December 31, 2002, Touchstone Advisors had approximately $1.8 billion in assets under management.
The Trust and Touchstone Advisors have applied for, and the Securities and Exchange Commission has granted, an exemptive order that permits the Trust or Touchstone Advisors, under certain conditions, to select or change investment advisors, enter into new sub-advisory agreements or amend existing sub-advisory agreements without first obtaining shareholder approval. The Funds must still obtain shareholder approval of any sub-advisory agreement with a sub-advisor affiliated with the Trust or Touchstone Advisors other than by reason of serving as a sub-advisor to one or more Touchstone Funds. Shareholders of a Fund will be notified of any changes in the sub-advisor to that Fund.
Two or more sub-advisors may manage a Fund, with each managing a portion of the Fund's assets. If a Fund has more than one sub-advisor, Touchstone Advisors allocates how much of a Fund's assets are managed by each sub-advisor. Touchstone Advisors may change these allocations from time to time, often based upon the results of its evaluations of the Fund sub-advisors.
Touchstone Advisors is also responsible for running all of the operations of the Funds, except for those that are subcontracted to the sub-advisors, custodian, transfer and accounting agent and administrator. Each Fund pays Touchstone Advisors a fee for its services. Out of this fee
Touchstone Advisors pays the Fund sub-advisor a fee for its services. The fee paid to Touchstone Advisors by each Fund during its most recent fiscal year is shown in the table below:
-------------------------------------------------------------------------------- Emerging Growth Fund 0.80% of average daily net assets Small Cap Growth Fund 1.25% of average daily net assets -------------------------------------------------------------------------------- |
TCW INVESTMENT MANAGEMENT COMPANY ("TCW")
865 South Figueroa Street, Suite 1800, Los Angeles, CA 90017
TCW has been registered as an investment advisor since 1987 and provides investment advisory services to individual and institutional clients. TCW has been managing the Emerging Growth Fund since May 2001.
Nicholas F. Galluccio and Susan I. Schottenfeld have primary responsibility for the day-to-day management of the Fund's assets allocated to TCW. Mr. Galluccio is a Managing Director of TCW and has been with the firm since 1982. Ms. Schottenfeld is a Managing Director of TCW and has been with the firm since 1985.
WESTFIELD CAPITAL MANAGEMENT COMPANY, LLC ("WESTFIELD")
One Financial Center, Boston, MA 02111
Westfield has been registered as an investment advisor since 1989 and provides investment advisory services to individual and institutional clients. Westfield has been managing the Emerging Growth Fund since the Fund's inception.
William A. Muggia, Director and Chief Investment Officer of Westfield, has managed the portion of the Fund's assets allocated to Westfield since April 1999. Mr. Muggia has been with Westfield since 1994.
LONGWOOD INVESTMENT ADVISORS, INC. ("LONGWOOD")
Three Radnor Corporate Center, Radnor, PA 19087
Longwood has been registered as an investment advisor since 1995 and provides investment advisory services to individual and institutional clients.
Robert Davidson has managed the portion of the Small Cap Growth Fund's investments allocated to Longwood since the Fund's inception. Mr. Davidson, Chief Investment Officer of Longwood, founded Longwood in 1993 and has over 23 years of investment experience.
BJURMAN, BARRY & Associates ("Bjurman")
10100 Santa Monica Boulevard, Suite 1200, Los Angeles, CA 90067
Bjurman has been registered as an investment advisor since 1970 and provides investment advisory services to individuals, institutions, pension plans and mutual funds.
The Investment Policy Committee of Bjurman has managed the portion of the Fund's investments allocated to Bjurman since the Fund's inception. O. Thomas Barry III, CFA, CIC, is the lead manager of the Committee. Mr. Barry, Chief Investment Officer and Senior Executive Vice President of Bjurman, joined the firm in 1978 and has over 30 years of investment experience.
EMERGING GROWTH FUND
TCW Investment Management Company 0.50% of average daily net assets Westfield Capital Management Company, LLC 0.39% of average daily net assets SMALL CAP GROWTH FUND Longwood Investment Advisors, Inc. 0.85% of average daily net assets Bjurman, Barry & Associates 0.90% of average daily net assets -------------------------------------------------------------------------------- |
Effective December 31, 2002, the Emerging Growth Fund increased the sub-advisory fees paid to Westfield Capital Management Company, LLC. This change does not affect the amount of expenses paid by the Fund since all sub-advisory fees are paid by the Advisor.
CHOOSING A CLASS OF SHARES
Each Fund offers Class A shares, Class B shares and Class C shares. Each class of shares has different sales charges and distribution fees. The amount of sales charges and distribution fees you pay will depend on which class of shares you decide to purchase.
The following table shows the amount of front-end sales charge you will pay on purchases of Class A shares. The amount of front-end sales charge is shown as a percentage of (1) offering price and (2) the net amount invested after the charge has been subtracted. Note that the front-end sales charge gets lower as your investment amount gets larger.
--------------------------------------------------------------------------------
SALES CHARGE AS % OF SALES CHARGE AS % OF
AMOUNT OF YOUR INVESTMENT OFFERING PRICE NET AMOUNT INVESTED
--------------------------------------------------------------------------------
Under $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.95% 3.04%
$500,000 but less than $1 million 2.25% 2.30%
$1 million or more 0.00% 0.00%
|
There is no front-end sales charge if you invest $1 million or more in a Fund. This includes large total purchases made through programs such as aggregation, concurrent purchases, letters of intent and rights of accumulation. These programs are described more fully in the Statement of Additional Information ("SAI"). In addition, there is no front-end sales charge on purchases by certain persons related to the Funds or their service providers and certain other persons listed in the SAI. At the option of the Trust, the front-end sales charge may be included on purchases by such persons in the future.
If you redeem shares that you purchased as part of the $1 million purchase within 1 year, you may pay a contingent deferred sales charge ("CDSC"), a sales charge you pay when you redeem your shares, of 1% on the shares redeemed.
Class B shares of the Funds are sold at NAV without an initial sales charge so that the full amount of your purchase payment may be immediately invested in the Funds. A CDSC will be charged if you redeem Class B shares within 6 years after you purchased them. The amount of the CDSC will depend on how long you have held your shares, as set forth in the following table:
CDSC AS A
YEAR SINCE PURCHASE PAYMENT MADE % OF AMOUNT SUBJECT TO CHARGE
--------------------------------------------------------------------------------
First 5.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 1.00%
Seventh and thereafter * None
--------------------------------------------------------------------------------
|
* Class B shares will automatically convert to Class A shares after they have been held for approximately 8 years.
CONVERSION TO CLASS A SHARES. Class B shares will convert automatically to Class A shares in the month of your 8-year anniversary date or in the beginning of the 9th year after the date of your original purchase of those shares. The conversion is based on the relative NAVs of the shares of the two classes on the conversion date and no sales charge will be imposed. Class B shares you have acquired through automatic reinvestment of dividends or capital gains will be converted in proportion to the total number of Class B shares you have purchased and own. Since the Rule 12b-1 distribution fees for Class A shares are lower than for Class B shares, converting to Class A shares will lower your expenses.
Class C shares of the Funds are sold at NAV without an initial sales charge so that the full amount of your purchase payment may be immediately invested in the Funds. A CDSC of 1.00% will be charged on Class C shares redeemed within 1 year after you purchased them.
INVESTING WITH TOUCHSTONE
CHOOSING THE APPROPRIATE INVESTMENTS TO MATCH YOUR GOALS. Investing well requires a plan. We recommend that you meet with your financial advisor to plan a strategy that will best meet your financial goals.
For more information about how to purchase shares, telephone Touchstone (Nationwide call toll-free 1.800.543.0407).
! INVESTOR ALERT: Each Touchstone Fund reserves the right to reject any purchase request, including exchanges from other Touchstone Funds, that it regards as disruptive to efficient portfolio management. For example, a purchase request could be rejected because of the timing of the investment or because of a history of excessive trading by the investor.
You should read this Prospectus carefully and then determine how much you want to invest. Check below to find the minimum investment amount required to purchase shares as well as to learn about the various ways you can purchase your shares.
Initial Additional
Investment Investment
Regular Account $1,000 $ 50
Retirement Plan Account or Custodial Account under $ 250 $ 50
a Uniform Gifts/Transfers to Minors Act ("UGTMA")
Investments through the Automatic Investment Plan $ 50 $ 50
o INVESTOR ALERT: Touchstone may change these initial and additional
investment minimums at any time.
|
HOUSEHOLDING POLICY. The Funds will send one copy of prospectuses and shareholder reports to households containing multiple shareholders with the same last name. This process, known as "householding," reduces costs and provides a convenience to shareholders. If you share the same last name and address with another shareholder and you prefer to receive separate prospectuses and shareholder reports, telephone Touchstone toll-free at 1.800.543.0407 and we will begin separate mailings to you within 30 days of your request.
If you or others in your household invest in the Funds through a broker or other financial institution, you may receive separate prospectuses and shareholder reports, regardless of whether or not you have consented to householding on your investment application.
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING AN ACCOUNT
Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. What this means for you: When you open an account, we will ask for your name, residential address, date of birth, government identification number and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents. If we do not receive these required pieces of information, there may be a delay in processing your investment request, which could subject your investment to market risk. If we are unable to immediately verify your identity, the Fund may restrict further investment until your identity is verified. However, if we are unable to verify your identity, the Fund reserves the right to close your account without notice and return your investment to you at the price determined as of 4:00 p.m. Eastern time on the day in which your account is closed. If we close your account because we are unable to verify your identity, your investment will be subject to market fluctuation, which could result in a loss of a portion of your principal investment.
For information about how to purchase shares, telephone Touchstone (Nationwide call toll-free 1.800.543.0407).
You can invest in the Funds in the following ways:
BY MAIL OR THROUGH YOUR FINANCIAL ADVISOR
o Please make your check (drawn on a U.S. bank and payable in U.S. dollars)
payable to the Touchstone Funds.
o Send your check with the completed investment application to Touchstone,
P.O. Box 5354, Cincinnati, Ohio 45201-5354.
o Your application will be processed subject to your check clearing. If your
check is returned for insufficient funds or uncollected funds, you may be
charged a fee and you will be responsible for any resulting loss to the
Fund.
o You may also open an account through your financial advisor.
o We price direct purchases in the Funds based upon the next determined
public offering price (NAV plus any applicable sales charge) after your
order is received. Direct purchase orders received by Touchstone by the
close of the regular session of trading on the New York Stock Exchange
("NYSE"), generally 4:00 p.m. Eastern time, are processed at that day's
public offering price. Direct investments received by Touchstone after the
close of the regular session of trading on the NYSE, generally 4:00 p.m.
Eastern time, are processed at the public offering price next determined on
the following business day. Purchase orders received by financial advisors
before the close of the regular session of trading on the NYSE, generally
4:00 p.m. Eastern time, and transmitted to Touchstone by 5:00 p.m. Eastern
time, are processed at that day's public offering price. Purchase orders
received from financial advisors after 5:00 p.m. Eastern time, are
processed at the public offering price next determined on the following
business day.
BY EXCHANGE
o You may exchange shares of the Funds for shares of the same class of
another Touchstone Fund at NAV. You may also exchange Class A or Class C
shares of the Funds for Class A shares of any Touchstone money market fund.
o You do not have to pay any exchange fee for your exchange.
o Shares otherwise subject to a CDSC will not be charged a CDSC in an
exchange. However, when you redeem the shares acquired through the
exchange, the shares you redeem may be subject to a CDSC, depending upon
when you originally purchased the shares you exchanged. For purposes of
computing the CDSC, the length of time you have owned your shares will be
measured from the date of original purchase and will not be affected by any
exchange.
o If you exchange Class C shares for Class A shares of any Touchstone money
market fund, the amount of time you hold shares of the money market fund
will not be added to the holding period of your original shares for the
purpose of calculating the CDSC, if you later redeem the exchanged shares.
However, if you exchange back into your original Class C shares, the prior
holding period of your Class C shares will be added to your current holding
period of Class C shares in calculating the CDSC.
o You should review the disclosure provided in the Prospectus relating to the
exchanged-for shares carefully before making an exchange of your Fund
shares.
THROUGH RETIREMENT PLANS
o You may invest in the Funds through various retirement plans. These include individual retirement plans and employer sponsored retirement plans, such as defined benefit and defined contribution plans.
INDIVIDUAL RETIREMENT PLANS
o Traditional Individual Retirement Accounts (IRAs)
o Savings Incentive Match Plan for Employees (SIMPLE IRAs)
o Spousal IRAs
o Roth Individual Retirement Accounts (Roth IRAs)
o Coverdell Education Savings Accounts (Education IRAs)
o Simplified Employee Pension Plans (SEP IRAs)
o 403(b) Tax Sheltered Accounts that employ as custodian a bank
acceptable to Touchstone
EMPLOYER SPONSORED RETIREMENT PLANS
o Defined benefit plans
o Defined contribution plans (including 401(k) plans, profit sharing
plans and money purchase plans)
o 457 plans
OOO SPECIAL TAX CONSIDERATION
To determine which type of retirement plan is appropriate for you, please
contact your tax advisor.
For further information about any of the plans, agreements, applications and annual fees, contact Touchstone (Nationwide call toll-free 1.800.543.0407) or your financial advisor.
PURCHASES WITH SECURITIES. Shares may be purchased by tendering payment in-kind in the form of marketable securities, including but not limited to, shares of common stock, provided the acquisition of such securities is consistent with the applicable Fund's investment goal and is otherwise acceptable to the Advisor.
o Complete the investment form provided at the bottom of a recent account
statement.
o Make your check payable to the Touchstone Funds.
o Write your account number on the check.
o Either: (1) Mail the check with the investment form in the envelope
provided with your account statement; or (2) Mail the check directly to
your financial advisor at the address printed on your account statement.
Your financial advisor is responsible for forwarding payment promptly to
Touchstone.
o If your check is returned for insufficient funds or uncollected funds, you
may be charged a fee and you will be responsible for any resulting loss to
the Fund.
BY WIRE
o Contact your bank and ask it to wire federal funds to Touchstone. Specify
your name and account number.
o Purchases in the Funds will be processed at that day's NAV (or public
offering price, if applicable) if Touchstone receives a properly executed
wire by the close of the regular session of trading on the NYSE, generally
4:00 p.m. Eastern time, on a day when the NYSE is open for regular trading.
o Banks may charge a fee for handling wire transfers.
o You should contact Touchstone or your financial advisor for further
instructions.
BY EXCHANGE
o You may add to your account by exchanging shares from an unaffiliated
mutual fund or from another Touchstone Fund.
o For information about how to exchange shares among the Touchstone Funds,
see "Opening an Account - By exchange" in this Prospectus.
AUTOMATIC INVESTMENT PLAN. You can pre-authorize monthly investments of $50 or more in a Fund to be processed electronically from a checking or savings account. You will need to complete the appropriate section in the investment application to do this. For further details about this service, call Touchstone at 1.800.543.0407.
REINVESTMENT/CROSS REINVESTMENT. Dividends and capital gains can be automatically reinvested in the Fund that pays them or in another Fund within the same class of shares without a fee or sales charge. Dividends and capital gains will be reinvested in the Fund that pays them, unless you indicate otherwise on your investment application. You may also choose to have your dividends or capital gains paid to you in cash.
DIRECT DEPOSIT PURCHASE PLAN. You may automatically invest Social Security checks, private payroll checks, pension pay outs or any other pre-authorized government or private recurring payments in our Funds. This occurs on a monthly basis and the minimum investment is $50.
DOLLAR COST AVERAGING. Our dollar cost averaging program allows you to diversify your investments by investing the same amount on a regular basis. You can set up periodic automatic transfers of at least $50 from one Touchstone Fund to any other. The applicable sales charge, if any, will be assessed.
PROCESSING ORGANIZATIONS. You may also purchase shares of the Funds through a "processing organization," (e.g., a mutual fund supermarket) which is a broker-dealer, bank or other financial institution that purchases shares for its customers. Some of the Funds have authorized certain processing organizations to receive purchase and sales orders on their behalf. Before investing in the Funds through a processing organization, you should read any materials provided by the processing organization together with this Prospectus.
When shares are purchased this way, there may be various differences. The
processing organization may:
o Charge a fee for its services
o Act as the shareholder of record of the shares
o Set different minimum initial and additional investment requirements
o Impose other charges and restrictions
o Designate intermediaries to accept purchase and sales orders on the
Funds' behalf
Touchstone considers a purchase or sales order as received when an authorized processing organization, or its authorized designee, receives the order in proper form. These orders will be priced based on the Fund's NAV (or offering price, if applicable) next computed after such order is received in proper form.
Shares held through a processing organization may be transferred into your name following procedures established by your processing organization and Touchstone. Certain processing organizations may receive compensation from the Funds, Touchstone, Touchstone Advisors or their affiliates.
BY TELEPHONE
o You can sell or exchange your shares over the telephone, unless you
have specifically declined this option. If you do not wish to have
this ability, you must mark the appropriate section of the investment
application. You may only sell shares over the telephone if the amount
is less than $25,000.
o To sell your Fund shares by telephone, call Touchstone at
1.800.543.0407.
o Shares held in IRA accounts and qualified retirement plans cannot be
sold by telephone.
o If we receive your sale request before the close of the regular
session of trading on the NYSE, generally 4:00 p.m. Eastern time, on a
day when the NYSE is open for regular trading, the sale of your shares
will be processed at the next determined NAV on that day. Otherwise it
will occur on the next business day.
o Interruptions in telephone service could prevent you from selling your
shares by telephone when you want to. When you have difficulty making
telephone sales, you should mail to Touchstone (or send by overnight
delivery), a written request for the sale of your shares.
o In order to protect your investment assets, Touchstone will only
follow instructions received by telephone that it reasonably believes
to be genuine. However, there is no guarantee that the instructions
relied upon will always be genuine and Touchstone will not be liable,
in those cases. Touchstone has certain procedures to confirm that
telephone instructions are genuine. If it does not follow such
procedures in a particular case, it may be liable for any losses due
to unauthorized or fraudulent instructions. Some of these procedures
may include:
o Requiring personal identification
o Making checks payable only to the owner(s) of the account shown
on Touchstone's records
o Mailing checks only to the account address shown on Touchstone's
records
o Directing wires only to the bank account shown on Touchstone's
records
o Providing written confirmation for transactions requested by
telephone
o Tape recording instructions received by telephone
BY MAIL
o Write to Touchstone.
o Indicate the number of shares or dollar amount to be sold.
o Include your name and account number.
o Sign your request exactly as your name appears on your investment
application.
BY WIRE
o Complete the appropriate information on the investment application.
o If your proceeds are $1,000 or more, you may request that Touchstone wire
them to your bank account.
o You may be charged a fee.
o Redemption proceeds will only be wired to a commercial bank or brokerage
firm in the United States.
o Your redemption proceeds may be deposited without a charge directly into
your bank account through an ACH transaction.
Contact Touchstone for more information.
THROUGH A SYSTEMATIC WITHDRAWAL PLAN
o You may elect to receive, or send to a third party, withdrawals of $50 or
more if your account value is at least $5,000.
o Withdrawals can be made monthly, quarterly, semiannually or annually.
o There is no special fee for this service.
o There is no minimum amount required for retirement plans.
OOO SPECIAL TAX CONSIDERATION
Involuntary sales may result in the sale of your shares at a loss or may result
in taxable investment gains.
THROUGH YOUR FINANCIAL ADVISOR
o You may also sell shares by contacting your financial advisor, who may
charge you a fee for this service. Shares held in street name must be sold
through your financial advisor or, if applicable, the processing
organization.
o Your financial advisor is responsible for making sure that sale requests
are transmitted to Touchstone in proper form in a timely manner.
OOO SPECIAL TAX CONSIDERATION
Selling your shares may cause you to incur a taxable gain or loss.
o INVESTOR ALERT: Unless otherwise specified, proceeds will be sent to the record owner at the address shown on Touchstone's records.
The CDSC will not apply to redemptions of shares you received through reinvested dividends or capital gains distributions and may be waived under certain circumstances described below. The CDSC will be assessed on the lesser of your shares' NAV at the time of redemption or the time of purchase. Therefore, any increase in the share price is not subject to the CDSC. The CDSC is paid to Touchstone to reimburse expenses incurred in providing distribution-related services to the Funds in connection with the sale of shares.
No CDSC is applied if:
o The redemption is due to the death or post-purchase disability of a
shareholder
o The redemption is from a systematic withdrawal plan and represents no
more than 10% of your annual account value
o The redemption is a benefit payment made from a qualified retirement
plan, unless the redemption is due to termination of the plan or
transfer of the plan to another financial institution
When we determine whether a CDSC is payable on a redemption, we assume that:
o The redemption is made first from amounts not subject to a CDSC; then
o From the earliest purchase payment(s) that remain invested in the Fund
The SAI contains further details about the CDSC and the conditions for waiving the CDSC.
Some circumstances require that your request for the sale of shares be made in writing accompanied by an original Medallion Signature Guarantee. A Medallion Signature Guarantee helps protect you against fraud. You can obtain one from most banks or securities dealers, but not from a notary public. Some circumstances requiring an original Medallion Signature Guarantee include:
o Proceeds from the sale of shares that exceed $100,000
o Proceeds to be paid when information on your investment application has
been changed within the last 30 days (including a change in your name or
your address, or the name or address of a payee)
o Proceeds are being sent to an address other than the address of record
o Proceeds or shares are being sent/transferred from a joint account to an
individual's account
o Changing wire or ACH instructions or sending proceeds via wire or ACH when
instructions have been added within 30 days of your redemption request
o Proceeds or shares are being sent/transferred between accounts with
different account registrations
PROCEEDS SENT TO FINANCIAL ADVISORS. Proceeds that are sent to your financial advisor will not usually be reinvested for you unless you provide specific instructions to do so. Therefore, the financial advisor may benefit from the use of your money.
FUND SHARES PURCHASED BY CHECK. If you purchase Fund shares by personal check, the proceeds of a sale of those shares will not be sent to you until the check has cleared, which may take up to 15 days. If you need your money sooner, you should purchase shares by federal funds, bank wire, or with a certified or cashier's check.
REINSTATEMENT PRIVILEGE. You may reinvest the proceeds from a sale of your shares, a dividend, or a capital gain distribution in any of the Touchstone Funds without a sales charge. You may do so by sending a written request and a check to Touchstone within 90 days after the date of the sale, dividend or distribution. Reinvestment will be at the next NAV calculated after Touchstone receives your request.
OOO SPECIAL TAX CONSIDERATION
If you exercise the Reinstatement Privilege, you should contact your tax
advisor.
LOW ACCOUNT BALANCES. If your balance falls below the minimum amount required for your account, based on actual amounts you have invested (as opposed to a reduction from market changes), your account may be subject to an annual account maintenance fee or Touchstone may sell your shares and send the proceeds to you. This involuntary sale does not apply to retirement accounts or custodian accounts under the Uniform Gifts/Transfers to Minors Act (UGTMA). Touchstone will notify you if your shares are about to be sold and you will have 30 days to increase your account balance to the minimum amount.
DELAY OF PAYMENT. It is possible that the payment of your sale proceeds could be postponed or your right to sell your shares could be suspended during certain circumstances. These circumstances can occur:
o When the NYSE is closed for other than customary weekends and holidays
o When trading on the NYSE is restricted
o When an emergency situation causes a sub-advisor to not be reasonably able
to dispose of certain securities or to fairly determine the value of a
Fund's net assets
o During any other time when the SEC, by order, permits.
REDEMPTION IN KIND. Under unusual circumstances, when the Board of Trustees deems it appropriate, a Fund may make payment for shares redeemed in portfolio securities of the Fund taken at current value.
The Funds' investments are valued based on market value or, if no market value is available, based on fair value as determined by the Board of Trustees (or under their direction). All assets and liabilities initially expressed in foreign currency values will be converted into U.S. dollar values. Some specific pricing strategies follow:
o All short-term dollar-denominated investments that mature in 60 days
or less are valued on the basis of amortized cost.
o Securities mainly traded on a U.S. exchange are valued at the last
sale price on that exchange or, if no sales occurred during the day,
at the current quoted bid price.
o Securities mainly traded on a non-U.S. exchange are generally valued
according to the preceding closing values on that exchange. However,
if an event that may change the value of a security occurs after the
time that the closing value on the non-U.S. exchange was determined,
the security may be priced based on fair value. This may cause the
value of the security on the books of the Fund to be significantly
different from the closing value on the non-U.S. exchange and may
affect the calculation of the NAV.
o Because portfolio securities that are primarily listed on a non-U.S.
exchange may trade on weekends or other days when a Fund does not
price its shares, a Fund's NAV may change on days when shareholders
will not be able to buy or sell shares.
DISTRIBUTIONS AND TAXES
OOO SPECIAL TAX CONSIDERATION
You should consult with your tax advisor to address your own tax situation.
Each Fund intends to distribute to its shareholders substantially all of its income and capital gains. Each Fund's dividends are distributed and paid annually. Distributions of any capital gains earned by a Fund will be made at least annually.
ORDINARY INCOME. Income and short-term capital gains that are distributed to you are taxable as ordinary income for federal income tax purposes regardless of how long you have held your Fund shares. To the extent the underlying income of a Fund consists of qualified dividend income, income distributions by the Fund may be subject to a maximum rate of federal income tax of 15% for individuals and may qualify for the dividends received deduction for corporations.
LONG-TERM CAPITAL GAINS. Long-term capital gains distributed to you are taxable as long-term capital gains for federal income tax purposes regardless of how long you have held your Fund shares. The maximum individual tax rate on net long-term capital gains has been reduced from 20% to 15%, effective for gains taken into account, whether sold or exchanged after May 5, 2003.
OOO SPECIAL TAX CONSIDERATION
For federal income tax purposes, an exchange of shares is treated as a sale of
the shares and a purchase of the shares you receive in exchange. Therefore, you
may incur a taxable gain or loss in connection with the exchange.
BACKUP WITHHOLDING. A Fund may be required to withhold U.S. federal income tax on all taxable distributions payable to shareholders who fail to provide their correct taxpayer identification number or to make required certifications, or who have been notified by the Internal Revenue Service that they are subject to backup withholding. The current backup withholding rate is 28%.
STATEMENTS AND NOTICES. You will receive an annual statement outlining the tax status of your distributions. You will also receive written notices of certain foreign taxes paid by the Funds and certain distributions paid by the Funds during the prior taxable year.
FINANCIAL HIGHLIGHTS
The financial highlights table for the Emerging Growth Fund is intended to help you understand the Fund's financial performance for the past five years. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate an investor would have earned or lost on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information for the fiscal periods ended December 31, 1999 and thereafter has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements is included in the annual report, which is available upon request. Information for the prior period was audited by other independent accountants.
EMERGING GROWTH FUND - CLASS A
================================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
--------------------------------------------------------------------------------------------------------------------------------
THREE
YEAR YEAR MONTHS YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DEC. 31, DEC. 31, DEC. 31,
2003 2002 2001(A) 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ............. $ 19.52 $ 15.96 $ 17.93 $ 16.96 $ 13.40 $ 13.85
-------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment loss ............................. (0.14) (0.14) -- (0.06) (0.09) (0.04)
Net realized and unrealized gains
(losses) on investments ..................... (5.29) 3.76 (1.97) 4.16 6.18 0.37
-------------------------------------------------------------------------
Total from investment operations ................... (5.43) 3.62 (1.97) 4.10 6.09 0.33
-------------------------------------------------------------------------
Distributions from net realized gains .............. (0.20) (0.06) -- (3.13) (2.53) (0.78)
-------------------------------------------------------------------------
Net asset value at end of period ................... $ 13.89 $ 19.52 $ 15.96 $ 17.93 $ 16.96 $ 13.40
=========================================================================
Total return(B) .................................... (27.90%) 22.72% (10.99%)(C) 25.92% 45.85% 2.57%
=========================================================================
Net assets at end of period (000's) ................ $153,247 $169,781 $ 19,141 $ 15,304 $ 10,743 $ 8,335
=========================================================================
Ratio of net expenses to
average net assets .............................. 1.50% 1.50% 1.50%(D) 1.50% 1.50% 1.50%
Ratio of net investment loss to
average net assets .............................. (1.07%) (1.02%) (0.10%)(D) (0.40%) (0.66%) (0.41%)
Portfolio turnover ................................. 62% 73% 68%(D) 98% 97% 78%
|
(A) Effective after the close of business on March 31, 2001, the Fund changed
its fiscal year-end to March 31.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
EMERGING GROWTH FUND - CLASS B
=========================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
-----------------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2003 2002(A)
-----------------------------------------------------------------------------------------
Net asset value at beginning of period .......................... $ 18.25 $ 16.45
---------------------
Income (loss) from investment operations:
Net investment loss .......................................... (0.14) (0.09)
Net realized and unrealized gains (losses) on investments .... (5.38) 1.95
---------------------
Total from investment operations ................................ (5.52) 1.86
---------------------
Distributions from net realized gains ........................... (0.20) (0.06)
---------------------
Net asset value at end of period ................................ $ 12.53 $ 18.25
=====================
Total return(B) ................................................. (30.34%) 11.35%(C)
=====================
Net assets at end of period (000's) ............................. $ 26,226 $ 15,335
=====================
Ratio of net expenses to average net assets ..................... 2.25% 2.25%(D)
Ratio of net investment loss to average net assets .............. (1.77%) (1.90%)(D)
Portfolio turnover rate ......................................... 62% 73%(D)
|
(A) Represents the period from commencement of operations (May 1, 2001) through
March 31, 2002.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
EMERGING GROWTH FUND - CLASS C
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
-------------------------------------------------------------------------------------------------------------------
THREE
YEAR YEAR MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DEC. 31, DEC. 31,
2003 2002 2001(B) 2000 1999(A)
-------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ............. $ 18.26 $ 15.01 $ 16.87 $ 16.29 $ 13.04
------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income (loss) .................... (0.13) 0.01 (0.02) (0.17) (0.19)
Net realized and unrealized gains
(losses) on investments ...................... (5.38) 3.30 (1.84) 3.88 5.97
------------------------------------------------------------
Total from investment operations ................... (5.51) 3.31 (1.86) 3.71 5.78
------------------------------------------------------------
Less distributions:
Dividends from net investment
income ....................................... -- -- -- (3.13) (2.53)
Distributions from net realized gains ........... (0.20) (0.06) -- -- --
------------------------------------------------------------
Total distributions ................................ (0.20) (0.06) -- (3.13) (2.53)
------------------------------------------------------------
Net asset value at end of period ................... $ 12.55 $ 18.26 $ 15.01 $ 16.87 $ 16.29
============================================================
Total return(C) .................................... (30.27%) 22.09% (11.03%)(D) 24.58% 44.86%
============================================================
Net assets at end of period (000's) ................ $ 97,743 $ 67,347 $ 7,600 $ 5,466 $ 3,964
============================================================
Ratio of net expenses to
average net assets .............................. 2.25% 2.25% 2.25%(E) 2.25% 2.25%
Ratio of net investment loss to
average net assets .............................. (1.77%) (1.61%) (0.63%)(E) (1.15%) (1.41%)
Portfolio turnover ................................. 62% 73% 68%(E) 98% 97%
|
(A) Represents the period from the commencement of operations (January 1, 1999)
through December 31, 1999.
(B) Effective after the close of business on March 31, 2001, the Fund changed
its fiscal year-end to March 31.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Not annualized.
(E) Annualized.
The financial highlights table for the Small Cap Growth Fund is intended to help you understand the Fund's financial performance during its operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate an investor would have earned or lost on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the annual report, which is available upon request.
2003(A)
--------------------------------------------------------------------------------
Net asset value at beginning of period .......................... $ 10.00
--------
Loss from investment operations:
Net investment loss .......................................... (0.06)
Net realized and unrealized losses
on investments ............................................ (0.16)
--------
Total from investment operations ................................ (0.22)
--------
Net asset value at end of period ................................ $ 9.78
========
Total return(B) ................................................. (2.20%)(C)
========
Net assets at end of period (000's) ............................. $ 15,230
========
Ratio of net expenses to average net assets ..................... 1.95%(D)
Ratio of net investment loss to average net assets .............. (1.61%)(D)
Portfolio turnover .............................................. 128%(D)
(A) Represents the period from the initial public offering (October 21, 2002)
through March 31, 2003.
|
(B) Total return shown excludes the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
2003(A)
--------------------------------------------------------------------------------
Net asset value at beginning of period .......................... $ 10.00
--------
Loss from investment operations:
Net investment loss .......................................... (0.06)
Net realized and unrealized losses
on investments ............................................ (0.19)
--------
Total from investment operations ................................ (0.25)
--------
Net asset value at end of period ................................ $ 9.75
========
Total return(B) ................................................. (2.50%)(C)
========
Net assets at end of period (000's) ............................. $ 1,399
========
Ratio of net expenses to average net assets ..................... 2.69%(D)
Ratio of net investment loss to average net assets .............. (2.38%)(D)
Portfolio turnover .............................................. 128%(D)
(A) Represents the period from the initial public offering (October 21, 2002)
through March 31, 2003.
|
(B) Total return shown excludes the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
2003(A)
--------------------------------------------------------------------------------
Net asset value at beginning of period .......................... $ 10.00
--------
Loss from investment operations:
Net investment loss .......................................... (0.07)
Net realized and unrealized losses
on investments ............................................ (0.19)
--------
Total from investment operations ................................ (0.26)
--------
Net asset value at end of period ................................ $ 9.74
========
Total return(B) ................................................. (2.60%)(C)
========
Net assets at end of period (000's) ............................. $ 3,029
========
Ratio of net expenses to average net assets ..................... 2.69%(D)
Ratio of net investment loss to average net assets .............. (2.39%)(D)
Portfolio turnover .............................................. 128%(D)
(A) Represents the period from the initial public offering (October 21, 2002)
through March 31, 2003.
|
(B) Total return shown excludes the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
For investors who want more information about the Funds, the following documents are available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed information about the Funds and is legally a part of this Prospectus.
ANNUAL/SEMIANNUAL REPORTS: The Funds' annual and semiannual reports provide additional information about the Funds' investments. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected a Fund's performance during its last fiscal year.
You can get free copies of the SAI, the reports, other information and answers to your questions about the Funds by contacting your financial advisor, or the Funds at: Touchstone Funds . 221 East Fourth Street, Suite 300 . Cincinnati, Ohio 45202-4133 . 1.800.543.0407 http://www.touchstoneinvestments.com
Information about the Funds (including the SAI) can be reviewed and copied at the Securities and Exchange Commission's public reference room in Washington, D.C. You can receive information about the operation of the public reference room by calling the SEC at 1.202.942.8090.
Reports and other information about the Funds are available on the SEC's internet site at http://www.sec.gov. For a fee, you can get text-only copies of reports and other information by writing to the Public Reference Room of the SEC, 450 Fifth Street N.W., Washington, D.C. 20549-0102, or by sending an e-mail request to: publicinfo@sec.gov.
Investment Company Act file no. 811-3651
TOUCHSTONE INVESTMENTS
DISTRIBUTOR
Touchstone Securities, Inc.
221 East Fourth Street
Cincinnati, Ohio 45202-4133
800.638.8194
www.touchstoneinvestments.com
INVESTMENT ADVISOR
Touchstone Advisors, Inc.
221 East Fourth Street
Cincinnati, Ohio 45202-4133
TRANSFER AGENT
Integrated Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
SHAREHOLDER SERVICE
800.543.0407
A Member of Western & Southern Financial Group
Please complete all four pages of this application.
TOUCHSTONE
INVESTMENTS
NOT FOR USE WITH IRAS, SEP, SIMPLE, COVERDELL OR 403(b) PLANS RETURN COMPLETED FORM TO:
Was order previously telephoned in? o Yes 0 No If yes, date ( ) Touchstone Investments o P.O. Box 5354 o Cincinnati, OH 45202
and confirmation #__________________________ For assistance in completing this form, call 800.543.0407
------------------------------------------------------------------------------------------------------------------------------------
Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an
account. What this means for you: When you open an account, we will ask for your name, residential address, date of birth, social
security or other government identification number and other information that will allow us to identify you. We may also ask to see
your driver's license or other identifying documents. If we do not receive these required pieces of information, there may be a
delay in processing your investment request, which could subject your investment to market risk. If we are unable to immediately
verify your identity, the Fund may restrict further investment until your identify is verified. However, if we are unable to verify
your identity, the Fund reserves the right to close your account without notice and return your investment to you at the price
determined as of 4:00 p.m. Eastern Time on the day in which your account is closed. If we close your account because we are unable
to verify your identity, your investment will be subject to market fluctuation, which could result in a loss of a portion of your
principal investment.
====================================================================================================================================
1a. ACCOUNT REGISTRATION (check one box only)(*This information must be provided to open an account.)
====================================================================================================================================
o INDIVIDUAL o JOINT TENANT (For joint-owners, joint tenancy with right of survivorship is presumed unless otherwise specified.)
------------------------------------------------------------------------------------------------------------------------------------
Name of Individual Owner - First, Initial, Last* Name of Joint Owner (if any) - First, Initial, Last*
------------------------------------------------------------------------------------------------------------------------------------
Owner's Social Security Number* Date of Birth* Joint Owner's Social Security Number* Date of Birth*
------------------------------------------------------------------------------------------------------------------------------------
o GIFT/TRANSFER TO A MINOR (Only one custodian and minor)
------------------------------------------------------------------------------------------------------------------------------------
Name of Minor - First, Initial, Last*
Under the ________________________ Uniform Gifts/Transfers to Minors Act
(State of minor's residence)
------------------------------------------------------------------------------------------------------------------------------------
Minor's Social Security Number* Minor's Date of Birth*
------------------------------------------------------------------------------------------------------------------------------------
Name of Custodian - First, Initial, Last*
------------------------------------------------------------------------------------------------------------------------------------
Custodian's Address* Custodian's Date of Birth* Custodian's Social Security Number*
------------------------------------------------------------------------------------------------------------------------------------
oTRUST(Must provide copy of title and signature page of Trust document)o EMPLOYER SPONSORED QUALIFIED PLAN (Must provide copy of
plan document)
------------------------------------------------------------------------------------------------------------------------------------
Name of Trust Agreement/Qualified Plan Taxpayer I.D. Number* Date of Trust Agreement
------------------------------------------------------------------------------------------------------------------------------------
Name of Trustee(s) - First, Initial, Last Name of Beneficiary - First, Initial, Last
------------------------------------------------------------------------------------------------------------------------------------
Name of Plan Administrator Address Phone Number Fax Number E-mail Address
------------------------------------------------------------------------------------------------------------------------------------
o CORPORATION, PARTNERSHIP OR OTHER ENTITY 1b. FOR ALL ACCOUNT TYPES
------------------------------------------------------------------------------------------------------------------------------------
Name of Corporation or Other Entity* Occupation and Employer Name/Address
------------------------------------------------------------------------------------------------------------------------------------
Taxpayer I.D. Number* Are you an associated person of an NASD member?
o Yes o No
====================================================================================================================================
2. ADDRESS (P.O. Box not acceptable without street address)(*This information must be provided to open an account).
====================================================================================================================================
Street Home Phone
( )
------------------------------------------------------------------------------------------------------------------------------------
City Business Phone
( )
------------------------------------------------------------------------------------------------------------------------------------
State Zip Are you a U.S. Citizen? o Yes o No (please specify country):
------------------------------------------------------------------------------------------------------------------------------------
Mailing Address (if different)
------------------------------------------------------------------------------------------------------------------------------------
Street
------------------------------------------------------------------------------------------------------------------------------------
City State Zip
====================================================================================================================================
3. HOUSEHOLDING
====================================================================================================================================
Unless the box below is checked, by signing this Application, you authorize each Fund to send one copy of prospectuses and
shareholder reports to multiple shareholders in your household with the same last name. This process, known as "householding,"
reduces costs and provides a convenience to shareholders. If you or others in your household invest in the Funds through a broker
or other financial institution, you may receive separate prospectuses and shareholder reports, regardless of whether or not you
have consented to householding on your Touchstone Application.
(check only if you do NOT want your reports householded)
[ ] I DO NOT elect to participate in householding.
====================================================================================================================================
4. FUND SELECTION (minimum initial investment is $1,000 per Fund or $50 per Fund with automatic investment plan.) Minimum iniital
investment is $100,000 for the Institutional U.S. Government Money Market Fund and $1 million for Institutional Shares in the
Ohio Tax-Free Money Market Fund. Indicate the Fund(s), Class and investment amounts below. If no Class is indicated, Class A
shares will be purchased.
AUTOMATIC INVESTMENT PLAN. The Automatic Investment Plan provides for regular subsequent investments to be made electronically
though Automatic Clearing House (ACH) from your bank account into the Fund(s) you select below. There is no charge by the
Touchstone Funds and you may cancel at any time with no obligation or penalty. Please withdraw from my bank account $________
(minimum $50 per Fund) monthly beginning ___/___/___ (date) to be invested in the Fund(s) below (available any day from the 1st
to the 25th). If no date is selected, your automatic investment will occur on the 15th of the month. If the date falls on a
non-business day, your automatic investment will occur on the following business day. Attach a voided check or preprinted
deposit slip. Any Joint Owner of your bank account who is not a Joint Owner of this new account with the Touchstone Funds must
sign here:
----------------------------------------------------- -------------------------------
Name Date
TOUCHSTONE FUNDS Investment Class A Class B Class C Automatic
Amount Shares Shares Shares Investment Amount
EQUITY FUNDS
Small Cap Growth Fund $_________ [ ]56 [ ]256 [ ]57 $__________
Emerging Growth Fund $_________ [ ]42 [ ]242 [ ]43 $__________
Growth Opportunities Fund $_________ [ ]91 [ ]291 [ ]90 $__________
Large Cap Growth Fund $_________ [ ]29 [ ]229 [ ]28 $__________
Enhanced 30 Fund $_________ [ ]44 [ ]244 [ ]45 $__________
Value Plus Fund $_________ [ ]48 [ ]248 [ ]49 $__________
TAXABLE BOND FUNDS
High Yield Fund $_________ [ ]54 [ ]254 [ ]55 $__________
Core Bond Fund $_________ [ ]52 [ ]252 [ ]53 $__________
Intermediate Term U.S.Government Bond Fund$_________ [ ]1 [ ]201 [ ]15 $__________
TAX-FREE BOND FUNDS
Ohio Insured Tax-Free Fund $_________ [ ]9 [ ]209 [ ]14 $__________
Tax-Free Intermediate Term Fund $_________ [ ]3 [ ]203 [ ]16 $__________
TAXABLE MONEY MARKET FUNDS
Money Market Fund $_________ [ ]96 N/A N/A $__________
U.S. Government Money Market Fund $_________ [ ]10 N/A N/A $__________
Instit. U.S.Govt. Money Market Fund $_________ [ ]23 N/A N/A N/A
TAX-FREE MONEY MARKET FUNDS
Tax-Free Money Market Fund $_________ [ ]2 N/A N/A $__________
California Tax-Free Money Market Fund $_________ [ ]24 N/A N/A $__________
Florida Tax-Free Money Market Fund $_________ [ ]11 N/A N/A $__________
Ohio Tax-Free Money Market Fund $_________ [ ]Retail7[ ]Institutional 17 $__________
Total investment of $_____________. Please make check payable to the Touchstone Funds.
====================================================================================================================================
5. DISTRIBUTION OPTION (check the appropriate boxes)
====================================================================================================================================
Unless the box(es) below are checked, dividends and capital gains will be reinvested in the Fund that pays them.
Pay in
Cash
Dividends [ ]
Short-term capital gains [ ]
Long-term capital gains [ ]
Cross Reinvestment: From __________________________ Fund to _______________________________ Fund
From __________________________ Fund to _______________________________ Fund
====================================================================================================================================
6. RIGHTS OF ACCUMULATION
====================================================================================================================================
If you already have an account with the Touchstone Family of Funds, you may be eligible for reduced sales charges subject to
Touchstone's confirmation of the following eligible holdings:
------------------------------------------------------------------------------------------------------------------------------------
Fund Name
------------------------------------------------------------------------------------------------------------------------------------
Shareholder Name
------------------------------------------------------------------------------------------------------------------------------------
Account Number
====================================================================================================================================
7. LETTER OF INTENT
====================================================================================================================================
If you intend to invest a certain amount over a 13-month period in one or more of the Touchstone Family of Funds (excluding
Money Market Funds), you may be entitled to a reduced sales charge on your initial investment. By indicating an amount below, you
agree to the terms of the Letter of Intent set forth in the Statement of Additional Information.
o $50,000 o $100,000 o $250,000 o $500,000 o $1,000,000 or more
Although you are not obligated to complete the Letter of Intent, if it is not fulfilled during the 13-month period, your initial
(and any subsequent) investments purchased at a reduced sales charge will be charged the approprite sales charge retroactively.
o I am already investing under an existing Letter of Intent in the following account number: ___________________________.
====================================================================================================================================
9. TELEPHONE EXCHANGES AND REDEMPTIONS
====================================================================================================================================
Unless the boxes below are checked, by signing this Application, the investor authorizes each Fund and its Transfer Agent to act on
the investor's telephone instructions, or on telephone instructions from any person representing to be an authorized agent of the
investor and requesting a redemption or exchange on the investor's behalf. The undersigned agrees that any redemption or exchange
made pursuant to this authorization shall be subject to the provisions of the current Prospectus of each Fund, and that neither the
Funds nor their Transfer Agent or Distributor, nor their respective affiliates, will be liable for any loss, damage, expense or cost
which may arise out of any telephone redemption or exchange request they reasonably believe to be genuine, including any fraudulent
or unauthorized requests. The investor(s) will bear the risk of any such loss. In an effort to determine that telephone requests are
genuine, the Funds and/or their Transfer Agent will employ reasonable procedures, which may include, among others, requiring forms
of personal identification prior to acting upon telephone instructions and providing written confirmation of the transactions.
Telephone conversations also may be recorded. REDEMPTION PROCEEDS OF $1,000 OR MORE MAY BE WIRED TO THE SHAREHOLDER'S ACCOUNT AT A
COMMERCIAL BANK OR BROKERAGE FIRM IN THE UNITED STATES UPON VERBAL REQUEST IF THE BANK ACCOUNT INFORMATION IN SECTION 7 IS COMPLETE.
([CHECK] only if you do NOT want to use telephone authorization.)
o I DO NOT elect the telephone exchange privilege. o I DO NOT elect the telephone redemption privilege.
====================================================================================================================================
10. ELIGIBILITY FOR EXEMPTION FROM SALES CHARGE
====================================================================================================================================
o If you are eligible for exemption from sales charges as described in the Statement of Additional Information, please check here
and attach Form 7008.
====================================================================================================================================
11. TAXPAYER I.D. NUMBER CERTIFICATION/SIGNATURES
====================================================================================================================================
I (We) are of legal age and capacity, have legal authority to purchase shares, have received and read a current prospectus for each
Fund selected and agree to the terms and conditions on this Application and those contained in the current prospectus(es) (including
the Statement(s) of Additional Information) of the Fund(s) selected for purchase.
I (We) acknowledge that the account will be subject to the telephone exchange and redemption privileges (unless declined) described in the Fund's current Prospectus and agree that the Fund, its Distributor and Transfer Agent will not be liable for any loss in acting on written or telephone instructions reasonably believed by them to be authentic. I (We) acknowledge that we have received and understand the terms of the Trust's and Distributor's Privacy Protection Policy and agree not to hold the Trust and its Distributor and their respective officers, employees, agents and affiliates liable for any actions taken pursuant to the written Privacy Protection Policy. I (We) hereby ratify any instructions given pursuant to this Application and for myself (ourselves) and my (our) successors and assigns do hereby release each Fund, its Distributor and its Transfer Agent and their respective officers, employees, agents and affiliates from any and all liability in the performance of the acts instructed herein. I ACKNOWLEDGE THAT MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, CREDIT UNION OR INSURANCE COMPANY AND ARE NOT FEDERALLY INSURED BY THE FDIC, THE FEDERAL RESERVE, OR ANY OTHER AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. UNDER PENALTY OF PERJURY, I/WE ALSO CERTIFY THAT: a. The number shown on this application is my/our correct taxpayer identification number(s) (or I am/we are waiting for a number(s) to be issued to me/us); and b. I am/we are not subject to backup withholding because: (i) I am/we are exempt from backup withholding, or (ii) I/we have not been notified by the IRS that I am/we are subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the IRS has notified me/us that I am/we are no longer subject to backup withholding, and c. I am/we are a U.S. person(s) (including a U.S. resident alien). NOTE: Mark through item "b" if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. |
The IRS does not require your consent to any provision of this document other than the certifications required to avoid backup
withholding.
My (Our) signature below constitutes my (our) agreement and acceptance of all the terms, conditions and account features selected in
any and all parts of this Application.
------------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL, JOINT OR CUSTODIAN ACCOUNTS
------------------------------------------------------------------------------------------------------------------------------------
Signature of Individual Owner or Custodian Date
X
------------------------------------------------------------------------------------------------------------------------------------
Signature of Joint Owner, if any Date
X
------------------------------------------------------------------------------------------------------------------------------------
CORPORATION, PARTNERSHIP, TRUST OR OTHER ACCOUNTS
------------------------------------------------------------------------------------------------------------------------------------
Signature of Authorized Officer, General Partner, Trustee, etc. Date
X
------------------------------------------------------------------------------------------------------------------------------------
Title of Corporate Officer, General Partner, Trustee, etc. Date
====================================================================================================================================
12. FOR COMPLETION BY INVESTMENT DEALER
====================================================================================================================================
We hereby submit this application for purchase of shares in accordance with the terms of our Selling Agreement with Touchstone
Securities, Inc. and with the current Prospectus for the Funds.
------------------------------------------------------------------------------------------------------------------------------------
Investment Dealer Name Dealer Number
------------------------------------------------------------------------------------------------------------------------------------
Dealer's Corporate Office Address City State Zip
------------------------------------------------------------------------------------------------------------------------------------
Representative's Name
------------------------------------------------------------------------------------------------------------------------------------
Representative's Branch Office Address City State Zip
------------------------------------------------------------------------------------------------------------------------------------
Representative's Telephone Number Representative's Number Branch Office Number
------------------------------------------------------------------------------------------------------------------------------------
Authorized Signature of Investment Dealer
X
------------------------------------------------------------------------------------------------------------------------------------
Title
====================================================================================================================================
FIFTH THIRD - SIGNATURE CARD CHECKING
====================================================================================================================================
Submit one card to establish an optional check redemption account which allows you to write checks against your account in the
_____________. Please see a Fund's current Prospectus to determine if checkwriting is available in that Fund. $100 minimum on
(Name of Fund)
checks written. (Counter checks are not available).
PRINT CLEARLY
Name of Account
------------------------------------------------------------------------------------------------------------------
Account Number Date
-------------------------------------------------- -------------------------------------------------------
The registered owner(s) of this account must sign below. By signing this card the signatory(ies) agree(s) to all of the terms and
conditions set forth on the reverse side of this card.
------------------------------------------------------------ --------------------------------------------------------------
Signature Signature
------------------------------------------------------------ --------------------------------------------------------------
Signature Signature
INSTITUTIONAL ACCOUNTS: JOINT TENANCY ACCOUNTS:
o Check here if any two signatures are required on checks o Check here if both signatures are required on checks
o Check here if only one signature is required on checks o Check here if only one signature is required on checks
------------------------------------------------------------------------------------------------------------------------------------
o Check here if Business Style Checks (600 per book with voucher stub) are required. A charge will be made to your account.
Individual Style checks are provided at no charge.
====================================================================================================================================
13. SYSTEMATIC WITHDRAWAL PLAN
====================================================================================================================================
This plan enables you to withdraw money regularly-either by check directly to you or electronically to your domestic bank account.
It eliminates your need to make a special request every month, quarter or year. There is no charge by the Touchstone Funds, and you
may cancel at any time with no obligation or penalty.
[ ] I would like to receive checks of $50 or more from the _________________________________.
(Name of Fund(s)
Beginning on the _____ day of _________ I want to receive $ ______________ ($50 minimum.
(date) (month/year)
Please send my payments (check only one) [ ] Monthly [ ] Annually
[ ] Quarterly [ ] Semiannually
[ ] I want my withdrawals deposited automatically to my banking institution [ ] checking [ ] savings account. Attach a voided check
or preprinted deposit slip.
OR [ ] Send my check to: ___________________________________________
Name
_____________________________________________
Address
________________________________________________ _________________________ _______________
City State Zip Code
Any Joint Owner of this new account with the Touchstone Funds who is not a Joint Owner of your bank account must sign here:
--------------------------------------------------------- -------------------------------------------------
Name Date
------------------------------------------------------------------------------------------------------------------------------------
TERMS AND CONDITIONS
--------------------
1. REDEMPTION AUTHORIZATION: The signatory(ies) whose signature(s) appears on the reverse side, intending to be legally bound,
hereby agrees each with the other and with Fifth Third ("Bank"), that the Bank is appointed agent for such person(s) and as such
agent, is directed to redeem shares registered in the name of such signatory(ies) upon receipt of, and in the amount of, checks
drawn upon the above numbered accounts and to deposit the proceeds of such redemptions in said account or otherwise arrange for
application of such proceeds to payments of said checks. The Bank is expressly authorized to commingle such proceeds of such
redemptions in said account or otherwise arrange for application of such proceeds to payments of said checks also on behalf of
Integrated Fund Services, Inc. in effecting the redemption of shares.
The Bank is expressly authorized to honor checks as redemption instructions hereunder without requiring signature guarantees, and
shall not be liable for any loss or liability resulting from the absence of any such guarantee.
2. CHECK PAYMENT: The signatory(ies) authorizes and directs the Bank to pay each check presented hereunder, subject to all laws and
Bank rules and regulations pertaining to checking accounts. In addition, the signatory(ies) agrees that:
(a) No check shall be issued or honored, or redemption effected, for any amounts represented by shares for which certificates
have been issued.
(b) No check shall be issued or honored, or redemption effected, for any amounts represented by shares unless payment for such
shares has been made in full and any checks given in such payment have been collected through normal banking channels.
Shareholders who wish immediate availability of shares for check redemption may purchase their shares with federal funds or
may contact Integrated Fund Services, Inc. for assistance.
(c) Checks issued hereunder cannot be cashed over the counter at the Bank; and
(d) Checks shall be subject to any further information set forth in the applicable Prospectus, including without limitation any
additions, amendments and supplements thereto.
3. DUAL OWNERSHIP: If more than one person is indicated as a registered owner of shares, as by joint ownership, ownership in common,
or tenants by the entireties, then (a) each registered owner must sign this signature card, (b) each registered owner must sign
each check issued hereunder unless the parties have indicated on the face of this card that only one need sign, in which case the
Bank is authorized to act upon such signature, and (c) each signatory guarantees to the Bank the genuineness and accuracy of the
signature of the other signatory(ies). In the event of the death of a joint tenant or tenant by the entireties, the survivor
shall be deemed to own all of the shares and the proceeds thereof upon delivery of appropriate documentation.
4. TERMINATION: The Bank may at any time terminate this account, related share redemption service and its agency for the
signatory(ies) hereto without prior notice by Bank to the signatory(ies).
5. HEIRS AND ASSIGNS: These terms and conditions shall bind the respective heirs, executors, administrators and assigns of the
signatory(ies).
|
PROSPECTUS AUGUST 1, 2003
TOUCHSTONE INVESTMENTS
Enhanced 30 Fund
Growth Opportunities Fund
Value Plus Fund
Each Fund is a series of Touchstone Strategic Trust (the "Trust"), a group of equity mutual funds. The Trust is part of the Touchstone Funds which also consists of Touchstone Investment Trust, a group of taxable bond and money market mutual funds, Touchstone Tax-Free Trust, a group of tax-free bond and money market mutual funds and Touchstone Variable Series Trust, a group of variable series funds. Each Touchstone Fund has a different investment goal and risk level. For further information about the Touchstone Funds, contact Touchstone at 1.800.543.0407.
The Securities and Exchange Commission has not approved the Funds'shares as an
investment or determined whether this Prospectus is accurate or complete.
Anyone who tells you otherwise is committing a crime.
Multiple Classes of Shares are Offered by this Prospectus
ENHANCED 30 FUND
The Fund's portfolio is based on the 30 stocks that comprise the Dow Jones Industrial Average. The Dow Jones Industrial Average is a measurement of general market price movement for 30 widely held stocks. The sub-advisor seeks to surpass the total return of the Dow Jones Industrial Average by substituting stocks not included in the Dow Jones Industrial Average that offer above average growth potential for those stocks in the Dow Jones Industrial Average that appear to have less growth potential. The Fund's portfolio will at all times consist of 30 stocks and up to 1/3 of these holdings may represent substituted stocks in the enhanced portion of the portfolio.
The sub-advisor uses a database of 4,000 stocks from which to choose the companies that will be substituted in the enhanced portion of the portfolio. A specific process is followed to assist the sub-advisor in its selections:
o The 4,000 stocks are reduced to 1,400 by screening for quality and
market capitalization ($10 billion minimum)
o A model is applied to select stocks that the sub-advisor believes are
priced at a discount to their true value. This model reduces the stock
choices to about 300 companies
o The sub-advisor then searches for those companies that have excellent
earnings potential
Stocks are sold when the sub-advisor believes they are overpriced or face a significant reduction in earnings prospects. The portfolio is rebalanced periodically or as needed due to changes in the Dow Jones Industrial Average or in other securities in the portfolio.
The sub-advisor's selection process is expected to cause the Fund's portfolio to have the following characteristics:
o Attractive valuation
o Above-average earnings and dividend growth
o Above-average market capitalization ratio
o Dominant industry position
o Seasoned management
o Above-average quality
Unlike the Dow Jones Industrial Average, the Enhanced 30 Fund is not price-weighted.
o If the stock market as a whole goes down
o If the stock selection model is not accurate in its stock screening
process
o If the market continually values the stocks in the Fund's portfolio
lower than the sub-advisor believes they should be valued
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency.
As with any mutual fund, there is no guarantee that the Fund will achieve its goal.
You can find out more information about certain securities in which the Fund may invest and a more detailed description of risks under the heading "Investment Strategies and Risks" later in this Prospectus.
The bar chart and table below give some indication of the risks of investing in the Enhanced 30 Fund. The bar chart shows the Fund's Class A performance from year to year. The bar chart does not reflect any sales charges, which would reduce your return. The return for other classes of shares offered by the Fund will differ from the Class A returns shown in the bar chart, depending on the expenses of that class.
ENHANCED 30 FUND -- CLASS A TOTAL RETURNS
YEAR TOTAL RETURN Best Quarter:
4th Quarter 2001 +13.75%
2001 -8.95%
|
Worst Quarter:
2002 -21.66% 3rd Quarter 2002 -20.19%
The year-to-date return for the Fund's Class A shares as of June 30, 2003 is 14.60%.
The table compares the Fund's average annual total returns to those of the Dow Jones Industrial Average. The table shows the effect of the applicable sales charge. The after-tax returns shown in the table are for Class A shares only. The after-tax returns for other classes of shares offered by the Fund will differ from the Class A after-tax returns.
The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2002
Since
Class
1 Year Started 1
--------------------------------------------------------------------------------------
ENHANCED 30 FUND CLASS A
Return Before Taxes -26.18% -14.60%
Return After Taxes on Distributions 2 -26.45% -14.85%
Return After Taxes on Distributions and Sale of Fund Shares 3 -16.07% -11.46%
Dow Jones Industrial Average 4 -15.02% -7.55%
--------------------------------------------------------------------------------------
ENHANCED 30 FUND CLASS B
Return Before Taxes -25.39% -19.00%
Dow Jones Industrial Average 4 -15.02% -12.27%
--------------------------------------------------------------------------------------
ENHANCED 30 FUND CLASS C
Return Before Taxes -21.86% -13.13%
Dow Jones Industrial Average 4 -15.02% -8.09%
--------------------------------------------------------------------------------------
|
1 Class A shares began operations on May 1, 2000, Class B shares began
operations on May 1, 2001 and Class C shares began operations on May 16,
2000.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates, and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on the investor's tax
situation and may differ from those shown above. After-tax returns do not
apply to investors who hold shares in a tax-deferred account, such as an
individual retirement account or a 401(k) plan.
3 When the "Return After Taxes on Distributions and Sale of Fund Shares" is
higher, it is because of realized losses. If a capital loss occurs upon the
redemption of the Fund's shares, the capital loss is recorded as a tax
benefit, which increases the return and translates into an assumed tax
deduction that benefits the shareholder.
4 The Dow Jones Industrial Average is a measurement of general market price
movement for 30 widely held stocks.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
-------------------------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price) 5.75% 1 None None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or the amount redeemed, whichever is less) * 5.00% 2 1.00% 3
Wire Redemption Fee Up to $15 Up to $15 Up to $15
4
|
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
----------------------------------------------------------------------------------------
Management Fees 0.65% 0.65% 0.65%
Distribution (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses 1.64% 4.01% 4.06%
Total Annual Fund Operating Expenses 2.54% 5.66% 5.71%
Fee Waiver and/or Expense Reimbursement 4 1.54% 3.91% 3.97%
Net Expenses 1.00% 1.75% 1.74%
----------------------------------------------------------------------------------------
|
* Purchases of $1 million or more do not pay a front-end sales charge, but
may pay a contingent deferred sales charge of 1.00% if shares are redeemed
within 1 year of their purchase.
1 You may pay a reduced sales charge on very large purchases. There is no
initial sales charge on certain purchases in a Roth IRA, a Roth Conversion
IRA or a qualified retirement plan.
2 You will pay a 5.00% contingent deferred sales charge if shares are
redeemed within 1 year of their purchase. The contingent deferred sales
charge will be incrementally reduced over time. After the 6th year, there
is no contingent deferred sales charge. The contingent deferred sales
charge may be waived under certain circumstances described in this
Prospectus.
3 The 1.00% is waived if shares are held for 1 year or longer or under other
circumstances described in this Prospectus.
4 Touchstone Advisors has contractually agreed to waive a portion of its
advisory fee and/or reimburse certain Fund expenses in order to limit Net
Expenses to 1.00% for Class A shares and 1.75% or below for Class B and
Class C shares (the "Sponsor Agreement"). The Sponsor Agreement will remain
in place until at least March 31, 2004.
EXAMPLE. The following example should help you compare the cost of investing in the Enhanced 30 Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same (except for the 10 year amounts for Class B shares, which reflect the conversion of Class B shares to Class A shares after 8 years). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year $ 671 $ 578 $ 177 $ 178 3 Years 1 $1,181 $1,539 $1,348 $1,339 5 Years 1 $1,717 $2,585 $2,502 $2,485 10 Years 1 $3,176 $5,284 2 $5,317 $5,284 2 -------------------------------------------------------------------------------- |
1 The examples for the 3, 5 and 10 year periods are calculated using the Total
Annual Fund Operating Expenses before the limits agreed to under the Sponsor
Agreement with Touchstone Advisors for periods after year 1.
2 Based on conversion to Class A shares after 8 years.
GROWTH OPPORTUNITIES FUND
The sub-advisor will invest in two basic categories of companies:
o Companies which the sub-advisor believes have shown above-average and
consistent long-term growth in earnings and cash flow (net income plus
depreciation and amortization) and have excellent prospects for future
growth.
o Companies that are currently experiencing an increase in earnings
and/or cash flow or are projected to do so in the next 18 to 36
months.
The Fund is non-diversified and may invest a significant percentage of its assets in the securities of a single company.
The sub-advisor expects to hold investments in the Fund for an average of 18 to 36 months. However, changes in the sub-advisor's outlook and market conditions may significantly affect the amount of time the Fund holds a security. The Fund's portfolio turnover may vary greatly from year to year and during a particular year. The sub-advisor does not set a price target for its holdings in order to determine when to sell an investment. Rather, the sub-advisor generally will sell a security if one or more of the following occurs:
(1) an adverse change in the fundamentals of a company or an industry;
(2) excessive valuation;
(3) better risk/reward opportunities may be found in other stocks; or
(4) excessive overweighting.
o If the stock market as a whole goes down
o If the stocks in the Fund's portfolio are not undervalued as expected
o If earnings and/or cash flow of the companies in the Fund's portfolio
do not grow as expected
o Because the Fund may invest in the technology sector which at times
may be subject to greater market fluctuation than other sectors
o Because a non-diversified fund may hold a significant percentage of
its assets in the securities of one company, it may be more sensitive
to market changes than a diversified fund
o Because securities of mid cap companies may be more thinly traded and
may have more frequent and larger price changes than securities of
large cap companies
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency.
As with any mutual fund, there is no guarantee that the Fund will achieve its goal.
You can find more information about certain securities in which the Fund may invest and a more detailed description of risks under the heading "Investment Strategies and Risks" later in this Prospectus.
The bar chart and table below give some indication of the risks of investing in the Growth Opportunities Fund. The bar chart shows the Fund's Class A performance from year to year. The bar chart does not reflect any sales charges, which would reduce your return. The return for other classes of shares offered by the Fund will differ from the Class A returns shown in the bar chart, depending on the expenses of that class.
GROWTH OPPORTUNITIES FUND -- CLASS A TOTAL RETURNS
YEAR TOTAL RETURN
1996 20.65%
Best Quarter:
1997 23.78% 4th Quarter 1999 +47.98%
1998 39.06% Worst Quarter:
3rd Quarter 2001 -26.71%
1999 68.25%
2000 -2.56%
2001 -28.47%
2002 -35.76%
|
The year-to-date return for the Fund's Class A shares as of June 30, 2003 is 21.48%.
The table compares the Fund's average annual total returns to those of the Standard & Poor's 500 Index and the Russell 1000 Growth Index. The table shows the effect of the applicable sales charge. The after-tax returns shown in the table are for Class A shares only. The after-tax returns for other classes of shares offered by the Fund will differ from the Class A after-tax returns.
The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2002
SINCE
CLASS
1 YEAR 5 YEARS STARTED 1
-----------------------------------------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND CLASS A
Return Before Taxes -39.45% -0.25% 6.25%
Return After Taxes on Distributions 2 -39.45% -1.13% 5.34%
Return After Taxes on Distributions and Sale of Fund Shares 3 -24.23% -0.08% 5.21%
Standard & Poor's 500 Index 4 -22.11% -0.59% 7.44%
Russell 1000 Growth Index5 -27.89% -3.84% 4.55%
-----------------------------------------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND CLASS B
Return Before Taxes -39.87% -- -33.81%
Standard & Poor's 500 Index 4 -22.11% -- -17.67%
Russell 1000 Growth Index 5 -27.89% -- -23.15%
-----------------------------------------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND CLASS C
Return Before Taxes -37.18% -- -11.78%
Standard & Poor's 500 Index 4 -22.11% -- -10.14%
Russell 1000 Growth Index 5 -27.89% -- -15.84%
-----------------------------------------------------------------------------------------------------------------
|
1 Class A shares began operations on September 29, 1995, Class B shares began
operations on May 1, 2001 and Class C shares began operations on August 2,
1999.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates, and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on the investor's tax
situation and may differ from those shown above. After-tax returns do not
apply to investors who hold shares in a tax-deferred account, such as an
individual retirement account or a 401(k) plan.
3 When the "Return After Taxes on Distributions and Sale of Fund Shares" is
higher, it is because of realized losses. If a capital loss occurs upon the
redemption of the Fund's shares, the capital loss is recorded as a tax
benefit, which increases the return and translates into an assumed tax
deduction that benefits the shareholder.
4 The Standard & Poor's 500 Index is a widely recognized unmanaged index that
measures the stock performance of 500 large and medium sized companies and
is often used to indicate the performance of the overall stock market.
5 The Russell 1000 Growth Index measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
-------------------------------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price) 5.75% 1 None None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or the amount redeemed, whichever is less) * 5.00% 2 1.00% 3
Wire Redemption Fee Up to $15 Up to $15 Up to $15
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
-------------------------------------------------------------------------------------
Management Fees 0.93% 0.93% 0.93%
Distribution (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses 0.65% 1.23% 0.94%
Total Annual Fund Operating Expenses 1.83% 3.16% 2.87%
-------------------------------------------------------------------------------------
|
* Purchases of $1 million or more do not pay a front-end sales charge, but
may pay a contingent deferred sales charge of 1.00% if shares are redeemed
within 1 year of their purchase.
1 You may pay a reduced sales charge on very large purchases. There is no
initial sales charge on certain purchases in a Roth IRA, a Roth Conversion
IRA or a qualified retirement plan.
2 You will pay a 5.00% contingent deferred sales charge if shares are
redeemed within 1 year of their purchase. The contingent deferred sales
charge will be incrementally reduced over time. After the 6th year, there
is no contingent deferred sales charge. The contingent deferred sales
charge may be waived under certain circumstances described in this
Prospectus.
3 The 1.00% is waived if shares are held for 1 year or longer or under other
circumstances described in this Prospectus.
EXAMPLE. The following example should help you compare the cost of investing in the Growth Opportunities Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same (except for the 10 year amounts for Class B shares, which reflect the conversion of Class B shares to Class A shares after 8 years). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
ASSUMING
ASSUMING REDEMPTION AT END OF PERIOD NO REDEMPTION
--------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares Class B Shares
--------------------------------------------------------------------------------
1 Year $ 750 $ 719 $ 390 $ 319
3 Years $1,117 $1,174 $ 889 $ 974
5 Years $1,508 $1,754 $1,513 $1,654
10 Years $2,599 $3,467 1 $3,195 $3,467 1
--------------------------------------------------------------------------------
|
1 Based on conversion to Class A shares after 8 years.
VALUE PLUS FUND
At least 75% of the Fund's assets will be invested in large cap companies and the remainder will generally be invested in mid cap companies.
o If the stock market as a whole goes down
o If the stocks in the Fund's portfolio are not undervalued as expected
o Because securities of mid cap companies may be more thinly traded and
may have more frequent and larger price changes than securities of
large cap companies
o Because the Fund may invest in the technology sector which at times
may be subject to greater market fluctuation than other sectors
o Because value oriented funds may underperform when growth investing is
in favor
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency.
As with any mutual fund, there is no guarantee that the Fund will achieve its goal.
You can find more information about certain securities in which the Fund may invest and a more detailed description of risks under the heading "Investment Strategies and Risks" later in this Prospectus.
The bar chart and table below give some indication of the risks of investing in the Value Plus Fund. The bar chart shows the Fund's Class A performance from year to year. The bar chart does not reflect any sales charges, which would reduce your return. The return for other classes of shares offered by the Fund will differ from the Class A returns shown in the bar chart, depending on the expenses of that class.
VALUE PLUS FUND -- CLASS A TOTAL RETURNS
YEAR TOTAL RETURN
1999 15.51% Best Quarter:
4th Quarter 1999 +13.01%
2000 1.91%
Worst Quarter:
2001 -1.77% 3rd Quarter 2002 -18.72%
2002 -26.02%
|
The year-to-date return for the Fund's Class A shares as of June 30, 2003 is 13.19%.
The table compares the Fund's average annual total returns to those of the Standard & Poor's 500 Index, the S&P/Barra Value Index and the Russell 1000 Value Index. On January 1, 2003, the Fund changed its secondary comparative index from the S&P/Barra Value Index to the Russell 1000 Value Index because the sub-advisor believes the Russell 1000 Value Index more accurately reflects the Fund's portfolio composition. The table shows the effect of the applicable sales charge. The after-tax returns shown in the table are for Class A shares only. The after-tax returns for other classes of shares offered by the Fund will differ from the Class A after-tax returns.
The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2002
SINCE
CLASS
1 YEAR STARTED 1
------------------------------------------------------------------------------------------------
VALUE PLUS FUND CLASS A
Return Before Taxes -30.26% -3.64%
Return After Taxes on Distributions 2 -30.41% -4.36%
Return After Taxes on Distributions and Sale of Fund Shares 3 -18.58% -2.88%
Standard & Poor's 500 Index 4 -22.11% -3.75%
S&P/Barra Value Index 5 -20.85% -3.71%
Russell 1000 Value Index 6 -15.53% -1.26%
------------------------------------------------------------------------------------------------
VALUE PLUS FUND CLASS B
Return Before Taxes -29.46% -21.11%
Standard & Poor's 500 Index 4 -22.11% -17.67%
S&P/Barra Value Index 5 -20.85% -19.21%
Russell 1000 Value Index 6 -15.53% -12.01%
------------------------------------------------------------------------------------------------
VALUE PLUS FUND CLASS C
Return Before Taxes -26.59% -3.32%
Standard & Poor's 500 Index 4 -22.11% -3.75%
S&P/Barra Value Index 5 -20.85% -3.71%
Russell 1000 Value Index 6 -15.53% -1.26%
------------------------------------------------------------------------------------------------
|
1 Class A shares began operations on May 1, 1998, Class B shares began
operations on May 1, 2001 and Class C shares began operations on January 1,
1999. The Class C performance was calculated using the historical
performance of the Class C predecessor, which was another mutual fund that
began operations on May 1, 1998.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates, and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on the investor's tax
situation and may differ from those shown above. After-tax returns do not
apply to investors who hold shares in a tax-deferred account, such as an
individual retirement account or a 401(k) plan.
3 When the "Return After Taxes on Distributions and Sale of Fund Shares" is
higher, it is because of realized losses. If a capital loss occurs upon the
redemption of the Fund's shares, the capital loss is recorded as a tax
benefit, which increases the return and translates into an assumed tax
deduction that benefits the shareholder.
4 The Standard & Poor's 500 Index is a widely recognized unmanaged index that
measures the stock performance of 500 large and medium sized companies and
is often used to indicate the performance of the overall stock market.
5 The S&P/Barra Value Index is a capitalization-weighted index of stocks in
the S&P 500 with low price-to book ratios relative to the S&P 500 as a
whole.
6 The Russell 1000 Value Index measures the performance of those Russell 1000
companies with lower price-to-book ratios and lower forecasted growth
values.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
----------------------------------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price) 5.75% 1 None None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or the amount redeemed, whichever is less) * 5.00% 2 1.00% 3
Wire Redemption Fee Up to $15 Up to $15 Up to $15
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
-------------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75%
Distribution (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses 0.60% 6.17% 1.45%
Total Annual Fund Operating Expenses 1.60% 7.92% 3.20%
Fee Waiver and/or Expense Reimbursement4 0.30% 5.87% 1.15%
Net Expenses 1.30% 2.05% 2.05%
-------------------------------------------------------------------------------------
|
* Purchases of $1 million or more do not pay a front-end sales charge, but
may pay a contingent deferred sales charge of 1.00% if shares are redeemed
within 1 year of their purchase.
1 You may pay a reduced sales charge on very large purchases. There is no
initial sales charge on certain purchases in a Roth IRA, a Roth Conversion
IRA or a qualified retirement plan.
2 You will pay a 5.00% contingent deferred sales charge if shares are
redeemed within 1 year of their purchase. The contingent deferred sales
charge will be incrementally reduced over time. After the 6th year, there
is no contingent deferred sales charge. The contingent deferred sales
charge may be waived under certain circumstances described in this
Prospectus.
3 The 1.00% is waived if shares are held for 1 year or longer or under other
circumstances described in this Prospectus.
4 Touchstone Advisors has contractually agreed to waive a portion of its
advisory fee and/or reimburse certain Fund expenses in order to limit Net
Expenses to 1.30% for Class A shares and 2.05% for Class B and Class C
shares (the "Sponsor Agreement"). The Sponsor Agreement will remain in
place until at least March 31, 2004.
EXAMPLE. The following example should help you compare the cost of investing in the Value Plus Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same (except for the 10 year amounts for Class B shares, which reflect the conversion of Class B shares to Class A shares after 8 years). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
ASSUMING
ASSUMING REDEMPTION AT END OF PERIOD NO REDEMPTION
--------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares Class B Shares
--------------------------------------------------------------------------------
1 Year $ 700 $ 608 $ 208 $ 208
3 Years 1 $1,023 $1,991 $ 879 $1,791
5 Years 1 $1,369 $3,384 $1,574 $3,284
10 Years 1 $2,342 $6,650 2 $3,424 $6,650 2
--------------------------------------------------------------------------------
|
1 The examples for the 3, 5 and 10 year periods are calculated using the
Total Annual Fund Operating Expenses before the limits agreed to under the
Sponsor Agreement with Touchstone Advisors for periods after year 1.
2 Based on conversion to Class A shares after 8 years.
INVESTMENT STRATEGIES AND RISKS
DO THE FUNDS HAVE OTHER INVESTMENT STRATEGIES, IN ADDITION TO THEIR PRINCIPAL
GROWTH OPPORTUNITIES FUND. The Growth Opportunities Fund may also invest up to
10% of its total assets in:
o Common stocks of small cap companies
o Securities of foreign companies
o American depository receipts (ADRs)
o Non-investment grade debt securities
The Fund may also invest up to 30% of its total assets in investment grade debt securities.
VALUE PLUS FUND. The Value Plus Fund may also invest in:
o Preferred stocks
o Investment grade debt securities
o Convertible securities
In addition, the Fund may invest up to 10% of its total assets in:
o Cash equivalent investments
o Short-term debt securities
o They are organized under the laws of a foreign country
o They maintain their principal place of business in a foreign country
o The prin cipal trading market for their securities is located in a
foreign country
o They derive at least 50% of their revenues or profits from operations
in foreign countries
o They have at least 50% of their assets located in foreign countries
Some sub-advisors may define the parameters for a foreign company differently.
INVESTMENT GRADE DEBT SECURITIES are generally rated BBB or better by Standard & Poor's Rating Service ("S&P") and Fitch Ratings ("Fitch") or Baa or better by Moody's Investors Service, Inc. ("Moody's").
NON-INVESTMENT GRADE DEBT SECURITIES are higher risk, lower quality securities, often referred to as "junk bonds," and are considered speculative. They are rated below BBB by S&P and Fitch or below Baa by Moody's.
AMERICAN DEPOSITORY RECEIPTS (ADRS). ADRs are securities that represent an ownership interest in a foreign security. They are generally issued by a U.S. bank to U.S. buyers as a substitute for direct ownership of a foreign security and are traded on U.S. exchanges.
"SMALL CAP," "MID CAP" AND "LARGE CAP" COMPANIES. Generally companies are
categorized as follows:
o A small cap company has a market capitalization of less than $2
billion.
o A mid cap company has a market capitalization of between $2 billion
and $10 billion.
o A large cap company has a market capitalization of more than $10
billion
Some sub-advisors may define the parameters for a category differently.
UNDERVALUED STOCKS. A stock is considered undervalued if the sub-advisor
believes it should be trading at a higher price than it is at the time of
purchase. Factors considered may include:
o Price relative to earnings
o Price relative to cash flow
o Price relative to financial strength
EMERGING GROWTH COMPANIES include:
o Companies that the sub-advisor believes may have earnings that grow faster
than the U.S. economy in general due to new products, management changes at
the company or economic shocks such as high inflation or sudden increases
or decreases in interest rates
o Companies that the sub-advisor believes have unrecognized asset values,
undervalued growth or emerging growth
o Companies undergoing a turnaround
o Small Cap Companies. Small cap stock risk is the risk that stocks of smaller companies may be subject to more abrupt or erratic market movements than stocks of larger, more established companies. Small companies may have limited product lines or financial resources, or may be dependent upon a small or inexperienced management group. In addition, small cap stocks typically are traded in lower volume, and their issuers typically are subject to greater degrees of changes in their earnings and prospects.
o Mid Cap Companies. Mid cap stock risk is the risk that stocks of
mid-sized companies may be subject to more abrupt or erratic market
movements than stocks of larger, more established companies. Mid-sized
companies may have limited product lines or financial resources, and
may be dependent upon a particular niche of the market.
o Emerging Growth Companies. Investment in emerging growth companies is
subject to enhanced risks because these companies generally have
limited product lines, markets or financial resources and often
exhibit a lack of management depth. These securities can be difficult
to sell and are usually more volatile than securities of larger, more
established companies.
o Technology Securities. The value of technology securities may
fluctuate dramatically and technology securities may be subject to
greater than average financial and market risk. Investments in the
high technology sector include the risk that certain products may be
subject to competitive pressures and aggressive pricing and may become
obsolete and the risk that new products will not meet expectations or
even reach the market.
INTEREST RATE RISK. A Fund that invests in debt securities is subject to the risk that the market value of the debt securities will decline because of rising interest rates. The price of debt securities is generally linked to the prevailing market interest rates. In general, when interest rates rise, the price of debt securities falls, and when interest rates fall, the price of debt securities rises. The price volatility of a debt security also depends on its maturity. Generally, the longer the maturity of a debt security, the greater its sensitivity to changes in interest rates. To compensate investors for this higher risk, debt securities with longer maturities generally offer higher yields than debt securities with shorter maturities.
CREDIT RISK. The debt securities in a Fund's portfolio are subject to credit
risk. Credit risk is the possibility that an issuer will fail to make timely
payments of interest or principal. Securities rated in the lowest category of
investment grade securities have some risky characteristics and changes in
economic conditions are more likely to cause issuers of these securities to be
unable to make payments.
o Non-Investment Grade Debt Securities. Non-investment grade debt
securities are sometimes referred to as "junk bonds" and are very
risky with respect to their issuers' ability to make payments of
interest and principal. There is a high risk that a Fund that invests
in non-investment grade debt securities could suffer a loss caused by
the default of an issuer of such securities. Part of the reason for
this high risk is that, in the event of a default or bankruptcy,
holders of non-investment grade debt securities generally will not
receive payments until the holders of all other debt have been paid.
In addition, the market for non-investment grade debt securities has,
in the past, had more frequent and larger price changes than the
markets for other securities. Non-investment grade debt securities can
also be more difficult to sell for good value.
FOREIGN INVESTING. Investing in foreign securities poses unique risks such as fluctuation in currency exchange rates, market illiquidity, price volatility, high trading costs, difficulties in settlement, regulations on stock exchanges, limits on foreign ownership, less stringent accounting, reporting and disclosure requirements, and other considerations. Diplomatic, political or economic developments, including nationalization or appropriation, could affect investments in foreign securities. In the past, equity and debt instruments of foreign markets have had more frequent and larger price changes than those of U.S. markets.
NON-DIVERSIFICATION RISK. A non-diversified Fund may invest a significant percentage of its assets in the securities of a single company. Because the Fund's holdings may be concentrated in a single company, the Fund may be more sensitive to any single economic, business, political or regulatory occurrence than a diversified fund.
INVESTMENT STYLE RISK. Different investment styles tend to shift in and out of favor depending upon market and economic conditions as well as investor sentiment. A Fund may outperform or underperform other funds that employ a different investment style. Examples of different investment styles include growth and value investing. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company's growth of earnings potential. Also, since growth companies usually invest a high portion of earnings in their business, growth stocks may lack the dividends of some value stocks that can cushion stock prices in a falling market. Growth oriented funds may underperform when value investing is in favor. Value stocks are those which are undervalued in comparison to their peers due to adverse business developments or other factors. Value investing carries the risk that the market will not recognize a security's inherent value for a long time, or that a stock judged to be undervalued may actually be appropriately priced or overvalued. Value oriented funds may underperform when growth investing is in favor.
THE FUNDS' MANAGEMENT
Touchstone Advisors is responsible for selecting each Fund's sub-advisors, subject to review by the Board of Trustees. Touchstone Advisors selects a sub-advisor that has shown good investment performance in its areas of expertise. Touchstone Advisors considers various factors in evaluating the Funds' sub-advisors, including:
o Level of knowledge and skill
o Performance as compared to its peers or benchmark
o Consistency of performance over 5 years or more
o Level of compliance with investment rules and strategies
o Employees, facilities and financial strength
o Quality of service
Touchstone Advisors will also continually monitor the performance of the Funds' sub-advisors through various analyses and through in-person, telephone and written consultations with the sub-advisors. Touchstone Advisors discusses its expectations for performance with the sub-advisors. Touchstone Advisors provides written evaluations and recommendations to the Board of Trustees, including whether or not a sub-advisor's contract should be renewed, modified or terminated.
Touchstone Advisors has been registered as an investment advisor under the Investment Advisers Act of 1940, as amended, since 1994. As of December 31, 2002, Touchstone Advisors had approximately $1.8 billion in assets under management.
The Trust and Touchstone Advisors have applied for, and the Securities and Exchange Commission has granted, an exemptive order that permits the Trust or Touchstone Advisors, under certain conditions, to select or change investment advisors, enter into new sub-advisory agreements or amend existing sub-advisory agreements without first obtaining shareholder approval. The Funds must still obtain shareholder approval of any sub-advisory agreement with a sub-advisor affiliated with the Trust or Touchstone Advisors other than by reason of serving as a sub-advisor to one or more Touchstone Funds. Shareholders of a Fund will be notified of any changes in the sub-advisor to that Fund.
Touchstone Advisors is also responsible for running all of the operations of the Funds, except for those that are subcontracted to the sub-advisors, custodian, transfer and accounting agent and administrator. Each Fund pays Touchstone Advisors a fee for its services. Out of this fee Touchstone Advisors pays the Fund sub-advisor a fee for its services. The fee paid to Touchstone Advisors by each Fund during its most recent fiscal year is shown in the table below:
-------------------------------------------------------------------------------- Enhanced 30 Fund 0.65% of average daily net assets Growth Opportunities Fund 0.93% of average daily net assets Value Plus Fund 0.75% of average daily net assets -------------------------------------------------------------------------------- |
Effective December 31, 2002, the Enhanced 30 Fund and the Value Plus Fund added breakpoints to their advisory fee schedules in order to reduce the advisory fees paid by the Funds when assets reach $100 million and above. The establishment of fee breakpoints did not affect the amount of advisory fees paid by these Funds during the most recent fiscal year.
TODD INVESTMENT ADVISORS, INC. ("TODD")
101 South Fifth Street, Suite 3160, Louisville, KY 40202
Todd has been registered as an investment advisor since 1979 and provides investment advisory services to individual and institutional clients. Todd has been managing the Enhanced 30 Fund since its inception.
Curtiss M. Scott, Jr., CFA, has primary responsibility for the day-to-day management of the Fund. Mr. Scott joined Todd in 1996. He is currently one of the senior portfolio managers for the large cap products for Todd. He has 25 years of experience as a large cap portfolio manager. Prior to joining Todd, Mr. Scott was a partner with Executive Investment Advisors. Mr. Scott is supported by Robert P. Bordogna, President and Chief Executive Officer of Todd and Bosworth M. Todd, founder of Todd. Mr. Bordogna and Mr. Todd have worked together since 1980.
Todd is an affiliate of Touchstone Advisors. Therefore, Touchstone Advisors may have a conflict of interest when making decisions to keep Todd as the Fund's sub-advisor. The Board of Trustees reviews Touchstone Advisors' decisions, with respect to the retention of Todd, to reduce the possibility of a conflict of interest situation.
Mastrapasqua has been registered as an investment advisor since 1993 and provides investment advisory services to individual and institutional clients.
Frank Mastrapasqua, Ph.D., Chairman and Chief Executive Officer of Mastrapasqua, and Thomas A. Trantum, CFA, President of Mastrapasqua, are primarily responsible for the day-to-day management of the Fund. Mr. Mastrapasqua and Mr. Trantum have served as portfolio managers for Mastrapasqua since 1993 and have been managing the Fund since its inception.
FORT WASHINGTON INVESTMENT ADVISORS, INC. ("FORT WASHINGTON")
420 East Fourth Street, Cincinnati, OH 45202
Fort Washington has been registered as an investment advisor since 1990 and provides investment advisory services to individuals, institutions, mutual funds and variable annuity products. Fort Washington has been managing the Value Plus Fund since its inception.
John C. Holden, CFA, and Timothy J. Jossart, CFA, are primarily responsible for managing the Fund. Mr. Holden joined Fort Washington in 1997 and is Vice President and Senior Portfolio Manager. Mr. Jossart joined Fort Washington in 1996 and is Assistant Vice President, Assistant Portfolio Manager and Senior Research Manager. Mr. Holden has been managing the Fund since May 1998 and Mr. Jossart has been managing the Fund since August 2002.
Fort Washington is an affiliate of Touchstone Advisors. Therefore, Touchstone Advisors may have a conflict of interest when making decisions to keep Fort Washington as the Fund's sub-advisor. The Board of Trustees reviews Touchstone Advisors' decisions, with respect to the retention of Fort Washington, to reduce the possibility of a conflict of interest situation.
ENHANCED 30 FUND
Todd Investment Advisors, Inc. 0.32% of average daily net assets GROWTH OPPORTUNITIES FUND Mastrapasqua Asset Management, Inc. 0.53% of average daily net assets VALUE PLUS FUND Fort Washington Investment Advisors, Inc. 0.45% of average daily net assets -------------------------------------------------------------------------------- |
Effective December 31, 2002, the Enhanced 30 Fund and Value Plus Fund added breakpoints to their sub-advisory fee schedules. These changes do not affect the amount of expenses paid by the Funds since all sub-advisory fees are paid by the Advisor.
CHOOSING A CLASS OF SHARES
Each Fund offers Class A shares, Class B shares and Class C shares. Each class of shares has different sales charges and distribution fees. The amount of sales charges and distribution fees you pay will depend on which class of shares you decide to purchase.
The following table shows the amount of front-end sales charge you will pay on purchases of Class A shares. The amount of front-end sales charge is shown as a percentage of (1) offering price and (2) the net amount invested after the charge has been subtracted. Note that the front-end sales charge gets lower as your investment amount gets larger.
--------------------------------------------------------------------------------
SALES CHARGE AS % OF SALES CHARGE AS % OF
AMOUNT OF YOUR INVESTMENT OFFERING PRICE NET AMOUNT INVESTED
--------------------------------------------------------------------------------
Under $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.95% 3.04%
$500,000 but less than $1 million 2.25% 2.30%
$1 million or more 0.00% 0.00%
|
There is no front-end sales charge if you invest $1 million or more in a Fund. This includes large total purchases made through programs such as aggregation, concurrent purchases, letters of intent and rights of accumulation. These programs are described more fully in the Statement of Additional Information ("SAI"). In addition, there is no front-end sales charge on purchases by certain persons related to the Funds or their service providers and certain other persons listed in the SAI. At the option of the Trust, the front-end sales charge may be included on purchases by such persons in the future.
If you redeem shares that you purchased as part of the $1 million purchase within 1 year, you may pay a contingent deferred sales charge ("CDSC"), a sales charge you pay when you redeem your shares, of 1% on the shares redeemed.
Class B shares of the Funds are sold at NAV without an initial sales charge so that the full amount of your purchase payment may be immediately invested in the Funds. A CDSC will be charged if you redeem Class B shares within 6 years after you purchased them. The amount of the CDSC will depend on how long you have held your shares, as set forth in the following table:
CDSC AS A
YEAR SINCE PURCHASE PAYMENT MADE % OF AMOUNT SUBJECT TO CHARGE
--------------------------------------------------------------------------------
First 5.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 1.00%
Seventh and thereafter* None
--------------------------------------------------------------------------------
|
* Class B shares will automatically convert to Class A shares after they have been held for approximately 8 years.
CONVERSION TO CLASS A SHARES. Class B shares will convert automatically to Class A shares in the month of your 8-year anniversary date or in the beginning of the 9th year after the date of your original purchase of those shares. The conversion is based on the relative NAVs of the shares of the two classes on the conversion date and no sales charge will be imposed. Class B shares you have acquired through automatic reinvestment of dividends or capital gains will be converted in proportion to the total number of Class B shares you have purchased and own. Since the Rule 12b-1 distribution fees for Class A shares are lower than for Class B shares, converting to Class A shares will lower your expenses.
Class C shares of the Funds are sold at NAV without an initial sales charge so that the full amount of your purchase payment may be immediately invested in the Funds. A CDSC of 1.00% will be charged on Class C shares redeemed within 1 year after you purchased them.
INVESTING WITH TOUCHSTONE
CHOOSING THE APPROPRIATE INVESTMENTS TO MATCH YOUR GOALS. Investing well requires a plan. We recommend that you meet with your financial advisor to plan a strategy that will best meet your financial goals.
For more information about how to purchase shares, telephone Touchstone (Nationwide call toll-free 1.800.543.0407).
! INVESTOR ALERT: Each Touchstone Fund reserves the right to reject any purchase request, including exchanges from other Touchstone Funds, that it regards as disruptive to efficient portfolio management. For example, a purchase request could be rejected because of the timing of the investment or because of a history of excessive trading by the investor.
You should read this Prospectus carefully and then determine how much you want to invest. Check below to find the minimum investment amount required to purchase shares as well as to learn about the various ways you can purchase your shares.
Initial Additional
Investment Investment
Regular Account $1,000 $50
Retirement Plan Account or Custodial Account under $ 250 $50
a Uniform Gifts/Transfers to Minors Act ("UGTMA")
Investments through the Automatic Investment Plan $ 50 $50
o INVESTOR ALERT: Touchstone may change these initial and additional
investment minimums at any time.
|
HOUSEHOLDING POLICY. The Funds will send one copy of prospectuses and shareholder reports to households containing multiple shareholders with the same last name. This process, known as "householding," reduces costs and provides a convenience to shareholders. If you share the same last name and address with another shareholder and you prefer to receive separate prospectuses and shareholder reports, telephone Touchstone toll-free at 1.800.543.0407 and we will begin separate mailings to you within 30 days of your request.
If you or others in your household invest in the Funds through a broker or other financial institution, you may receive separate prospectuses and shareholder reports, regardless of whether or not you have consented to householding on your investment application.
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING AN ACCOUNT
Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. What this means for you: When you open an account, we will ask for your name, residential address, date of birth, government identification number and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents. If we do not receive these required pieces of information, there may be a delay in processing your investment request, which could subject your investment to market risk. If we are unable to immediately verify your identity, the Fund may restrict further investment until your identity is verified. However, if we are unable to verify your identity, the Fund reserves the right to close your account without notice and return your investment to you at the price determined as of 4:00 p.m. Eastern time on the day in which your account is closed. If we close your account because we are unable to verify your identity, your investment will be subject to market fluctuation, which could result in a loss of a portion of your principal investment.
For information about how to purchase shares, telephone Touchstone (Nationwide call toll-free 1.800.543.0407).
You can invest in the Funds in the following ways:
BY MAIL OR THROUGH YOUR FINANCIAL ADVISOR
o Please make your check (drawn on a U.S. bank and payable in U.S. dollars)
payable to the Touchstone Funds.
o Send your check with the completed investment application to Touchstone,
P.O. Box 5354, Cincinnati, Ohio 45201-5354.
o Your application will be processed subject to your check clearing. If your
check is returned for insufficient funds or uncollected funds, you may be
charged a fee and you will be responsible for any resulting loss to the
Fund.
o You may also open an account through your financial advisor.
o We price direct purchases in the Funds based upon the next determined
public offering price (NAV plus any applicable sales charge) after your
order is received. Direct purchase orders received by Touchstone by the
close of the regular session of trading on the New York Stock Exchange
("NYSE"), generally 4:00 p.m. Eastern time, are processed at that day's
public offering price. Direct investments received by Touchstone after the
close of the regular session of trading on the NYSE, generally 4:00 p.m.
Eastern time, are processed at the public offering price next determined on
the following business day. Purchase orders received by financial advisors
before the close of the regular session of trading on the NYSE, generally
4:00 p.m. Eastern time, and transmitted to Touchstone by 5:00 p.m. Eastern
time, are processed at that day's public offering price. Purchase orders
received from financial advisors after 5:00 p.m. Eastern time, are
processed at the public offering price next determined on the following
business day.
BY EXCHANGE
o You may exchange shares of the Funds for shares of the same class of
another Touchstone Fund at NAV. You may also exchange Class A or Class C
shares of the Funds for Class A shares of any Touchstone money market fund.
o You do not have to pay any exchange fee for your exchange.
o Shares otherwise subject to a CDSC will not be charged a CDSC in an
exchange. However, when you redeem the shares acquired through the
exchange, the shares you redeem may be subject to a CDSC, depending upon
when you originally purchased the shares you exchanged. For purposes of
computing the CDSC, the length of time you have owned your shares will be
measured from the date of original purchase and will not be affected by any
exchange.
o If you exchange Class C shares for Class A shares of any Touchstone money
market fund, the amount of time you hold shares of the money market fund
will not be added to the holding period of your original shares for the
purpose of calculating the CDSC, if you later redeem the exchanged shares.
However, if you exchange back into your original Class C shares, the prior
holding period of your Class C shares will be added to your current holding
period of Class C shares in calculating the CDSC.
o You should review the disclosure provided in the Prospectus relating to the
exchanged-for shares carefully before making an exchange of your Fund
shares.
THROUGH RETIREMENT PLANS
o You may invest in the Funds through various retirement plans. These include individual retirement plans and employer sponsored retirement plans, such as defined benefit and defined contribution plans.
INDIVIDUAL RETIREMENT PLANS
o Traditional Individual Retirement Accounts (IRAs)
o Savings Incentive Match Plan for Employees (SIMPLE IRAs)
o Spousal IRAs
o Roth Individual Retirement Accounts (Roth IRAs)
o Coverdell Education Savings Accounts (Education IRAs)
o Simplified Employee Pension Plans (SEP IRAs)
o 403(b) Tax Sheltered Accounts that employ as custodian a bank
acceptable to Touchstone
EMPLOYER SPONSORED RETIREMENT PLANS
o Defined benefit plans
o Defined contribution plans (including 401(k) plans, profit sharing
plans and money purchase plans)
o 457 plans
OOO SPECIAL TAX CONSIDERATION
To determine which type of retirement plan is appropriate for you, please
contact your tax advisor.
For further information about any of the plans, agreements, applications and annual fees, contact Touchstone (Nationwide call toll-free 1.800.543.0407) or your financial advisor.
PURCHASES WITH SECURITIES. Shares may be purchased by tendering payment in-kind in the form of marketable securities, including but not limited to shares of common stock, provided the acquisition of such securities is consistent with the applicable Fund's investment goal and is otherwise acceptable to the Advisor.
o Complete the investment form provided at the bottom of a recent account
statement.
o Make your check payable to the Touchstone Funds.
o Write your account number on the check.
o Either: (1) Mail the check with the investment form in the envelope
provided with your account statement; or (2) Mail the check directly to
your financial advisor at the address printed on your account statement.
Your financial advisor is responsible for forwarding payment promptly to
Touchstone.
o If your check is returned for insufficient funds or uncollected funds, you
may be charged a fee and you will be responsible for any resulting loss to
the Fund.
BY WIRE
o Contact your bank and ask it to wire federal funds to Touchstone. Specify
your name and account number.
o Purchases in the Funds will be processed at that day's NAV (or public
offering price, if applicable) if Touchstone receives a properly executed
wire by the close of the regular session of trading on the NYSE, generally
4:00 p.m. Eastern time, on a day when the NYSE is open for regular trading.
o Banks may charge a fee for handling wire transfers.
o You should contact Touchstone or your financial advisor for further
instructions.
BY EXCHANGE
o You may add to your account by exchanging shares from an unaffiliated
mutual fund or from another Touchstone Fund.
o For information about how to exchange shares among the Touchstone Funds,
see "Opening an Account - By exchange" in this Prospectus.
AUTOMATIC INVESTMENT PLAN. You can pre-authorize monthly investments of $50 or more in a Fund to be processed electronically from a checking or savings account. You will need to complete the appropriate section in the investment application to do this. For further details about this service, call Touchstone at 1.800.543.0407.
REINVESTMENT/CROSS REINVESTMENT. Dividends and capital gains can be automatically reinvested in the Fund that pays them or in another Fund within the same class of shares without a fee or sales charge. Dividends and capital gains will be reinvested in the Fund that pays them, unless you indicate otherwise on your investment application. You may also choose to have your dividends or capital gains paid to you in cash.
DIRECT DEPOSIT PURCHASE PLAN. You may automatically invest Social Security checks, private payroll checks, pension pay outs or any other pre-authorized government or private recurring payments in our Funds. This occurs on a monthly basis and the minimum investment is $50.
DOLLAR COST AVERAGING. Our dollar cost averaging program allows you to diversify your investments by investing the same amount on a regular basis. You can set up periodic automatic transfers of at least $50 from one Touchstone Fund to any other. The applicable sales charge, if any, will be assessed.
PROCESSING ORGANIZATIONS. You may also purchase shares of the Funds through a "processing organization," (e.g., a mutual fund supermarket) which is a broker-dealer, bank or other financial institution that purchases shares for its customers. Some of the Funds have authorized certain processing organizations to receive purchase and sales orders on their behalf. Before investing in the Funds through a processing organization, you should read any materials provided by the processing organization together with this Prospectus.
When shares are purchased this way, there may be various differences. The
processing organization may:
o Charge a fee for its services
o Act as the shareholder of record of the shares
o Set different minimum initial and additional investment requirements
o Impose other charges and restrictions
o Designate intermediaries to accept purchase and sales orders on the
Funds' behalf
Touchstone considers a purchase or sales order as received when an authorized processing organization, or its authorized designee, receives the order in proper form. These orders will be priced based on the Fund's NAV (or offering price, if applicable) next computed after such order is received in proper form.
Shares held through a processing organization may be transferred into your name following procedures established by your processing organization and Touchstone. Certain processing organizations may receive compensation from the Funds, Touchstone, Touchstone Advisors or their affiliates.
BY TELEPHONE
o You can sell or exchange your shares over the telephone, unless you
have specifically declined this option. If you do not wish to have
this ability, you must mark the appropriate section of the investment
application. You may only sell shares over the telephone if the amount
is less than $25,000.
o To sell your Fund shares by telephone, call Touchstone at
1.800.543.0407.
o Shares held in IRA accounts and qualified retirement plans cannot be
sold by telephone.
o If we receive your sale request before the close of the regular
session of trading on the NYSE, generally 4:00 p.m. Eastern time, on a
day when the NYSE is open for regular trading, the sale of your shares
will be processed at the next determined NAV on that day. Otherwise it
will occur on the next business day.
o Interruptions in telephone service could prevent you from selling your
shares by telephone when you want to. When you have difficulty making
telephone sales, you should mail to Touchstone (or send by overnight
delivery), a written request for the sale of your shares.
o In order to protect your investment assets, Touchstone will only
follow instructions received by telephone that it reasonably believes
to be genuine. However, there is no guarantee that the instructions
relied upon will always be genuine and Touchstone will not be liable,
in those cases. Touchstone has certain procedures to confirm that
telephone instructions are genuine. If it does not follow such
procedures in a particular case, it may be liable for any losses due
to unauthorized or fraudulent instructions. Some of these procedures
may include:
o Requiring personal identification
o Making checks payable only to the owner(s) of the account shown
on Touchstone's records
o Mailing checks only to the account address shown on Touchstone's
records
o Directing wires only to the bank account shown on Touchstone's
records
o Providing written confirmation for transactions requested by
telephone
o Tape recording instructions received by telephone
BY MAIL
o Write to Touchstone.
o Indicate the number of shares or dollar amount to be sold.
o Include your name and account number.
o Sign your request exactly as your name appears on your investment
application.
BY WIRE
o Complete the appropriate information on the investment application.
o If your proceeds are $1,000 or more, you may request that Touchstone wire
them to your bank account.
o You may be charged a fee.
o Redemption proceeds will only be wired to a commercial bank or brokerage
firm in the United States.
o Your redemption proceeds may be deposited without a charge directly into your bank account through an ACH transaction. Contact Touchstone for more information.
THROUGH A SYSTEMATIC WITHDRAWAL PLAN
o You may elect to receive, or send to a third party, withdrawals of $50 or
more if your account value is at least $5,000.
o Withdrawals can be made monthly, quarterly, semiannually or annually.
o There is no special fee for this service.
o There is no minimum amount required for retirement plans.
OOO SPECIAL TAX CONSIDERATION
Involuntary sales may result in the sale of your shares at a loss or may result
in taxable investment gains.
THROUGH YOUR FINANCIAL ADVISOR
o You may also sell shares by contacting your financial advisor, who may
charge you a fee for this service. Shares held in street name must be sold
through your financial advisor or, if applicable, the processing
organization.
o Your financial advisor is responsible for making sure that sale requests
are transmitted to Touchstone in proper form in a timely manner.
OOO SPECIAL TAX CONSIDERATION
Selling your shares may cause you to incur a taxable gain or loss.
o INVESTOR ALERT: Unless otherwise specified, proceeds will be sent to the record owner at the address shown on Touchstone's records.
The CDSC will not apply to redemptions of shares you received through reinvested dividends or capital gains distributions and may be waived under certain circumstances described below. The CDSC will be assessed on the lesser of your shares' NAV at the time of redemption or the time of purchase. Therefore, any increase in the share price is not subject to the CDSC. The CDSC is paid to Touchstone to reimburse expenses incurred in providing distribution-related services to the Funds in connection with the sale of shares.
No CDSC is applied if:
o The redemption is due to the death or post-purchase disability of a
shareholder
o The redemption is from a systematic withdrawal plan and represents no
more than 10% of your annual account value
o The redemption is a benefit payment made from a qualified retirement plan, unless the redemption is due to termination of the plan or transfer of the plan to another financial institution
When we determine whether a CDSC is payable on a redemption, we assume that:
o The redemption is made first from amounts not subject to a CDSC; then
o From the earliest purchase payment(s) that remain invested in the Fund
The SAI contains further details about the CDSC and the conditions for waiving the CDSC.
Some circumstances require that your request for the sale of shares be made in writing accompanied by an original Medallion Signature Guarantee. A Medallion Signature Guarantee helps protect you against fraud. You can obtain one from most banks or securities dealers, but not from a notary public. Some circumstances requiring an original Medallion Signature Guarantee include:
o Proceeds from the sale of shares that exceed $100,000
o Proceeds to be paid when information on your investment application has
been changed within the last 30 days (including a change in your name or
your address, or the name or address of a payee)
o Proceeds are being sent to an address other than the address of record
o Proceeds or shares are being sent/transferred from a joint account to an
individual's account
o Changing wire or ACH instructions or sending proceeds via wire or ACH when
instructions have been added within 30 days of your redemption request
o Proceeds or shares are being sent/transferred between accounts with
different account registrations
PROCEEDS SENT TO FINANCIAL ADVISORS. Proceeds that are sent to your financial advisor will not usually be reinvested for you unless you provide specific instructions to do so. Therefore, the financial advisor may benefit from the use of your money.
FUND SHARES PURCHASED BY CHECK. If you purchase Fund shares by personal check, the proceeds of a sale of those shares will not be sent to you until the check has cleared, which may take up to 15 days. If you need your money sooner, you should purchase shares by federal funds, bank wire, or with a certified or cashier's check.
REINSTATEMENT PRIVILEGE. You may reinvest the proceeds from a sale of your shares, a dividend, or a capital gain distribution in any of the Touchstone Funds without a sales charge. You may do so by sending a written request and a check to Touchstone within 90 days after the date of the sale, dividend or distribution. Reinvestment will be at the next NAV calculated after Touchstone receives your request.
OOO SPECIAL TAX CONSIDERATION
If you exercise the Reinstatement Privilege, you should contact your tax
advisor.
LOW ACCOUNT BALANCES. If your balance falls below the minimum amount required for your account, based on actual amounts you have invested (as opposed to a reduction from market changes), your account may be subject to an annual account maintenance fee or Touchstone may sell your shares and send the proceeds to you. This involuntary sale does not apply to retirement accounts or custodian accounts under the Uniform Gifts/Transfers to Minors Act (UGTMA). Touchstone will notify you if your shares are about to be sold and you will have 30 days to increase your account balance to the minimum amount.
DELAY OF PAYMENT. It is possible that the payment of your sale proceeds could be postponed or your right to sell your shares could be suspended during certain circumstances. These circumstances can occur:
o When the NYSE is closed for other than customary weekends and holidays
o When trading on the NYSE is restricted
o When an emergency situation causes a sub-advisor to not be reasonably able
to dispose of certain securities or to fairly determine the value of a
Fund's net assets
o During any other time when the SEC, by order, permits.
REDEMPTION IN KIND. Under unusual circumstances, when the Board of Trustees deems it appropriate, a Fund may make payment for shares redeemed in portfolio securities of the Fund taken at current value.
The Funds' investments are valued based on market value or, if no market value is available, based on fair value as determined by the Board of Trustees (or under their direction). All assets and liabilities initially expressed in foreign currency values will be converted into U.S. dollar values. Some specific pricing strategies follow:
o All short-term dollar-denominated investments that mature in 60 days
or less are valued on the basis of amortized cost.
o Securities mainly traded on a U.S. exchange are valued at the last
sale price on that exchange or, if no sales occurred during the day,
at the current quoted bid price.
o Securities mainly traded on a non-U.S. exchange are generally valued
according to the preceding closing values on that exchange. However,
if an event that may change the value of a security occurs after the
time that the closing value on the non-U.S. exchange was determined,
the security may be priced based on fair value. This may cause the
value of the security on the books of the Fund to be significantly
different from the closing value on the non-U.S. exchange and may
affect the calculation of the NAV.
o Because portfolio securities that are primarily listed on a non-U.S.
exchange may trade on weekends or other days when a Fund does not
price its shares, a Fund's NAV may change on days when shareholders
will not be able to buy or sell shares.
DISTRIBUTIONS AND TAXES
OOO SPECIAL TAX CONSIDERATION
You should consult with your tax advisor to address your own tax situation.
Each Fund intends to distribute to its shareholders substantially all of its income and capital gains. The table below shows when dividends are distributed and paid by each Fund:
DIVIDENDS DISTRIBUTED DIVIDENDS PAID
--------------------------------------------------------------------------------
Enhanced 30 Fund
Value Plus Fund Quarterly Quarterly
--------------------------------------------------------------------------------
Growth Opportunities Fund Annually Annually
--------------------------------------------------------------------------------
|
Distributions of any capital gains earned by a Fund will be made at least annually.
DISTRIBUTIONS. Each Fund will make distributions that may be taxed at the qualified dividend income rate of 15% (which may be taxed at different rates depending on the length of time a Fund holds its assets). Each Fund's distributions may be subject to federal income tax whether you reinvest such dividends in additional shares of the Fund or choose to receive cash.
ORDINARY INCOME. Income and short-term capital gains that are distributed to you are taxable as ordinary income for federal income tax purposes regardless of how long you have held your Fund shares. To the extent that underlying income of a Fund consists of qualified dividend income, income distributions by the Fund may be subject to a maximum rate of federal income tax of 15% for individuals and may qualify for the dividends received deduction for corporations.
LONG-TERM CAPITAL GAINS. Long-term capital gains distributed to you are taxable as long-term capital gains for federal income tax purposes regardless of how long you have held your Fund shares. The maximum individual tax rate on net long-term capital gains has been reduced from 20% to 15%, effective for gains taken into account, whether sold or exchanged after May 5, 2003.
OOO SPECIAL TAX CONSIDERATION
For federal income tax purposes, an exchange of shares is treated as a sale of
the shares and a purchase of the shares you receive in exchange. Therefore, you
may incur a taxable gain or loss in connection with the exchange.
BACKUP WITHHOLDING. A Fund may be required to withhold U.S. federal income tax on all taxable distributions payable to shareholders who fail to provide their correct taxpayer identification number or to make required certifications, or who have been notified by the Internal Revenue Service that they are subject to backup withholding. The current backup withholding rate is 28%.
STATEMENTS AND NOTICES. You will receive an annual statement outlining the tax status of your distributions. You will also receive written notices of certain foreign taxes paid by the Funds and certain distributions paid by the Funds during the prior taxable year.
FINANCIAL HIGHLIGHTS
The financial highlights table for the Enhanced 30 Fund is intended to help you understand the Fund's financial performance during its operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate an investor would have earned or lost on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the annual report, which is available upon request.
ENHANCED 30 FUND - CLASS A
FINANCIAL HIGHLIGHTS
=========================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
-----------------------------------------------------------------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
2003 2002 2001(A)
-----------------------------------------------------------------------------------------
Net asset value at beginning of period ............. $ 9.19 $ 8.90 $ 10.00
----------------------------------
Income (loss) from investment operations:
Net investment income ........................... 0.06 0.06 0.05
Net realized and unrealized gains
(losses) on investments ...................... (2.46) 0.28 (1.10)
----------------------------------
Total from investment operations ................... (2.40) 0.34 (1.05)
----------------------------------
Dividends from net investment income ............... (0.08) (0.05) (0.05)
----------------------------------
Net asset value at end of period ................... $ 6.71 $ 9.19 $ 8.90
==================================
Total return(B) .................................... (26.19%) 3.86% (10.57%)(C)
==================================
Net assets at end of period (000's) ................ $ 6,109 $ 7,561 $ 6,208
==================================
Ratio of net expenses to average net assets ........ 1.00% 1.00% 1.00%(D)
Ratio of net investment income to
average net assets .............................. 0.90% 0.70% 0.54%(D)
Portfolio turnover rate ............................ 29% 9% 3%(D)
|
(A) Represents the period from the commencement of operations (May 1, 2000)
through March 31, 2001.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
ENHANCED 30 FUND - CLASS B
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
--------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2003 2002(A)
--------------------------------------------------------------------------------
Net asset value at beginning of period ............. $ 9.13 $ 9.50
---------------------
Income (loss) from investment operations:
Net investment income ........................... 0.01 0.02
Net realized and unrealized losses on investments (2.45) (0.37)
---------------------
Total from investment operations ................... (2.44) (0.35)
---------------------
Dividends from net investment income ............... --(B) (0.02)
---------------------
Net asset value at end of period ................... $ 6.69 $ 9.13
=====================
Total return(C) .................................... (26.70%) (3.60%)(D)
=====================
Net assets at end of period (000's) ................ $ 729 $ 860
=====================
Ratio of net expenses to average net assets ........ 1.75% 1.75%(E)
Ratio of net investment income to average net assets 0.18% 0.03%(E)
Portfolio turnover rate ............................ 29% 9%(E)
(A) Represents the period from the commencement of operations (May 1, 2001)
through March 31, 2002.
(B) Amount rounds to less than $0.01 per share.
|
(C) Total returns shown exclude the effect of applicable sales loads. (D) Not annualized. (E) Annualized.
ENHANCED 30 FUND - CLASS C
FINANCIAL HIGHLIGHTS
=========================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
-----------------------------------------------------------------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
2003 2002 2001(A)
-----------------------------------------------------------------------------------------
Net asset value at beginning of period ............. $ 9.13 $ 8.88 $ 10.00
----------------------------------
Income (loss) from investment operations:
Net investment income ........................... 0.01 0.01 0.01
Net realized and unrealized gains
(losses) on investments ...................... (2.41) 0.25 (1.12)
----------------------------------
Total from investment operations ................... (2.40) 0.26 (1.11)
----------------------------------
Dividends from net investment income ............... (0.01) (0.01) (0.01)
----------------------------------
Net asset value at end of period ................... $ 6.72 $ 9.13 $ 8.88
==================================
Total return(B) .................................... (26.32%) 3.00% (11.12%)(C)
==================================
Net assets at end of period (000's) ................ $ 920 $ 900 $ 128
==================================
Ratio of net expenses to average net assets ........ 1.74% 1.75% 1.73%(D)
Ratio of net investment income (loss) to
average net assets .............................. 0.18% (0.05%) (0.46%)(D)
Portfolio turnover rate ............................ 29% 9% 3%(D)
|
(A) Represents the period from the initial public offering (May 16, 2000)
through March 31, 2001.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
The financial highlights table for the Growth Opportunities Fund is intended to help you understand the Fund's financial performance for the past five years. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate an investor would have earned or lost on an investment in the Fund (assuming reinvestment of all dividends and distributions). Information for the fiscal years ended March 31, 2000 and thereafter has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the annual report, which is available upon request. Information for the prior year was audited by other independent accountants.
GROWTH OPPORTUNITIES FUND - CLASS A
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
-------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------
2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ............. $ 18.18 $ 19.97 $ 32.43 $ 17.50 $ 16.30
------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss ............................. (0.19) (0.18) (0.13) (0.16) (0.17)
Net realized and unrealized gains
(losses) on investments ...................... (5.29) (1.61) (12.33) 15.51 4.84
------------------------------------------------------------
Total from investment operations ................... (5.48) (1.79) (12.46) 15.35 4.67
------------------------------------------------------------
Distributions from net realized gains .............. -- -- -- (0.42) (3.47)
------------------------------------------------------------
Net asset value at end of period ................... $ 12.70 $ 18.18 $ 19.97 $ 32.43 $ 17.50
============================================================
Total return(A) .................................... (30.14%) (8.96%) (38.42%) 88.88% 29.89%
============================================================
Net assets at end of period (000's) ................ $ 84,472 $121,791 $107,435 $ 79,066 $ 24,664
============================================================
Ratio of net expenses to
average net assets .............................. 1.83% 1.49% 1.54% 1.52% 1.66%
Ratio of net investment loss to
average net assets .............................. (1.40%) (0.98%) (0.66%) (1.05%) (0.93%)
Portfolio turnover rate ............................ 39% 52% 35% 44% 59%
Amount of debt outstanding at
end of period (000's) ........................... $ -- $ -- n/a n/a n/a
Average daily amount of debt
outstanding during the
period (000's)(B) ............................... $ 242 $ 24 n/a n/a n/a
Average daily number of capital
shares outstanding during
the period (000's)(B) ........................... 8,916 8,481 n/a n/a n/a
Average amount of debt per share
during the period(B) ............................ $ 0.03 $ --(C) n/a n/a n/a
|
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Based on fund level shares outstanding.
(C) Amount rounds to less than $0.01 per share.
GROWTH OPPORTUNITIES FUND - CLASS B
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
--------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2003 2002(A)
--------------------------------------------------------------------------------
Net asset value at beginning of period ............. $ 17.78 $ 22.74
---------------------
Loss from investment operations:
Net investment loss ............................. (0.36) (0.17)
Net realized and unrealized losses on investments (5.29) (4.79)
---------------------
Total from investment operations ................... (5.65) (4.96)
---------------------
Net asset value at end of period ................... $ 12.13 $ 17.78
=====================
Total return(B) .................................... (31.78%) (21.81%)(C)
=====================
Net assets at end of period (000's) ................ $ 2,463 $ 3,380
=====================
Ratio of net expenses to average net assets ........ 3.16% 2.37%(D)
Ratio of net investment loss to average net assets . (2.71%) (1.93%)(D)
Portfolio turnover rate ............................ 39% 52%(D)
Amount of debt outstanding at end of period (000's) $ -- $ --
Average daily amount of debt outstanding
during the period (000's)(E) .................... $ 242 $ 24
Average daily number of capital shares outstanding
during the period (000's)(E) .................... 8,916 8,481
Average amount of debt per share during
the period(E) ................................... $ 0.03 $ --(F)
(A) Represents the period from the commencement of operations (May 1, 2001)
through March 31, 2002.
|
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
(E) Based on fund level shares outstanding.
(F) Amount rounds to less than $0.01 per share.
GROWTH OPPORTUNITIES FUND - CLASS C
FINANCIAL HIGHLIGHTS
======================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2003 2002 2001 2000(A)
------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ............. $ 17.78 $ 19.74 $ 32.30 $ 18.65
-----------------------------------------------
Income (loss) from investment operations:
Net investment loss ............................. (0.36) (0.32) (0.19) (0.11)
Net realized and unrealized gains
(losses) on investments ...................... (5.25) (1.64) (12.37) 14.18
-----------------------------------------------
Total from investment operations ................... (5.61) (1.96) (12.56) 14.07
-----------------------------------------------
Dividends from net investment income ............... -- -- -- (0.42)
-----------------------------------------------
Net asset value at end of period ................... $ 12.17 $ 17.78 $ 19.74 $ 32.30
===============================================
Total return(B) .................................... (31.55%) (9.93%) (38.89%) 76.52%(C)
===============================================
Net assets at end of period (000's) ................ $ 21,727 $ 40,967 $ 36,475 $ 10,794
===============================================
Ratio of net expenses to average net assets ........ 2.87% 2.31% 2.19% 2.33%(D)
Ratio of net investment loss to
average net assets .............................. (2.42%) (1.78%) (1.31%) (1.77%)(D)
Portfolio turnover rate ............................ 39% 52% 35% 44%(D)
Amount of debt outstanding at
end of period (000's) ........................... $ -- $ -- n/a n/a
Average daily amount of debt outstanding
during the period (000's)(E) .................... $ 242 $ 24 n/a n/a
Average daily number of capital shares
outstanding during the
period (000's)(E) ............................... 8,916 8,481 n/a n/a
Average amount of debt per share
during the period(E) ............................ $ 0.03 $ --(F) n/a n/a
|
(A) Represents the period from the commencement of operations (August 2, 1999)
through March 31, 2000.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
(E) Based on fund level shares outstanding.
(F) Amount rounds to less than $0.01 per share.
The financial highlights table for the Value Plus Fund is intended to help you understand the Fund's financial performance during its operations. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate an investor would have earned or lost on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information for the fiscal periods ended December 31, 1999 and thereafter has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the annual report, which is available upon request. Information for the prior period was audited by other independent accountants.
VALUE PLUS FUND - CLASS A
FINANCIAL HIGHLIGHTS
================================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
--------------------------------------------------------------------------------------------------------------------------------
THREE
YEAR YEAR MONTHS YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DEC. 31, DEC. 31, DEC. 31,
2003 2002 2001(B) 2000 1999 1998(A)
--------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ............. $ 10.49 $ 10.27 $ 10.74 $ 11.77 $ 10.41 $ 10.00
-------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income ........................... 0.05 0.02 0.01 0.06 0.01 0.02
Net realized and unrealized gains
(losses) on investments ...................... (3.05) 0.22 (0.47) 0.12 1.60 0.41
-------------------------------------------------------------------------
Total from investment operations ................... (3.00) 0.24 (0.46) 0.18 1.61 0.43
-------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income ....................................... (0.04) (0.02) (0.01) (0.06) (0.01) (0.02)
Distributions from net realized gains ........... -- -- -- (0.92) (0.24) --
Return of capital ............................... -- -- -- (0.23) -- --(C)
-------------------------------------------------------------------------
Total distributions ................................ (0.04) (0.02) (0.01) (1.21) (0.25) (0.02)
-------------------------------------------------------------------------
Net asset value at end of period ................... $ 7.45 $ 10.49 $ 10.27 $ 10.74 $ 11.77 $ 10.41
=========================================================================
Total return(D) .................................... (28.59%) 2.34% (4.29%)(E) 1.91% 15.51% 4.29%(F)
=========================================================================
Net assets at end of period (000's) ................ $ 46,113 $ 93,214 $ 51,442 $ 49,807 $ 31,808 $ 27,068
=========================================================================
Ratio of net expenses to
average net assets .............................. 1.30% 1.30% 1.30%(F) 1.30% 1.30% 1.30%(F)
Ratio of net investment income
to average net assets ........................... 0.58% 0.23% 0.37%(F) 0.51% 0.08% 0.25%(F)
Portfolio turnover ................................. 58% 33% 48%(F) 83% 60% 34%(F)
|
(A) The Fund commenced operations May 1, 1998.
(B) Effective after the close of business on March 31, 2001, the Fund changed
its fiscal year-end to March 31.
(C) Amount rounds to less than $0.01 per share.
(D) Total returns shown exclude the effect of applicable sales loads.
(E) Not annualized.
(F) Annualized.
VALUE PLUS FUND - CLASS B
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
--------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2003 2002(A)
--------------------------------------------------------------------------------
Net asset value at beginning of period ............. $ 10.18 $ 10.72
---------------------
Loss from investment operations:
Net investment income (loss) .................... --(E) (0.01)
Net realized and unrealized losses on investments (2.96) (0.53)
---------------------
Total from investment operations ................... (2.96) (0.54)
---------------------
Dividends from net investment income ............... (0.04) --
---------------------
Net asset value at end of period ................... $ 7.18 $ 10.18
=====================
Total return(B) .................................... (29.05%) (5.01%)(C)
=====================
Net assets at end of period (000's) ................ $ 367 $ 130
=====================
Ratio of net expenses to average net assets ........ 2.05% 2.05%(D)
Ratio of net investment loss to average net assets . (0.06%) (0.77%)(D)
Portfolio turnover rate ............................ 58% 33%(D)
(A) Represents the period from the commencement of operations (May 1, 2001)
through March 31, 2002.
|
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
(E) Amount rounds to less than $0.01 per share.
VALUE PLUS FUND - CLASS C
FINANCIAL HIGHLIGHTS
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
-------------------------------------------------------------------------------------------------------------------
YEAR YEAR THREE MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DEC. 31, DEC. 31,
2003 2002 2001(B) 2000 1999(A)
-------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ............. $ 10.18 $ 10.02 $ 10.50 $ 11.48 $ 10.26
------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income (loss) .................... (0.02) (0.04) (0.01) (0.02) (0.07)
Net realized and unrealized gains
(losses) on investments ...................... (2.94) 0.20 (0.47) 0.19 1.53
------------------------------------------------------------
Total from investment operations ................... (2.96) 0.16 (0.48) 0.17 1.46
------------------------------------------------------------
Less distributions:
Distributions from net realized gains ........... -- -- -- (0.92) (0.24)
Return of capital ............................... -- -- -- (0.23) --
------------------------------------------------------------
Total distributions ................................ -- -- -- (1.15) (0.24)
------------------------------------------------------------
Net asset value at end of period ................... $ 7.22 $ 10.18 $ 10.02 $ 10.50 $ 11.48
============================================================
Total return(C) .................................... (29.08%) 1.60% (4.57%)(D) 1.87% 14.24%
============================================================
Net assets at end of period (000's) ................ $ 1,512 $ 2,548 $ 1,705 $ 2,011 $ 548
============================================================
Ratio of net expenses to
average net assets .............................. 2.05% 2.05% 2.05%(E) 2.05% 2.05%
Ratio of net investment loss to
average net assets .............................. (0.15%) (0.51%) (0.33%)(E) (0.21%) (0.65%)
Portfolio turnover ................................. 58% 33% 48%(E) 83% 60%
|
(A) Represents the period from the commencement of operations (January 1, 1999)
through December 31, 1999.
(B) Effective after the close of business on March 31, 2001, the Fund changed
its fiscal year-end to March 31.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Not annualized.
(E) Annualized.
For investors who want more information about the Funds, the following documents are available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed information about the Funds and is legally a part of this Prospectus.
ANNUAL/SEMIANNUAL REPORTS: The Funds' annual and semiannual reports provide additional information about the Funds' investments. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected a Fund's performance during its last fiscal year.
You can get free copies of the SAI, the reports, other information and answers to your questions about the Funds by contacting your financial advisor, or the Funds at: Touchstone Funds . 221 East Fourth Street, Suite 300 . Cincinnati, Ohio 45202-4133 . 1.800.543.0407 http://www.touchstoneinvestments.com
Information about the Funds (including the SAI) can be reviewed and copied at the Securities and Exchange Commission's public reference room in Washington, D.C. You can receive information about the operation of the public reference room by calling the SEC at 1.202.942.8090.
Reports and other information about the Funds are available on the SEC's internet site at http://www.sec.gov. For a fee, you can get text-only copies of reports and other information by writing to the Public Reference Room of the SEC, 450 Fifth Street N.W., Washington, D.C. 20549-0102, or by sending an e-mail request to: publicinfo@sec.gov.
Investment Company Act file no. 811-3651
TOUCHSTONE INVESTMENTS
DISTRIBUTOR
Touchstone Securities, Inc.
221 East Fourth Street
Cincinnati, Ohio 45202-4133
800.638.8194
www.touchstoneinvestments.com
INVESTMENT ADVISOR
Touchstone Advisors, Inc.
221 East Fourth Street
Cincinnati, Ohio 45202-4133
TRANSFER AGENT
Integrated Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
SHAREHOLDER SERVICE
800.543.0407
A Member of Western & Southern Financial Group
Please complete all four pages of this application.
TOUCHSTONE
INVESTMENTS
NOT FOR USE WITH IRAS, SEP, SIMPLE, COVERDELL OR 403(b) PLANS RETURN COMPLETED FORM TO:
Was order previously telephoned in? o Yes 0 No If yes, date ( ) Touchstone Investments o P.O. Box 5354 o Cincinnati, OH 45202
and confirmation #__________________________ For assistance in completing this form, call 800.543.0407
------------------------------------------------------------------------------------------------------------------------------------
Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an
account. What this means for you: When you open an account, we will ask for your name, residential address, date of birth, social
security or other government identification number and other information that will allow us to identify you. We may also ask to see
your driver's license or other identifying documents. If we do not receive these required pieces of information, there may be a
delay in processing your investment request, which could subject your investment to market risk. If we are unable to immediately
verify your identity, the Fund may restrict further investment until your identify is verified. However, if we are unable to verify
your identity, the Fund reserves the right to close your account without notice and return your investment to you at the price
determined as of 4:00 p.m. Eastern Time on the day in which your account is closed. If we close your account because we are unable
to verify your identity, your investment will be subject to market fluctuation, which could result in a loss of a portion of your
principal investment.
====================================================================================================================================
1a. ACCOUNT REGISTRATION (check one box only)(*This information must be provided to open an account.)
====================================================================================================================================
o INDIVIDUAL o JOINT TENANT (For joint-owners, joint tenancy with right of survivorship is presumed unless otherwise specified.)
------------------------------------------------------------------------------------------------------------------------------------
Name of Individual Owner - First, Initial, Last* Name of Joint Owner (if any) - First, Initial, Last*
------------------------------------------------------------------------------------------------------------------------------------
Owner's Social Security Number* Date of Birth* Joint Owner's Social Security Number* Date of Birth*
------------------------------------------------------------------------------------------------------------------------------------
o GIFT/TRANSFER TO A MINOR (Only one custodian and minor)
------------------------------------------------------------------------------------------------------------------------------------
Name of Minor - First, Initial, Last*
Under the ________________________ Uniform Gifts/Transfers to Minors Act
(State of minor's residence)
------------------------------------------------------------------------------------------------------------------------------------
Minor's Social Security Number* Minor's Date of Birth*
------------------------------------------------------------------------------------------------------------------------------------
Name of Custodian - First, Initial, Last*
------------------------------------------------------------------------------------------------------------------------------------
Custodian's Address* Custodian's Date of Birth* Custodian's Social Security Number*
------------------------------------------------------------------------------------------------------------------------------------
oTRUST(Must provide copy of title and signature page of Trust document)o EMPLOYER SPONSORED QUALIFIED PLAN (Must provide copy of
plan document)
------------------------------------------------------------------------------------------------------------------------------------
Name of Trust Agreement/Qualified Plan Taxpayer I.D. Number* Date of Trust Agreement
------------------------------------------------------------------------------------------------------------------------------------
Name of Trustee(s) - First, Initial, Last Name of Beneficiary - First, Initial, Last
------------------------------------------------------------------------------------------------------------------------------------
Name of Plan Administrator Address Phone Number Fax Number E-mail Address
------------------------------------------------------------------------------------------------------------------------------------
o CORPORATION, PARTNERSHIP OR OTHER ENTITY 1b. FOR ALL ACCOUNT TYPES
------------------------------------------------------------------------------------------------------------------------------------
Name of Corporation or Other Entity* Occupation and Employer Name/Address
------------------------------------------------------------------------------------------------------------------------------------
Taxpayer I.D. Number* Are you an associated person of an NASD member?
o Yes o No
====================================================================================================================================
2. ADDRESS (P.O. Box not acceptable without street address)(*This information must be provided to open an account).
====================================================================================================================================
Street Home Phone
( )
------------------------------------------------------------------------------------------------------------------------------------
City Business Phone
( )
------------------------------------------------------------------------------------------------------------------------------------
State Zip Are you a U.S. Citizen? o Yes o No (please specify country):
------------------------------------------------------------------------------------------------------------------------------------
Mailing Address (if different)
------------------------------------------------------------------------------------------------------------------------------------
Street
------------------------------------------------------------------------------------------------------------------------------------
City State Zip
====================================================================================================================================
3. HOUSEHOLDING
====================================================================================================================================
Unless the box below is checked, by signing this Application, you authorize each Fund to send one copy of prospectuses and
shareholder reports to multiple shareholders in your household with the same last name. This process, known as "householding,"
reduces costs and provides a convenience to shareholders. If you or others in your household invest in the Funds through a broker
or other financial institution, you may receive separate prospectuses and shareholder reports, regardless of whether or not you
have consented to householding on your Touchstone Application.
(check only if you do NOT want your reports householded)
[ ] I DO NOT elect to participate in householding.
====================================================================================================================================
4. FUND SELECTION (minimum initial investment is $1,000 per Fund or $50 per Fund with automatic investment plan.) Minimum iniital
investment is $100,000 for the Institutional U.S. Government Money Market Fund and $1 million for Institutional Shares in the
Ohio Tax-Free Money Market Fund. Indicate the Fund(s), Class and investment amounts below. If no Class is indicated, Class A
shares will be purchased.
AUTOMATIC INVESTMENT PLAN. The Automatic Investment Plan provides for regular subsequent investments to be made electronically
though Automatic Clearing House (ACH) from your bank account into the Fund(s) you select below. There is no charge by the
Touchstone Funds and you may cancel at any time with no obligation or penalty. Please withdraw from my bank account $________
(minimum $50 per Fund) monthly beginning ___/___/___ (date) to be invested in the Fund(s) below (available any day from the 1st
to the 25th). If no date is selected, your automatic investment will occur on the 15th of the month. If the date falls on a
non-business day, your automatic investment will occur on the following business day. Attach a voided check or preprinted
deposit slip. Any Joint Owner of your bank account who is not a Joint Owner of this new account with the Touchstone Funds must
sign here:
----------------------------------------------------- -------------------------------
Name Date
TOUCHSTONE FUNDS Investment Class A Class B Class C Automatic
Amount Shares Shares Shares Investment Amount
EQUITY FUNDS
Small Cap Growth Fund $_________ [ ]56 [ ]256 [ ]57 $__________
Emerging Growth Fund $_________ [ ]42 [ ]242 [ ]43 $__________
Growth Opportunities Fund $_________ [ ]91 [ ]291 [ ]90 $__________
Large Cap Growth Fund $_________ [ ]29 [ ]229 [ ]28 $__________
Enhanced 30 Fund $_________ [ ]44 [ ]244 [ ]45 $__________
Value Plus Fund $_________ [ ]48 [ ]248 [ ]49 $__________
TAXABLE BOND FUNDS
High Yield Fund $_________ [ ]54 [ ]254 [ ]55 $__________
Core Bond Fund $_________ [ ]52 [ ]252 [ ]53 $__________
Intermediate Term U.S.Government Bond Fund$_________ [ ]1 [ ]201 [ ]15 $__________
TAX-FREE BOND FUNDS
Ohio Insured Tax-Free Fund $_________ [ ]9 [ ]209 [ ]14 $__________
Tax-Free Intermediate Term Fund $_________ [ ]3 [ ]203 [ ]16 $__________
TAXABLE MONEY MARKET FUNDS
Money Market Fund $_________ [ ]96 N/A N/A $__________
U.S. Government Money Market Fund $_________ [ ]10 N/A N/A $__________
Instit. U.S.Govt. Money Market Fund $_________ [ ]23 N/A N/A N/A
TAX-FREE MONEY MARKET FUNDS
Tax-Free Money Market Fund $_________ [ ]2 N/A N/A $__________
California Tax-Free Money Market Fund $_________ [ ]24 N/A N/A $__________
Florida Tax-Free Money Market Fund $_________ [ ]11 N/A N/A $__________
Ohio Tax-Free Money Market Fund $_________ [ ]Retail7[ ]Institutional 17 $__________
Total investment of $_____________. Please make check payable to the Touchstone Funds.
====================================================================================================================================
5. DISTRIBUTION OPTION (check the appropriate boxes)
====================================================================================================================================
Unless the box(es) below are checked, dividends and capital gains will be reinvested in the Fund that pays them.
Pay in
Cash
Dividends [ ]
Short-term capital gains [ ]
Long-term capital gains [ ]
Cross Reinvestment: From __________________________ Fund to _______________________________ Fund
From __________________________ Fund to _______________________________ Fund
====================================================================================================================================
6. RIGHTS OF ACCUMULATION
====================================================================================================================================
If you already have an account with the Touchstone Family of Funds, you may be eligible for reduced sales charges subject to
Touchstone's confirmation of the following eligible holdings:
------------------------------------------------------------------------------------------------------------------------------------
Fund Name
------------------------------------------------------------------------------------------------------------------------------------
Shareholder Name
------------------------------------------------------------------------------------------------------------------------------------
Account Number
====================================================================================================================================
7. LETTER OF INTENT
====================================================================================================================================
If you intend to invest a certain amount over a 13-month period in one or more of the Touchstone Family of Funds (excluding
Money Market Funds), you may be entitled to a reduced sales charge on your initial investment. By indicating an amount below, you
agree to the terms of the Letter of Intent set forth in the Statement of Additional Information.
o $50,000 o $100,000 o $250,000 o $500,000 o $1,000,000 or more
Although you are not obligated to complete the Letter of Intent, if it is not fulfilled during the 13-month period, your initial
(and any subsequent) investments purchased at a reduced sales charge will be charged the approprite sales charge retroactively.
o I am already investing under an existing Letter of Intent in the following account number: ___________________________.
====================================================================================================================================
9. TELEPHONE EXCHANGES AND REDEMPTIONS
====================================================================================================================================
Unless the boxes below are checked, by signing this Application, the investor authorizes each Fund and its Transfer Agent to act on
the investor's telephone instructions, or on telephone instructions from any person representing to be an authorized agent of the
investor and requesting a redemption or exchange on the investor's behalf. The undersigned agrees that any redemption or exchange
made pursuant to this authorization shall be subject to the provisions of the current Prospectus of each Fund, and that neither the
Funds nor their Transfer Agent or Distributor, nor their respective affiliates, will be liable for any loss, damage, expense or cost
which may arise out of any telephone redemption or exchange request they reasonably believe to be genuine, including any fraudulent
or unauthorized requests. The investor(s) will bear the risk of any such loss. In an effort to determine that telephone requests are
genuine, the Funds and/or their Transfer Agent will employ reasonable procedures, which may include, among others, requiring forms
of personal identification prior to acting upon telephone instructions and providing written confirmation of the transactions.
Telephone conversations also may be recorded. REDEMPTION PROCEEDS OF $1,000 OR MORE MAY BE WIRED TO THE SHAREHOLDER'S ACCOUNT AT A
COMMERCIAL BANK OR BROKERAGE FIRM IN THE UNITED STATES UPON VERBAL REQUEST IF THE BANK ACCOUNT INFORMATION IN SECTION 7 IS COMPLETE.
([CHECK] only if you do NOT want to use telephone authorization.) o I DO NOT elect the telephone exchange privilege. o I DO NOT elect the telephone redemption privilege. ==================================================================================================================================== 10. ELIGIBILITY FOR EXEMPTION FROM SALES CHARGE ==================================================================================================================================== o If you are eligible for exemption from sales charges as described in the Statement of Additional Information, please check here and attach Form 7008. ==================================================================================================================================== 11. TAXPAYER I.D. NUMBER CERTIFICATION/SIGNATURES ==================================================================================================================================== I (We) are of legal age and capacity, have legal authority to purchase shares, have received and read a current prospectus for each Fund selected and agree to the terms and conditions on this Application and those contained in the current prospectus(es) (including the Statement(s) of Additional Information) of the Fund(s) selected for purchase. I (We) acknowledge that the account will be subject to the telephone exchange and redemption privileges (unless declined) described in the Fund's current Prospectus and agree that the Fund, its Distributor and Transfer Agent will not be liable for any loss in acting on written or telephone instructions reasonably believed by them to be authentic. I (We) acknowledge that we have received and understand the terms of the Trust's and Distributor's Privacy Protection Policy and agree not to hold the Trust and its Distributor and their respective officers, employees, agents and affiliates liable for any actions taken pursuant to the written Privacy Protection Policy. I (We) hereby ratify any instructions given pursuant to this Application and for myself (ourselves) and my (our) successors and assigns do hereby release each Fund, its Distributor and its Transfer Agent and their respective officers, employees, agents and affiliates from any and all liability in the performance of the acts instructed herein. I ACKNOWLEDGE THAT MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK, CREDIT UNION OR INSURANCE COMPANY AND ARE NOT FEDERALLY INSURED BY THE FDIC, THE FEDERAL RESERVE, OR ANY OTHER AGENCY. MUTUAL FUND SHARES INVOLVE CERTAIN RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. UNDER PENALTY OF PERJURY, I/WE ALSO CERTIFY THAT: a. The number shown on this application is my/our correct taxpayer identification number(s) (or I am/we are waiting for a number(s) to be issued to me/us); and b. I am/we are not subject to backup withholding because: (i) I am/we are exempt from backup withholding, or (ii) I/we have not been notified by the IRS that I am/we are subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the IRS has notified me/us that I am/we are no longer subject to backup withholding, and c. I am/we are a U.S. person(s) (including a U.S. resident alien). NOTE: Mark through item "b" if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. |
The IRS does not require your consent to any provision of this document other than the certifications required to avoid backup
withholding.
My (Our) signature below constitutes my (our) agreement and acceptance of all the terms, conditions and account features selected in
any and all parts of this Application.
------------------------------------------------------------------------------------------------------------------------------------
INDIVIDUAL, JOINT OR CUSTODIAN ACCOUNTS
------------------------------------------------------------------------------------------------------------------------------------
Signature of Individual Owner or Custodian Date
X
------------------------------------------------------------------------------------------------------------------------------------
Signature of Joint Owner, if any Date
X
------------------------------------------------------------------------------------------------------------------------------------
CORPORATION, PARTNERSHIP, TRUST OR OTHER ACCOUNTS
------------------------------------------------------------------------------------------------------------------------------------
Signature of Authorized Officer, General Partner, Trustee, etc. Date
X
------------------------------------------------------------------------------------------------------------------------------------
Title of Corporate Officer, General Partner, Trustee, etc. Date
====================================================================================================================================
12. FOR COMPLETION BY INVESTMENT DEALER
====================================================================================================================================
We hereby submit this application for purchase of shares in accordance with the terms of our Selling Agreement with Touchstone
Securities, Inc. and with the current Prospectus for the Funds.
------------------------------------------------------------------------------------------------------------------------------------
Investment Dealer Name Dealer Number
------------------------------------------------------------------------------------------------------------------------------------
Dealer's Corporate Office Address City State Zip
------------------------------------------------------------------------------------------------------------------------------------
Representative's Name
------------------------------------------------------------------------------------------------------------------------------------
Representative's Branch Office Address City State Zip
------------------------------------------------------------------------------------------------------------------------------------
Representative's Telephone Number Representative's Number Branch Office Number
------------------------------------------------------------------------------------------------------------------------------------
Authorized Signature of Investment Dealer
X
------------------------------------------------------------------------------------------------------------------------------------
Title
====================================================================================================================================
FIFTH THIRD - SIGNATURE CARD CHECKING
====================================================================================================================================
Submit one card to establish an optional check redemption account which allows you to write checks against your account in the
_____________. Please see a Fund's current Prospectus to determine if checkwriting is available in that Fund. $100 minimum on
(Name of Fund)
checks written. (Counter checks are not available).
PRINT CLEARLY
Name of Account
------------------------------------------------------------------------------------------------------------------
Account Number Date
-------------------------------------------------- -------------------------------------------------------
The registered owner(s) of this account must sign below. By signing this card the signatory(ies) agree(s) to all of the terms and
conditions set forth on the reverse side of this card.
------------------------------------------------------------ --------------------------------------------------------------
Signature Signature
------------------------------------------------------------ --------------------------------------------------------------
Signature Signature
INSTITUTIONAL ACCOUNTS: JOINT TENANCY ACCOUNTS:
o Check here if any two signatures are required on checks o Check here if both signatures are required on checks
o Check here if only one signature is required on checks o Check here if only one signature is required on checks
------------------------------------------------------------------------------------------------------------------------------------
o Check here if Business Style Checks (600 per book with voucher stub) are required. A charge will be made to your account.
Individual Style checks are provided at no charge.
====================================================================================================================================
13. SYSTEMATIC WITHDRAWAL PLAN
====================================================================================================================================
This plan enables you to withdraw money regularly-either by check directly to you or electronically to your domestic bank account.
It eliminates your need to make a special request every month, quarter or year. There is no charge by the Touchstone Funds, and you
may cancel at any time with no obligation or penalty.
[ ] I would like to receive checks of $50 or more from the _________________________________.
(Name of Fund(s)
Beginning on the _____ day of _________ I want to receive $ ______________ ($50 minimum.
(date) (month/year)
Please send my payments (check only one) [ ] Monthly [ ] Annually
[ ] Quarterly [ ] Semiannually
[ ] I want my withdrawals deposited automatically to my banking institution [ ] checking [ ] savings account. Attach a voided check
or preprinted deposit slip.
OR [ ] Send my check to: ___________________________________________
Name
_____________________________________________
Address
________________________________________________ _________________________ _______________
City State Zip Code
Any Joint Owner of this new account with the Touchstone Funds who is not a Joint Owner of your bank account must sign here:
--------------------------------------------------------- -------------------------------------------------
Name Date
------------------------------------------------------------------------------------------------------------------------------------
TERMS AND CONDITIONS
--------------------
1. REDEMPTION AUTHORIZATION: The signatory(ies) whose signature(s) appears on the reverse side, intending to be legally bound,
hereby agrees each with the other and with Fifth Third ("Bank"), that the Bank is appointed agent for such person(s) and as such
agent, is directed to redeem shares registered in the name of such signatory(ies) upon receipt of, and in the amount of, checks
drawn upon the above numbered accounts and to deposit the proceeds of such redemptions in said account or otherwise arrange for
application of such proceeds to payments of said checks. The Bank is expressly authorized to commingle such proceeds of such
redemptions in said account or otherwise arrange for application of such proceeds to payments of said checks also on behalf of
Integrated Fund Services, Inc. in effecting the redemption of shares.
The Bank is expressly authorized to honor checks as redemption instructions hereunder without requiring signature guarantees, and
shall not be liable for any loss or liability resulting from the absence of any such guarantee.
2. CHECK PAYMENT: The signatory(ies) authorizes and directs the Bank to pay each check presented hereunder, subject to all laws and
Bank rules and regulations pertaining to checking accounts. In addition, the signatory(ies) agrees that:
(a) No check shall be issued or honored, or redemption effected, for any amounts represented by shares for which certificates
have been issued.
(b) No check shall be issued or honored, or redemption effected, for any amounts represented by shares unless payment for such
shares has been made in full and any checks given in such payment have been collected through normal banking channels.
Shareholders who wish immediate availability of shares for check redemption may purchase their shares with federal funds or
may contact Integrated Fund Services, Inc. for assistance.
(c) Checks issued hereunder cannot be cashed over the counter at the Bank; and
(d) Checks shall be subject to any further information set forth in the applicable Prospectus, including without limitation any
additions, amendments and supplements thereto.
3. DUAL OWNERSHIP: If more than one person is indicated as a registered owner of shares, as by joint ownership, ownership in common,
or tenants by the entireties, then (a) each registered owner must sign this signature card, (b) each registered owner must sign
each check issued hereunder unless the parties have indicated on the face of this card that only one need sign, in which case the
Bank is authorized to act upon such signature, and (c) each signatory guarantees to the Bank the genuineness and accuracy of the
signature of the other signatory(ies). In the event of the death of a joint tenant or tenant by the entireties, the survivor
shall be deemed to own all of the shares and the proceeds thereof upon delivery of appropriate documentation.
4. TERMINATION: The Bank may at any time terminate this account, related share redemption service and its agency for the
signatory(ies) hereto without prior notice by Bank to the signatory(ies).
5. HEIRS AND ASSIGNS: These terms and conditions shall bind the respective heirs, executors, administrators and assigns of the
signatory(ies).
|
PROSPECTUS
AUGUST 1, 2003
TOUCHSTONE INVESTMENTS
Large Cap Growth Fund
The Fund is a series of Touchstone Strategic Trust (the "Trust"), a group of equity mutual funds. The Trust is part of the Touchstone Funds which also consists of Touchstone Investment Trust, a group of taxable bond and money market mutual funds, Touchstone Tax-Free Trust, a group of tax-free bond and money market mutual funds and Touchstone Variable Series Trust, a group of variable series funds. Each Touchstone Fund has a different investment goal and risk level. For further information about the Touchstone Funds, contact Touchstone at 1.800.543.0407.
The Securities and Exchange Commission has not approved the Fund's shares as an investment or determined whether this Prospectus is accurate or complete. Anyone who tells you otherwise is committing a crime.
Multiple Classes of Shares are Offered by this Prospectus
LARGE CAP GROWTH FUND
A large cap company has a market capitalization of more than $10 billion.
The sub-advisor uses a database of stocks from which to choose companies and then performs a detailed fundamental analysis on the companies that pass the initial screening. The intent of this analysis is to:
o Identify superior growth attributes relative to the general market
o Identify high quality large cap companies with superior financial
conditions
o Acquire a detailed understanding of a company's earnings power
o Position the portfolio for a superior risk/reward ratio
o If the stock market as a whole goes down
o If the market continually values the stocks in the Fund's portfolio
lower than the sub-advisor believes they should be valued
o If the detailed fundamental analysis of companies in the stock
screening process is not accurate
o If the companies in which the Fund invests do not grow as rapidly or
increase in value as expected
o Because the Fund may invest in the technology sector which at times
may be subject to greater market fluctuation than other sectors
o Because growth oriented funds may underperform when value investing is
in favor
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency.
As with any mutual fund, there is no guarantee that the Fund will achieve its goal.
You can find a more detailed description of risks under the heading "Investment Strategies and Risks" later in this Prospectus.
The bar chart and table below give some indication of the risks of investing in the Large Cap Growth Fund. The bar chart shows the Fund's Class C performance from year to year. The bar chart does not reflect any sales charges, which would reduce your return. The return for other classes of shares offered by the Fund will differ from the Class C returns shown in the bar chart, depending on the expenses of that class.
LARGE CAP GROWTH FUND -- CLASS C TOTAL RETURNS
YEAR TOTAL RETURN
1994 -2.43%
1995 31.03% Best Quarter:
4th Quarter 1998 +19.92%
1996 13.42%
Worst Quarter:
1997 28.37% 1st Quarter 2001 -22.99%
1998 20.70%
1999 17.17%
2000 -20.32%
2001 -24.07%
2002 -36.86%
|
The year-to-date return for the Fund's Class C shares as of June 30, 2003 is 10.01%.
The table compares the Fund's average annual total returns to those of the Standard & Poor's 500 Index and the Russell 1000 Growth Index. The table shows the effect of the applicable sales charge. The after-tax returns shown in the table are for Class C shares only. The after-tax returns for other classes of shares offered by the Fund will differ from the Class C after-tax returns.
The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 2002
SINCE
CLASS
1 YEAR 5 YEARS STARTED1
--------------------------------------------------------------------------------------------------------
LARGE CAP GROWTH FUND CLASS A
Return Before Taxes -39.84% -11.68% 0.33%
Standard & Poor's 500 Index2 -22.11% -0.59% 9.38%
Russell 1000 Growth Index3 -27.89% -3.84% 7.62%
--------------------------------------------------------------------------------------------------------
LARGE CAP GROWTH FUND CLASS B
Return Before Taxes -39.29% -- -31.04%
Standard & Poor's 500 Index2 -22.11% -- -17.67%
Russell 1000 Growth Index3 -27.89% -- -23.15%
--------------------------------------------------------------------------------------------------------
LARGE CAP GROWTH FUND CLASS C
Return Before Taxes -36.86% -11.59% 0.05%
Return After Taxes on Distributions4 -36.85% -12.30% -0.64%
Return After Taxes on Distributions and Sale of Fund Shares5 -22.63% -7.98% 0.44%
Standard & Poor's 500 Index2 -22.11% -0.59% 9.32%
Russell 1000 Growth Index3 -27.89% -3.84% 7.18%
--------------------------------------------------------------------------------------------------------
|
1 Class A shares began operations on August 2, 1993, Class B shares began
operations on May 1, 2001 and Class C shares began operations on June 7,
1993.
2 The Standard & Poor's 500 Index is a widely recognized unmanaged index that
measures the stock performance of 500 large and medium-sized companies and
is often used to indicate the performance of the overall stock market.
3 The Russell 1000 Growth Index measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values.
4 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates, and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on the investor's tax
situation and may differ from those shown above. After-tax returns do not
apply to investors who hold shares in a tax-deferred account, such as an
individual retirement account or a 401(k) plan.
5 When the "Return After Taxes on Distributions and Sale of Fund Shares" is
higher, it is because of realized losses. If a capital loss occurs upon the
redemption of the Fund's shares, the capital loss is recorded as a tax
benefit, which increases the return and translates into an assumed tax
deduction that benefits the shareholder.
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
-------------------------------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price) 5.75%1 None None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or the amount redeemed, whichever is less) * 5.00%2 1.00%3
Wire Redemption Fee Up to $15 Up to $15 Up to $15
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
-------------------------------------------------------------------------------------------------------
Management Fees 0.75% 0.75% 0.75%
Distribution (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses 0.40% 50.70% 2.23%
Total Annual Fund Operating Expenses 1.40% 52.45% 3.98%
Fee Waiver and/or Expense Reimbursement4 0.10% 50.03% 1.55%
Net Expenses 1.30% 2.42% 2.43%
-------------------------------------------------------------------------------------------------------
|
* Purchases of $1 million or more do not pay a front-end sales charge, but
may pay a contingent deferred sales charge of 1.00% if shares are redeemed
within 1 year of their purchase.
1 You may pay a reduced sales charge on very large purchases. There is no
initial sales charge on certain purchases in a Roth IRA, a Roth Conversion
IRA or a qualified retirement plan.
2 You will pay a 5.00% contingent deferred sales charge if shares are
redeemed within 1 year of their purchase. The contingent deferred sales
charge will be incrementally reduced over time. After the 6th year, there
is no contingent deferred sales charge. The contingent deferred sales
charge may be waived under certain circumstances described in this
Prospectus.
3 The 1.00% is waived if shares are held for 1 year or longer or under other
circumstances described in this Prospectus.
4 Pursuant to a written contract between Touchstone Advisors and the Trust,
Touchstone Advisors has agreed to waive a portion of its advisory fee
and/or reimburse certain Fund expenses in order to limit Net Expenses to
1.30% for Class A shares, 2.43% or below for Class B shares and 2.51% or
below for Class C shares. Touchstone Advisors has agreed to maintain these
expense limitations through at least March 31, 2004.
EXAMPLE. The following example should help you compare the cost of investing in the Large Cap Growth Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Fund's operating expenses remain the same (except for the 10 year amounts for Class B shares, which reflect the conversion of Class B shares to Class A shares after 8 years). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year $ 700 $ 645 $ 246 $ 245 3 Years1 $ 983 $6,706 $1,071 $6,506 5 Years1 $1,288 $8,334 $1,913 $8,234 10 Years1 $2,150 $8,867 2 $4,093 $8,867 2 -------------------------------------------------------------------------------- |
1 The examples for the 3, 5 and 10 year periods are calculated using the
Total Annual Fund Operating Expenses before the limits agreed to under the
written contract with Touchstone Advisors for periods after year 1.
2 Based on conversion to Class A shares after 8 years.
INVESTMENT STRATEGIES AND RISKS
INVESTMENT STYLE RISK. Different investment styles tend to shift in and out of favor depending upon market and economic conditions as well as investor sentiment. The Fund may outperform or underperform other funds that employ a different investment style. Examples of different investment styles include growth and value investing. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company's growth of earnings potential. Also, since growth companies usually invest a high portion of earnings in their business, growth stocks may lack the dividends of some value stocks that can cushion stock prices in a falling market. Growth oriented funds may underperform when value investing is in favor.
THE FUND'S MANAGEMENT
Touchstone Advisors is responsible for selecting the Fund's sub-advisor, subject to review by the Board of Trustees. Touchstone Advisors selects a sub-advisor that has shown good investment performance in its areas of expertise. Touchstone Advisors considers various factors in evaluating the Fund sub-advisor, including:
o Level of knowledge and skill
o Performance as compared to its peers or benchmark
o Consistency of performance over 5 years or more
o Level of compliance with investment rules and strategies
o Employees, facilities and financial strength
o Quality of service
Touchstone Advisors will also continually monitor the performance of the Fund's sub-advisor through various analyses and through in-person, telephone and written consultations with the sub-advisor. Touchstone Advisors discusses its expectations for performance with the sub-advisor. Touchstone Advisors provides written evaluations and recommendations to the Board of Trustees, including whether or not the sub-advisor's contract should be renewed, modified or terminated.
Touchstone Advisors has been registered as an investment advisor under the Investment Advisers Act of 1940, as amended, since 1994. As of December 31, 2002, Touchstone Advisors had approximately $1.8 billion in assets under management.
The Trust and Touchstone Advisors have applied for, and the Securities and Exchange Commission has granted, an exemptive order that permits the Trust or Touchstone Advisors, under certain conditions, to select or change investment advisors, enter into new sub-advisory agreements or amend existing sub-advisory agreements without first obtaining shareholder approval. The Fund must still obtain shareholder approval of any sub-advisory agreement with a sub-advisor affiliated with the Trust or Touchstone Advisors other than by reason of serving as a sub-advisor to one or more Touchstone Funds. Shareholders of the Fund will be notified of any changes in its sub-advisor.
Touchstone Advisors is also responsible for running all of the operations of the Fund, except for those that are subcontracted to the sub-advisor, custodian, transfer and accounting agent and administrator. The Fund pays Touchstone Advisors a fee for its services. Out of this fee Touchstone Advisors pays the Fund sub-advisor a fee for its services. The fee paid to Touchstone Advisors by the Fund during its most recent fiscal year was 0.75% of its average daily net assets.
FORT WASHINGTON INVESTMENT ADVISORS, INC. ("FORT WASHINGTON")
420 East Fourth Street, Cincinnati, OH 45202
Fort Washington has been registered as an investment advisor since 1990 and provides investment advisory services to individuals, institutions, mutual funds and variable annuity products. Fort Washington has been managing the Fund since May 2000.
Thomas L. Finn, CFA, and Charles A. Ulbricht, CFA, are primarily responsible for managing the Fund. Mr. Finn joined Fort Washington in May 2002 and is Vice President and Senior Portfolio Manager. Prior to joining Fort Washington, Mr. Finn was Vice President and Senior Portfolio Manager with the Provident Financial Group. Mr. Ulbricht is Assistant Vice President, Portfolio Manager and has worked at Fort Washington since 1995. Mr. Finn has managed the Fund since January 2003 and Mr. Ulbricht has managed the Fund since November 1999.
Fort Washington is an affiliate of Touchstone Advisors. Therefore, Touchstone Advisors may have a conflict of interest when making decisions to keep Fort Washington as the Fund's sub-advisor. The Board of Trustees reviews Touchstone Advisors' decisions, with respect to the retention of Fort Washington, to reduce the possibility of a conflict of interest situation.
The fee paid to Fort Washington by Touchstone Advisors during the Fund's most recent fiscal year was 0.45% of the Fund's average daily net assets. Effective December 31, 2002, the Fund added breakpoints to its sub-advisory fee schedule. This change does not affect the amount of expenses paid by the Fund since all sub-advisory fees are paid by the Advisor.
CHOOSING A CLASS OF SHARES
The Fund offers Class A shares, Class B shares and Class C shares. Each class of shares has different sales charges and distribution fees. The amount of sales charges and distribution fees you pay will depend on which class of shares you decide to purchase.
The offering price of Class A shares of the Fund is equal to its net asset value ("NAV") plus a front-end sales charge that you pay when you buy your shares. The front-end sales charge is generally deducted from the amount of your investment.
The following table shows the amount of front-end sales charge you will pay on purchases of Class A shares. The amount of front-end sales charge is shown as a percentage of (1) offering price and (2) the net amount invested after the charge has been subtracted. Note that the front-end sales charge gets lower as your investment amount gets larger.
--------------------------------------------------------------------------------
SALES CHARGE AS % OF SALES CHARGE AS % OF
AMOUNT OF YOUR INVESTMENT OFFERING PRICE NET AMOUNT INVESTED
--------------------------------------------------------------------------------
Under $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.95% 3.04%
$500,000 but less than $1 million 2.25% 2.30%
$1 million or more 0.00% 0.00%
|
There is no front-end sales charge if you invest $1 million or more in the Fund. This includes large total purchases made through programs such as aggregation, concurrent purchases, letters of intent and rights of accumulation. These programs are described more fully in the Statement of Additional Information ("SAI"). In addition, there is no front-end sales charge on purchases by certain persons related to the Fund or its service providers and certain other persons listed in the SAI. At the option of the Trust, the front-end sales charge may be included on purchases by such persons in the future.
If you redeem shares that you purchased as part of the $1 million purchase within 1 year, you may pay a contingent deferred sales charge ("CDSC"), a sales charge you pay when you redeem your shares, of 1% on the shares redeemed.
Class B shares of the Fund are sold at NAV without an initial sales charge so that the full amount of your purchase payment may be immediately invested in the Fund. A CDSC will be charged if you redeem Class B shares within 6 years after you purchased them. The amount of the CDSC will depend on how long you have held your shares, as set forth in the following table:
CDSC AS A
YEAR SINCE PURCHASE PAYMENT MADE % OF AMOUNT SUBJECT TO CHARGE
--------------------------------------------------------------------------------
First 5.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 1.00%
Seventh and thereafter* None
--------------------------------------------------------------------------------
|
* Class B shares will automatically convert to Class A shares after they have been held for approximately 8 years.
CONVERSION TO CLASS A SHARES. Class B shares will convert automatically to Class A shares in the month of your 8-year anniversary date or in the beginning of the 9th year after the date of your original purchase of those shares. The conversion is based on the relative NAVs of the shares of the two classes on the conversion date and no sales charge will be imposed. Class B shares you have acquired through automatic reinvestment of dividends or capital gains will be converted in proportion to the total number of Class B shares you have purchased and own. Since the Rule 12b-1 distribution fees for Class A shares are lower than for Class B shares, converting to Class A shares will lower your expenses.
Class C shares of the Fund are sold at NAV without an initial sales charge so that the full amount of your purchase payment may be immediately invested in the Fund. A CDSC of 1.00% will be charged on Class C shares redeemed within 1 year after you purchased them.
INVESTING WITH TOUCHSTONE
CHOOSING THE APPROPRIATE INVESTMENTS TO MATCH YOUR GOALS. Investing well requires a plan. We recommend that you meet with your financial advisor to plan a strategy that will best meet your financial goals.
For more information about how to purchase shares, telephone Touchstone (Nationwide call toll-free 1.800.543.0407).
! INVESTOR ALERT: Each Touchstone Fund reserves the right to reject any purchase request, including exchanges from other Touchstone Funds, that it regards as disruptive to efficient portfolio management. For example, a purchase request could be rejected because of the timing of the investment or because of a history of excessive trading by the investor.
You should read this Prospectus carefully and then determine how much you want to invest. Check below to find the minimum investment amount required to purchase shares as well as to learn about the various ways you can purchase your shares.
Initial Additional
Investment Investment
Regular Account $1,000 $50
Retirement Plan Account or Custodial Account under $ 250 $50
a Uniform Gifts/Transfers to Minors Act ("UGTMA")
Investments through the Automatic Investment Plan $ 50 $50
o INVESTOR ALERT: Touchstone may change these initial and additional
investment minimums at any time.
|
HOUSEHOLDING POLICY. The Fund will send one copy of prospectuses and shareholder reports to households containing multiple shareholders with the same last name. This process, known as "householding," reduces costs and provides a convenience to shareholders. If you share the same last name and address with another shareholder and you prefer to receive separate prospectuses and shareholder reports, telephone Touchstone toll-free at 1.800.543.0407 and we will begin separate mailings to you within 30 days of your request.
If you or others in your household invest in the Fund through a broker or other financial institution, you may receive separate prospectuses and shareholder reports, regardless of whether or not you have consented to householding on your investment application.
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING AN ACCOUNT
Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. What this means for you: When you open an account, we will ask for your name, residential address, date of birth, government identification number and other information that will allow us to identify you. We may also ask to see your driver's license or other identifying documents. If we do not receive these required pieces of information, there may be a delay in processing your investment request, which could subject your investment to market risk. If we are unable to immediately verify your identity, the Fund may restrict further investment until your identity is verified. However, if we are unable to verify your identity, the Fund reserves the right to close your account without notice and return your investment to you at the price determined as of 4:00 p.m. Eastern time on the day in which your account is closed. If we close your account because we are unable to verify your identity, your investment will be subject to market fluctuation, which could result in a loss of a portion of your principal investment.
For information about how to purchase shares, telephone Touchstone (Nationwide call toll-free 1.800.543.0407).
You can invest in the Fund in the following ways:
BY MAIL OR THROUGH YOUR FINANCIAL ADVISOR
o Please make your check (drawn on a U.S. bank and payable in U.S. dollars)
payable to the Touchstone Funds.
o Send your check with the completed investment application to Touchstone,
P.O. Box 5354, Cincinnati, Ohio 45201-5354.
o Your application will be processed subject to your check clearing. If your
check is returned for insufficient funds or uncollected funds, you may be
charged a fee and you will be responsible for any resulting loss to the
Fund.
o You may also open an account through your financial advisor.
o We price direct purchases in the Fund based upon the next determined public
offering price (NAV plus any applicable sales charge) after your order is
received. Direct purchase orders received by Touchstone by the close of the
regular session of trading on the New York Stock Exchange ("NYSE"),
generally 4:00 p.m. Eastern time, are processed at that day's public
offering price. Direct investments received by Touchstone after the close
of the regular session of trading on the NYSE, generally 4:00 p.m. Eastern
time, are processed at the public offering price next determined on the
following business day. Purchase orders received by financial advisors
before the close of the regular session of trading on the NYSE, generally
4:00 p.m. Eastern time, and transmitted to Touchstone by 5:00 p.m. Eastern
time, are processed at that day's public offering price. Purchase orders
received from financial advisors after 5:00 p.m. Eastern time, are
processed at the public offering price next determined on the following
business day.
BY EXCHANGE
o You may exchange shares of the Fund for shares of the same class of another Touchstone Fund at NAV. You may also exchange Class A or Class C shares of the Fund for Class A shares of any Touchstone money market fund.
o You do not have to pay any exchange fee for your exchange.
o Shares otherwise subject to a CDSC will not be charged a CDSC in an
exchange. However, when you redeem the shares acquired through the
exchange, the shares you redeem may be subject to a CDSC, depending upon
when you originally purchased the shares you exchanged. For purposes of
computing the CDSC, the length of time you have owned your shares will be
measured from the date of original purchase and will not be affected by any
exchange.
o If you exchange Class C shares for Class A shares of any Touchstone money
market fund, the amount of time you hold shares of the money market fund
will not be added to the holding period of your original shares for the
purpose of calculating the CDSC, if you later redeem the exchanged shares.
However, if you exchange back into your original Class C shares, the prior
holding period of your Class C shares will be added to your current holding
period of Class C shares in calculating the CDSC.
o You should review the disclosure provided in the Prospectus relating to the
exchanged-for shares carefully before making an exchange of your Fund
shares.
THROUGH RETIREMENT PLANS
o You may invest in the Fund through various retirement plans. These include individual retirement plans and employer sponsored retirement plans, such as defined benefit and defined contribution plans.
INDIVIDUAL RETIREMENT PLANS
o Traditional Individual Retirement Accounts (IRAs)
o Savings Incentive Match Plan for Employees (SIMPLE IRAs)
o Spousal IRAs
o Roth Individual Retirement Accounts (Roth IRAs)
o Coverdell Education Savings Accounts (Education IRAs)
o Simplified Employee Pension Plans (SEP IRAs)
o 403(b) Tax Sheltered Accounts that employ as custodian a bank
acceptable to Touchstone
EMPLOYER SPONSORED RETIREMENT PLANS
o Defined benefit plans
o Defined contribution plans (including 401(k) plans, profit sharing
plans and money purchase plans)
o 457 plans
OOO SPECIAL TAX CONSIDERATION
To determine which type of retirement plan is appropriate for you, please
contact your tax advisor.
For further information about any of the plans, agreements, applications and annual fees, contact Touchstone (Nationwide call toll-free 1.800.543.0407) or your financial advisor.
PURCHASES WITH SECURITIES. Shares may be purchased by tendering payment in-kind in the form of marketable securities, including but not limited to, shares of common stock, provided the acquisition of such securities is consistent with the Fund's investment goal and is otherwise acceptable to the Advisor.
o Complete the investment form provided at the bottom of a recent account
statement.
o Make your check payable to the Touchstone Funds.
o Write your account number on the check.
o Either: (1) Mail the check with the investment form in the envelope
provided with your account statement; or (2) Mail the check directly to
your financial advisor at the address printed on your account statement.
Your financial advisor is responsible for forwarding payment promptly to
Touchstone.
o If your check is returned for insufficient funds or uncollected funds, you
may be charged a fee and you will be responsible for any resulting loss to
the Fund.
BY WIRE
o Contact your bank and ask it to wire federal funds to Touchstone. Specify
your name and account number.
o Purchases in the Fund will be processed at that day's NAV (or public
offering price, if applicable) if Touchstone receives a properly executed
wire by the close of the regular session of trading on the NYSE, generally
4:00 p.m. Eastern time, on a day when the NYSE is open for regular trading.
o Banks may charge a fee for handling wire transfers.
o You should contact Touchstone or your financial advisor for further
instructions.
BY EXCHANGE
o You may add to your account by exchanging shares from an unaffiliated
mutual fund or from another Touchstone Fund.
o For information about how to exchange shares among the Touchstone Funds,
see "Opening an Account - By exchange" in this Prospectus.
AUTOMATIC INVESTMENT PLAN. You can pre-authorize monthly investments of $50 or more in the Fund to be processed electronically from a checking or savings account. You will need to complete the appropriate section in the investment application to do this. For further details about this service, call Touchstone at 1.800.543.0407.
REINVESTMENT/CROSS REINVESTMENT. Dividends and capital gains can be automatically reinvested in the Fund or in another Touchstone Fund within the same class of shares without a fee or sales charge. Dividends and capital gains will be reinvested in the Fund, unless you indicate otherwise on your investment application. You may also choose to have your dividends or capital gains paid to you in cash.
DIRECT DEPOSIT PURCHASE PLAN. You may automatically invest Social Security checks, private payroll checks, pension pay outs or any other pre-authorized government or private recurring payments in the Fund. This occurs on a monthly basis and the minimum investment is $50.
DOLLAR COST AVERAGING. Our dollar cost averaging program allows you to diversify your investments by investing the same amount on a regular basis. You can set up periodic automatic transfers of at least $50 from one Touchstone Fund to any other. The applicable sales charge, if any, will be assessed.
PROCESSING ORGANIZATIONS. You may also purchase shares of the Fund through a "processing organization," (e.g., a mutual fund supermarket) which is a broker-dealer, bank or other financial institution that purchases shares for its customers. Some of the Touchstone Funds have authorized certain processing organizations to receive purchase and sales orders on their behalf. Before investing in the Fund through a processing organization, you should read any materials provided by the processing organization together with this Prospectus.
When shares are purchased this way, there may be various differences. The processing organization may:
o Charge a fee for its services
o Act as the shareholder of record of the shares
o Set different minimum initial and additional investment requirements
o Impose other charges and restrictions
o Designate intermediaries to accept purchase and sales orders on the
Fund's behalf
Touchstone considers a purchase or sales order as received when an authorized processing organization, or its authorized designee, receives the order in proper form. These orders will be priced based on the Fund's NAV (or offering price, if applicable) next computed after such order is received in proper form.
Shares held through a processing organization may be transferred into your name following procedures established by your processing organization and Touchstone. Certain processing organizations may receive compensation from the Fund, Touchstone, Touchstone Advisors or their affiliates.
BY TELEPHONE
o You can sell or exchange your shares over the telephone, unless you
have specifically declined this option. If you do not wish to have
this ability, you must mark the appropriate section of the investment
application. You may only sell shares over the telephone if the amount
is less than $25,000.
o To sell your Fund shares by telephone, call Touchstone at
1.800.543.0407.
o Shares held in IRA accounts and qualified retirement plans cannot be
sold by telephone.
o If we receive your sale request before the close of the regular
session of trading on the NYSE, generally 4:00 p.m. Eastern time, on a
day when the NYSE is open for regular trading, the sale of your shares
will be processed at the next determined NAV on that day. Otherwise it
will occur on the next business day.
o Interruptions in telephone service could prevent you from selling your
shares by telephone when you want to. When you have difficulty making
telephone sales, you should mail to Touchstone (or send by overnight
delivery), a written request for the sale of your shares.
o In order to protect your investment assets, Touchstone will only
follow instructions received by telephone that it reasonably believes
to be genuine. However, there is no guarantee that the instructions
relied upon will always be genuine and Touchstone will not be liable,
in those cases. Touchstone has certain procedures to confirm that
telephone instructions are genuine. If it does not follow such
procedures in a particular case, it may be liable for any losses due
to unauthorized or fraudulent instructions. Some of these procedures
may include:
o Requiring personal identification
o Making checks payable only to the owner(s) of the account shown
on Touchstone's records
o Mailing checks only to the account address shown on Touchstone's
records
o Directing wires only to the bank account shown on Touchstone's
records
o Providing written confirmation for transactions requested by
telephone
o Tape recording instructions received by telephone
BY MAIL
o Write to Touchstone.
o Indicate the number of shares or dollar amount to be sold.
o Include your name and account number.
o Sign your request exactly as your name appears on your investment
application.
BY WIRE
o Complete the appropriate information on the investment application.
o If your proceeds are $1,000 or more, you may request that Touchstone wire
them to your bank account.
o You may be charged a fee.
o Redemption proceeds will only be wired to a commercial bank or brokerage
firm in the United States.
o Your redemption proceeds may be deposited without a charge directly into
your bank account through an ACH transaction. Contact Touchstone for more
information.
THROUGH A SYSTEMATIC WITHDRAWAL PLAN
o You may elect to receive, or send to a third party, withdrawals of $50 or
more if your account value is at least $5,000.
o Withdrawals can be made monthly, quarterly, semiannually or annually.
o There is no special fee for this service.
o There is no minimum amount required for retirement plans.
OOO SPECIAL TAX CONSIDERATION
Involuntary sales may result in the sale of your shares at a loss or may result
in taxable investment gains.
THROUGH YOUR FINANCIAL ADVISOR
o You may also sell shares by contacting your financial advisor, who may
charge you a fee for this service. Shares held in street name must be sold
through your financial advisor or, if applicable, the processing
organization.
o Your financial advisor is responsible for making sure that sale requests
are transmitted to Touchstone in proper form in a timely manner.
OOO SPECIAL TAX CONSIDERATION
Selling your shares may cause you to incur a taxable gain or loss.
o INVESTOR ALERT: Unless otherwise specified, proceeds will be sent to the record owner at the address shown on Touchstone's records.
The CDSC will not apply to redemptions of shares you received through reinvested dividends or capital gains distributions and may be waived under certain circumstances described below. The CDSC will be assessed on the lesser of your shares' NAV at the time of redemption or the time of purchase. Therefore, any increase in the share price is not subject to the CDSC. The CDSC is paid to Touchstone to reimburse expenses incurred in providing distribution-related services to the Fund in connection with the sale of shares.
No CDSC is applied if:
o The redemption is due to the death or post-purchase disability of a
shareholder
o The redemption is from a systematic withdrawal plan and represents no
more than 10% of your annual account value
o The redemption is a benefit payment made from a qualified retirement
plan, unless the redemption is due to termination of the plan or
transfer of the plan to another financial institution
When we determine whether a CDSC is payable on a redemption, we assume that:
o The redemption is made first from amounts not subject to a CDSC; then
o From the earliest purchase payment(s) that remain invested in the Fund
The SAI contains further details about the CDSC and the conditions for waiving the CDSC.
Some circumstances require that your request for the sale of shares be made in writing accompanied by an original Medallion Signature Guarantee. A Medallion Signature Guarantee helps protect you against fraud. You can obtain one from most banks or securities dealers, but not from a notary public. Some circumstances requiring an original Medallion Signature Guarantee include:
o Proceeds from the sale of shares that exceed $100,000
o Proceeds to be paid when information on your investment application has
been changed within the last 30 days (including a change in your name or
your address, or the name or address of a payee)
o Proceeds are being sent to an address other than the address of record
o Proceeds or shares are being sent/transferred from a joint account to an
individual's account
o Changing wire or ACH instructions or sending proceeds via wire or ACH when
instructions have been added within 30 days of your redemption request
o Proceeds or shares are being sent/transferred between accounts with
different account registrations
PROCEEDS SENT TO FINANCIAL ADVISORS. Proceeds that are sent to your financial advisor will not usually be reinvested for you unless you provide specific instructions to do so. Therefore, the financial advisor may benefit from the use of your money.
FUND SHARES PURCHASED BY CHECK. If you purchase Fund shares by personal check, the proceeds of a sale of those shares will not be sent to you until the check has cleared, which may take up to 15 days. If you need your money sooner, you should purchase shares by federal funds, bank wire, or with a certified or cashier's check.
REINSTATEMENT PRIVILEGE. You may reinvest the proceeds from a sale of your shares, a dividend, or a capital gain distribution in any of the Touchstone Funds without a sales charge. You may do so by sending a written request and a check to Touchstone within 90 days after the date of the sale, dividend or distribution. Reinvestment will be at the next NAV calculated after Touchstone receives your request.
OOO SPECIAL TAX CONSIDERATION
If you exercise the Reinstatement Privilege, you should contact your tax
advisor.
LOW ACCOUNT BALANCES. If your balance falls below the minimum amount required for your account, based on actual amounts you have invested (as opposed to a reduction from market changes), your account may be subject to an annual account maintenance fee or Touchstone may sell your shares and send the proceeds to you. This involuntary sale does not apply to retirement accounts or custodian accounts under the Uniform Gifts/Transfers to Minors Act (UGTMA). Touchstone will notify you if your shares are about to be sold and you will have 30 days to increase your account balance to the minimum amount.
DELAY OF PAYMENT. It is possible that the payment of your sale proceeds could be postponed or your right to sell your shares could be suspended during certain circumstances. These circumstances can occur:
o When the NYSE is closed for other than customary weekends and holidays
o When trading on the NYSE is restricted
o When an emergency situation causes the sub-advisor to not be reasonably
able to dispose of certain securities or to fairly determine the value of
the Fund's net assets
o During any other time when the SEC, by order, permits.
REDEMPTION IN KIND. Under unusual circumstances, when the Board of Trustees deems it appropriate, the Fund may make payment for shares redeemed in portfolio securities of the Fund taken at current value.
The Fund's investments are valued based on market value or, if no market value is available, based on fair value as determined by the Board of Trustees (or under their direction). Some specific pricing strategies follow:
o All short-term dollar-denominated investments that mature in 60 days
or less are valued on the basis of amortized cost.
o Securities mainly traded on a U.S. exchange are valued at the last
sale price on that exchange or, if no sales occurred during the day,
at the current quoted bid price.
DISTRIBUTIONS AND TAXES
OOO SPECIAL TAX CONSIDERATION
You should consult with your tax advisor to address your own tax situation.
The Fund intends to distribute to its shareholders substantially all of its income and capital gains. The Fund's dividends are distributed and paid quarterly. Distributions of any capital gains earned by the Fund will be made at least annually.
DISTRIBUTIONS. The Fund will make distributions that may be taxed at the qualified dividend income rate of 15% (which may be taxed at different rates depending on the length of time the Fund holds its assets). The Fund's distributions may be subject to federal income tax whether you reinvest such dividends in additional shares of the Fund or choose to receive cash.
ORDINARY INCOME. Income and short-term capital gains that are distributed to you are taxable as ordinary income for federal income tax purposes regardless of how long you have held your Fund shares. To the extent the underlying income of the Fund consists of qualified dividend income, income distributions by the Fund may be subject to a maximum rate of federal income tax of 15% for individuals and may qualify for the dividends received deduction for corporations.
LONG-TERM CAPITAL GAINS. Long-term capital gains distributed to you are taxable as long-term capital gains for federal income tax purposes regardless of how long you have held your Fund shares. The maximum individual tax rate on net long-term capital gains has been reduced from 20% to 15%, effective for gains taken into account, whether sold or exchanged after May 5, 2003.
OOO SPECIAL TAX CONSIDERATION
For federal income tax purposes, an exchange of shares is treated as a sale of
the shares and a purchase of the shares you receive in exchange. Therefore, you
may incur a taxable gain or loss in connection with the exchange.
BACKUP WITHHOLDING. The Fund may be required to withhold U.S. federal income tax on all taxable distributions payable to shareholders who fail to provide their correct taxpayer identification number or to make required certifications, or who have been notified by the Internal Revenue Service that they are subject to backup withholding. The current backup withholding rate is 28%.
STATEMENTS AND NOTICES. You will receive an annual statement outlining the tax status of your distributions. You will also receive written notices of certain distributions paid by the Fund during the prior taxable year.
FINANCIAL HIGHLIGHTS
The financial highlights table for the Large Cap Growth Fund is intended to help you understand the Fund's financial performance for the past five years. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate an investor would have earned or lost on an investment in the Fund (assuming reinvestment of all dividends and distributions). Information for the fiscal years ended March 31, 2000 and thereafter has been audited by Ernst & Young LLP, whose report, along with the Fund's financial statements, is included in the annual report, which is available upon request. Information for the prior year was audited by other independent accountants.
LARGE CAP GROWTH FUND - CLASS A
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
-------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------
2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ............. $ 12.11 $ 12.69 $ 22.93 $ 22.12 $ 19.38
------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .................... (0.07) (0.10) (0.18) (0.05) 0.04
Net realized and unrealized gains
(losses) on investments ...................... (4.01) (0.48) (9.14) 4.60 2.73
------------------------------------------------------------
Total from investment operations ................... (4.08) (0.58) (9.32) 4.55 2.77
------------------------------------------------------------
Less distributions:
Dividends from net investment
income ....................................... -- -- -- -- (0.03)
Distributions from net realized gains ........... -- -- (0.92) (3.74) --
------------------------------------------------------------
Total distributions ................................ -- -- (0.92) (3.74) (0.03)
------------------------------------------------------------
Net asset value at end of period ................... $ 8.03 $ 12.11 $ 12.69 $ 22.93 $ 22.12
============================================================
Total return(A) .................................... (33.69%) (4.57%) (41.73%) 20.60% 14.30%
============================================================
Net assets at end of period (000's) ................ $ 33,484 $ 67,461 $ 24,634 $ 65,274 $ 55,561
============================================================
Ratio of net expenses to average
net assets ...................................... 1.30% 1.30% 1.25% 1.26% 1.31%
Ratio of net investment income (loss)
to average net assets ........................... (0.73%) (0.82%) (0.61%) (0.24%) 0.18%
Portfolio turnover rate ............................ 81% 85% 99% 78% 10%
|
(A) Total returns shown exclude the effect of applicable sales loads.
LARGE CAP GROWTH FUND - CLASS B
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
--------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2003 2002(A)
--------------------------------------------------------------------------------
Net asset value at beginning of period ............. $ 11.55 $ 13.60
---------------------
Loss from investment operations:
Net investment loss ............................. (0.09) (0.08)
Net realized and unrealized losses on investments (3.91) (1.97)
---------------------
Total from investment operations ................... (4.00) (2.05)
---------------------
Net asset value at end of period ................... $ 7.55 $ 11.55
=====================
Total return(B) .................................... (34.63%) (15.07%)(C)
=====================
Net assets at end of period (000's) ................ $ 77 $ 34
=====================
Ratio of net expenses to average net assets ........ 2.42% 2.43%(D)
Ratio of net investment loss to average net assets . (1.75%) (1.97%)(D)
Portfolio turnover rate ............................ 81% 85%(D)
(A) Represents the period from the commencement of operations (May 1, 2001)
through March 31, 2002.
|
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
LARGE CAP GROWTH FUND - CLASS C
===================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
-------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------
2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ............. $ 11.50 $ 12.19 $ 22.32 $ 21.86 $ 19.34
------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss ............................. (0.17) (0.26) (0.30) (0.28) (0.19)
Net realized and unrealized gains
(losses) on investments ...................... (3.77) (0.43) (8.91) 4.48 2.71
------------------------------------------------------------
Total from investment operations ................... (3.94) (0.69) (9.21) 4.20 2.52
------------------------------------------------------------
Distributions from net realized gains .............. -- -- (0.92) (3.74) --
------------------------------------------------------------
Net asset value at end of period ................... $ 7.56 $ 11.50 $ 12.19 $ 22.32 $ 21.86
============================================================
Total return(A) .................................... (34.26%) (5.66%) (42.39%) 19.24% 13.03%
============================================================
Net assets at end of period (000's) ................ $ 985 $ 1,869 $ 2,178 $ 3,618 $ 3,146
============================================================
Ratio of net expenses to average
net assets ...................................... 2.43% 2.51% 2.32% 2.68% 2.41%
Ratio of net investment loss
to average net assets ........................... (1.81%) (2.05%) (1.68%) (1.34%) (0.92%)
Portfolio turnover rate ............................ 81% 85% 99% 78% 10%
|
(A) Total returns shown exclude the effect of applicable sales loads.
For investors who want more information about the Fund, the following documents are available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed information about the Fund and is legally a part of this Prospectus.
ANNUAL/SEMIANNUAL REPORTS: The Fund's annual and semiannual reports provide additional information about the Fund's investments. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year.
You can get free copies of the SAI, the reports, other information and answers to your questions about the Fund by contacting your financial advisor, or the Fund at: Touchstone Funds . 221 East Fourth Street, Suite 300 . Cincinnati, Ohio 45202-4133 . 1.800.543.0407 http://www.touchstoneinvestments.com
Information about the Fund (including the SAI) can be reviewed and copied at the Securities and Exchange Commission's public reference room in Washington, D.C. You can receive information about the operation of the public reference room by calling the SEC at 1.202.942.8090.
Reports and other information about the Fund are available on the SEC's internet site at http://www.sec.gov. For a fee, you can get text-only copies of reports and other information by writing to the Public Reference Room of the SEC, 450 Fifth Street N.W., Washington, D.C. 20549-0102, or by sending an e-mail request to: publicinfo@sec.gov.
Investment Company Act file no. 811-3651
TOUCHSTONE INVESTMENTS
DISTRIBUTOR
Touchstone Securities, Inc.
221 East Fourth Street
Cincinnati, Ohio 45202-4133
800.638.8194
www.touchstoneinvestments.com
INVESTMENT ADVISOR
Touchstone Advisors, Inc.
221 East Fourth Street
Cincinnati, Ohio 45202-4133
TRANSFER AGENT
Integrated Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
SHAREHOLDER SERVICE
800.543.0407
A Member of Western & Southern Financial Group
TOUCHSTONE STRATEGIC TRUST
STATEMENT OF ADDITIONAL INFORMATION
August 1, 2003
Emerging Growth Fund
Value Plus Fund
Enhanced 30 Fund
Large Cap Growth Fund
Growth Opportunities Fund
Small Cap Growth Fund
This Statement of Additional Information is not a prospectus. It should be read together with the Funds' Prospectuses dated August 1, 2003. The Funds' financial statements are contained in the Annual Report, which is incorporated by reference into this Statement of Additional Information. You may receive a copy of a Fund's Prospectus or most recent Annual and Semiannual Report by writing the Trust at 221 East Fourth Street, Suite 300, Cincinnati, Ohio 45202-4133, or by calling the Trust nationwide toll-free 800-543-0407, in Cincinnati 362-4921.
STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
TOUCHSTONE STRATEGIC TRUST
221 EAST FOURTH STREET, SUITE 300
CINCINNATI, OHIO 45202-4133
TABLE OF CONTENTS
PAGE
THE TRUST......................................................................3
DEFINITIONS, POLICIES AND RISK CONSIDERATIONS..................................4
INVESTMENT RESTRICTIONS.......................................................27
TRUSTEES AND OFFICERS.........................................................31
THE INVESTMENT ADVISOR AND SUB-ADVISORS.......................................37
PROXY VOTING PROCEDURES.......................................................42
THE DISTRIBUTOR...............................................................44
DISTRIBUTION PLANS............................................................46
SECURITIES TRANSACTIONS.......................................................48
CODE OF ETHICS................................................................51
PORTFOLIO TURNOVER............................................................51
CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE..........................51
CHOOSING A SHARE CLASS........................................................52
OTHER PURCHASE INFORMATION....................................................57
TAXES.........................................................................60
REDEMPTION IN KIND............................................................63
HISTORICAL PERFORMANCE INFORMATION............................................63
PRINCIPAL SECURITY HOLDERS....................................................74
CUSTODIAN.....................................................................78
AUDITORS......................................................................78
TRANSFER, ACCOUNTING AND ADMINISTRATIVE AGENT.................................79
ANNUAL REPORT.................................................................80
APPENDIX......................................................................81
|
Touchstone Strategic Trust (the "Trust"), formerly Countrywide Strategic Trust, an open-end, diversified management investment company, was organized as a Massachusetts business trust on November 18, 1982. The Trust currently offers six series of shares to investors: the Large Cap Growth Fund (formerly the Equity Fund), the Growth Opportunities Fund (formerly the Growth/Value Fund), the Emerging Growth Fund, the Value Plus Fund, the Enhanced 30 Fund and the Small Cap Growth Fund (referred to individually as a "Fund" and collectively as the "Funds"). Each Fund has its own investment goal and policies.
Pursuant to an Agreement and Plan of Reorganization, on May 1, 2000, each of the Emerging Growth Fund and the Value Plus Fund succeeded to the assets and liabilities of another mutual fund of the same name that was an investment series of Touchstone Series Trust. The investment goals, strategies, policies and restrictions of each Fund and its predecessor fund are substantially identical. The financial data and information in this Statement of Additional Information with respect to the Emerging Growth Fund and the Value Plus Fund for periods ended prior to May 1, 2000 are for the predecessor funds.
Shares of each Fund have equal voting rights and liquidation rights. Each Fund shall vote separately on matters submitted to a vote of the shareholders except in matters where a vote of all series of the Trust in the aggregate is required by the Investment Company Act of 1940, as amended (the "1940 Act") or otherwise. When matters are submitted to shareholders for a vote, each shareholder is entitled to one vote for each full share owned and fractional votes for fractional shares owned. The Trust does not normally hold annual meetings of shareholders. The Trustees shall promptly call and give notice of a meeting of shareholders for the purpose of voting upon the removal of any Trustee when requested to do so in writing by shareholders holding 10% or more of the Trust's outstanding shares. The Trust will comply with the provisions of Section 16(c) of the 1940 Act in order to facilitate communications among shareholders.
Each share of a Fund represents an equal proportionate interest in the assets and liabilities belonging to that Fund with each other share of that Fund and is entitled to such dividends and distributions out of the income belonging to the Fund as are declared by the Trust. The shares do not have cumulative voting rights or any preemptive or conversion rights, and the Trustees have the authority from time to time to divide or combine the shares of any Fund into a greater or lesser number of shares of that Fund so long as the proportionate beneficial interest in the assets belonging to that Fund and the rights of shares of any other Fund are in no way affected. In case of any liquidation of a Fund, the holders of shares of the Fund being liquidated will be entitled to receive as a class a distribution out of the assets, net of the liabilities, belonging to that Fund. Expenses attributable to any Fund are borne by that Fund. Any general expenses of the Trust not readily identifiable as belonging to a particular Fund are allocated by or under the direction of the Trustees in such manner as the Trustees determine to be fair and equitable. Generally, the Trustees allocate such expenses on the basis of relative net assets or number of shareholders. No shareholder is liable to further calls or to assessment by the Trust without his express consent.
Class A shares, Class B shares and Class C shares of the Funds represent an interest in the same assets of such Fund, have the same rights and are identical in all material respects except that (i) each class of shares may bear different distribution fees; (ii) each class of shares is subject to different sales charges; (iii) certain other class specific expenses will be borne solely by the class to which such expenses are attributable, including transfer agent fees attributable to a specific class of shares, printing and postage expenses related to preparing and distributing materials to current shareholders of a specific class, registration fees incurred by a specific class of shares, the expenses of administrative personnel and services required to support the shareholders of a specific class, litigation or other legal expenses relating to a class of shares, Trustees' fees or expenses incurred as a result of issues relating to a specific class of shares and accounting fees and expenses relating to a specific class of shares; and (iv) each class has exclusive voting rights with respect to matters relating to its own distribution arrangements. The Board of Trustees may classify and reclassify the shares of a Fund into additional classes of shares at a future date.
Under Massachusetts law, under certain circumstances, shareholders of a Massachusetts business trust could be deemed to have the same type of personal liability for the obligations of the Trust as does a partner of a partnership. However, numerous investment companies registered under the 1940 Act have been formed as Massachusetts business trusts and the Trust is not aware of an instance where such result has occurred. In addition, the Trust Agreement disclaims shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in each agreement, obligation or instrument entered into or executed by the Trust or the Trustees. The Trust Agreement also provides for the indemnification out of the Trust property for all losses and expenses of any shareholder held personally liable for the obligations of the Trust. Moreover, it provides that the Trust will, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the Trust and satisfy any judgment thereon. As a result, and particularly because the Trust assets are readily marketable and ordinarily substantially exceed liabilities, management believes that the risk of shareholder liability is slight and limited to circumstances in which the Trust itself would be unable to meet its obligations. Management believes that, in view of the above, the risk of personal liability is remote.
Each Fund has its own investment goal, strategies and related risks. There can be no assurance that a Fund's investment goal will be met. The investment goal and practices of each Fund (except the Growth Opportunities Fund) are nonfundamental policies that may be changed by the Board of Trustees without shareholder approval, except in those instances where shareholder approval is expressly required. If there is a change in a Fund's investment goal, shareholders should consider whether the Fund remains an appropriate investment in light of their current financial position and needs. The investment restrictions of the Funds are fundamental and can only be changed by vote of a majority of the outstanding shares of the applicable Fund.
A more detailed discussion of some of the terms used and investment policies described in the Prospectuses (see "Investment Strategies and Risks") appears below:
FIXED-INCOME AND OTHER DEBT SECURITIES
Fixed-income and other debt instrument securities include all bonds, high yield or "junk" bonds, municipal bonds, debentures, U.S. Government securities, mortgage-related securities including government stripped mortgage-related securities, zero coupon securities and custodial receipts. The market value of fixed-income obligations of the Funds will be affected by general changes in interest rates which will result in increases or decreases in the value of the obligations held by the Funds. The market value of the obligations held by a Fund can be expected to vary inversely to changes in prevailing interest rates. As a result, shareholders should anticipate that the market value of the obligations held by the Fund generally would increase when prevailing interest rates are declining and generally will decrease when prevailing interest rates are rising. Shareholders also should recognize that, in periods of declining interest rates, a Fund's yield will tend to be somewhat higher than prevailing market rates and, in periods of rising interest rates, a Fund's yield will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to a Fund from the continuous sale of its shares will tend to be invested in instruments producing lower yields than the balance of its portfolio, thereby reducing the Fund's current yield. In periods of rising interest rates, the opposite can be expected to occur. In addition, securities in which a Fund may invest may not yield as high a level of current income as might be achieved by investing in securities with less liquidity, less creditworthiness or longer maturities.
Ratings made available by Standard & Poor's Rating Service ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Fitch Ratings are relative and subjective and are not absolute standards of quality. Although these ratings are initial criteria for selection of portfolio investments, a Fund Sub-Advisor also will make its own evaluation of these securities. Among the factors that will be considered are the long-term ability of the issuers to pay principal and interest and general economic trends.
Fixed-income securities may be purchased on a when-issued or delayed-delivery basis. See "When-Issued and Delayed-Delivery Securities" below.
COMMERCIAL PAPER. Commercial paper consists of short-term (usually from 1 to 270 days) unsecured promissory notes issued by corporations in order to finance their current operations. A variable amount master demand note (which is a type of commercial paper) represents a direct borrowing arrangement involving periodically fluctuating rates of interest under a letter agreement between a commercial paper issuer and an institutional lender pursuant to which the lender may determine to invest varying amounts. For a description of commercial paper ratings, see the Appendix.
MEDIUM AND LOWER RATED AND UNRATED SECURITIES. Securities rated in the fourth highest category by a rating organization although considered investment grade, may possess speculative characteristics, and changes in economic or other conditions are more likely to impair the ability of issuers of these securities to make interest and principal payments than is the case with respect to issuers of higher grade bonds.
Generally, medium or lower-rated securities and unrated securities of comparable quality, sometimes referred to as "junk bonds," offer a higher current yield than is offered by higher rated securities, but also (i) will likely have some quality and protective characteristics that, in the judgment of the rating organizations, are outweighed by large uncertainties or major risk exposures to adverse conditions and (ii) are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. The yield of junk bonds will fluctuate over time.
The market values of certain of these securities also tend to be more sensitive to individual corporate developments and changes in economic conditions than higher quality bonds. In addition, medium and lower rated securities and comparable unrated securities generally present a higher degree of credit risk. The risk of loss due to default by these issuers is significantly greater because medium and lower-rated securities and unrated securities of comparable quality generally are unsecured and frequently are subordinated to the prior payment of senior indebtedness. Since the risk of default is higher for lower rated debt securities, the Fund Sub-Advisor's research and credit analysis are an especially important part of managing securities of this type held by a Fund. In light of these risks, the Board of Trustees of the Trust has instructed the Fund Sub-Advisor, in evaluating the creditworthiness of an issue, whether rated or unrated, to take various factors into consideration, which may include, as applicable, the issuer's financial resources, its sensitivity to economic conditions and trends, the operating history of and the community support for the facility financed by the issue, the ability of the issuer's management and regulatory matters.
In addition, the market value of securities in lower-rated categories is more volatile than that of higher quality securities, and the markets in which medium and lower-rated or unrated securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets may make it more difficult for the Funds to obtain accurate market quotations for purposes of valuing their respective portfolios and calculating their respective net asset values. Moreover, the lack of a liquid trading market may restrict the availability of securities for the Funds to purchase and may also have the effect of limiting the ability of a Fund to sell securities at their fair value either to meet redemption requests or to respond to changes in the economy or the financial markets.
Lower-rated debt obligations also present risks based on payment expectations. If an issuer calls the obligation for redemption, a Fund may have to replace the security with a lower yielding security, resulting in a decreased return for shareholders. Also, as the principal value of bonds moves inversely with movements in interest rates, in the event of rising interest rates the value of the securities held by a Fund may decline relatively proportionately more than a portfolio consisting of higher rated securities. If a Fund experiences unexpected net redemptions, it may be forced to sell its higher rated bonds, resulting in a decline in the overall credit quality of the securities held by the Fund and increasing the exposure of the Fund to the risks of lower rated securities. Investments in zero coupon bonds may be more speculative and subject to greater fluctuations in value due to changes in interest rates than bonds that pay interest currently.
Subsequent to its purchase by a Fund, an issue of securities may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither event will require sale of these securities by the Fund, but the Fund Sub-Advisor will consider this event in its determination of whether the Fund should continue to hold the securities.
While the market for high yield corporate debt securities has been in existence for many years and has weathered previous economic downturns, the 1980's brought a dramatic increase in the use of such securities to fund highly leveraged corporate acquisitions and restructuring. Past experience may not provide an accurate indication of future performance of the high yield bond market, especially during periods of economic recession. In fact, from 1989 to 1991, the percentage of lower-rated debt securities that defaulted rose significantly above prior levels.
The market for lower-rated debt securities may be thinner and less active than that for higher rated debt securities, which can adversely affect the prices at which the former are sold. If market quotations are not available, lower-rated debt securities will be valued in accordance with procedures established by the Board of Trustees, including the use of outside pricing services. Judgment plays a greater role in valuing high yield corporate debt securities than is the case for securities for which more external sources for quotations and last sale information is available. Adverse publicity and changing investor perception may affect the ability of outside pricing services to value lower-rated debt securities and the ability to dispose of these securities.
In considering investments for a Fund, the Fund Sub-Advisor will attempt to identify those issuers of high yielding debt securities whose financial condition is adequate to meet future obligations, has improved or is expected to improve in the future. The Fund Sub-Advisor's analysis focuses on relative values based on such factors as interest or dividend coverage, asset coverage, earnings prospects and the experience and managerial strength of the issuer.
A Fund may choose, at its expense or in conjunction with others, to pursue litigation or otherwise exercise its rights as a security holder to seek to protect the interest of security holders if it determines this to be in the best interest of the Fund.
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. Certificates of deposit are receipts issued by a depository institution in exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate usually can be traded in the secondary market prior to maturity. Bankers' acceptances typically arise from short-term credit arrangements designed to enable businesses to obtain funds to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by a bank that, in effect, un-conditionally guarantees to pay the face value of the instrument on its maturity date. The acceptance may then be held by the accepting bank as an earning asset or it may be sold in the secondary market at the going rate of discount for a specific maturity. Although maturities for acceptances can be as long as 270 days, most acceptances have maturities of six months or less. Time deposits are non-negotiable deposits maintained in a banking institution for a specified period of time at a stated interest rate. Investments in time deposits maturing in more than seven
days will be subject to the SEC's restrictions that limit investments in illiquid securities to no more than 15% of the value of a Fund's net assets.
The Growth Opportunities Fund may also invest in certificates of deposit, bankers' acceptances and time deposits issued by foreign branches of national banks. Eurodollar certificates of deposit are negotiable U.S. dollar denominated certificates of deposit issued by foreign branches of major U.S. commercial banks. Eurodollar bankers' acceptances are U.S. dollar denominated bankers' acceptances "accepted" by foreign branches of major U.S. commercial banks. Investments in the obligations of foreign branches of U.S. commercial banks may be subject to special risks, including future political and economic developments, imposition of withholding taxes on income, establishment of exchange controls or other restrictions, less governmental supervision and the lack of uniform accounting, auditing and financial reporting standards that might affect an investment adversely.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations issued or guaranteed by the U.S. Government, its agencies, authorities or instrumentalities. Some U.S. Government securities, such as U.S. Treasury bills, Treasury notes and Treasury bonds, which differ only in their interest rates, maturities and times of issuance, are supported by the full faith and credit of the United States. Others are supported by: (i) the right of the issuer to borrow from the U.S. Treasury, such as securities of the Federal Home Loan Banks; (ii) the discretionary authority of the U.S. Government to purchase the agency's obligations, such as securities of the FNMA; or (iii) only the credit of the issuer, such as securities of the Student Loan Marketing Association. No assurance can be given that the U.S. Government will provide financial support in the future to U.S. Government agencies, authorities or instrumentalities that are not supported by the full faith and credit of the United States.
Securities guaranteed as to principal and interest by the U.S. Government, its agencies, authorities or instrumentalities include: (i) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by the U.S. Government or any of its agencies, authorities or instrumentalities; and (ii) participation interests in loans made to foreign governments or other entities that are so guaranteed. The secondary market for certain of these participation interests is limited and, therefore, may be regarded as illiquid.
MORTGAGE-RELATED SECURITIES. There are several risks associated with mortgage-related securities generally. One is that the monthly cash inflow from the underlying loans may not be sufficient to meet the monthly payment requirements of the mortgage-related security. Prepayment of principal by mortgagors or mortgage foreclosures will shorten the term of the underlying mortgage pool for a mortgage-related security. Early returns of principal will affect the average life of the mortgage-related securities remaining in a Fund. The occurrence of mortgage prepayments is affected by factors including the level of interest rates, general economic conditions, the location and age of the mortgage and other social and demographic conditions. In periods of rising interest rates, the rate of prepayment tends to decrease, thereby lengthening the average life of a pool of mortgage-related securities. Conversely, in periods of falling interest rates the rate of prepayment tends to increase, thereby shortening the average life of a pool. Reinvestment of prepayments may occur at higher or lower interest rates than the original investment, thus affecting the yield of a Fund.
Because prepayments of principal generally occur when interest rates are declining, it is likely that a Fund will have to reinvest the proceeds of prepayments at lower interest rates than those at which the assets were previously invested. If this occurs, a Fund's yield will correspondingly decline. Thus, mortgage-related securities may have less potential for capital appreciation in periods of falling interest rates than other fixed-income securities of comparable maturity, although these securities may have a comparable risk of decline in market value in periods of rising interest rates. To the extent that a Fund purchases mortgage-related securities at a premium, unscheduled prepayments, which are made at par, will result in a loss equal to any unamortized premium.
CMOs are obligations fully collateralized by a portfolio of mortgages or mortgage-related securities. Payments of principal and interest on the mortgages are passed through to the holders of the CMOs on the same schedule as they are received, although certain classes of CMOs have priority over others with respect to the receipt of prepayments on the mortgages. Therefore, depending on the type of CMOs in which a Fund invests, the investment may be subject to a greater or lesser risk of prepayment than other types of mortgage-related securities.
Mortgage-related securities may not be readily marketable. To the extent any of these securities are not readily marketable in the judgment of the Fund Sub-Advisor, the Funds' restrictions on investments in illiquid instruments will apply.
STRIPPED MORTGAGE-RELATED SECURITIES. These securities are either issued and guaranteed, or privately issued but collateralized by securities issued, by GNMA, FNMA or FHLMC. These securities represent beneficial ownership interests in either periodic principal distributions ("principal-only") or interest distributions ("interest-only") on mortgage-related certificates issued by GNMA, FNMA or FHLMC, as the case may be. The certificates underlying the stripped mortgage-related securities represent all or part of the beneficial interest in pools of mortgage loans. A Fund will invest in stripped mortgage-related securities in order to enhance yield or to benefit from anticipated appreciation in value of the securities at times when its Fund Sub-Advisor believes that interest rates will remain stable or increase. In periods of rising interest rates, the expected increase in the value of stripped mortgage-related securities may offset all or a portion of any decline in value of the securities held by the Fund.
Investing in stripped mortgage-related securities involves the risks normally associated with investing in mortgage-related securities. See "Mortgage-Related Securities" above. In addition, the yields on stripped mortgage- related securities are extremely sensitive to the prepayment experience on the mortgage loans underlying the certificates collateralizing the securities. If a decline in the level of prevailing interest rates results in a rate of principal prepayments higher than anticipated, distributions of principal will be accelerated, thereby reducing the yield to maturity on interest-only stripped mortgage-related securities and increasing the yield to maturity on principal-only stripped mortgage-related securities. Sufficiently high prepayment rates could result in a Fund not fully recovering its initial investment in an interest-only stripped mortgage-related security. Under current market conditions, the Fund expects that investments in stripped mortgage-related securities will consist primarily of interest-only securities. Stripped mortgage-related securities are currently traded in an over-the-counter market maintained by several large investment-banking firms. There can be no assurance that the Fund will be able to affect a trade of a stripped mortgage-related security at a time when it wishes to do so. The Fund will acquire
stripped mortgage-related securities only if a secondary market for the securities exists at the time of acquisition. Except for stripped mortgage-related securities based on fixed rate FNMA and FHLMC mortgage certificates that meet certain liquidity criteria established by the Board of Trustees, a Fund will treat government stripped mortgage-related securities and privately-issued mortgage-related securities as illiquid and will limit its investments in these securities, together with other illiquid investments, to not more than 15% of net assets.
The Growth Opportunities Fund may also purchase Coupons Under Book Entry Safekeeping ("CUBES"), Treasury Receipts ("TRs"), Treasury Investment Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury Securities ("CATS").
STRIPS, CUBES, TRs, TIGRs and CATS are sold as zero coupon securities, which means that they are sold at a substantial discount and redeemed at face value at their maturity date without interim cash payments of interest or principal. This discount is amortized over the life of the security, and such amortization will constitute the income earned on the security for both accounting and tax purposes. Because of these features, these securities may be subject to greater interest rate volatility than interest paying U.S. Treasury obligations. The Growth Opportunities Fund will limit its investment in such instruments to 20% of its total assets. STRIPS are Separately Traded Registered Interest and Principal Securities.
ZERO COUPON SECURITIES. Zero coupon U.S. Government securities are debt obligations that are issued or purchased at a significant discount from face value. The discount approximates the total amount of interest the security will accrue and compound over the period until maturity or the particular interest payment date at a rate of interest reflecting the market rate of the security at the time of issuance. Zero coupon securities do not require the periodic payment of interest. These investments benefit the issuer by mitigating its need for cash to meet debt service, but also require a higher rate of return to attract investors who are willing to defer receipt of cash. These investments may experience greater volatility in market value than U.S. Government securities that make regular payments of interest. A Fund accrues income on these investments for tax and accounting purposes, which is distributable to shareholders and which, because no cash is received at the time of accrual, may require the liquidation of other portfolio securities to satisfy the Fund's distribution obligations, in which case the Fund will forego the purchase of additional income producing assets with these funds. Zero coupon securities include STRIPS, that is, securities underwritten by securities dealers or banks that evidence ownership of future interest payments, principal payments or both on certain notes or bonds issued by the U.S. Government, its agencies, authorities or instrumentalities. They also include CUBES, which are component parts of U.S. Treasury bonds and represent scheduled interest and principal payments on the bonds.
CUSTODIAL RECEIPTS. Custodial receipts or certificates, such as CATS, TIGRs and Financial Corporation certificates ("FICO Strips"), are securities underwritten by securities dealers or banks that evidence ownership of future interest payments, principal payments or both on certain notes or bonds issued by the U.S. Government, its agencies, authorities or instrumentalities. The underwriters of these certificates or receipts purchase a U.S. Government security and deposit the security in an irrevocable trust or custodial account with a custodian bank, which then issues receipts or certificates that evidence ownership of the periodic unmatured coupon payments and the final principal payment on the U.S. Government security. Custodial receipts evidencing
specific coupon or principal payments have the same general attributes as zero coupon U.S. Government securities, described above. Although typically under the terms of a custodial receipt a Fund is authorized to assert its rights directly against the issuer of the underlying obligation, the Fund may be required to assert through the custodian bank such rights as may exist against the underlying issuer. Thus, if the underlying issuer fails to pay principal and/or interest when due, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation of the issuer. In addition, if the trust or custodial account in which the underlying security has been deposited were determined to be an association taxable as a corporation, instead of a non-taxable entity, the yield on the underlying security would be reduced in respect of any taxes paid.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. These are instruments in amounts owed by a corporate, governmental or other borrower to another party. They may represent amounts owed to lenders or lending syndicates (loans and loan participations), to suppliers of goods or services (trade claims or other receivables) or to other parties. Direct debt instruments purchased by a Fund may have a maturity of any number of days or years, may be secured or unsecured, and may be of any credit quality. Direct debt instruments involve the risk of loss in the case of default or insolvency of the borrower. Direct debt instruments may offer less legal protection to a Fund in the event of fraud or misrepresentation. In addition, loan participations involve a risk of insolvency of the lending bank or other financial intermediary. Direct debt instruments also may include standby financing commitments that obligate a Fund to supply additional cash to the borrower on demand at a time when a Fund would not have otherwise done so, even if the borrower's condition makes it unlikely that the amount will ever be repaid.
These instruments will be considered illiquid securities and so will be limited in accordance with the Funds' restrictions on illiquid securities.
ILLIQUID SECURITIES
Historically, illiquid securities have included securities subject to contractual or legal restrictions on resale because they have not been registered under the Securities Act of 1933, as amended (the "1933 Act"), securities that are otherwise not readily marketable and repurchase agreements having a maturity of longer than seven days. Securities that have not been registered under the 1933 Act are referred to as "private placements" or "restricted securities" and are purchased directly from the issuer or in the secondary market. Investment companies do not typically hold a significant amount of these restricted securities or other illiquid securities because of the potential for delays on resale and uncertainty in valuation. Limitations on resale may have an adverse effect on the marketability of portfolio securities and an investment company might be unable to dispose of restricted or other illiquid securities promptly or at reasonable prices and might thereby experience difficulty satisfying redemptions within seven days. An investment company might also have to register such restricted securities in order to dispose of them, which would result in additional expense and delay. Adverse market conditions could impede such a public offering of securities. Each Fund may not invest more than 15% of its net assets in securities that are illiquid or otherwise not readily marketable.
In recent years, however, a large institutional market has developed for certain securities that are not registered under the 1933 Act, including repurchase agreements, commercial paper, foreign securities, municipal securities and corporate bonds and notes. Institutional investors depend on an efficient institutional market in which the unregistered security can be readily resold or on an issuer's ability to honor a demand for repayment. The fact that there are contractual or legal restrictions on resale of such investments to the general public or to certain institutions may not be indicative of their liquidity.
The Securities and Exchange Commission (the "SEC") has adopted Rule 144A, which allows a broader institutional trading market for securities otherwise subject to restriction on their resale to the general public. Rule 144A establishes a "safe harbor" from the registration requirements of the 1933 Act on resales of certain securities to qualified institutional buyers. The Advisor anticipates that the market for certain restricted securities such as institutional commercial paper will expand further as a result of this regulation and the development of automated systems for the trading, clearance and settlement of unregistered securities of domestic and foreign issuers, such as the PORTAL System sponsored by the National Association of Securities Dealers, Inc.
A Fund Sub-Advisor will monitor the liquidity of Rule 144A securities in each Fund's portfolio under the supervision of the Board of Trustees. In reaching liquidity decisions, the Fund Sub-Advisor will consider, among other things, the following factors: (1) the frequency of trades and quotes for the security; (2) the number of dealers and other potential purchasers wishing to purchase or sell the security; (3) dealer undertakings to make a market in the security and (4) the nature of the security and of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of the transfer).
A Fund may purchase securities in the United States that are not registered for sale under federal securities laws but which can be resold to institutions under SEC Rule 144A or under an exemption from such laws. Provided that a dealer or institutional trading market in such securities exists, these restricted securities or Rule 144A securities are treated as exempt from the Funds' limit on illiquid securities. The Board of Trustees of the Trust, with advice and information from the respective Fund Sub-Advisor, will determine the liquidity of restricted securities or Rule 144A securities by looking at factors such as trading activity and the availability of reliable price information and, through reports from such Fund Sub-Advisor, the Board of Trustees of the Trust will monitor trading activity in restricted securities. If institutional trading in restricted securities or Rule 144A securities were to decline, a Fund's illiquidity could increase and the Fund could be adversely affected.
A Fund may invest in commercial paper issued in reliance on the exemption from
registration afforded by Section 4(2) of the 1933 Act. Section 4(2) commercial
paper is restricted as to disposition under federal securities laws and is
generally sold to institutional investors who agree that they are purchasing the
paper for investment purposes and not with a view to public distribution. Any
resale by the purchaser must be in an exempt transaction. Section 4(2)
commercial paper is normally resold to other institutional investors through or
with the assistance of the issuer or investment dealers who make a market in
Section 4(2) commercial paper, thus providing liquidity. The Fund Sub-Advisor
believes that Section 4(2) commercial
paper and possibly certain other restricted securities that meet the criteria for liquidity established by the Trustees are quite liquid. The Fund intends therefore, to treat the restricted securities which meet the criteria for liquidity established by the Trustees, including Section 4(2) commercial paper, as determined by the Sub-Advisor, as liquid and not subject to the investment limitation applicable to illiquid securities. In addition, because Section 4(2) commercial paper is liquid, the Fund does not intend to subject such paper to the limitation applicable to restricted securities.
No Fund will invest more than 10% of its total assets in restricted securities (excluding Rule 144A securities).
FOREIGN SECURITIES
Investing in securities issued by foreign companies and governments involves considerations and potential risks not typically associated with investing in obligations issued by the U.S. Government and domestic corporations. Less information may be available about foreign companies than about domestic companies and foreign companies generally are not subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic companies. The values of foreign investments are affected by changes in currency rates or exchange control regulations, restrictions or prohibitions on the repatriation of foreign currencies, application of foreign tax laws, including withholding taxes, changes in governmental administration or economic or monetary policy (in the United States or abroad) or changed circumstances in dealings between nations. Costs are also incurred in connection with conversions between various currencies. In addition, foreign brokerage commissions and custody fees are generally higher than those charged in the United States, and foreign securities markets may be less liquid, more volatile and less subject to governmental supervision than in the United States. Investments in foreign countries could be affected by other factors not present in the United States, including expropriation, confiscatory taxation, lack of uniform accounting and auditing standards and potential difficulties in enforcing contractual obligations and could be subject to extended clearance and settlement periods.
The Growth Opportunities Fund may invest up to 10% of its total assets at the time of purchase in the securities of foreign issuers. The Emerging Growth Fund may invest up to 20% of its total assets in securities of foreign issuers.
EMERGING MARKET COUNTRIES. Emerging market countries are countries other than Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. When a Fund invests in securities of a company in an emerging market country, it invests in securities issued by a company that (i) has its principal trading market for its stock in an emerging market country, or (ii) derives at least 50% of its revenues or profits from corporations within emerging market countries or has at least 50% of its assets located in emerging market countries. The Emerging Growth Fund may invest up to 10% of its total assets in emerging market countries.
Investments in securities of issuers based in underdeveloped countries entail all of the risks of investing in foreign issuers outlined in this section to a heightened degree. These heightened risks include: (i) expropriation, confiscatory taxation, nationalization, and less social, political and economic stability; (ii) the smaller size of the market for such securities and a low or nonexistent volume of trading, resulting in a lack of liquidity and in price volatility; (iii) certain national policies which may restrict a Fund's investment opportunities including restrictions on investing in issuers in industries deemed sensitive to relevant national interests; and (iv) the absence of developed capital markets and legal structures governing private or foreign investment and private property and the possibility that recent favorable economic and political developments could be slowed or reversed by unanticipated events.
CURRENCY EXCHANGE RATES. A Fund's share value may change significantly when the currencies, other than the U.S. dollar, in which the Fund's investments are denominated, strengthen or weaken against the U.S. dollar. Currency exchange rates are generally determined by the forces of supply and demand in the foreign exchange markets and the relative merits of investments in different countries as seen from an international perspective. Currency exchange rates can also be affected unpredictably by intervention by U.S. or foreign governments or central banks or by currency controls or political developments in the United States or abroad.
ADRS, ADSS, EDRS AND CDRS. American Depository Receipts ("ADRs") and American Depository Shares ("ADSs") are U.S. dollar-denominated receipts typically issued by domestic banks or trust companies that represent the deposit with those entities of securities of a foreign issuer. They are publicly traded on exchanges or over-the-counter in the United States. European Depositary Receipts ("EDRs"), which are sometimes referred to as Continental Depositary Receipts ("CDRs"), may also be purchased by the Funds. EDRs and CDRs are generally issued by foreign banks and evidence ownership of either foreign or domestic securities. Certain institutions issuing ADRs, ADSs or EDRs may not be sponsored by the issuer of the underlying foreign securities. A non-sponsored depository may not provide the same shareholder information that a sponsored depository is required to provide under its contractual arrangements with the issuer of the underlying foreign securities.
OPTIONS
A Fund may write (sell), to a limited extent, only covered call and put options ("covered options") in an attempt to increase income. However, the Fund may forgo the benefits of appreciation on securities sold or may pay more than the market price on securities acquired pursuant to call and put options written by the Fund.
When a Fund writes a covered call option, it gives the purchaser of the option the right to buy the underlying security at the price specified in the option (the "exercise price") by exercising the option at any time during the option period. If the option expires unexercised, the Fund will realize income in an amount equal to the premium received for writing the option. If the option is exercised, a decision over which the Fund has no control, the Fund must sell the underlying
security to the option holder at the exercise price. By writing a covered call option, the Fund forgoes, in exchange for the premium less the commission ("net premium"), the opportunity to profit during the option period from an increase in the market value of the underlying security above the exercise price.
When a Fund writes a covered put option, it gives the purchaser of the option the right to sell the underlying security to the Fund at the specified exercise price at any time during the option period. If the option expires unexercised, the Fund will realize income in the amount of the premium received for writing the option. If the put option is exercised, a decision over which the Fund has no control, the Fund must purchase the underlying security from the option holder at the exercise price. By writing a covered put option, the Fund, in exchange for the net premium received, accepts the risk of a decline in the market value of the underlying security below the exercise price.
A Fund may terminate its obligation as the writer of a call or put option by purchasing an option with the same exercise price and expiration date as the option previously written. This transaction is called a "closing purchase transaction." Where the Fund cannot effect a closing purchase transaction, it may be forced to incur brokerage commissions or dealer spreads in selling securities it receives or it may be forced to hold underlying securities until an option is exercised or expires.
When a Fund writes an option, an amount equal to the net premium received by the Fund is included in the liability section of the Fund's Statement of Assets and Liabilities as a deferred credit. The amount of the deferred credit will be subsequently marked to market to reflect the current market value of the option written. The current market value of a traded option is the last sale price or, in the absence of a sale, the mean between the closing bid and asked price. If an option expires on its stipulated expiration date or if the Fund enters into a closing purchase transaction, the Fund will realize a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was sold), and the deferred credit related to such option will be eliminated. If a call option is exercised, the Fund will realize a gain or loss from the sale of the underlying security and the proceeds of the sale will be increased by the premium originally received. The writing of covered call options may be deemed to involve the pledge of the securities against which the option is being written.
When a Fund writes a call option, it will "cover" its obligation by segregating the underlying security on the books of the Fund's custodian or by placing liquid securities in a segregated account at the Fund's custodian. When a Fund writes a put option, it will "cover" its obligation by placing liquid securities in a segregated account at the Fund's custodian.
A Fund may purchase call and put options on any securities in which it may invest. The Fund would normally purchase a call option in anticipation of an increase in the market value of such securities. The purchase of a call option would entitle the Fund, in exchange for the premium paid, to purchase a security at a specified price during the option period. The Fund would ordinarily have a gain if the value of the securities increased above the exercise price sufficiently to cover the premium and would have a loss if the value of the securities remained at or below the exercise price during the option period.
A Fund would normally purchase put options in anticipation of a decline in the market value of securities in its portfolio ("protective puts") or securities of the type in which it is permitted to invest. The purchase of a put option would entitle the Fund, in exchange for the premium paid, to sell a security, which may or may not be held in the Fund's portfolio, at a specified price during the option period. The purchase of protective puts is designed merely to offset or hedge against a decline in the market value of the Fund's portfolio securities. Put options also may be purchased by the Fund for the purpose of affirmatively benefiting from a decline in the price of securities which the Fund does not own. The Fund would ordinarily recognize a gain if the value of the securities decreased below the exercise price sufficiently to cover the premium and would recognize a loss if the value of the securities remained at or above the exercise price. Gains and losses on the purchase of protective put options would tend to be offset by countervailing changes in the value of underlying portfolio securities.
The Funds have adopted certain other nonfundamental policies concerning option transactions that are discussed below. A Fund's activities in options may also be restricted by the requirements of the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated investment company.
The hours of trading for options on securities may not conform to the hours during which the underlying securities are traded. To the extent that the option markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying securities markets that cannot be reflected in the option markets. It is impossible to predict the volume of trading that may exist in such options, and there can be no assurance that viable exchange markets will develop or continue.
OPTIONS ON STOCKS. A Fund may write or purchase options on stocks. A call option gives the purchaser of the option the right to buy, and obligates the writer to sell, the underlying stock at the exercise price at any time during the option period. Similarly, a put option gives the purchaser of the option the right to sell, and obligates the writer to buy the underlying stock at the exercise price at any time during the option period. A covered call option with respect to which a Fund owns the underlying stock sold by the Fund exposes the Fund during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying stock or to possible continued holding of a stock which might otherwise have been sold to protect against depreciation in the market price of the stock. A covered put option sold by a Fund exposes the Fund during the term of the option to a decline in price of the underlying stock.
To close out a position when writing covered options, a Fund may make a "closing purchase transaction" which involves purchasing an option on the same stock with the same exercise price and expiration date as the option which it has previously written on the stock. The Fund will realize a profit or loss for a closing purchase transaction if the amount paid to purchase an option is less or more, as the case may be, than the amount received from the sale thereof. To close out a position as a purchaser of an option, the Fund may make a "closing sale transaction" which involves liquidating the Fund's position by selling the option previously purchased.
OPTIONS ON SECURITIES INDEXES. Such options give the holder the right to receive a cash settlement during the term of the option based upon the difference between the exercise price and the value of the index. Such options will be used for the purposes described above under "Options on Securities" or, to the extent allowed by law, as a substitute for investment in individual securities.
Options on securities indexes entail risks in addition to the risks of options on securities. The absence of a liquid secondary market to close out options positions on securities indexes is more likely to occur, although the Fund generally will only purchase or write such an option if the Fund Sub-Advisor believes the option can be closed out.
Use of options on securities indexes also entails the risk that trading in such options may be interrupted if trading in certain securities included in the index is interrupted. The Fund will not purchase such options unless the respective Fund Sub-Advisor believes the market is sufficiently developed such that the risk of trading in such options is no greater than the risk of trading in options on securities.
Price movements in a Fund's portfolio may not correlate precisely with movements in the level of an index and, therefore, the use of options on indexes cannot serve as a complete hedge. Because options on securities indexes require settlement in cash, the Fund Sub-Advisor may be forced to liquidate portfolio securities to meet settlement obligations.
When a Fund writes a put or call option on a securities index it will cover the position by placing liquid securities in a segregated asset account with the Fund's custodian.
Options on securities indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a security
index gives the holders the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of the exercise, multiplied by
(b) a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the index upon which the option is based being greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the option. The amount of cash received will be equal to such difference between
the closing price of the index and the exercise price of the option expressed in
dollars or a foreign currency, as the case may be, times a specified multiple.
The writer of the option is obligated, in return for the premium received, to make delivery of this amount. The writer may offset its position in securities index options prior to expiration by entering into a closing transaction on an exchange or the option may expire unexercised. Because the value of an index option depends upon movements in the level of the index rather than the price of a particular security, whether the Fund will realize a gain or loss from the purchase or writing of options on an index depends upon movements in the level of securities prices in the market generally or, in the case of certain indexes, in an industry or market segment, rather than movements in price of a particular security. Accordingly, successful use by
a Fund of options on security indexes will be subject to the Fund Sub-Advisor's ability to predict correctly movement in the direction of that securities market generally or of a particular industry. This requires different skills and techniques than predicting changes in the price of individual securities.
RELATED INVESTMENT POLICIES. A Fund may purchase and write put and call options on securities indexes listed on domestic and, in the case of those Funds which may invest in foreign securities, on foreign exchanges. A securities index fluctuates with changes in the market values of the securities included in the index.
OPTIONS ON FOREIGN CURRENCIES. Options on foreign currencies are used for hedging purposes in a manner similar to that in which futures contracts on foreign currencies, or forward contracts, are utilized. For example, a decline in the dollar value of a foreign currency in which portfolio securities are denominated will reduce the dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such diminutions in the value of portfolio securities, the Fund may purchase put options on the foreign currency. If the value of the currency does decline, a Fund will have the right to sell such currency for a fixed amount in dollars and will thereby offset, in whole or in part, the adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, the Fund may purchase call options thereon. The purchase of such options could offset, at least partially, the effects of the adverse movements in exchange rates. As in the case of other types of options, however, the benefit to the Fund derived from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, the Fund could sustain losses on transactions in foreign currency options that would require it to forego a portion or all of the benefits of advantageous changes in such rates.
Options on foreign currencies may be written for the same types of hedging purposes. For example, where a Fund anticipates a decline in the dollar value of foreign currency denominated securities due to adverse fluctuations in exchange rates, it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the options will most likely not be exercised, and the diminution in value of portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated increase in the dollar cost of securities to be acquired, the Fund could write a put option on the relevant currency, which, if rates move in the manner projected, will expire, unexercised and allow the Fund to hedge such increased cost up to the amount of the premium. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the Fund would be required to purchase or sell the underlying currency at a loss that may not be offset by the amount of the premium. Through the writing of options on foreign currencies, the Fund also may be required to forego all or a
portion of the benefits that might otherwise have been obtained from favorable movements in exchange rates.
The Funds may write covered call options on foreign currencies. A call option written on a foreign currency by a Fund is "covered" if the Fund owns the underlying foreign currency covered by the call or has an absolute and immediate right to acquire that foreign currency without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other foreign currency held in its portfolio. A call option is also covered if the Fund has a call on the same foreign currency and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written or (b) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash and liquid securities in a segregated account with its custodian.
The Funds may also write call options on foreign currencies that are not covered for cross-hedging purposes. A call option on a foreign currency is for cross-hedging purposes if it is not covered, but is designed to provide a hedge against a decline in the U.S. dollar value of a security which the Fund owns or has the right to acquire and which is denominated in the currency underlying the option due to an adverse change in the exchange rate. In such circumstances, the Fund collateralizes the option by maintaining in a segregated account with its custodian, cash or liquid securities in an amount not less than the value of the underlying foreign currency in U.S. dollars marked to market daily.
RELATED INVESTMENT POLICIES. Each Fund that may invest in foreign securities may write covered put and call options and purchase put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of portfolio securities and against increases in the dollar cost of securities to be acquired. The Fund may use options on currency to cross-hedge, which involves writing or purchasing options on one currency to hedge against changes in exchange rates for a different, but related currency. As with other types of options, however, the writing of an option on foreign currency will constitute only a partial hedge up to the amount of the premium received, and the Fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may be used to hedge against fluctuations in exchange rates although, in the event of exchange rate movements adverse to the Fund's position, it may not forfeit the entire amount of the premium plus related transaction costs. In addition, the Fund may purchase call options on currency when the Fund Sub-Advisor anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market on an options exchange will exist for any particular option, or at any particular time. If the Fund is unable to effect a closing purchase transaction with respect to covered options it has written, the Fund will not be able to sell the underlying currency or dispose of assets held in a segregated account until the options expire. Similarly, if the Fund is unable to effect a closing sale transaction with respect to options it has purchased, it would have to exercise the options in order to realize any profit and will incur transaction costs upon the purchase or sale of underlying currency. The Fund pays brokerage commissions or spreads in connection with its options transactions.
As in the case of forward contracts, certain options on foreign currencies are traded over-the-counter and involve liquidity and credit risks that may not be present in the case of exchange-traded currency options. A Fund's ability to terminate over-the-counter options ("OTC Options") will be more limited than the exchange-traded options. It is also possible that broker-dealers participating in OTC Options transactions will not fulfill their obligations. Until such time as the staff of the SEC changes its position, the Fund will treat purchased OTC Options and assets used to cover written OTC Options as illiquid securities. With respect to options written with primary dealers in U.S. Government securities pursuant to an agreement requiring a closing purchase transaction at a formula price, the amount of illiquid securities may be calculated with reference to the repurchase formula.
FORWARD CURRENCY CONTRACTS. Because, when investing in foreign securities, a Fund buys and sells securities denominated in currencies other than the U.S. dollar and receives interest, dividends and sale proceeds in currencies other than the U.S. dollar, such Funds from time to time may enter into forward currency transactions to convert to and from different foreign currencies and to convert foreign currencies to and from the U.S. dollar. A Fund either enters into these transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market or uses forward currency contracts to purchase or sell foreign currencies.
A forward currency contract is an obligation by a Fund to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract. Forward currency contracts establish an exchange rate at a future date. These contracts are transferable in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A forward currency contract generally has no deposit requirement and is traded at a net price without commission. Each Fund maintains with its custodian a segregated account of liquid securities in an amount at least equal to its obligations under each forward currency contract. Neither spot transactions nor forward currency contracts eliminate fluctuations in the prices of the Fund's securities or in foreign exchange rates, or prevent loss if the prices of these securities should decline.
A Fund may enter into foreign currency hedging transactions in an attempt to protect against changes in foreign currency exchange rates between the trade and settlement dates of specific securities transactions or changes in foreign currency exchange rates that would adversely affect a portfolio position or an anticipated investment position. Since consideration of the prospect for currency parities will be incorporated into a Fund Sub-Advisor's long-term investment decisions, a Fund will not routinely enter into foreign currency hedging transactions with respect to security transactions; however, the Fund Sub-Advisors believe that it is important to have the flexibility to enter into foreign currency hedging transactions when they determine that the transactions would be in a Fund's best interest. Although these transactions tend to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time they tend to limit any potential gain that might be realized should the value of the hedged currency increase. The precise matching of the forward currency contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of such securities between the date the forward currency contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the Commodity Futures Trading Commission (the "CFTC"), the CFTC may in the future assert authority to regulate forward currency contracts. In such event the Fund's ability to utilize forward currency contracts may be restricted. Forward currency contracts may reduce the potential gain from a positive change in the relationship between the U.S. dollar and foreign currencies. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not entered into such contracts. The use of forward currency contracts may not eliminate fluctuations in the underlying U.S. dollar equivalent value of the prices of or rates of return on a Fund's foreign currency denominated portfolio securities and the use of such techniques will subject a Fund to certain risks.
The matching of the increase in value of a forward currency contract and the decline in the U.S. dollar equivalent value of the foreign currency denominated asset that is the subject of the hedge generally will not be precise. In addition, a Fund may not always be able to enter into forward currency contracts at attractive prices and this will limit the Fund's ability to use such contract to hedge or cross-hedge its assets. Also, with regard to a Fund's use of cross-hedges, there can be no assurance that historical correlations between the movements of certain foreign currencies relative to the U.S. dollar will continue. Thus, at any time poor correlation may exist between movements in the exchange rates of the foreign currencies underlying a Fund's cross-hedges and the movements in the exchange rates of the foreign currencies in which the Fund's assets that are the subject of such cross-hedges are denominated.
BORROWING AND LENDING
BORROWING. The Funds may borrow money from banks (including their custodian bank) or from other lenders to the extent permitted under applicable law, for temporary or emergency purposes and to meet redemptions and may pledge their assets to secure such borrowings. The 1940 Act requires the Funds to maintain asset coverage of at least 300% for all such borrowings, and should such asset coverage at any time fall below 300%, the Funds would be required to reduce their borrowings within three days to the extent necessary to meet the requirements of the 1940 Act. To reduce their borrowings, the Funds might be required to sell securities at a time when it would be disadvantageous to do so. In addition, because interest on money borrowed is a Fund expense that it would not otherwise incur, the Funds may have less net investment income during periods when its borrowings are substantial. The interest paid by the Funds on borrowings may be more or less than the yield on the securities purchased with borrowed funds, depending on prevailing market conditions.
A Fund will not make any borrowing that would cause its outstanding borrowings to exceed one-third of the value of its total assets. As a matter of current operating policy, the Emerging Growth Fund, the Enhanced 30 Fund, the Value Plus Fund, the Large Cap Growth Fund and the Small Cap Growth Fund each intend to borrow money only as a temporary measure for
extraordinary or emergency purposes. This policy is not fundamental and may be changed by the Board of Trustees without shareholder approval.
LENDING. By lending its securities, a Fund can increase its income by continuing to receive interest on the loaned securities as well as by either investing the cash collateral in short-term securities or obtaining yield in the form of interest paid by the borrower when U.S. Government obligations are used as collateral. There may be risks of delay in receiving additional collateral or risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. Each Fund will adhere to the following conditions whenever its securities are loaned: (i) the Fund must receive at least 100 percent cash collateral or equivalent securities from the borrower; (ii) the borrower must increase this collateral whenever the market value of the securities including accrued interest rises above the level of the collateral; (iii) the Fund must be able to terminate the loan at any time; (iv) the Fund must receive reasonable interest on the loan, as well as any dividends, interest or other distributions on the loaned securities, and any increase in market value; (v) the Fund may pay only reasonable custodian fees in connection with the loan; and (vi) voting rights on the loaned securities may pass to the borrower; provided, however, that if a material event adversely affecting the investment occurs, the Board of Trustees must terminate the loan and regain the right to vote the securities.
As a matter of current operating policy, the Large Cap Growth Fund intends to limit the amount of loans of portfolio securities to no more than 25% of its net assets. This policy may be changed by the Board of Trustees without shareholder approval.
OTHER INVESTMENT POLICIES
SWAP AGREEMENTS. To help enhance the value of its portfolio or manage its exposure to different types of investments, the Funds may enter into interest rate, currency and mortgage swap agreements and may purchase and sell interest rate "caps," "floors" and "collars."
In a typical interest rate swap agreement, one party agrees to make regular payments equal to a floating interest rate on a specified amount (the "notional principal amount") in return for payments equal to a fixed interest rate on the same amount for a specified period. If a swap agreement provides for payment in different currencies, the parties may also agree to exchange the notional principal amount. Mortgage swap agreements are similar to interest rate swap agreements, except that notional principal amount is tied to a reference pool of mortgages. In a cap or floor, one party agrees, usually in return for a fee, to make payments under particular circumstances. For example, the purchaser of an interest rate cap has the right to receive payments to the extent a specified interest rate exceeds an agreed level; the purchaser of an interest rate floor has the right to receive payments to the extent a specified interest rate falls below an agreed level. A collar entitles the purchaser to receive payments to the extent a specified interest rate falls outside an agreed range.
Swap agreements may involve leverage and may be highly volatile. Swap agreements may have a considerable impact on a Fund's performance, depending on how they are used. Swap agreements involve risks depending upon the other party's creditworthiness and ability to
perform, as judged by the Fund Sub-Advisor, as well as the Fund's ability to terminate its swap agreements or reduce its exposure through offsetting transactions. All swap agreements are considered as illiquid securities and, therefore, will be limited, along with all of a Fund's other illiquid securities, to 15% of that Fund's net assets.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed advantageous at a particular time, a Fund may purchase securities on a when-issued or delayed-delivery basis, in which case delivery of the securities occurs beyond the normal settlement period; payment for or delivery of the securities would be made prior to the reciprocal delivery or payment by the other party to the transaction. A Fund will enter into when-issued or delayed-delivery transactions for the purpose of acquiring securities and not for the purpose of leverage. When-issued securities purchased by a Fund may include securities purchased on a "when, as and if issued" basis under which the issuance of the securities depends on the occurrence of a subsequent event, such as approval of a merger, corporate reorganization or debt restructuring.
Securities purchased on a when issued or delayed-delivery basis may expose a Fund to risk because the securities may experience fluctuations in value prior to their actual delivery. The Fund does not accrue income with respect to a when-issued or delayed-delivery security prior to its stated delivery date. Purchasing securities on a when-issued or delayed-delivery basis can involve the additional risk that the yield available in the market when the delivery takes place may be higher than that obtained in the transaction itself.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which a Fund purchases a security and simultaneously commits to resell that security to the seller at an agreed upon time and price, thereby determining the yield during the term of the agreement. In the event of a bankruptcy or other default of the seller of a repurchase agreement, a Fund could experience both delays in liquidating the underlying security and losses. To minimize these possibilities, each Fund intends to enter into repurchase agreements only with its Custodian, with banks having assets in excess of $10 billion and with broker-dealers who are recognized as primary dealers in U.S. Government obligations by the Federal Reserve Bank of New York. The Funds will enter into repurchase agreements that are collateralized by U.S. Government obligations. Collateral for repurchase agreements is held in safekeeping in the customer-only account of the Funds' Custodian at the Federal Reserve Bank. At the time a Fund enters into a repurchase agreement, the value of the collateral, including accrued interest, will equal or exceed the value of the repurchase agreement and, in the case of a repurchase agreement exceeding one day, the seller agrees to maintain sufficient collateral so that the value of the underlying collateral, including accrued interest, will at all times equal or exceed the value of the repurchase agreement.
REVERSE REPURCHASE AGREEMENTS AND FORWARD ROLL TRANSACTIONS. In a reverse repurchase agreement a Fund agrees to sell portfolio securities to financial institutions such as banks and broker-dealers and to repurchase them at a mutually agreed date and price. Forward roll transactions are equivalent to reverse repurchase agreements but involve mortgage-backed securities and involve a repurchase of a substantially similar security. At the time the Fund enters into a reverse repurchase agreement or forward roll transaction it will place in a segregated custodial account cash or liquid securities having a value equal to the repurchase price, including accrued interest. Reverse repurchase agreements and forward roll transactions involve the risk that the market value of the securities sold by the Fund may decline below the repurchase price
of the securities. Reverse repurchase agreements and forward roll transactions are considered to be borrowings by a Fund.
TEMPORARY INVESTMENTS. For temporary defensive purposes during periods when the Fund Sub-Advisor believes, in consultation with the Advisor, that pursuing the Fund's basic investment strategy may be inconsistent with the best interests of its shareholders, a Fund may invest its assets without limit in the following money market instruments: securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities (including those purchased in the form of custodial receipts), repurchase agreements, certificates of deposit, master notes, time deposits and bankers' acceptances issued by banks or savings and loan associations having assets of at least $500 million as of the end of their most recent fiscal year and high quality commercial paper.
A Fund also may hold a portion of its assets in money market instruments or cash in amounts designed to pay expenses, to meet anticipated redemptions or pending investments in accordance with its objectives and policies. Any temporary investments may be purchased on a when-issued basis.
CONVERTIBLE SECURITIES. Convertible securities may offer higher income than the common stocks into which they are convertible and include fixed-income or zero coupon debt securities, which may be converted or exchanged at a stated or determinable exchange ratio into underlying shares of common stock. Prior to their conversion, convertible securities may have characteristics similar to both non-convertible debt securities and equity securities. While convertible securities generally offer lower yields than non-convertible debt securities of similar quality, their prices may reflect changes in the value of the underlying common stock. Convertible securities entail less credit risk than the issuer's common stock.
ASSET COVERAGE. To assure that a Fund's use of futures and related options, as well as when-issued and delayed-delivery transactions, forward currency contracts and swap transactions, are not used to achieve investment leverage, the Fund will cover such transactions, as required under applicable SEC interpretations, either by owning the underlying securities or by establishing a segregated account with its custodian containing liquid securities in an amount at all times equal to or exceeding the Fund's commitment with respect to these instruments or contracts.
WARRANTS AND RIGHTS. Warrants are options to purchase equity securities at a specified price and are valid for a specific time period. Rights are similar to warrants, but normally have a short duration and are distributed by the issuer to its shareholders. A Fund may purchase warrants and rights, provided that no Fund presently intends to invest more than 5% of its net assets at the time of purchase in warrants and rights other than those that have been acquired in units or attached to other securities.
SHORT-TERM TRADING. Short-term trading involves the selling of securities held for a short time, ranging from several months to less than a day. The object of such short-term trading is to increase the potential for capital appreciation and/or income of the Fund in order to take advantage of what the Sub-Advisor believes are changes in market, industry or individual
company conditions or outlook. Any such trading would increase the turnover rate of a Fund and its transaction costs.
VARIABLE AND FLOATING RATE SECURITIES. The Growth Opportunities Fund may acquire variable and floating rate securities, subject to the Fund's investment objective, policies and restrictions. A variable rate security is one whose terms provide for the readjustment of its interest rate on set dates and which, upon such readjustment, can reasonably be expected to have a market value that approximates its par value. A floating rate security is one whose terms provide for the readjustment of its interest rate whenever a specified interest rate changes and which, at any time, can reasonably be expected to have a market value that approximates its par value.
DERIVATIVES. A Fund may invest in various instruments that are commonly known as derivatives. Generally, a derivative is a financial arrangement, the value of which is based on, or "derived" from, a traditional security, asset, or market index. Some "derivatives" such as certain mortgage-related and other asset-backed securities are in many respects like any other investment, although they may be more volatile or less liquid than more traditional debt securities. There are, in fact, many different types of derivatives and many different ways to use them. There is a range of risks associated with those uses. Futures and options are commonly used for traditional hedging purposes to attempt to protect a Fund from exposure to changing interest rates, securities prices, or currency exchange rates and as a low cost method of gaining exposure to a particular securities market without investing directly in those securities. However, some derivatives are used for leverage, which tends to magnify the effects of an instrument's price changes as market conditions change. Leverage involves the use of a small amount of money to control a large amount of financial assets, and can in some circumstances, lead to significant losses. A Fund Sub-Advisor will use derivatives only in circumstances where the Fund Sub-Advisor believes they offer the most economic means of improving the risk/reward profile of the Fund. Derivatives will not be used to increase portfolio risk above the level that could be achieved using only traditional investment securities or to acquire exposure to changes in the value of assets or indexes that by themselves would not be purchased for the Fund. The use of derivatives for non-hedging purposes may be considered speculative.
INITIAL PUBLIC OFFERINGS ("IPOS"). The Emerging Growth Fund and the Small Cap Growth Fund may invest in IPOs. An IPO presents the risk that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high transactions costs. IPO shares are subject to market risk and liquidity risk. When a Fund's asset base is small, a significant portion of the Fund's performance could be attributable to investments in IPOs, because such investments would have a magnified impact on the Fund. As the Fund's asset grow, the effect of the Fund's investments in IPOs on the Fund's performance probably will decline, which could reduce the Fund's performance. Because of the price volatility of IPO shares, a Fund may choose to hold IPO shares for a very short period of time. This may increase the turnover of a Fund and may lead to increased expenses to the Fund, such as commissions and transaction costs. By selling IPO shares, the Fund may realize taxable gains it will subsequently distribute to shareholders. In addition, the market for IPO shares can be speculative and/or inactive for extended periods of time. There is no assurance that the Fund will be able to obtain allocable portions of IPO shares.
The limited number of shares available for trading in some IPOs may make it more difficult for the Fund to buy or sell significant amounts of shares without an unfavorable impact on prevailing prices. Investors in IPO shares can be affected by substantial dilution in the value of their shares, by sales of additional shares and by concentration of control in existing management and principal shareholders.
The Fund's investments in IPO shares may include the securities of "unseasoned" companies (companies with less than three years of continuous operations), which present risks considerably greater than common stocks of more established companies. These companies may have limited operating histories and their prospects for profitability may be uncertain. These companies may be involved in new and evolving businesses and may be vulnerable to competition and changes in technology, markets and economic conditions. They may be more dependent on key managers and third parties and may have limited products.
SENIOR SECURITIES. As a matter of current operating policy, the following
activities will not be considered to be issuing senior securities with respect
to the Funds:
1. Collateral arrangements in connection with any type of option, futures
contract, forward contract or swap.
2. Collateral arrangements in connection with initial and variation
margin.
3. A pledge, mortgage or hypothecation of a Fund's assets to secure its
borrowings.
4. A pledge of a Fund's assets to secure letters of credit solely for the
purpose of participating in a captive insurance company sponsored by
the Investment Company Institute.
MAJORITY. As used in this Statement of Additional Information, the term "majority" of the outstanding shares of the Trust (or of any Fund) means the lesser of (1) 67% or more of the outstanding shares of the Trust (or the applicable Fund) present at a meeting, if the holders of more than 50% of the outstanding shares of the Trust (or the applicable Fund) are present or represented at such meeting or (2) more than 50% of the outstanding shares of the Trust (or the applicable Fund).
RATING SERVICES
The ratings of nationally recognized statistical rating organizations represent their opinions as to the quality of the securities that they undertake to rate. It should be emphasized, however, that ratings are relative and subjective and are not absolute standards of quality. Although these ratings are an initial criterion for selection of portfolio investments, each Fund Sub-Advisor also makes its own evaluation of these securities, subject to review by the Board of Trustees of the Trust. After purchase by a Fund, an obligation may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither event would require a Fund to eliminate the obligation from its portfolio, but a Fund Sub-Advisor will consider such an event in its determination of whether a Fund should continue to hold the obligation. A description of the ratings used herein and in the Funds' Prospectus is set forth in the Appendix to this Statement of Additional Information.
The Trust has adopted certain fundamental investment limitations designed to reduce the risk of an investment in the Funds. These limitations may not be changed with respect to any Fund without the affirmative note of a majority of the outstanding shares of that Fund.
THE FUNDAMENTAL LIMITATIONS APPLICABLE TO THE FUNDS ARE:
1. BORROWING MONEY. The Funds may not engage in borrowing except as permitted by the Investment Company Act of 1940, any rule, regulation or order under the Act or any SEC staff interpretation of the Act.
2. UNDERWRITING. (VALUE PLUS FUND, ENHANCED 30 FUND, LARGE CAP GROWTH FUND, GROWTH OPPORTUNITIES FUND AND SMALL CAP GROWTH FUND). The Funds may not underwrite securities issued by other persons, except to the extent that, in connection with the sale or disposition of portfolio securities, a Fund may be deemed to be an underwriter under certain federal securities laws or in connection with investments in other investment companies.
(EMERGING GROWTH FUND). The Fund may not underwrite securities issued by other persons, except to the extent that, in connection with the sale or disposition of portfolio securities, the Fund may be deemed to be an underwriter under certain federal securities laws.
3. LOANS. The Funds may not make loans to other persons except that a Fund may (1) engage in repurchase agreements, (2) lend portfolio securities, (3) purchase debt securities, (4) purchase commercial paper, and (5) enter into any other lending arrangement permitted by the Investment Company Act of 1940, any rule, regulation or order under the Act or any SEC staff interpretation of the Act.
4. REAL ESTATE. The Funds may not purchase or sell real estate except that a Fund may (1) hold and sell real estate acquired as a result of the Fund's ownership of securities or other instruments (2) purchase or sell securities or other instruments backed by real estate or interests in real estate and (3) purchase or sell securities of entities or investment vehicles, including real estate investment trusts that invest, deal or otherwise engage in transactions in real estate or interests in real estate.
5. COMMODITIES. The Funds may not purchase or sell physical commodities except that a Fund may (1) hold and sell physical commodities acquired as a result of the Fund's ownership of securities or other instruments, (2) purchase or sell securities or other instruments backed by physical commodities, (3) purchase or sell options, and (4) purchase or sell futures contracts.
6. CONCENTRATION OF INVESTMENTS. The Funds may not purchase the securities of an issuer (other than securities issued or guaranteed by the United States Government, its agencies or its instrumentalities) if, as a result, more than 25% of the Fund's total assets would be invested in the securities of companies whose principal business activities are in the same industry.
7. SENIOR SECURITIES. The Funds may not issue senior securities except as permitted by the Investment Company Act of 1940, any rule, regulation or order under the Act or any SEC staff interpretation of the Act.
ADDITIONAL RESTRICTIONS. The Trust, on behalf of each Fund, has adopted the following additional restrictions as a matter of "operating policy." These restrictions are changeable by the Board of Trustees without shareholder vote.
THE FOLLOWING INVESTMENT LIMITATIONS FOR THE VALUE PLUS FUND AND THE ENHANCED 30 FUND ARE NONFUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL:
1. BORROWING MONEY. A Fund will not borrow money (including through reverse repurchase agreements or forward roll transactions involving mortgage-backed securities or similar investment techniques entered into for leveraging purposes), except that the Fund may borrow for temporary or emergency purposes up to 10% of its total assets; provided, however, that no Fund may purchase any security while outstanding borrowings exceed 5%;
2. PLEDGING. A Fund will not pledge, mortgage or hypothecate for any purpose in excess of 10% of the Fund's total assets (taken at market value), provided that collateral arrangements with respect to options and futures, including deposits of initial deposit and variation margin, and reverse repurchase agreements are not considered a pledge of assets for purposes of this restriction;
3. MARGIN PURCHASES. A Fund will not purchase any security or evidence of interest therein on margin, except that such short-term credit as may be necessary for the clearance of purchases and sales of securities may be obtained and except that deposits of initial deposit and variation margin may be made in connection with the purchase, ownership, holding or sale of futures;
4. SELLING SECURITIES. A Fund will not sell any security which it does not own unless by virtue of its ownership of other securities it has at the time of sale a right to obtain securities, without payment of further consideration, equivalent in kind and amount to the securities sold and provided that if such right is conditional the sale is made upon the same conditions;
5. INVESTING FOR CONTROL. A Fund will not invest for the purpose of exercising control or management;
6. ILLIQUID SECURITIES. A Fund will not invest more than 15% of its net
assets (taken at the greater of cost or market value) in securities
that are illiquid or not readily marketable (defined as a security
that cannot be sold in the ordinary course of business within seven
days at approximately the value at which the Fund has valued the
security) not including (a) Rule 144A securities that have been
determined to be liquid by the Board of Trustees; and (b) commercial
paper that is sold under section 4(2) of the 1933 Act which is not
traded flat or in default as to interest or principal and either (i)
is rated in one of the two highest categories by at least two
nationally recognized statistical rating organizations and the Fund's
Board of Trustees has determined the commercial paper to be liquid; or
(ii) is rated in one of the two highest categories by one nationally
recognized statistical rating agency and the Fund's Board of Trustees
has determined that the commercial paper is equivalent quality and is
liquid;
7. RESTRICTED SECURITIES. A Fund will not invest more than 10% of its total assets in securities that are restricted from being sold to the public without registration under the 1933 Act (other than Rule 144A Securities deemed liquid by the Fund's Board of Trustees);
8. SECURITIES OF ONE ISSUER. A Fund will not purchase securities of any issuer if such purchase at the time thereof would cause the Fund to hold more than 10% of any class of securities of such issuer, for which purposes all indebtedness of an issuer shall be deemed a single class and all preferred stock of an issuer shall be deemed a single class, except that futures or option contracts shall not be subject to this restriction;
9. SHORT SALES. A Fund will not make short sales of securities or maintain a short position, unless at all times when a short position is open it owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue and equal in amount to, the securities sold short, and unless not more than 10% of the Fund's net assets (taken at market value) is represented by such securities, or securities convertible into or exchangeable for such securities, at any one time (the Funds have no current intention to engage in short selling);
10. PURCHASE OF PUTS AND CALLS. A Fund will not purchase puts, calls, straddles, spreads and any combination thereof if by reason thereof the value of the Fund's aggregate investment in such classes of securities will exceed 5% of its total assets;
11.WRITING OF PUTS AND CALLS. A Fund will not write puts and calls on securities unless each of the following conditions are met: (a) the security underlying the put or call is within the investment policies of the Fund and the option is issued by the OCC, except for put and call options issued by non-U.S. entities or listed on non-U.S. securities or commodities exchanges; (b) the aggregate value of the obligations underlying the puts determined as of the date the options are sold shall not exceed 50% of the Fund's net assets; (c) the securities subject to the exercise of the call written by the Fund must be owned by the Fund at the time the call is sold and must continue to be owned by the Fund
until the call has been exercised, has lapsed, or the Fund has purchased a closing call, and such purchase has been confirmed, thereby extinguishing the Fund's obligation to deliver securities pursuant to the call it has sold; and (d) at the time a put is written, the Fund establishes a segregated account with its custodian consisting of cash or liquid securities equal in value to the amount the Fund will be obligated to pay upon exercise of the put (this account must be maintained until the put is exercised, has expired, or the Fund has purchased a closing put, which is a put of the same series as the one previously written).
12. PUTS AND CALLS ON FUTURES. A Fund will not buy and sell puts and calls on securities, stock index futures or options on stock index futures, or financial futures or options on financial futures unless such options are written by other persons and: (a) the options or futures are offered through the facilities of a national securities association or are listed on a national securities or commodities exchange, except for put and call options issued by non-U.S. entities or listed on non-U.S. securities or commodities exchanges; (b) the aggregate premiums paid on all such options which are held at any time do not exceed 20% of the Fund's total net assets; and (c) the aggregate margin deposits required on all such futures or options thereon held at any time do not exceed 5% of the Fund's total assets.
THE FOLLOWING INVESTMENT LIMITATIONS FOR THE LARGE CAP GROWTH FUND AND THE SMALL CAP GROWTH FUND ARE NONFUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL:
1. LARGE CAP GROWTH FUND 80% INVESTMENT POLICY. Under normal circumstances, the Fund will invest at least 80% of its assets (defined as net assets plus the amount of any borrowing for investment purposes) in a diversified portfolio of common stocks of large cap companies.
2. SMALL CAP GROWTH FUND 80% INVESTMENT POLICY. Under normal circumstances, the Fund will invest at least 80% of its assets (defined as net assets plus the amount of any borrowing for investment purposes) in equity securities of small cap companies.
Shareholders of the applicable Fund will be provided with at least 60 days' prior notice of any change to either of these policies. The notice will be provided in a separate written document containing the following, or similar, statement, in boldface type: "Important Notice Regarding Change in Investment Policy." The statement will also appear on the envelope in which the notice is delivered, unless the notice is delivered separately from other communications to the shareholder.
THE FOLLOWING INVESTMENT LIMITATION FOR THE EMERGING GROWTH FUND IS NONFUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL:
1. BORROWING MONEY. The Emerging Growth Fund intends to borrow money only as a temporary measure for extraordinary or emergency purposes. In addition, the Fund may engage in reverse repurchase agreements, forward roll transactions involving mortgage-
backed securities or other investment techniques entered into for the purpose of leverage.
THE FOLLOWING INVESTMENT LIMITATIONS FOR THE GROWTH OPPORTUNITIES FUND ARE NONFUNDAMENTAL AND MAY BE CHANGED WITHOUT SHAREHOLDER APPROVAL:
1. ILLIQUID INVESTMENTS. The Fund will not purchase securities for which there are legal or contractual restrictions on resale or for which no readily available market exists (or engage in a repurchase agreement maturing in more than seven days) if, as a result thereof, more than 15% of the value of its net assets would be invested in such securities.
2. MARGIN PURCHASES. The Fund will not purchase securities or evidences of interest thereon on "margin." This limitation is not applicable to short-term credit obtained by the Fund for the clearance of purchases and sales or redemption of securities or to the extent necessary to engage in transactions described in the Prospectus and Statement of Additional Information involving margin purchases.
3. SHORT SALES. The Fund will not make short sales of securities.
With respect to the percentages adopted by the Trust as maximum limitations on the Funds' investment policies and restrictions, an excess above the fixed percentage (except for the percentage limitations relative to the borrowing of money or investing in illiquid securities) will not be a violation of the policy or restriction unless the excess results immediately and directly from the acquisition of any security or the action taken.
The following is a list of the Trustees and executive officers of the Trust, the length of time served, principal occupations for the past 5 years, number of funds overseen in the Touchstone Funds and other directorships held.
--------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES1:
--------------------------------------------------------------------------------------------------------------------------------
TERM OF NUMBER OF
OFFICE2 FUNDS
AND OVERSEEN
NAME POSITION(S) LENGTH IN THE OTHER
ADDRESS HELD WITH OF TIME PRINCIPAL OCCUPATION(S) DURING PAST 5 TOUCHSTONE DIRECTORSHIPS
AGE TRUST SERVED YEARS FUNDS3 HELD4
--------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder Trustee Until President and a director of IFS 29 Director of
Touchstone retirement Financial Services, Inc. (a holding LaRosa's (a
Advisors, Inc. at age 75 company), Touchstone Advisors, Inc. (the restaurant chain).
221 East Fourth Street or until Trust's investment advisor) and
Cincinnati, OH she resigns Touchstone Securities, Inc. (the Trust's
Age: 47 or is distributor). She is Senior Vice
removed President of The Western and Southern
Life Insurance Company and a director of
Trustee Capital Analysts Incorporated (a
since 1999 registered investment advisor and
broker-dealer), Integrated Fund
Services, Inc. (the Trust's
administrator and transfer agent) and
IFS Fund Distributors, Inc. (a
registered broker-dealer). She is also
President and a director of IFS Agency
Services, Inc. (an insurance agency),
IFS Insurance Agency, Inc. and Fort
Washington Brokerage Services, Inc. (a
registered broker-dealer). She was
President of Touchstone Tax-Free Trust,
Touchstone Investment Trust, Touchstone
Variable Series Trust and Touchstone
Strategic Trust until 2002.
--------------------------------------------------------------------------------------------------------------------------------
John F. Barrett Trustee Until Chairman of the Board, President and 29 Director of The
The Western and retirement Chief Executive Officer of The Western Andersons Inc. (an
Southern Life at age 75 and Southern Life Insurance Company and agribusiness and
Insurance Company or until Western-Southern Life Assurance retailing
400 Broadway he resigns Company; Director and Vice Chairman of company),
Cincinnati, OH or is Columbus Life Insurance Company; Convergys
Age: 53 removed Director of Eagle Realty Group, Inc., Corporation (a
and Chairman of Fort Washington provider of
Trustee Investment Advisors, Inc. integrated billing
since 2002 solutions,
customer care
services and
employee care
services) and
Fifth Third
Bancorp.
--------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT
TRUSTEES:
--------------------------------------------------------------------------------------------------------------------------------
J. Leland Brewster II Trustee Until Retired Senior Partner of Frost Brown 29 Director of
5155 Ivyfarm Road retirement Todd LLC (a law firm). Consolidated
Cincinnati, OH in 2005 or Health Services,
Age: 74 until he Inc.
resigns or
is removed
Trustee
since 2000
--------------------------------------------------------------------------------------------------------------------------------
William O. Coleman Trustee Until Retired Vice President of The Procter & 29 Director of
c/o Touchstone retirement Gamble Company. A Trustee of The LCA-Vision (a
Advisors, Inc. at age 75 Procter & Gamble Profit Sharing Plan and laser vision
221 East Fourth Street or until The Procter & Gamble Employee Stock correction
Cincinnati, OH he resigns Ownership Plan. company) and
Age: 73 or is Millennium
removed Bancorp.
Trustee
since 1999
--------------------------------------------------------------------------------------------------------------------------------
32
|
--------------------------------------------------------------------------------------------------------------------------------
Phillip R. Cox Trustee Until President and Chief Executive Officer of 29 Director of the
105 East Fourth Street retirement Cox Financial Corp. (a financial Federal Reserve
Cincinnati, OH at age 75 services company). Bank of Cleveland;
Age: 55 or until Broadwing, Inc. (a
he resigns communications
or is company); and
removed Cinergy
Corporation (a
Trustee utility company).
since 1999
--------------------------------------------------------------------------------------------------------------------------------
H. Jerome Lerner Trustee Until Principal of HJL Enterprises (a 29 None
4700 Smith Road retirement privately held investment company);
Cincinnati, OH at age 75 Chairman of Crane Electronics, Inc. (a
Age: 64 or until manufacturer of electronic connectors).
he resigns
or is
removed
Trustee
since 1989
--------------------------------------------------------------------------------------------------------------------------------
Oscar P. Robertson Trustee Until President of Orchem, Inc. (a chemical 29 Director of
621 Tusculum Avenue retirement specialties distributor), Orpack Stone Countrywide Credit
Cincinnati, OH at age 75 Corporation (a corrugated box Industries, Inc.
Age: 64 or until manufacturer) and ORDMS (a solution
he resigns planning firm).
or is
removed
Trustee
since 1995
--------------------------------------------------------------------------------------------------------------------------------
Robert E. Trustee Until Retired Partner of KPMG LLP (a certified 29 Trustee of Good
Stautberg retirement public accounting firm). He is Vice Samaritan
4815 Drake Road at age 75 President of St. Xavier High School. Hospital, Bethesda
Cincinnati, OH or until Hospital and
Age: 68 he resigns Tri-Health, Inc.
or is
removed
Trustee
since 1999
--------------------------------------------------------------------------------------------------------------------------------
John P. Zanotti Trustee Until CEO and Chairman of Avaton, Inc. (a 29 None
5400 Waring Drive retirement wireless entertainment company). CEO
Cincinnati, OH at age 75 and Chairman of Astrum Digital
Age: 54 or until Information (an information monitoring
he resigns company) from 2000 until 2001; President
or is of Great American Life Insurance Company
removed from 1999 until 2000; A Director of
Chiquita Brands International, Inc.
Trustee until2000; Senior Executive of American
since 2002 Financial Group, Inc. (a financial
services company) from 1996 until 1999.
--------------------------------------------------------------------------------------------------------------------------------
|
1 Ms. McGruder, as President and a director of Touchstone Advisors, Inc., the
Trust's investment advisor, and Touchstone Securities, Inc., the Trust's
distributor, is an "interested person" of the Trust within the meaning of
Section 2(a)(19) of the 1940 Act. Mr. Barrett, as President and Chairman of
The Western and Southern Life Insurance Company and Western-Southern Life
Assurance Company, parent companies of Touchstone Advisors, Inc. and
Touchstone Securities, Inc., and Chairman of Fort Washington Investment
Advisors, Inc., a Trust sub-advisor, is an "interested person" of the Trust
within the meaning of Section 2(a)(19) of the 1940 Act.
2 Each Trustee is elected to serve until the age of 75 or after five years of service, whichever is greater, or until he sooner dies, resigns or is removed.
3 The Touchstone Funds consist of six series of the Trust, six series of Touchstone Tax-Free Trust, six series of Touchstone Investment Trust and eleven variable annuity series of Touchstone Variable Series Trust.
4 Each Trustee is also a Trustee of Touchstone Tax-Free Trust, Touchstone Investment Trust and Touchstone Variable Series Trust.
--------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
OFFICERS:
--------------------------------------------------------------------------------------------------------------------------------
TERM OF NUMBER OF
OFFICE FUNDS
AND OVERSEEN
NAME POSITION LENGTH OF IN THE OTHER
ADDRESS HELD WITH TIME PRINCIPAL OCCUPATION(S) DURING PAST 5 TOUCHSTONE DIRECTORSHIPS
AGE TRUST1 SERVED YEARS FUNDS2 HELD
--------------------------------------------------------------------------------------------------------------------------------
Patrick T. Bannigan President Until he Senior Vice President of Touchstone 29 None
Touchstone sooner dies, Advisors, Inc. and Touchstone
Advisors, Inc. resigns, is Securities, Inc.; Senior Vice President
221 East Fourth removed or of Evergreen Investment Services until
Street becomes March 2002.
Cincinnati, OH disqualified
Age: 37
President
since 2002
--------------------------------------------------------------------------------------------------------------------------------
Michael S. Spangler Vice Until he Vice President of Touchstone Advisors, 29 None
Touchstone President sooner dies, Inc. and Touchstone Securities, Inc.;
Advisors, Inc. resigns, is Vice President of Evergreen Investment
221 East Fourth removed or Services until July 2002.
Street becomes
Cincinnati, OH disqualified
Age: 36
Vice
President
since 2002
--------------------------------------------------------------------------------------------------------------------------------
Brian E. Hirsch Vice Until he Director of Compliance of Fort 29 None
Touchstone President sooner dies, Washington Brokerage Services, Inc.
Advisors, Inc. resigns, is Chief Compliance Officer of Puglisi &
221 East Fourth removed or Co. from May 2001 until August 2002;
Street becomes Vice President - Compliance of Palisade
Cincinnati, OH disqualified Capital Management from June 1997 until
Age: 46 January 2000.
Vice
President
since 2003
--------------------------------------------------------------------------------------------------------------------------------
Terrie A. Controller Until she Senior Vice President, Chief Financial 29 None
Wiedenheft sooner dies, Officer and Treasurer of Integrated
Touchstone resigns, is Fund Services, Inc., IFS Fund
Advisors, Inc. removed or Distributors, Inc. and Fort Washington
221 East Fourth becomes Brokerage Services, Inc. She is Chief
Street disqualified Financial Officer of IFS Financial
Cincinnati, OH Services, Inc., Touchstone Advisors,
Age: 40 Controller Inc. and Touchstone Securities, Inc.
since 2000 and Assistant Treasurer of Fort
Washington Investment Advisors, Inc.
--------------------------------------------------------------------------------------------------------------------------------
Scott A. Englehart Treasurer Until he President of Integrated Fund Services, 29 None
Integrated Fund sooner dies, Inc. and IFS Fund Distributors, Inc.
Services, Inc. resigns, is From 1998 until 2000, he was a
221 East Fourth removed or Director, Transfer Agency and Mutual
Street becomes Fund Distribution for Nationwide
Cincinnati, OH disqualified Advisory Services, Inc.
Age: 40
Treasurer
since 2000
--------------------------------------------------------------------------------------------------------------------------------
34
|
--------------------------------------------------------------------------------------------------------------------------------
Tina H. Bloom Secretary Until she Vice President - Managing Attorney of 29 None
Integrated Fund sooner dies, Integrated Fund Services, Inc. and IFS
Services, Inc. resigns, is Fund Distributors, Inc.
221 East Fourth removed or
Street becomes
Cincinnati, OH disqualified
Age: 34
Secretary
since 1999
--------------------------------------------------------------------------------------------------------------------------------
|
1 Each officer also holds the same office with Touchstone Investment Trust,
Touchstone Tax-Free Trust and Touchstone Variable Series Trust.
2 The Touchstone Funds consist of six series of the Trust, six series of
Touchstone Tax-Free Trust, six series of Touchstone Investment Trust and
eleven variable annuity series of Touchstone Variable Series Trust.
TRUSTEE OWNERSHIP IN THE TOUCHSTONE FUNDS
The following table reflects the Trustees' beneficial ownership in the Trust and the Touchstone Funds as of December 31, 2002:
AGGREGATE DOLLAR
DOLLAR RANGE OF RANGE OF EQUITY
EQUITY SECURITIES IN SECURITIES IN
TRUST THE TOUCHSTONE
FUNDS 1
John F. Barrett $1 - $10,000 $1 - $10,000
J. Leland Brewster II $10,001 - $50,000 $10,001 - $50,000
William O. Coleman $10,001 - $50,000 $10,001 - $50,000
Phillip R. Cox None None
H. Jerome Lerner None Over $100,000
Jill T. McGruder $10,001 - $50,000 $50,001 - $100,000
Oscar P. Robertson Over $100,000 Over $100,000
Robert E. Stautberg $10,001 - $50,000 $10,001 - $50,000
John P. Zanotti $ 1 - $10,000 $1 - $10,000
|
1 The Touchstone Funds consists of six series of the Trust, six series of Touchstone Tax-Free Trust, six series of Touchstone Investment Trust and eleven variable annuity series of Touchstone Variable Series Trust.
TRUSTEE COMPENSATION
The following table shows the compensation paid to the Trustees by the Trust and the aggregate compensation paid by the Touchstone Funds during the fiscal year ended March 31, 2003.
DEFERRED AGGREGATE
COMPENSATION COMPENSATION COMPENSATION FROM
FROM ACCRUED THE TOUCHSTONE
NAME TRUST FROM TRUST 1 FUNDS 2
---- ----- ------------ -------
John F. Barrett $ 0 $ 0 $ 0
J. Leland Brewster II $1,726 $3,462 $20,300
William O. Coleman $5,687 $ 0 $22,300
Philip R. Cox $5,687 $ 0 $22,300
H. Jerome Lerner $5,562 $ 0 $21,800
Jill T. McGruder $ 0 $ 0 $ 0
Oscar P. Robertson $1,700 $2,612 $17,250
Robert E. Stautberg $1,869 $3,818 $22,300
John P. Zanotti $ 494 $1,381 $ 7,800
|
1 Effective January 1, 2001, the Trustees who are not "interested persons" of the Trust, as defined in the 1940 Act (the "Independent Trustees"), are eligible to participate in the Touchstone Trustee Deferred Compensation Plan that allows the Independent Trustees to defer payment of a specific amount of their Trustee compensation, subject to a minimum quarterly reduction of $1,000. The total amount of deferred compensation accrued by the Independent Trustees from the Touchstone Family of Funds during the fiscal year ended March 31, 2003 is as follows: J. Leland Brewster II - $13,848, Oscar P. Robertson - $10,448, Robert E. Stautberg - $15,271 and John P. Zanotti - $5,525.
2 The Touchstone Funds consist of six series of the Trust, six series of Touchstone Tax-Free Trust, six series of Touchstone Investment Trust and eleven variable annuity series of Touchstone Variable Series Trust.
Effective January 1, 2003, each Independent Trustee receives a quarterly retainer of $3,000 and a fee of $3,000 for each Board meeting attended in person and $300 for attendance by telephone. Each Committee member receives a fee of $1,000 for each committee meeting attended in person and $300 for attendance by telephone. The lead Trustee and Committee Chairmen receive an additional $500 quarterly retainer. All fees are split equally among the Trust, Touchstone Tax-Free Trust, Touchstone Investment Trust and Touchstone Variable Series Trust.
STANDING COMMITTEES OF THE BOARD
The Board of Trustees is responsible for overseeing the operations of the Trust in accordance with the provisions of the 1940 Act and other applicable laws and the Trust's Declaration of Trust. The Board has established the following committees to assist in its oversight functions. Each Committee is composed entirely of Independent Trustees.
AUDIT COMMITTEE. Messrs. Brewster, Lerner and Stautberg are members of the Audit Committee. The Audit Committee is responsible for overseeing the Trust's accounting and financial reporting policies, practices and internal controls. During the fiscal year ended March 31, 2003, the Audit Committee held four meetings.
VALUATION COMMITTEE. Messrs. Coleman, Cox and Robertson are members of the Valuation Committee. The Valuation Committee is responsible for overseeing procedures for valuing securities held by the Trust and responding to any pricing issues that may arise. During the fiscal year ended March 31, 2003, the Valuation Committee held four meetings.
NOMINATING COMMITTEE. Messrs. Brewster, Coleman, Cox and Stautberg are members of the Nominating Committee. The Nominating Committee is responsible for selecting candidates to serve on the Board and its operating committees. During the fiscal year ended March 31, 2003, the Nominating Committee held one meeting. The Nominating Committee does not consider nominees recommended by shareholders.
THE INVESTMENT ADVISOR. Touchstone Advisors, Inc. (the "Advisor"), is the Funds' investment manager. The Advisor is a wholly owned subsidiary of IFS Financial Services, Inc., which is a wholly owned subsidiary of Western-Southern Life Assurance Company. Western-Southern Life Assurance Company is a wholly owned subsidiary of The Western and Southern Life Insurance Company. Ms. McGruder may be deemed to be an affiliate of the Advisor because of her position as President and Director of the Advisor. Mr. Barrett may be deemed to be an affiliate of the Advisor because of his position as President and Chairman of The Western and Southern Life Insurance Company and Western-Southern Life Assurance Company, parent companies of the Advisor. Ms. McGruder and Mr. Barrett, by reason of such affiliations, may directly or indirectly receive benefits from the advisory fees paid to the Advisor.
Under the terms of the investment advisory agreement between the Trust and the Advisor, the Advisor appoints and supervises each Fund Sub-Advisor, reviews and evaluates the performance of the Fund Sub-Advisors and determines whether or not a Fund's Sub-Advisor should be replaced. The Advisor furnishes at its own expense all facilities and personnel necessary in connection with providing these services. Each Fund pays the Advisor a fee computed and accrued daily and paid monthly at an annual rate as shown below:
Emerging Growth Fund 0.80% of average daily net assets
Value Plus Fund 0.75% on the first $100 million of average daily net assets
0.70% from $100 million to $200 million of average daily net assets
0.65% from $200 million to $300 million of average daily net assets
0.60% thereafter
Enhanced 30 Fund 0.65% on the first $100 million of average daily net assets
0.60% from $100 million to $200 million of average daily net assets
0.55% from $200 million to $300 million of average daily net assets
0.50% thereafter
Large Cap Growth Fund 0.75% on the first $200 million of average daily net assets
0.70% from $200 million to $500 million of average daily net assets
0.50% thereafter
37
|
Growth Opportunities Fund 1.00% on the first $50 million of average daily net assets
.90% from $50 million to $100 million of average daily net assets
.80% from $100 million to $200 million of average daily net assets
.75% thereafter
Small Cap Growth Fund 1.25% of average daily net assets
|
Set forth below are the advisory fees incurred by the Funds during the last three fiscal periods. The Advisor has contractually agreed to waive fees and reimburse certain expenses, as set forth in the footnotes below:
FISCAL PERIOD ENDED
3-31 3-31 3-31 12-31
2003 2002 2001 2000
---- ---- ---- -----
Emerging Growth Fund(1) $2,176,150 $ 848,897 $ 46,242* $ 135,631
Value Plus Fund(2) 480,547 598,523 95,925* 324,524
Large Cap Growth Fund(3) 329,499 513,141 445,595
Growth Opportunities Fund 1,104,328 1,365,095 1,349,398
Enhanced 30 Fund(4) 54,485 48,307 45,042
Small Cap Growth Fund(5) 86,494
|
* Represents period from January 1, 2001 until March 31, 2001.
(1) Pursuant to a Sponsor Agreement between the Advisor and the Trust, the
Advisor waived fees and/or reimbursed the Fund $697,087, $212,462, $23,370
and $113,774 for the fiscal periods ended March 31, 2003, March 31, 2002,
March 31, 2001 and December 31, 2000, respectively.
(2) Pursuant to a Sponsor Agreement between the Advisor and the Trust, the
Advisor waived fees and/or reimbursed the Fund $226,146, $199,296, $36,416
and $92,399 for the fiscal periods ended March 31, 2003, March 31, 2002,
March 31, 2001 and December 31, 2000, respectively.
(3) Pursuant to a written contract between the Advisor and the Trust, the
Advisor waived fees and/or reimbursed the Fund $68,675 and $37,249 for the
fiscal years ended March 31, 2003 and 2002, respectively.
(4) Pursuant to a Sponsor Agreement between the Advisor and the Trust, the
Advisor waived fees and/or reimbursed the Fund $281,855, $171,790 and
$75,716 for the fiscal periods ended March 31, 2003, 2002 and 2001,
respectively.
(5) Pursuant to a Sponsor Agreement between the Advisor and the Trust, the
Advisor waived fees and/or reimbursed the Fund $97,022 for the fiscal
period ended March 31, 2003.
Pursuant to a written contract between the Advisor and the Trust, the Advisor has agreed to waive advisory fees and reimburse expenses in order to maintain expense limitations of the Large Cap Growth Fund as follows: 1.30% for Class A shares, 2.43% for Class B shares and 2.51% for Class C shares. These expense limitations will remain in effect until at least March 31, 2004.
Pursuant to a Sponsor Agreement between the Advisor and the Trust, the Advisor has been retained to provide certain management and supervisory services to the Emerging Growth Fund,
the Value Plus Fund, the Enhanced 30 Fund and the Small Cap Growth Fund in exchange for the payment of a sponsor fee by the Funds equal to an annual rate of 0.20% of a Fund's average daily net assets. The Advisor has agreed to waive its fees and reimburse expenses in order to limit each Fund's annual expenses as follows: Emerging Growth Fund - 1.50% for Class A shares, 2.25% for Class B and Class C shares; Value Plus Fund - 1.30% for Class A shares, 2.05% for Class B and Class C shares; Enhanced 30 Fund - 1.00% for Class A shares, 1.75% for Class B and Class C shares; Small Cap Growth Fund - 1.95% for Class A shares, 2.70% for Class B and Class C shares. The fee waivers and expense limitations will remain in effect until at least March 31, 2004.
The Funds shall pay the expenses of their operation, including but not limited
to (i) charges and expenses for accounting, pricing and appraisal services and
related overhead, (ii) the charges and expenses of auditors; (iii) the charges
and expenses of any custodian, transfer agent, plan agent, dividend disbursing
agent, registrar and administrative agent appointed by the Trust with respect to
the Funds; (iv) brokers' commissions, and issue and transfer taxes chargeable to
the Funds in connection with securities transactions to which a Fund is a party;
(v) insurance premiums, interest charges, dues and fees for membership in trade
associations and all taxes and fees payable to federal, state or other
governmental agencies; (vi) fees and expenses involved in registering and
maintaining registrations of the Funds with the SEC, state or blue sky
securities agencies and foreign countries, including the preparation of
Prospectuses and Statements of Additional Information for filing with the SEC;
(vii) all expenses of meetings of Trustees and of shareholders of the Trust and
of preparing, printing and distributing prospectuses, notices, proxy statements
and all reports to shareholders and to governmental agencies; (viii) charges and
expenses of legal counsel to the Trust; (ix) compensation of Trustees of the
Trust; and (x) interest on borrowed money, if any. The compensation and expenses
of any officer, Trustee or employee of the Trust who is an affiliated person of
the Advisor is paid by the Advisor.
By its terms, the Funds' investment advisory agreement will remain in force for an initial period of two years and from year to year thereafter, subject to annual approval by (a) the Board of Trustees or (b) a vote of the majority of a Fund's outstanding voting securities; provided that in either event continuance is also approved by a majority of the Independent Trustees, by a vote cast in person at a meeting called for the purpose of voting such approval.
In determining whether to approve the continuation of the investment advisory agreement for the Emerging Growth Fund, Value Plus Fund, Large Cap Growth Fund, Enhanced 30 Fund and Growth Opportunities Fund, the Board of Trustees requested, and the Advisor furnished, information necessary for a majority of the Independent Trustees to make the determination that the continuance of the advisory agreement is in the best interests of the Funds and their shareholders. Specifically, the Board was provided (1) industry data comparing advisory fees and expense ratios of comparable investment companies, (2) comparative performance information and (3) the Advisor's revenues and costs of providing services to the Funds. The Board compared the advisory fees and total expense ratios for the Funds with the industry median advisory fees and expense ratios in their respective investment categories and found the advisory fees paid by the Funds were reasonable and appropriate under all facts and circumstances. The Board noted the Funds' performance results during the twelve months ended September 30, 2002. The Board also considered the effect of each Fund's growth and size on its
performance and expenses. The Board further noted that the Advisor has consistently waived advisory fees and reimbursed expenses for various Funds as necessary to reduce their operating expenses to targeted levels. The Board also took into consideration the financial condition and profitability of the Advisor and the direct and indirect benefits derived by the Advisor from its relationship with the Funds. The Board also considered the level and depth of knowledge of the Advisor. It discussed the Advisor's effectiveness in monitoring the performance of the Sub-Advisors and its timeliness in responding to performance issues.
In determining to approve the Small Cap Growth Fund's advisory agreement with the Advisor, the Board of Trustees was provided information comparing the Fund's advisory fees and total expense ratio with the ratios of other small growth funds. The Board found the advisory fees proposed for the Fund were reasonable and appropriate under all facts and circumstances. The Board also noted that it had previously been provided financial information on the Advisor and took into consideration the financial condition and profitability of the Advisor. The Board considered the direct and indirect benefits expected to be derived by the Advisor from its relationship with the Fund. The Board also considered the level and depth of knowledge of the Advisor and the Advisor's effectiveness in monitoring the performance of its sub-advisors and its timeliness in responding to performance issues.
The Funds' investment advisory agreement may be terminated at any time, on sixty days' written notice, without the payment of any penalty, by the Board of Trustees, by a vote of the majority of a Fund's outstanding voting securities, or by the Advisor. The investment advisory agreement automatically terminates in the event of its assignment, as defined by the 1940 Act and the rules thereunder.
THE SUB-ADVISORS. The Advisor has retained one or more sub-advisors (the "Sub-Advisor") to serve as the discretionary portfolio manager of each Fund. The Sub-Advisor selects the portfolio securities for investment by a Fund, purchases and sells securities of a Fund and places orders for the execution of such portfolio transactions, subject to the general supervision of the Board of Trustees and the Advisor. The Sub-Advisor receives a fee from the Advisor that is paid monthly at an annual rate of a Fund's average daily net assets as set forth below.
EMERGING GROWTH FUND
TCW Investment Management Company 0.50% of average daily net assets
Westfield Capital Management Company, LLC 0.50% on the first $50 million of average net assets
0.45% on the next $100 million of net assets
0.40% thereafter
VALUE PLUS FUND
Fort Washington Investment Advisors, Inc. 0.45% on the first $100 million of average net assets
0.40% on the next $100 million of net assets
0.35% on the next $100 million of net assets
0.30% thereafter
40
|
LARGE CAP GROWTH FUND
Fort Washington Investment Advisors, Inc. 0.45% on the first $200 million of average net assets
0.40% on the next $300 million of net assets
0.20% thereafter
ENHANCED 30 FUND*
Todd Investment Advisors, Inc. 0.40% on the first $100 million of average net assets
0.35% on the next $100 million of net assets
0.30% on the next $100 million of net assets
0.25% thereafter
|
* Effective September 1, 2002, Todd Investment Advisors, Inc. has voluntarily agreed to waive a portion of its sub-advisory fee and will receive a sub-advisory fee of .25% of average daily net assets.
GROWTH OPPORTUNITIES FUND
Mastrapasqua Asset Management, Inc. 0.60% on the first $50 million of average net assets
0.50% on the next $50 million of net assets
0.40% on the next $100 million of net assets
0.35% thereafter
SMALL CAP GROWTH FUND**
Bjurman, Barry & Associates 0.90% of average daily net assets
Longwood Investment Advisors, Inc. 0.85% of average daily net assets
|
** The Advisor has allocated to Longwood Investment Advisors, Inc. responsibility for managing approximately 70% of the Small Cap Growth Fund's assets and has allocated to Bjurman, Barry & Associates responsibility for managing approximately 30% of the Fund's assets. These allocations may be larger or smaller at various times, but the Advisor will not reallocate the Fund's assets between Sub-Advisors to reduce these differences in size until the assets vary from the percentages above by approximately 10% or more of the Fund's average daily net assets for a period of 3 consecutive months. In such event, the Advisor may, but is not obligated to, reallocate assets among the Sub-Advisors to provide for a more equal distribution of the Fund's assets.
The services provided by the Sub-Advisors are paid for wholly by the Advisor. The compensation of any officer, director or employee of the Sub-Advisor who is rendering services to a Fund is paid by the Sub-Advisor.
The employment of each Sub-Advisor will remain in force for an initial two year period and from year to year thereafter, subject to annual approval by (a) the Board of Trustees or (b) a vote of the majority of a Fund's outstanding voting securities; provided that in either event continuance is also approved by a majority of the Independent Trustees, by a vote cast in person at a meeting called for the purpose of voting such approval. The employment of the Sub-Advisor may be terminated at any time, on sixty days' written notice, without the payment of any penalty, by the Board of Trustees, by a vote of a majority of a Fund's outstanding voting securities, by the Advisor, or by the Sub-Advisor. Each Sub-Advisory Agreement will
automatically terminate in the event of its assignment, as defined by the 1940 Act and the rules thereunder. In determining whether to approve the continuation of the Funds' sub-advisory agreements, the Board compared the Funds' sub-advisory fees with the industry median sub-advisory fees in their respective investment categories and found the sub-advisory fees were reasonable and appropriate. The Board also considered the Funds' performance during the twelve months ended September 30, 2002 and noted that it reviews on a quarterly basis detailed information about the Funds' performance results, portfolio composition and investment strategies. The Board considered the Sub-Advisors' level of knowledge, investment style and level of compliance.
In determining to approve the sub-advisory agreements with Bjurman, Barry & Associates and Longwood Investment Advisors, Inc. for the Small Cap Growth Fund, the Board of Trustees considered detailed information presented by the Advisor regarding its sub-advisor selection process, including the criteria used by the Advisor to select a sub-advisor. The Board was provided information on each Sub-Advisor's performance, as compared to the performance of the Russell 2000 Index and the Russell 2000 Growth Index. The Board was also provided information about each Sub-Advisor's level of knowledge, investment style, level of compliance and operations. The Board also considered the amount of sub-advisory fees to be paid to each Sub-Advisor. After considering the information provided about the Sub-Advisors and relying on the expertise of the Advisor in selecting sub-advisors, the Board of Trustees determined that the appointment of the Sub-Advisors is in the best interests of the Small Cap Growth Fund and its shareholders.
The SEC has granted an exemptive order that permits the Trust or the Advisor, under certain circumstances, to select or change Sub-Advisors, enter into new sub-advisory agreements or amend existing sub-advisory agreements without first obtaining shareholder approval. Shareholders of a Fund will be notified of any changes in its Fund Sub-Advisor.
Each Sub-Advisor has adopted policies and procedures for voting proxies relating to portfolio securities held by the Funds, including procedures used when a vote presents a conflict between the interests of a Fund's shareholders and those of the Sub-Advisor or its affiliates. Listed below is a summary of the Sub-Advisor proxy voting procedures:
TCW INVESTMENT MANAGEMENT COMPANY, INC. TCW has adopted proxy voting guidelines on issues involving board of directors, proxy contests, auditors, miscellaneous governance provisions, capital structure, mergers and corporate restructuring, mutual fund proxies and social and environmental issues. When voting proxies, TCW's foremost concern is that all decisions be made solely in the interests of the client and with the goal of maximizing the value of the client's investments. The voting guidelines identify certain voting matters that will be decided on a case-by-case basis. Proposals that are to be decided on a case-by- case basis are typically referred to the portfolio managers, who will exercise their best judgment to vote proxies in a manner that will enhance the economic value of a client's assets, keeping in mind the best interest of the beneficial owners. The portfolio managers may, in their discretion, take into account the recommendations of TCW management, the Proxy Committee and/or outside services. The following are examples of TCW's voting position on certain matters:
o Votes on director nominees are made on a case-by-case basis, examining factors such as composition of the board and key board committees, attendance at board meetings, corporate goverance provisions and takeover activity, long-term company performance relative to a market index, directors' investment in the company, whether the chariman is also serving as CEO and whether a retired CEO sits on the board.
o TCW will vote against proposals that provide that directors may be removed only for cause
o TCW will vote against proposals to eliminate cumulative voting
o TCW will vote for shareholder proposals that ask a company to submit its poison pill for shareholder ratification
o TCW will review proposals to increase tha number of authorized shares of common stock on a case-by-case basis.
o Votes with respect to executive and director compensation plans are determined on a case-by-case basis
o Votes on mergers and acquisitions are considered on a case-by-case basis, taking into account anticipated financial and operating benefits, offer price, prospectus of the combined companies, how the deal was negotiated, changes in corporate goverance and impact on shareholder rights.
If a potential conflict of interest arises, the primary means by which TCW will avoid a conflict is by casting such votes solely in the interests of its clients and in the interests of
maximizing the value of their portfolio holdings. If a conflict of interest arises and the proxy vote is predetermined, TCW will vote accordingly. If a conflict of interest arises and there is no predetermined vote, TCW will refer the vote to an outside service for its consideration in the event the client's relationship is determined to be material to TCW. If TCW identifies a conflict of interest between a portfolio manager and an issuer soliciting proxy votes from TCW clients, the Proxy Committee will cast the vote.
WESTFIELD CAPITAL MANAGEMENT COMPANY, INC. Westfield's policy is to vote all proxies in the best interest of its clients as investors in accordance with its fiduciary obligations and applicable law. Westfield has a proxy voting committee composed of individuals from the investment committee, operations staff and compliance department. The proxy committee is responsible for setting general policy as to porxies. Westfield maintains written voting guidelines setting forth the voting positions determined by its Proxy Committee on those issues believed most likely to arise day to day. These issues include board-approved proposals (election of directors, executive compensation, capitalization, acquisitions, mergers, reorganizations and anti-takeover measures) and shareholder proposals. Westfield will vote proxies in accordance with these guidelines, subject to two exceptions: 1) if the portfolio manager believes that following the guidelines would not be in the clients' best interests and 2) for clients with plan assets subject to ERISA, Westfield may accept instructions to vote proxies in accordance with AFL-CIO proxy voting guidelines except when voting in accordance with AFL-CIO guidelines would be inconsistent with ERISA. The following are examples of Westfield's voting position on specific matters:
o Westfield will withhold votes for the entire board of directors if the board does not have a majority of independent directors or the board does not have a nominating, audit and compensation committee composed solely of independent directors.
o Westfield will vote on a case-by-case basis board approved proposals relating to executive compensation. Westfield may vote against executive compensation proposals where compensation is excessive by reasonable corporate standards or where a company fails to provide transparent disclosure of executive compensation.
o Westfield will vote against board proposals to adopt anti-takeover measures such as a shareholder rights plan, supermajority voting provisions, adoption of fair price provisions, issuance of blank check preferred stock and the creation of a separate class of stock with disparate voting rights, except Westfield will vote on a case-by-case basis poison pill proposals and proposals to adopt fair price provisions.
If a conflict of interest should arise when voting proxies of an issuer that has a significant business relationship with Westfield, Westfield will vote proxies based solely on the investment merits of the proposal.
FORT WASHINGTON INVESTMENT ADVISORS, INC. Fort Washington's policy to to vote
proxies in the best interests of its clients at all times. Fort Washington has
adopted procedures that it believes are reasonably designed to ensure that
proxies are voted in the best interests of clients in accordance with its
fiduciary duties and SEC rules governing investment advisers.
Reflecting a basic investment philospohy that good management is shareholder
focused, proxy votes will generally be cast in support of management on routine
corporate matters and in support of any management proposal that is plainly in
the interest of all shareholders. Specifically, proxy votes generally will be
cast in favor of proposals that:
o maintain or strengthen the shared interests of stockholders and management;
o increase shareholder value; and
o maintain or increase shareholder rights generally.
Proxy votes will generally be cast against proposals having the opposite efffect of the above. Where Fort Washington perceives that a management proposal, if approved, would tend to limit or reduce the market value of the company's securities, it will generally vote against it. Fort Washington generally supports shareholder rights and recapitalization measures undertaken unilaterally by boards of directors properly exercising their responsibilities and authority, unless such measures could have the effect of reducing shareholder rights or potential shareholder value. In cases where shareholder proposals challenge such actions, Fort Washington's voting position will generally favor not interfering with the directors' proper function in the interest of all shareholders.
Fort Washington may delegate its responsibilities under its proxy voting procedures to a third party, provided that Fort Washington retains final authority and fiduciary responsibility for proxy voting.
Fort Washington will review each proxy to assess the extent, if any, to which there may be a material conflict between it and the interests of its clients. If Fort Washington determines that a potential conflict may exist, it will be reported to the Proxy Voting Committee. The Proxy Voting Committee is authorized to resolve any conflict in a manner that is in the collective best interests of its clients(excluding any clients that may have a potential conflict). The Proxy Voting Committee may resolve a potential conflict in any of the following manners:
o If the proposal is specifically addressed in the proxy voting procedures, Fort Washington may vote the proxy in accordance with these policies, provided that such pre-determined policy involves little discretion on Fort Washington's part;
o Fort Washington may disclose the potential conflict to its clients and obtain a consent of a majority in interest of its clients before voting in the manner approved by a majority in interest of its clients;
o Fort Washington may engage an independent third-party to determine how the proxy should be voted; or
o Fort Washington may establish an ethical wall or other informational barriers between the person involved in the potential conflict and the persons making the voting decision in order to insulate the potential conflict from the decision maker.
TODD INVESTMENT ADVISORS, INC. Todd will vote proxies solely in the best long-term interests of a client. Todd has adopted guidelines on key issues such as election of directors, stock incentive plans, expensing of options, severance agreements, takeover provisions, and social and environmental issues. Todd employs Institutional Shareholder Services ("ISS") to help it analyze particular issues. The following are examples of Todd's position on specific matters:
o Todd will generally vote for proposals seeking to end the staggered election of directors and prefers that all directors be elected annually.
o Todd will generally support proposals requiring a majority of independent directors on the board.
o Todd prefers to see the separation of Chairman and CEO positions
o Todd prefers that all incumbent directors own company stock
o Todd prefers that all stock incentive plans be limited to restricted stock or other truly long-term incentive plans, but recognizes that short-term incentive plans do have a place in providing key executives with a balanced compensation program
o Todd supports proposals requiring the expensing of options
If a conflict of interest should arise, Todd will inform its Executive Committee of the conflict and notify the shareholder why Todd's vote may differ from the shareholder's request. Todd will consider a shareholder's request but will vote only for what it believes will best advance the long-term interests of shareholders.
MASTRAPASQUA ASSET MANAGEMENT, INC. Mastrapasqua's proxy voting decisions will be made solely in the best interests of the client. In voting proxies, Mastrapasqua is required to consider those factors that may affect the value of the client's investment and may not subordinate the interest of the client to unrelated objectives. Mastrapasqua has adopted guidelines for voting proxies with respect to routine issues, such as board of directors, proxy contest defenses, auditors, acquisitions and mergers, shareholder rights, capital structure, executive and director compensation and social and environmental issues, and its compliance officer will vote routine issues according to these guidelines. Non-routine issues will be voted according to recommendations received from the research department. The following are examples of Mastrapasqua's policies on specific matters:
o Mastrapasqua will evaluate directors fairly and objectively, rewarding them for significant contributions and holding them ultimately accountable to shareholders for corporate performance. Mastrapasqua will vote for directors on a case-by-case basis.
o Mastrapasqua will vote against proposals to eliminate cumulative voting
o Mastrapasqua will vote for shareholder proposals that ask a company to submit its poison pill for shareholder ratification
o Mastrapasqua will vote against proposals that provide that directors may be removed only for cause and for proposals that permit shareholders to elect directors to fill vacancies
o Votes on mergers and acquisitions are considered on a case-by-case basis, taking into account the impact of the merger on shareholder value, the anticipated financial and operating benefits, the offering price, the financial viability of the combined companies as a single entity, whether the deal was made in good faith, the changes in corporate goverance and their impact on shareholder rights and the impact on community stakeholders and employees in both workforces.
If a material conflict should arise between Mastrapasqua's interest and that of its clients, Mastrapasqua will vote the proxies in accordance with the recommendation of the research analyst and portfolio manager. A written record will be maintained describing the conflict of interest, the resolution of the conflict and an explanation of how the vote taken was in the client's best interest.
BJURMAN, BARRY & ASSOCIATES. Bjurman uses a third party service provider, ISS, to vote all client proxies. The proxy voting guidelines adopted by Bjurman are provided by ISS. The voting process involves an assessment which results in voting in agreement with company management and/or varying ISS recommendations. Management and ISS recommendations may be identical. In the event Bjurman votes against ISS recommendations, documentation must be prepared to describe the basis for such a decision. Bjurman has adopted proxy voting recommendations on issues involving board of directors, proxy contest defenses, auditors, tender offer defenses, miscellaneous governance provisions, capital structure, executive and director compensation, mergers and corporate restructuring, mutual fund proxies and social and environmental issues. The following are examples of Bjurman's policies on specific matters:
o Votes on director nominations will be made on a case-by-case basis examining factors such as long-term corporate performance relative to a market index, composition of board and keyboard committees, nominee's attendance at meetings, nominee's investment in the company, whether a retired CEO sits on the board and whether the chairman is also serving as CEO.
o Bjurman will vote against proposals that provide that directors may be removed only for cause and for proposals giving shareholder's the ability to remove directors with or without cause.
o Bjurman will vote for shareholder proposals that ask a company to submit its poison pills for shareholder ratification
o Bjurman will vote on a case-by-case basis proposals to increase the number of shares of common stock authorized for issue and will vote against proposed common stock authorizations that increase the existing authorization by more than 100% unless a clear need for the excess shares is presented by the company.
Bjurman's proxy voting policy does not demonstrate a conflict of interest regarding clients' best interests since votes are in accordance with a pre-determined policy based upon the recommendations of ISS. The proxy voting guidelines are not exhaustive and do not include all potential voting issues. Because proxy issues and the circumstances of individual companies are so varied, there may be instances when Bjurman may not vote in strict adherence to these guidelines.
LONGWOOD INVESTMENT ADVISORS, INC. Longwood's proxy voting policy and procedures are designed to ensure that Longwood votes proxies in the best interest of its clients and to prevent and detect fraudulent, deceptive or manipulative acts by Longwood and its advisory affiliates. Longwood's policy is to vote client proxies in the interest of maximizing shareholder value. To that end, Longwood will vote in a way that it believes, consistent with its fiduciary duty, will cause the value of the issue to increase the most or decline the least. Longwood has contracted with The Investor Responsibility Research Center ("IRRC") to assist it in the proxy voting process. Accordingly, IRRC shall be a source of proxy voting research and also maintain the documentation to substantiate the manner in which Longwood votes proxies. In general, Longwood will support management if management's position appears reasonable, is not detrimental to the long-term equity ownership of the corporation and reflects consideration of the impact of societal values and attitudes on the long-term viability of the corporation. The position of management on any resolution will typically not be supported if it:
o Would enrich management excessively.
o Would entrench incumbent officers or members of the board of directors.
o Would not reflect consideration of short and long-term costs and gains, including effects on the basic human rights of its employees and goodwill both in the U.S. and foreign countries in which the company operates.
o Would result in unreasonable costs.
o Would disadvantage the corporation relative to other corporations.
o Would oppose a proposal to have the shareholders approve the selection of an independent auditor.
o Would not support equal and fair employment practices for all employees.
If Longwood detects a conflict of interest with respect to voting of client proxies, such conflict will be addressed by The Investor Responsibility Research Center (IRRC), or another independent third party, to vote proxies that involve such conflict. Any vote cast by IRRC is binding and may not be overridden by Longwood.
Touchstone Securities, Inc. ("Touchstone"), 221 East Fourth Street, Cincinnati, Ohio 45202, is the principal distributor of the Trust and, as such, the exclusive agent for distribution of shares of the Funds. Touchstone is an affiliate of the Advisor by reason of common ownership. Touchstone is obligated to sell the shares on a best efforts basis only against purchase orders for the shares. Shares of the Funds are offered to the public on a continuous basis.
Touchstone currently allows concessions to dealers who sell shares of the Funds. Touchstone receives that portion of the sales charge that is not reallowed to the dealers who sell shares of a Fund. Touchstone retains the entire sales charge on all direct initial investments in a Fund and on all investments in accounts with no designated dealer of record.
For the fiscal year ended March 31, 2003, the aggregate underwriting commissions on sales of the Trust's shares were $1,501,520 of which Touchstone paid $1,200,478 to unaffiliated broker-dealers in the selling network, earned $89,601 as a broker-dealer in the selling network and retained $211,441 in underwriting commissions.
For the fiscal year ended March 31, 2002, the aggregate underwriting commissions on sales of the Trust's shares were $1,989,963 of which Touchstone paid $1,589,175 to unaffiliated broker-dealers in the selling network, earned $113,826 as a broker-dealer in the selling network and retained $286,962 in underwriting commissions.
For the fiscal year ended March 31, 2001, the aggregate underwriting commissions on sales of the Trust's shares were $981,892 of which Touchstone paid $862,036 to unaffiliated broker-dealers in the selling network, earned $36,113 as a broker-dealer in the selling network and retained $83,743 in underwriting commissions.
Touchstone retains the contingent deferred sales charge on redemptions of shares of the Funds that are subject to a contingent deferred sales charge. For the fiscal period ended March 31, 2003, Touchstone collected $113,872, $8,535, $21,126, $307, $1,268 and $1,009 of contingent deferred sales charges on redemptions of Class B and Class C shares of the Emerging Growth Fund, the Enhanced 30 Fund, the Growth Opportunities Fund, the Large Cap Growth Fund, the Small Cap Growth Fund and the Value Plus Fund, respectively.
For the fiscal year ended March 31, 2002, Touchstone collected $8,376, $17,296, $91, $541 and $246 of contingent deferred sales charges on redemptions of Class B and Class C shares of the Emerging Growth Fund, the Growth Opportunities Fund, the Large Cap Growth Fund, the Enhanced 30 Fund and the Value Plus Fund, respectively.
For the fiscal period ended March 31, 2001, Touchstone collected $49,040, $16,103, $141 and $1,744 of contingent deferred sales charges on redemptions of Class C shares of the Emerging Growth Fund, the Growth Opportunities Fund, the Large Cap Growth Fund and the Value Plus Fund, respectively.
Ms. McGruder may be deemed to be an affiliate of Touchstone because of her position as President and Director of Touchstone. Mr. Barrett may be deemed to be an affiliate of Touchstone because of his position as President and Chairman of The Western and Southern Life Insurance Company and Western-Southern Life Assurance Company, parent companies of Touchstone. Ms. McGruder and Mr. Barrett, by reason of such affiliations, may directly or indirectly receive benefits from the underwriting fees paid to Touchstone.
The Funds may compensate dealers, including Touchstone and its affiliates, based on the average balance of all accounts in the Funds for which the dealer is designated as the party responsible for the account. See "Distribution Plans" below.
CLASS A SHARES. The Funds have adopted a plan of distribution (the "Class A Plan") pursuant to Rule 12b-1 under the 1940 Act which permits a Fund to pay for expenses incurred in the distribution and promotion of its shares, including but not limited to, the printing of prospectuses, statements of additional information and reports used for sales purposes, advertisements, expenses of preparation and printing of sales literature, promotion, marketing and sales expenses, and other distribution-related expenses, including any distribution fees paid to securities dealers or other firms who have executed a distribution or service agreement with Touchstone. The Class A Plan expressly limits payment of the distribution expenses listed above in any fiscal year to a maximum of .25% of the average daily net assets of Class A shares of a Fund. Unreimbursed expenses will not be carried over from year to year.
For the fiscal period ended March 31, 2003, the aggregate distribution-related expenditures of the Large Cap Growth Fund, the Growth Opportunities Fund, the Emerging Growth Fund, the Value Plus Fund, the Enhanced 30 Fund and the Small Cap Growth Fund under the Class A Plan were $106,686, $224,636, $402,099, $154,689, $17,934 and $14,237, respectively. All payments were to broker-dealers and others for the sale or retention of assets.
CLASS B SHARES. The Funds have also adopted a plan of distribution (the "Class B Plan") with respect to the Class B shares of a Fund. The Class B Plan provides for two categories of payments. First, the Class B Plan provides for the payment to Touchstone of an account maintenance fee, in an amount equal to an annual rate of .25% of the average daily net assets of the Class B shares, which may be paid to other dealers based on the average value of Class B shares owned by clients of such dealers. In addition, a Fund may pay up to an additional .75% per annum of the daily net assets of the Class B shares for expenses incurred in the distribution and promotion of the shares, including prospectus costs for prospective shareholders, costs of responding to prospective shareholder inquiries, payments to brokers and dealers for selling and assisting in the distribution of Class B shares, costs of advertising and promotion and any other expenses related to the distribution of the Class B shares. Unreimbursed expenditures will not be carried over from year to year. The Funds may make payments to dealers and other persons in an amount up to .75% per annum of the average value of Class B shares owned by their clients, in addition to the .25% account maintenance fee described above.
For the fiscal period ended March 31, 2003, the aggregate distribution-related expenditures of the Large Cap Growth Fund, the Growth Opportunities Fund, the Emerging Growth Fund, the Value Plus Fund, the Enhanced 30 Fund and the Small Cap Growth Fund under the Class B Plan were $498, $26,878, $225,930, $3,053, $8,939 and $3,602, respectively. All payments were to broker-dealers and others for the sale and retention of assets.
CLASS C SHARES. The Funds have also adopted a plan of distribution (the "Class C Plan") with respect to the Class C shares of a Fund. The Class C Plan provides for two categories of payments. First, the Class C Plan provides for the payment to Touchstone of an account maintenance fee, in an amount equal to an annual rate of .25% of the average daily net assets of the Class C shares, which may be paid to other dealers based on the average value of Class C shares owned by clients of such dealers. In addition, a Fund may pay up to an additional .75%
per annum of the daily net assets of the Class C shares for expenses incurred in the distribution and promotion of the shares, including prospectus costs for prospective shareholders, costs of responding to prospective shareholder inquiries, payments to brokers and dealers for selling and assisting in the distribution of Class C shares, costs of advertising and promotion and any other expenses related to the distribution of the Class C shares. Unreimbursed expenditures will not be carried over from year to year. The Funds may make payments to dealers and other persons in an amount up to .75% per annum of the average value of Class C shares owned by their clients, in addition to the .25% account maintenance fee described above.
For the fiscal period ended March 31, 2003, the aggregate distribution-related expenditures of the Large Cap Growth Fund, the Growth Opportunities Fund, the Emerging Growth Fund, the Value Plus Fund, the Enhanced 30 Fund and the Small Cap Growth Fund under the Class C Plan were $12,090, $268,187, $885,859, $18,920, $9,130 and $8,646, respectively. All payments were to broker-dealers and others for the sale and retention of assets.
GENERAL INFORMATION. Agreements implementing the Plans (the "Implementation Agreements"), including agreements with dealers wherein such dealers agree for a fee to act as agents for the sale of the Funds' shares, are in writing and have been approved by the Board of Trustees. All payments made pursuant to the Plans are made in accordance with written agreements.
The continuance of the Plans and the Implementation Agreements must be specifically approved at least annually by a vote of the Trust's Board of Trustees and by a vote of the Independent Trustees who have no direct or indirect financial interest in the Plans or any Implementation Agreement at a meeting called for the purpose of voting on such continuance. A Plan may be terminated at any time by a vote of a majority of the Independent Trustees or by a vote of the holders of a majority of the outstanding shares of a Fund or the applicable class of a Fund. In the event a Plan is terminated in accordance with its terms, the affected Fund (or class) will not be required to make any payments for expenses incurred by Touchstone after the termination date. The Implementation Agreement terminates automatically in the event of its assignment and may be terminated at any time by a vote of a majority of the Independent Trustees or by a vote of the holders of a majority of the outstanding shares of a Fund (or the applicable class) on not more than 60 days' written notice to any other party to the Implementation Agreement. The Plans may not be amended to increase materially the amount to be spent for distribution without shareholder approval. All material amendments to the Plans must be approved by a vote of the Trust's Board of Trustees and by a vote of the Independent Trustees.
In approving the Plans, the Trustees determined, in the exercise of their business judgment and in light of their fiduciary duties as Trustees, that there is a reasonable likelihood that the Plans will benefit the Funds and their shareholders. The Board of Trustees believes that expenditure of the Funds' assets for distribution expenses under the Plans should assist in the growth of the Funds which will benefit each Fund and its shareholders through increased economies of scale, greater investment flexibility, greater portfolio diversification and less chance of disruption of planned investment strategies. The Plans will be renewed only if the Trustees make a similar determination for each subsequent year of the Plans. There can be no assurance that the benefits anticipated from the expenditure of the Funds' assets for distribution will be realized. While the
Plans are in effect, all amounts spent by the Funds pursuant to the Plans and the purposes for which such expenditures were made must be reported quarterly to the Board of Trustees for its review. Distribution expenses attributable to the sale of more than one class of shares of a Fund will be allocated at least annually to each class of shares based upon the ratio in which the sales of each class of shares bears to the sales of all the shares of the Fund. In addition, the selection and nomination of those Trustees who are not interested persons of the Trust are committed to the discretion of the Independent Trustees during such period.
Jill T. McGruder and John F. Barrett, as interested persons of the Trust, may be deemed to have a financial interest in the operation of the Plans and the Implementation Agreements.
Decisions to buy and sell securities for the Funds and the placing of the Funds' securities transactions and negotiation of commission rates where applicable are made by the Sub-Advisors and are subject to review by the Advisor and the Board of Trustees. In the purchase and sale of portfolio securities, the Sub-Advisor's primary objective will be to obtain the most favorable price and execution for a Fund, taking into account such factors as the overall direct net economic result to the Fund (including commissions, which may not be the lowest available but ordinarily should not be higher than the generally prevailing competitive range), the financial strength and stability of the broker, the efficiency with which the transaction will be effected, the ability to effect the transaction at all where a large block is involved and the availability of the broker or dealer to stand ready to execute possibly difficult transactions in the future.
Set forth below are the brokerage commissions paid by the Funds during their three most recent fiscal periods:
--------------------------------------------------------------------------------
NAME OF FUND PERIOD AMOUNT OF
ENDED COMMISSIONS
--------------------------------------------------------------------------------
Large Cap Growth Fund 3-31-03 $ 138,228
--------------------------------------------------------------------------------
Large Cap Growth Fund 3-31-02 170,679
--------------------------------------------------------------------------------
Large Cap Growth Fund 3-31-01 98,179
--------------------------------------------------------------------------------
Growth Opportunities Fund 3-31-03 177,061
--------------------------------------------------------------------------------
Growth Opportunities Fund 3-31-02 229,827
--------------------------------------------------------------------------------
Growth Opportunities Fund 3-31-01 147,414
--------------------------------------------------------------------------------
Enhanced 30 Fund 3-31-03 12,631
--------------------------------------------------------------------------------
Enhanced 30 Fund 3-31-02 6,342
--------------------------------------------------------------------------------
Enhanced 30 Fund 3-31-01 6,967
--------------------------------------------------------------------------------
Emerging Growth Fund 3-31-03 1,154,702
--------------------------------------------------------------------------------
Emerging Growth Fund 3-31-02 484,748
--------------------------------------------------------------------------------
Emerging Growth Fund 3-31-01 13,443
--------------------------------------------------------------------------------
Value Plus Fund 3-31-03 164,914
--------------------------------------------------------------------------------
Value Plus Fund 3-31-02 166,029
--------------------------------------------------------------------------------
Value Plus Fund 3-31-01 26,341
--------------------------------------------------------------------------------
Small Cap Growth Fund 3-31-03 112,858
--------------------------------------------------------------------------------
|
The higher commissions paid by the Enhanced 30 Fund during the fiscal year ended March 31, 2003 are due to higher turnover rates.
Each Sub-Advisor is specifically authorized to pay a broker who provides research services to the Sub-Advisor an amount of commission for effecting a portfolio transaction in excess of the amount of commission another broker would have charged for effecting such transaction, in recognition of such additional research services rendered by the broker or dealer, but only if the Sub-Advisor determines in good faith that the excess commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer viewed in terms of the particular transaction or the Sub-Advisor's overall responsibilities with respect to discretionary accounts that it manages, and that the Fund derives or will derive a reasonably significant benefit from such research services.
During the fiscal period ended March 31, 2003, the amount of brokerage transactions and related commissions for the Funds directed to brokers due to research services provided were as follows:
BROKERAGE BROKERAGE
TRANSACTIONS COMMISSIONS
DIRECTED TO FROM
RESEARCH RESEARCH
-------- --------
Large Cap Growth Fund $18,500,178 $ 27,454
Growth Opportunities Fund $58,820,196 $126,504
Emerging Growth Fund $18,992,740 $ 46,845
Value Plus Fund $30,272,299 $ 49,144
Small Cap Growth Fund $ 3,625,704 $ 10,886
|
Research services include securities and economic analyses, reports on issuers' financial conditions and future business prospects, newsletters and opinions relating to interest trends, general advice on the relative merits of possible investment securities for the Funds and statistical services and information with respect to the availability of securities or purchasers or sellers of securities. Although this information is useful to the Funds and the Sub-Advisors, it is not possible to place a dollar value on it. Research services furnished by brokers through whom a Fund effects securities transactions may be used by the Sub-Advisor in servicing all of its accounts and not all such services may be used by the Sub-Advisor in connection with a Fund.
In order to reduce total operating expenses, the Funds may apply a portion of their brokerage commission dollars to offset custody expenses through a Commission Share Program offered by Brown Brothers Harriman & Co., the Trust's Custodian. The Funds have no obligation to deal with any broker or dealer in the execution of securities transactions. However, the Funds may effect securities transactions that are executed on a national securities exchange or transactions in the over-the-counter market conducted on an agency basis. A Fund will not effect any brokerage transactions in its portfolio securities with an affiliated broker if such transactions would be unfair or unreasonable to its shareholders. Over-the-counter transactions will be
placed either directly with principal market makers or with broker-dealers. Although the Funds do not anticipate any ongoing arrangements with other brokerage firms, brokerage business may be transacted from time to time with other firms. Affiliated broker-dealers of the Trust will not receive reciprocal brokerage business as a result of the brokerage business transacted by the Funds with other brokers.
Deutsche Bank may be deemed to be an affiliate of the Trust because it is an affiliate of Deutsche Investment Management Americas Inc., a sub-advisor for Touchstone Variable Series Trust. Listed below is information about the brokerage commissions paid to Deutsche Bank during the fiscal period ended March 31, 2003.
Percentage
Amount Percentage of Aggregate
of of Aggregate Transactions
Commissions Commissions Paid Effected
----------- ---------------- --------
Emerging Growth Fund $ 992 .09% .06%
Growth Opportunities Fund $13,210 7.5% 10%
Small Cap Growth Fund $ 2,786 2.5% 2.8%
|
Consistent with the conduct rules of the National Association of Securities Dealers, Inc., and such other policies as the Board of Trustees may determine, the Fund Sub-Advisors may consider sales of shares of the Trust as a factor in the selection of broker-dealers to execute portfolio transactions. The Fund Sub-Advisors will make such allocations if commissions are comparable to those charged by nonaffiliated, qualified broker-dealers for similar services.
In certain instances there may be securities that are suitable for a Fund as well as for one or more of the respective Fund Sub-Advisor's other clients. Investment decisions for a Fund and for the Fund Sub-Advisor's other clients are made with a view to achieving their respective investment objectives. It may develop that a particular security is bought or sold for only one client even though it might be held by, or bought or sold for, other clients. Likewise, a particular security may be bought for one or more clients when one or more clients are selling that same security. Some simultaneous transactions are inevitable when several clients receive investment advice from the same investment advisor, particularly when the same security is suitable for the investment objectives of more than one client. When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed to be equitable to each. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as a Fund is concerned. However, it is believed that the ability of a Fund to participate in volume transactions will produce better executions for the Fund.
During the fiscal period ended March 31, 2003, the Funds acquired common stock of the Trust's regular broker-dealers as follows:
--------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES MARKET VALUE
FUND BROKER-DEALER AT 3-31-03 AT 3-31-03
--------------------------------------------------------------------------------------------------------------
Growth Opportunities Fund Merrill Lynch & Co. Inc. 74,000 $2,619,600
Growth Opportunities Fund Wells Fargo & Co. 60,000 $2,699,400
Enhanced 30 Fund Citigroup, Inc. (Salomon, Smith Barney) 7,516 $ 258,926
Value Plus Fund Lehman Brothers Holdings 17,185 $ 992,434
Value Plus Fund Citigroup, Inc. (Salomon, Smith Barney) 22,912 $ 789,318
Small Cap Growth Fund Raymond James Financial, Inc. 21,750 $ 562,673
--------------------------------------------------------------------------------------------------------------
|
The Trust, the Advisor, the Sub-Advisors and Touchstone have each adopted a Code of Ethics under Rule 17j-1 of the 1940 Act that permits Fund personnel to invest in securities for their own accounts. The Code of Ethics adopted by each of the Trust, Advisor, the Sub-Advisor and Touchstone is on public file with, and is available from, the SEC.
A Fund's portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during the fiscal year. High portfolio turnover involves correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Fund. High turnover may result in a Fund recognizing greater amounts of income and capital gains, which would increase the amount of commissions. A 100% turnover rate would occur if all of the Fund's portfolio securities were replaced once within a one-year period. The rate of portfolio turnover will depend upon market and other conditions, and will not be a limiting factor when the Sub-Advisor believes that portfolio changes are appropriate. A Fund may engage in active trading to achieve its investment goals and, as a result, may have substantial portfolio turnover.
The share price or net asset value ("NAV") and the public offering price (NAV plus applicable sales load) of shares of the Funds are determined as of the close of the regular session of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time), on each day the Trust is open for business. The Trust is open for business on every day except Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. The Trust may also be open for business on other days in which there is sufficient trading in a Fund's portfolio securities that its NAV might be materially affected. Securities held by a Fund may be primarily listed on foreign exchanges or traded in foreign markets that are open on days (such as Saturdays and U.S. holidays) when the New York Stock Exchange is not open for business. As a result the NAV of a Fund may be significantly affected by trading on days when the Trust is not open for business. For a description of the methods used to determine the share price and the public offering price, see "Pricing of Fund Shares" in the Prospectuses.
Each Fund offers three classes of shares: Class A, Class B and Class C shares. Each class represents an interest in the same portfolio of investments and has the same rights, but differs primarily in sales loads and distribution expense amounts. Before choosing a class, you should consider the following factors, as well as any other relevant facts and circumstances:
The decision as to which class of shares is more beneficial to you depends on the amount of your investment, the intended length of your investment and the quality and scope of the value-added services provided by financial advisors who may work with a particular sales load structure as compensation for their services. If you qualify for reduced front-end sales charges or, in the case of purchases of $1 million or more, no initial sales charge, you may find Class A shares attractive. Moreover, Class A shares are subject to lower ongoing expenses than Class B or Class C shares over the term of the investment. As an alternative, Class B and Class C shares are sold without an initial sales charge so the entire purchase price is immediately invested in a Fund. Any investment return on these investments may be partially or wholly offset by the higher annual expenses. However, because a Fund's future returns cannot be predicted, there can be no assurance that this would be the case.
When determining which class of shares to purchase, you may want to consider the services provided by your financial advisor and the compensation provided to these financial advisors under each share class. Touchstone works with many experienced and qualified financial advisors throughout the country that may provide valuable assistance to you through ongoing education, asset allocation programs, personalized financial planning reviews or other services vital to your long-term success. Touchstone believes that these value-added services can greatly benefit you through market cycles and will work with your chosen financial advisor.
Finally, you should consider the effect of the contingent deferred sales charge ("CDSC") and any conversion rights of each class in the context of your investment timeline. For example, Class C shares are generally subject to a significantly lower CDSC upon redemption than Class B shares, however, unlike Class B shares, they do not convert to Class A shares after a stated period of time. Class C shares, therefore, are subject to a 1.00% annual 12b-1 fee for an indefinite period of time, while Class B shares will convert to Class A shares after approximately eight years and will be subject to only a .25% annual 12b-1 fee. Thus, Class B shares may be more attractive than Class C shares if you have a longer-term investment outlook. On the other hand, if you are unsure of the length of time you intend to invest or the conversion feature is not attractive to you, you may wish to elect Class C shares.
Below is a chart comparing the sales charges and 12b-1 fees applicable to each class of shares:
CLASS SALES CHARGE 12B-1 FEE CONVERSION FEATURE
-----------------------------------------------------------------------------------------
A Maximum of 5.75% initial sales charge 0.25% None
reduced for purchases of $50,000 and
over; shares sold without an initial sales
charge may be subject to a 1.00% CDSC
during 1st year if a commission was paid
to a dealer
B Maximum 5.00% CDSC during 1st 1.00% Class B Shares
year, which decreases incrementally automatically convert
and is 0 after 6 years to Class A shares after
approximately 8 years
C 1.00% CDSC during 1st year 1.00% None
-----------------------------------------------------------------------------------------
|
If you are investing $1 million or more, it is generally more beneficial for you to buy Class A shares because there is no front-end sales charge and the annual expenses are lower.
CLASS A SHARES
Class A shares are sold at NAV plus an initial sales charge. In some cases, reduced initial sales charges for the purchase of Class A shares may be available, as described below. Investments of $1 million or more are not subject to a sales charge at the time of purchase but may be subject to a CDSC of 1.00% on redemptions made within 1 year after purchase if a commission was paid by Touchstone to a participating unaffiliated dealer. Class A shares are also subject to an annual 12b-1 distribution fee of up to .25% of a Fund's average daily net assets allocable to Class A shares.
The following table illustrates the current initial sales charge breakpoints for the purchase of Class A shares:
Sales Sales Dealer
Charge as Charge as % Reallowance
% of Offering of Net Amount as % of Net
Price Invested Amount Invested
------------- ------------- ---------------
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.50 4.71 3.75
$100,000 but less than $250,000 3.50 3.63 2.75
$250,000 but less than $500,000 2.95 3.04 2.25
$500,000 but less than $1,000,000 2.25 2.30 1.75
$1,000,000 or more None None
|
The following table shows the initial sales charge breakpoints for the purchase of Class A shares of the Large Cap Growth Fund and the Growth Opportunities Fund for accounts opened before August 1, 1999:
Sales Sales Dealer
Charge as Charge as % Reallowance
% of Offering of Net Amount as % of Net
Price Amount Invested Amount Invested
------------- --------------- ---------------
Less than $100,000 4.00% 4.17% 3.60%
$100,000 but less than $250,000 3.50 3.63 3.30
$250,000 but less than $500,000 2.50 2.56 2.30
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more None None
|
The following table shows the initial sales charge breakpoints for the purchase of Class A shares of the Emerging Growth Fund and the Value Plus Fund for accounts opened before May 1, 2000:
Sales Sales Dealer
Charge as Charge as % Reallowance
% of Offering of Net Amount as % of Net
Price Amount Invested Amount Invested
------------- --------------- ---------------
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.50 4.71 3.75
$100,000 but less than $250,000 3.50 3.63 2.75
$250,000 but less than $500,000 2.50 2.56 2.00
$500,000 but less than $1,000,000 2.00 2.04 1.60
$1,000,000 or more None None
|
Under certain circumstances, Touchstone may increase or decrease the reallowance to selected dealers. In addition to the compensation otherwise paid to securities dealers, Touchstone may from time to time pay from its own resources additional cash bonuses or other incentives to selected dealers in connection with the sale of shares of the Funds. On some occasions, such bonuses or incentives may be conditioned upon the sale of a specified minimum dollar amount of the shares of a Fund and/or other funds in the Touchstone Family of Funds during a specific period of time. Such bonuses or incentives may include financial assistance to dealers in connection with conferences, sales or training programs for their employees, seminars for the public, advertising, sales campaigns and other dealer-sponsored programs or events.
For initial purchases of Class A shares of $1 million or more and subsequent purchases further increasing the size of the account, participating unaffiliated dealers will receive first year compensation of up to 1.00% of such purchases from Touchstone. In determining a dealer's eligibility for such commission, purchases of Class A shares of the Funds may be aggregated with concurrent purchases of Class A shares of other funds in the Touchstone Family of Funds. Dealers should contact Touchstone for more information on the calculation of the dealer's commission in the case of combined purchases.
An exchange from other Touchstone Funds will not qualify for payment of the dealer's commission unless the exchange is from a Touchstone Fund with assets as to which a dealer's commission or similar payment has not been previously paid. No commission will be paid if the purchase represents the reinvestment of a redemption from a Fund made during the previous twelve months. Redemptions of Class A shares may result in the imposition of a CDSC if the dealer's commission described in this paragraph was paid in connection with the purchase of such shares. See "CDSC for Certain Purchases of Class A Shares" below.
REDUCED SALES CHARGE. You may use the Right of Accumulation to combine the cost or current NAV (whichever is higher) of your existing Class A shares of any Touchstone Fund sold with a sales charge with the amount of any current purchases of Class A shares in order to take advantage of the reduced sales charges set forth in the tables above. Purchases of Class A shares of any Touchstone load fund under a Letter of Intent may also be eligible for the reduced sales charges. The minimum initial investment under a Letter of Intent is $10,000. You should contact the transfer agent for information about the Right of Accumulation and Letter of Intent.
CDSC FOR CERTAIN PURCHASES OF CLASS A SHARES. A CDSC is imposed upon certain redemptions of Class A shares of the Funds (or shares into which such Class A shares were exchanged) purchased at NAV in amounts totaling $1 million or more, if the dealer's commission described above was paid by Touchstone and the shares are redeemed within one year from the date of purchase. The CDSC will be paid to Touchstone and will be equal to the commission percentage paid at the time of purchase as applied to the lesser of (1) the NAV at the time of purchase of the Class A shares being redeemed, or (2) the NAV of such Class A shares at the time of redemption. If a purchase of Class A shares is subject to the CDSC, you will be notified on the confirmation you receive for your purchase. Redemptions of such Class A shares of the Funds held for at least one year will not be subject to the CDSC.
CLASS B SHARES
Class B shares of the Funds are sold at NAV without an initial sales charge. Class B shares are subject to a CDSC if you redeem Class B shares within 6 years of their purchase. The CDSC will be a percentage of the dollar amount of shares redeemed and will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the Class B shares being redeemed, or (2) the NAV of such Class B shares being redeemed. A CDSC will not be imposed upon redemptions of Class B shares held for at least six years. The amount of sales charge will depend on how long you have held your shares, as set forth in the following table:
YEAR SINCE CDSC AS A PURCHASE % OF AMOUNT PAYMENT MADE SUBJECT TO CHARGE ---------------------------------------------------------- First 5.00% Second 4.00% Third 3.00% Fourth 2.00% Fifth 1.00% Sixth 1.00% Seventh and thereafter* None |
* Class B shares will automatically convert to Class A shares after they have been held for approximately 8 years.
Class B shares are subject to an annual 12b-1 fee of up to 1.00% of a Fund's average daily net
assets allocable to Class B shares. Touchstone intends to pay a commission of 4.00% of the purchase amount to your broker at the time you purchase Class B shares.
CLASS C SHARES
Class C shares are sold at NAV, without an initial sales charge and are subject to a CDSC of 1.00% on redemptions of Class C shares made within one year of their purchase. The CDSC will be a percentage of the dollar amount of shares redeemed and will be assessed on an amount equal to the lesser of (1) the NAV at the time of purchase of the Class C shares being redeemed, or (2) the NAV of such Class C shares being redeemed. A CDSC will not be imposed upon redemptions of Class C shares held for at least one year. Class C shares are subject to an annual 12b-1 fee of up to 1.00% of a Fund's average daily net assets allocable to Class C shares. Touchstone intends to pay a commission of 1.00% of the purchase amount to your broker at the time you purchase Class C shares.
ADDITIONAL INFORMATION ON THE CDSC
The CDSC is waived under the following circumstances:
o Any partial or complete redemption following death or disability (as defined in the Internal Revenue Code) of a shareholder (including one who owns the shares with his or her spouse as a joint tenant with rights of survivorship) from an account in which the deceased or disabled is named. Touchstone may require documentation prior to waiver of the charge, including death certificates, physicians' certificates, etc.
o Redemptions from a systematic withdrawal plan. If the systematic withdrawal plan is based on a fixed dollar amount or number of shares, systematic withdrawal redemptions are limited to no more than 10% of your account value or number of shares per year, as of the date the transfer agent receives your request. If the systematic withdrawal plan is based on a fixed percentage of your account value, each redemption is limited to an amount that would not exceed 10% of your annual account value at the time of withdrawal.
o Redemptions from retirement plans qualified under Section 401 of the Internal Revenue Code. The CDSC will be waived for benefit payments made by Touchstone directly to plan participants. Benefit payments will include, but are not limited to, payments resulting from death, disability, retirement, separation from service, required minimum distributions (as described under IRC Section 401(a)(9)), in-service distributions, hardships, loans and qualified domestic relations orders. The CDSC waiver will not apply in the event of termination of the plan or transfer of the plan to another financial institution.
All sales charges imposed on redemptions are paid to Touchstone. In determining whether the CDSC is payable, it is assumed that shares not subject to the CDSC are the first redeemed followed by other shares held for the longest period of time. The CDSC will not be imposed upon shares representing reinvested dividends or capital gains distributions, or upon amounts representing share appreciation.
The following example will illustrate the operation of the CDSC. Assume that you open an account and purchase 1,000 shares at $10 per share and that six months later the NAV per share is $12 and, during such time, you have acquired 50 additional shares through reinvestment of distributions. If at such time you should redeem 450 shares (proceeds of $5,400), 50 shares will not be subject to the charge because of dividend reinvestment. With respect to the remaining 400 shares, the charge is applied only to the original cost of $10 per share and not to the increase in NAV of $2 per share. Therefore, $4,000 of the $5,400 redemption proceeds will pay the charge. At the rate of 5.00%, the CDSC would be $200 for redemptions of Class B shares. At the rate of 1.00%, the CDSC would be $40 for redemptions of Class C shares. In determining whether an amount is available for redemption without incurring a deferred sales charge, the purchase payments made for all shares in your account are aggregated.
The following example will illustrate the operation of the CDSC for Class B shares. Assume that you open an account and purchase 1,000 shares at $10 per share and that twenty-eight months later the NAV per share is $14 and, during such time, you have acquired (a) 150 additional shares through reinvestment of distributions and (b) 500 shares through purchases at $11 per share during the second year. If at such time you should redeem 1,450 shares (proceeds of $20,300), 150 shares will not be subject to the charge because of dividend reinvestment. With respect to the remaining 1,300 shares, the charge is applied only to the (a) original cost of $10 per share for the first 1,000 shares and not to the increase in NAV of $4 per share and (b) to the original cost of $11 per share for the next 300 shares and not to the increase in NAV of $3 per share. Therefore, $18,200 of the $20,300 redemption proceeds will pay the charge. The redemption of the first 1,000 shares is in the third year of the CDSC schedule and will be charged at the rate of 3.00%, or $300. The redemption of the next 300 shares is in the second year of the CDSC schedule and will be charged at the rate of 4.00%, or $132. After this transaction is completed, the account has 200 shares remaining with an initial purchase value of $11 per share and these shares are in the second year of the CDSC schedule.
Additional information with respect to certain types of purchases of Class A shares of the Funds is set forth below.
AGGREGATION. Sales charge discounts are available for certain aggregated
investments. Investments which may be aggregated include those made by you, your
spouse and your children under the age of 21, if all parties are purchasing
shares for their own accounts, which may include purchases through employee
benefit plans such as an IRA, individual-type 403(b) plan or single-participant
Keogh-type plan or by a business solely controlled by these individuals (for
example, the individuals own the entire business) or by a trust (or other
fiduciary arrangement) solely for the benefit of these individuals. Individual
purchases by trustees or other fiduciaries may also be aggregated if the
investments are: (1) for a single trust estate or fiduciary account, including
an employee benefit plan other than those described above; (2) made for two or
more employee benefit plans of a single employer or of affiliated employers as
defined in the 1940 Act, other than employee benefit plans described above; or
(3) for a common trust fund or other pooled account not specifically formed for
the purpose of accumulating Fund shares. Purchases
made for nominee or street name accounts (securities held in the name of a dealer or another nominee such as a bank trust department instead of the customer) may not be aggregated with those made for other accounts and may not be aggregated with other nominee or street name accounts unless otherwise qualified as described above.
CONCURRENT PURCHASES. To qualify for a reduced sales charge, you may combine concurrent purchases of Class A shares of two or more Touchstone funds (other than a money market fund). For example, if you concurrently invest $25,000 in Class A shares of one Fund and $25,000 in Class A shares of another Fund, the sales charge would be reduced to reflect a $50,000 purchase.
RIGHT OF ACCUMULATION. A purchaser of Class A shares of a Fund has the right to combine the cost or current NAV (whichever is higher) of his existing Class A shares of the load funds distributed by Touchstone with the amount of his current purchases in order to take advantage of the reduced sales charges set forth in the table in the Prospectuses. The purchaser or his dealer must notify the transfer agent that an investment qualifies for a reduced sales charge. The reduced charge will be granted upon confirmation of the purchaser's holdings by the transfer agent.
A purchaser includes an individual and his immediate family members, purchasing shares for his or their own account; or a trustee or other fiduciary purchasing shares for a single fiduciary account although more than one beneficiary is involved; or employees of a common employer, provided that economies of scale are realized through remittances from a single source and quarterly confirmation of such purchases; or an organized group, provided that the purchases are made through a central administration, or a single dealer, or by other means which result in economy of sales effort or expense (the "Purchaser").
LETTER OF INTENT. The reduced sales charges set forth in the tables in the Prospectus may also be available to any Purchaser of Class A shares of a Fund who submits a Letter of Intent to the transfer agent. The Letter must state an intention to invest within a thirteen-month period in Class A shares of any load fund distributed by Touchstone a specified amount, which, if made at one time, would qualify for a reduced sales charge. A Letter of Intent may be submitted with a purchase at the beginning of the thirteen-month period or within ninety days of the first purchase under the Letter of Intent. Upon acceptance of this Letter, the Purchaser becomes eligible for the reduced sales charge applicable to the level of investment covered by such Letter of Intent as if the entire amount were invested in a single transaction.
The Letter of Intent is not a binding obligation on the Purchaser to purchase, or the Trust to sell, the full amount indicated. During the term of a Letter of Intent, shares representing 5% of the intended purchase will be held in escrow. These shares will be released upon the completion of the intended investment. If the Letter of Intent is not completed during the thirteen-month period, the applicable sales charge will be adjusted by the redemption of sufficient shares held in escrow, depending upon the amount actually purchased during the period. The minimum initial investment under a Letter of Intent is $10,000.
A ninety-day backdating period can be used to include earlier purchases at the Purchaser's cost (without a retroactive downward adjustment of the sales charge). The thirteen-month period
would then begin on the date of the first purchase during the ninety-day period. No retroactive adjustment will be made if purchases exceed the amount indicated in the Letter of Intent. The Purchaser or his dealer must notify the transfer agent that an investment is being made pursuant to an executed Letter of Intent.
WAIVER OF SALES CHARGE. Sales charges do not apply to shares of the Funds
purchased:
1. By registered representatives or other employees (and their immediate
family members) of broker/dealers, banks or other financial institutions
having agreements with Touchstone.
2. By any director, officer or other employee (and their immediate family
members) of The Western and Southern Life Insurance Company or any of its
affiliates or any portfolio advisor or service provider to the Trust.
3. By clients of any investment advisor or financial planner who has made
appropriate arrangements with the Trust or Touchstone.
4. In accounts as to which a broker-dealer charges an asset management fee,
provided the broker-dealer has an agreement with Touchstone.
5. As part of certain promotional programs established by the Fund and/or
Touchstone.
6. By one or more members of a group of persons engaged in a common business,
profession, civic or charitable endeavor or other activity and retirees and
immediate family members of such persons pursuant to a marketing program
between Touchstone and such group.
7. By banks, bank trust departments, savings and loan associations and federal
and state credit unions.
8. Through Processing Organizations described in the Prospectus.
9. As part of an employee benefit plan having more than 25 eligible employees
or a minimum of $250,000 invested in the Funds.
10. As part of an employee benefit plan that is provided administrative
services by a third-party administrator that has entered into a special
service arrangement with Touchstone.
Immediate family members are defined as the spouse, parents, siblings, natural or adopted children, mother-in-law, father-in-law, brother-in-law and sister-in-law of a director, officer or employee. The term "employee" is deemed to include current and retired employees.
Exemptions must be qualified in advance by Touchstone. Your financial advisor should call Touchstone for more information.
WAIVER OF MINIMUM INVESTMENT REQUIREMENTS. The minimum and subsequent investment
requirements for purchases in the Funds may not apply to:
1. Any director, officer or other employee (and their immediate family
members) of The Western and Southern Life Insurance Company or any of its
affiliates or any portfolio advisor or service provider to the Trust.
2. Any employee benefit plan that is provided administrative services by a
third-party administrator that has entered into a special service
arrangement with Touchstone.
EXCHANGES. Exchanges may be subject to certain limitations and are subject to the Touchstone Funds' policies concerning excessive trading practices, which are policies designed to protect Funds and their shareholders from the harmful effect of frequent exchanges.
The Funds may restrict or refuse purchases or exchanges by market timers and may restrict or refuse purchases or exchanges by a shareholder who fails to comply with the restrictions set forth below. You may be considered a market timer if you have (i) requested an exchange or redemption out of any of the Touchstone Funds within two weeks of an earlier purchase or exchange request out of any Fund, or (ii) made more than two exchanges within a rolling 90 day period.
Upon the Fund's restriction or refusal of a purchase or exchange as a result of excessive exchanging or market timing, written notification of the Fund's policies on these issues will be sent to the shareholder's agent and/or to the broker-dealer firm of record for any account deemed to be market timing by the Funds. If an account has no such agent or broker-dealer, written notification will be sent directly to the shareholder.
OTHER INFORMATION. The Trust does not impose a front-end sales charge or imposes a reduced sales charge in connection with purchases of shares of a Fund made under the reinvestment privilege, purchases through exchanges and other purchases which qualify for a reduced sales load as described herein because such purchases require minimal sales effort by Touchstone. Purchases made at NAV may be made for investment only, and the shares may not be resold except through redemption by or on behalf of the Trust.
The Trust intends to qualify annually and to elect that each Fund be treated as a regulated investment company under the Code.
To qualify as a regulated investment company, each Fund must, among other things: (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of stock, securities or foreign currencies or other income derived with respect to its business of investing in such stock, securities or currencies; (b) diversify its holdings so that, at the end of each quarter of the taxable year, (i) at least 50% of the market value of the Fund's assets is represented by cash and cash items (including receivables), U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities of any one issuer limited for the purposes of this calculation to an amount not greater than 5% of the value of the Fund's total assets and not greater than 10% of the outstanding voting securities of such issuer and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies); and (c) distribute at least 90% of its investment company taxable income (which includes, among other items, dividends, interest and net short-term capital gains in excess of net long-term capital losses) and its net tax-exempt interest income, if any, each taxable year.
As a regulated investment company, each Fund will not be subject to U.S. federal income tax on its investment company taxable income and net capital gains (the excess of net long-term capital gains over net short-term capital losses), if any, that it distributes to shareholders. The Fund intends to distribute to its shareholders, at least annually, substantially all of its investment company taxable income and net capital gains. Amounts not distributed on a timely basis in
accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, the Fund
must distribute during each calendar year an amount equal to the sum of: (1) at
least 98% of its ordinary income (not taking into account any capital gains or
losses) for the calendar year; (2) at least 98% of its capital gains in excess
of its capital losses (adjusted for certain ordinary losses, as prescribed by
the Code) for the one-year period ending on October 31 of the calendar year; and
(3) any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by the Fund in
October, November or December with a record date in such a month and paid by the
Fund during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
A Fund's net realized capital gains from securities transactions will be distributed only after reducing such gains by the amount of any available capital loss carryforwards. Capital losses may be carried forward to offset any capital gains for eight years, after which any undeducted capital loss remaining is lost as a deduction. As of March 31, 2003, the Funds had the following capital loss carryforwards for federal income tax purposes:
AMOUNT EXPIRATION DATE
--------------------------------------------------------------------------------
Emerging Growth Fund $24,155,186 March 31, 2011
Growth Opportunities Fund 2,005,441 March 31, 2009
22,448,509 March 31, 2010
21,975,058 March 31, 2011
Large Cap Growth Fund 12,172,049 March 31, 2010
19,119,045 March 31, 2011
Enhanced 30 Fund 99,480 March 31, 2009
24,780 March 31, 2010
414,728 March 31, 2011
Value Plus Fund 209,088 March 31, 2009
5,826,294 March 31, 2011
Small Cap Growth Fund 41,322 March 31, 2011
--------------------------------------------------------------------------------
|
Each Fund shareholder will receive, if appropriate, various written notices at the end of the calendar year as to the federal income status of his dividends and distributions that were received from the Fund during the year. Shareholders should consult their tax advisors as to any state and local taxes that may apply to these dividends and distributions.
FOREIGN TAXES. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. It is impossible to determine the effective rate of foreign tax in advance since the amount of each applicable Fund's assets to be invested in various countries will vary. If the Fund is liable for foreign taxes, and if more than 50% of the value of the Fund's total assets at the close of its taxable year consists of stocks or securities of foreign corporations, it may make an election pursuant to which certain foreign taxes paid by it would be treated as having been paid directly by shareholders of the entities, such as the corresponding Fund, which have invested in the Fund. Pursuant to such election, the amount of foreign taxes paid will be included in the income of the corresponding Fund's shareholders, and such Fund shareholders (except tax-exempt shareholders) may, subject to certain limitations, claim either a credit or deduction for the taxes. Each such Fund shareholder will be notified after the close of the Fund's taxable year whether the foreign taxes paid will "pass through" for that year and, if so, such notification will designate (a) the shareholder's portion of the foreign taxes paid to each such country and (b) the portion which represents income derived from sources within each such country. The amount of foreign taxes for which a shareholder may claim a credit in any year will generally be subject to a separate limitation for "passive income," which includes, among other items of income, dividends, interest and certain foreign currency gains. Because capital gains realized by the Fund on the sale of foreign securities will be treated as U.S.-source income, the available credit of foreign taxes paid with respect to such gains may be restricted by this limitation.
DISTRIBUTIONS. Dividends paid out of the Fund's investment company taxable income will be taxable to U.S. shareholders, other than corporations, at the qualified dividend income rate of 15%, or 5% for lower income levels and may qualify for the corporate dividends-received deduction, to the extent derived from qualified dividend income. Distributions of net capital gains, if any, designated as capital gain dividends are taxable as long-term capital gains, regardless of how long the shareholder has held the Fund's shares, and are not eligible for the dividends-received deduction. Shareholders receiving distributions in the form of additional shares, rather than cash, generally will have a cost basis in each such share equal to the NAV of a share of the Fund on the reinvestment date. Shareholders will be notified annually as to the U.S. federal tax status of distributions.
SALE OF SHARES. Any gain or loss realized by a shareholder upon the sale or other disposition of any shares of a Fund, or upon receipt of a distribution in complete liquidation of a Fund, generally will be a capital gain or loss which will be long-term or short-term, generally depending upon the shareholder's holding period for the shares. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced (including shares acquired pursuant to a dividend reinvestment plan) within a period of 61 days beginning 30 days before and ending 30 days after disposition of the shares. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a disposition of Fund shares held by the shareholder for six months or less will be treated as a long-term capital loss to the extent of any distributions of net capital gains received by the shareholder with respect to such shares.
TIMING OF INVESTMENT. At the time of a shareholder's purchase of a Fund's shares, a portion of the purchase price may be attributable to realized or unrealized appreciation in the Fund's
portfolio or undistributed taxable income of the Fund. Consequently, subsequent distributions by the Fund with respect to these shares from such appreciation or income may be taxable to such shareholder even if the NAV of the shareholder's shares is, as a result of the distributions, reduced below the shareholder's cost for such shares and the distributions economically represent a return of a portion of the investment.
FOREIGN WITHHOLDING TAXES. Income received by a Fund from sources within foreign countries may be subject to withholding and other taxes imposed by such countries.
BACKUP WITHHOLDING. A Fund may be required to withhold U.S. federal income tax on all taxable distributions payable to shareholders who fail to provide the Fund with their correct taxpayer identification number or to make required certifications, or who have been notified by the Internal Revenue Service that they are subject to backup withholding. The current backup-withholding rate is 28%. Corporate shareholders and certain other shareholders specified in the Code generally are exempt from such backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against the shareholder's U.S. federal income tax liability.
FOREIGN SHAREHOLDERS. The tax consequences to a foreign shareholder of an investment in a Fund may be different from those described herein. Foreign shareholders are advised to consult their own tax advisors with respect to the particular tax consequences to them of an investment in a Fund.
OTHER TAXATION. Shareholders may be subject to state and local taxes on their Fund distributions. Shareholders are advised to consult their own tax advisors with respect to the particular tax consequences to them of an investment in a Fund.
Under unusual circumstances, when the Board of Trustees deems it in the best interests of a Fund's shareholders, the Fund may make payment for shares repurchased or redeemed in whole or in part in securities of the Fund taken at current value. Should payment be made in securities, the redeeming shareholder will generally incur brokerage costs in converting such securities to cash. Portfolio securities that are issued in an in-kind redemption will be readily marketable. The Trust has filed an irrevocable election with the SEC under Rule 18f-1 of the 1940 Act wherein the Funds are committed to pay redemptions in cash, rather than in kind, to any shareholder of record of a Fund who redeems during any ninety day period, the lesser of $250,000 or 1% of a Fund's NAV at the beginning of such period.
From time to time, the Funds may advertise average annual total return. Average annual total return quotations will be computed by finding the average annual compounded rates of return over 1, 5 and 10 year periods that would equate the initial amount invested to the ending redeemable value, according to the following formula:
P(1 + T)^n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 and 10 year periods at the end of the 1, 5 or 10
year periods (or fractional portion thereof)
The calculation of average annual total return assumes the reinvestment of all dividends and distributions and the deduction of the current maximum sales charge from the initial $1,000 payment. If a Fund has been in existence less than one, five or ten years, the time period since the date of the initial public offering of shares will be substituted for the periods stated.
THE AVERAGE ANNUAL TOTAL RETURNS OF THE FUNDS FOR THE PERIODS ENDED MARCH 31, 2003 ARE AS FOLLOWS:
Large Cap Growth Fund (Class A)
-------------------------------
1 Year -37.51%
5 Years -13.68%
Since inception (8-2-93) 0.30%
Large Cap Growth Fund (Class B)
-------------------------------
1 Year -37.25%
Since inception (5-1-01) -28.01%
Large Cap Growth Fund (Class C)
-------------------------------
1 Year -34.26%
5 Years -13.60%
Since inception (6-7-93) 0.01%
Growth Opportunities Fund (Class A)
-----------------------------------
1 Year -34.16%
5 Years -1.96%
Since inception (9-29-95) 6.34%
Growth Opportunities Fund (Class B)
-----------------------------------
1 Year -34.51%
Since inception (5-1-01) -29.49%
Growth Opportunities Fund (Class C)
-----------------------------------
1 Year -31.55%
Since inception (8-2-99) -10.54%
64
|
Enhanced 30 Fund (Class A) -------------------------- 1 Year -30.43% Since inception (5-1-00) -14.51% Enhanced 30 Fund (Class B) -------------------------- 1 Year -29.63% Since inception (5-1-01) -18.34% Enhanced 30 Fund (Class C) -------------------------- 1 Year -26.32% Since inception (5-16-00) -13.22% Emerging Growth Fund (Class A) ------------------------------ 1 Year -32.04% 5 Years 5.08% Since inception (10-3-94) 11.79% Emerging Growth Fund (Class B) ------------------------------ 1 Year -33.09% Since inception (5-1-01) -14.24% Emerging Growth Fund (Class C) ------------------------------ 1 Year -30.27% 5 Years 5.05% Since inception (10-3-94)* 11.29% Value Plus Fund (Class A) ------------------------- 1 Year -32.69% Since inception (5-1-98) -4.21% Value Plus Fund (Class B) ------------------------- 1 Year -31.87% Since inception (5-1-01) -20.33% Value Plus Fund (Class C) ------------------------- 1 Year -29.08% |
Since inception (5-1-98)* - 3.93%
* Date reflects inception of the predecessor. The predecessor was a series of Select Advisors Trust C that was reorganized into Touchstone Series Trust, the Funds' previous Trust, on December 31, 1998.
Each Fund may also advertise total return (a "nonstandardized quotation") that is calculated differently from average annual total return. A nonstandardized quotation of total return may be a cumulative return which measures the percentage change in the value of an account between
the beginning and end of a period, assuming no activity in the account other than reinvestment of dividends and capital gains distributions. This computation does not include the effect of the applicable sales charge, which, if included, would reduce total return.
The total returns of the Large Cap Growth Fund, the Growth Opportunities Fund and the Enhanced 30 Fund as calculated in this manner for each of the last ten fiscal periods (or since inception) are as follows:
LARGE CAP GROWTH ENHANCED
GROWTH FUND OPPORTUNITIES FUND 30 FUND
Class A Class B Class C Class A Class B Class C Class A Class B Class C
------------------------------------------------------------------------------------------------------------------
Period Ended
------------
March 31, 1994 - 2.63%(1) -2.91%(2)
March 31, 1995 + 8.07% +7.32%
March 31, 1996 +27.90% +26.90% +14.50%(3)
March 31, 1997 +11.82% +11.01% +12.77%
March 31, 1998 +42.74% +41.63% +36.73%
March 31, 1999 +14.30% +13.03% +29.89%
March 31, 2000 +20.60% +19.24% +88.88% +76.52%(4)
March 31, 2001 -41.73% -42.39% -38.42% -38.89% -10.57%(5) -11.12%(6)
March 31, 2002 -4.57% -15.07%(7) -5.66% -8.96% -21.81%(7) -9.93% 3.86% -3.60%(7) 3.00%
March 31, 2003 -33.69% -34.63% -34.26% -30.14% -31.78% -31.55% -26.19% -26.70% -26.32%
|
(1) From date of initial public offering on August 2, 1993
(2) From date of initial public offering on June 7, 1993
(3) From date of initial public offering on September 29, 1995
(4) From date of initial public offering on August 1, 1999
(5) From date of initial public offering on May 1, 2000
(6) From date of initial public offering on May 16, 2000
(7) From date of initial public offering on May 1, 2001
The total returns of the Emerging Growth Fund and the Value Plus Fund as calculated in this manner for each of the last ten fiscal periods (or since inception) are as follows:
EMERGING GROWTH FUND VALUE PLUS FUND
Class A(1) Class B(3) Class C(1) Class A(2) Class B(3) Class C(2)
---------------------------------------------------------------------------
Period Ended
------------
December 31, 1994 2.72% 2.52%
December 31, 1995 22.56% 21.15%
December 31, 1996 10.56% 9.67%
December 31, 1997 32.20% 30.67%
December 31, 1998 2.57% 1.95% 4.29% 2.60%
December 31, 1999 45.85% 44.86% 15.51% 14.24%
December 31, 2000 25.92% 24.58% 1.91% 1.87%
March 31, 2001 -4.95% -5.91% -0.74% -0.89%
March 31, 2002 22.72% 11.35% 22.09% 2.34% -5.01% 1.60%
March 31, 2003 -27.90% -30.34% -30.27% 28.59% -29.05% -29.08%
|
(1) From date of initial public offering on October 3, 1994
(2) From date of initial public offering on May 1, 1998
(3) From date of initial public offering on May 1, 2001
A nonstandardized quotation may also indicate average annual compounded rates of return without including the effect of the applicable sales charge or over periods other than those specified for average annual total return.
THE AVERAGE ANNUAL COMPOUNDED RATES OF RETURN FOR THE FUNDS (EXCLUDING SALES CHARGES) FOR THE PERIODS ENDED MARCH 31, 2003 ARE AS FOLLOWS:
Large Cap Growth Fund (Class A)
-------------------------------
1 Year -33.69%
3 Years -28.29%
5 Years -12.66%
Since inception (8-2-93) 0.91%
Large Cap Growth Fund (Class B)
-------------------------------
1 Year -34.63%
Since inception (5-1-01) -26.46%
Large Cap Growth Fund (Class C)
-------------------------------
1 Year -34.26%
3 Years -29.04%
5 Years -13.60%
Since inception (6-7-93) 0.01%
Growth Opportunities Fund (Class A)
-----------------------------------
1 Year -30.14%
3 Years -26.84%
5 Years -0.80%
Since inception (9-29-95) 7.18%
Growth Opportunities Fund (Class B)
-----------------------------------
1 Year -31.78%
Since inception (5-1-01) -27.98%
Growth Opportunities Fund (Class C)
-----------------------------------
1 Year -31.55%
3 Years -27.77%
Since inception (8-1-99) -10.54%
Enhanced 30 Fund (Class A)
--------------------------
1 Year -26.19%
Since inception (5-1-00) -12.73%
Enhanced 30 Fund (Class B)
--------------------------
1 Year -26.70%
Since inception (5-1-01) -16.59%
67
|
Enhanced 30 Fund (Class C) -------------------------- 1 Year -26.32% Since inception (5-16-00) -13.22% Emerging Growth Fund (Class A) ------------------------------ 1 Year -27.90% 3 Years -5.61% 5 Years 6.33% Since inception (10-3-94) 12.57% Emerging Growth Fund (Class B) ------------------------------ 1 Year -30.34% Since inception (5-1-01) -12.43% Emerging Growth Fund (Class C) ------------------------------ 1 Year -30.27% 3 Years -7.13% 5 Years 5.05% Since inception (10-3-94)* 11.29% Value Plus Fund (Class A) ------------------------- 1 Year -28.59% 3 Years -10.15% Since inception (5-1-98) -3.05% Value Plus Fund (Class B) ------------------------- 1 Year -29.05% Since inception (5-1-01) -18.62% Value Plus Fund (Class C) ------------------------- 1 Year -29.08% 3 Years -10.62% Since inception (5-1-98)* -3.93% |
* Date reflects inception of the predecessor.
A nonstandardized quotation of total return will always be accompanied by the Fund's average annual total return as described above.
The Funds may advertise average annual total return after taxes on distributions. Average annual total return after taxes on distributions will be computed by finding the average annual compounded rates of return over 1, 5 and 10 year periods that would equate the initial amount invested to the ending value, according to the following formula:
P(1+T)^n=ATV
D
Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return (after taxes on distributions).
n = number of years.
ATV = ending value of a hypothetical $1,000 payment made at the beginning of
D the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion), after taxes on fund distributions but
not after taxes on redemption.
The calculation of average annual total return after taxes on distributions assumes the reinvestment of all dividends and distributions, less the taxes due on such distributions. The calculation also assumes the deduction of the current maximum sales charge from the initial $1,000 payment. If a Fund (or class) has been in existence less than one, five or ten years, the time period since the date of the initial public offering of shares will be substituted for the periods stated.
THE AVERAGE ANNUAL RETURNS OF THE FUNDS AFTER TAXES ON DISTRIBUTIONS FOR THE PERIODS ENDED MARCH 31, 2003 ARE AS FOLLOWS:
Large Cap Growth Fund (Class A)
-------------------------------
1 Year -37.51%
5 Years -14.36%
Since inception (8-2-93) -0.52%
Large Cap Growth Fund (Class B)
-------------------------------
1 Year -37.25%
Since inception (5-1-01) -28.01%
Large Cap Growth Fund (Class C)
-------------------------------
1 Year -34.26%
5 Years -14.28%
Since inception (6-7-93) -0.66%
Growth Opportunities Fund (Class A)
-----------------------------------
1 Year -34.16%
5 Years -2.83%
Since inception (9-29-95) 5.46%
69
|
Growth Opportunities Fund (Class B) ----------------------------------- 1 Year -34.51% Since inception (5-1-01) -29.49% Growth Opportunities Fund (Class C) ----------------------------------- 1 Year -31.55% Since inception (8-2-99) -10.68% Enhanced 30 Fund (Class A) -------------------------- 1 Year -30.72% Since inception (5-1-00) -14.76% Enhanced 30 Fund (Class B) -------------------------- 1 Year -29.64% Since inception (5-1-01) -18.40% Enhanced 30 Fund (Class C) -------------------------- 1 Year -26.35% Since inception (5-16-00) -13.27% Emerging Growth Fund (Class A) ------------------------------ 1 Year -32.37% 5 Years 2.55% Since inception (10-3-94) 8.98% Emerging Growth Fund (Class B) ------------------------------ 1 Year -33.46% Since inception (5-1-01) -14.52% Emerging Growth Fund (Class C) ------------------------------ 1 Year -30.64% 5 Years 2.26% Since inception (10-3-94)* 8.56% Value Plus Fund (Class A) ------------------------- 1 Year -32.84% Since inception (5-1-98) -4.89% Value Plus Fund (Class B) ------------------------- 1 Year -32.03% Since inception (5-1-01) -20.43% Value Plus Fund (Class C) ------------------------- 1 Year -29.08% Since inception (5-1-98)* -4.50% |
* Date reflects inception of the predecessor.
The Funds may advertise average annual total return after taxes on distributions and redemption. Average annual total return after taxes on distributions and redemption will be computed by finding the average annual compounded rates of return over 1, 5 and 10 year periods that would equate the initial amount invested to the ending value, according to the following formula:
P(1+T)^n=ATV
DR
Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return (after taxes on distributions and
redemption).
n = number of years.
ATV = ending value of a hypothetical $1,000 payment made at the beginning of
DR the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion), after taxes on fund distributions and
redemption.
The calculation of average annual total return after taxes on distributions and redemption assumes the reinvestment of all dividends and distributions, less the taxes due on such distributions. The calculation also assumes the deduction of the current maximum sales charge from the initial $1,000 payment. If the Fund (or class) has been in existence less than one, five or ten years, the time period since the date of the initial public offering of shares will be substituted for the periods stated.
THE AVERAGE ANNUAL TOTAL RETURN FOR THE FUNDS AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION FOR THE PERIODS ENDED MARCH 31, 2003 ARE AS FOLLOWS:
Large Cap Growth Fund (Class A)
-------------------------------
1 Year -23.03%
5 Years -9.53%
Since inception (8-2-93) 0.53%
Large Cap Growth Fund (Class B)
-------------------------------
1 Year -22.87%
Since inception (5-1-01) -21.67%
Large Cap Growth Fund (Class C)
-------------------------------
1 Year -21.04%
5 Years -9.42%
Since inception (6-7-93) 0.40%
Growth Opportunities Fund (Class A)
-----------------------------------
1 Year -20.98%
5 Years -1.45%
Since inception (9-29-95) 5.27%
71
|
Growth Opportunities Fund (Class B) ----------------------------------- 1 Year -21.19% Since inception (5-1-01) -22.77% Growth Opportunities Fund (Class C) ----------------------------------- 1 Year -19.37% Since inception (8-2-99) -8.16% Enhanced 30 Fund (Class A) -------------------------- 1 Year -18.67% Since inception (5-1-00) -11.34% Enhanced 30 Fund (Class B) -------------------------- 1 Year -18.19% Since inception (5-1-01) -14.41% Enhanced 30 Fund (Class C) -------------------------- 1 Year -16.16% Since inception (5-16-00) -10.30% Emerging Growth Fund (Class A) ------------------------------ 1 Year -19.64% 5 Years 3.17% Since inception (10-3-94) 8.64% Emerging Growth Fund (Class B) ------------------------------ 1 Year -20.28% Since inception (5-1-01) -11.32% Emerging Growth Fund (Class C) ------------------------------ 1 Year -18.55% 5 Years 3.12% Since inception (10-3-94)* 8.36% Value Plus Fund (Class A) ------------------------- 1 Year -20.07% Since inception (5-1-98) -3.30% Value Plus Fund (Class B) ------------------------- 1 Year -19.56% Since inception (5-1-01) -15.95% Value Plus Fund (Class C) ------------------------- 1 Year -17.85% Since inception (5-1-98)* -3.02% |
* Date reflects inception of the predecessor.
From time to time, the Funds may advertise their yield. A yield quotation is based on a 30-day (or one month) period and is computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula:
Yield = 2[(a-b/cd +1)^6 -1]
Where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Solely for the purpose of computing yield, dividend income is recognized by accruing 1/360 of the stated dividend rate of the security each day that a Fund owns the security. Generally, interest earned (for the purpose of "a" above) on debt obligations is computed by reference to the yield to maturity of each obligation held based on the market value of the obligation (including actual accrued interest) at the close of business on the last business day prior to the start of the 30-day (or one month) period for which yield is being calculated, or, with respect to obligations purchased during the month, the purchase price (plus actual accrued interest).
Performance quotations are based on historical earnings and are not intended to indicate future performance. Average annual total return and yield are computed separately for Class A, Class B and Class C shares of the Funds. The yield of Class A shares is expected to be higher than the yield of Class B and Class C shares due to the higher distribution fees imposed on Class B and Class C shares.
To help investors better evaluate how an investment in a Fund might satisfy their investment objective, advertisements regarding a Fund may discuss various measures of Fund performance, including current performance ratings and/or rankings appearing in financial magazines, newspapers and publications which track mutual fund performance. Advertisements may also compare Fund performance to performance as reported by other investments, indices and averages.
When advertising current ratings or rankings, the Funds may use the following publications to discuss or compare Fund performance:
Lipper Mutual Fund Performance Analysis measures total return and average current yield for the mutual fund industry and ranks individual mutual fund performance over specified time periods assuming reinvestment of all distributions, exclusive of sales charges.
Morningstar, Inc., an independent rating service, is the publisher of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-listed mutual funds of all types, according to their risk-adjusted returns. The maximum rating is five stars and ratings are effective for two weeks.
In addition, a Fund may also use comparative performance information of relevant indices, including the following:
The Dow Jones Industrial Average is a measurement of general market price movement for 30 widely held stocks.
The S&P 500 Index is a widely recognized unmanaged index that measures the stock performance of 500 large and medium sized companies and is often used to indicate the performance of the overall stock market.
The S&P Barra Value Index is a capitalization-weighted index comprised of stocks of the S&P 500 with low price-to-book ratios relative to the S&P 500 as a whole. Each company of the S&P 500 is assigned to either the S&P 500 Value Index or the S&P 500 Growth Index so that the sum of the indices reflects the total S&P 500.
The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
The Russell 1000 Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values.
The Russell 2000 Index is an unmanaged index of small cap performance.
The Russell 2000 Growth Index measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values.
The Russell 2500 Index measures the performance of the 2,500 smallest companies in the Russell 3000 Index, which represents approximately 17% of the total market capitalization of the Russell 3000 Index.
In assessing such comparisons of performance an investor should keep in mind that the composition of the investments in the reported indices and averages is not identical to a Fund's portfolio, that the averages are generally unmanaged and that the items included in the calculations of such averages may not be identical to the formula used by the Funds to calculate their performance. In addition, there can be no assurance that a Fund will continue this performance as compared to such other averages.
As of July 3, 2003, the following shareholders held over 5% of the outstanding shares of a Fund (or class):
-----------------------------------------------------------------------------------------------
FUND SHAREHOLDER % OF CLASS
-----------------------------------------------------------------------------------------------
Large Cap Growth Fund - Fifth Third Bank - RPS 46.31%
Class A MD 1090BB
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Large Cap Growth Fund - Western and Southern Life Insurance Company 15.78%
Class A 400 Broadway
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Large Cap Growth Fund - Western-Southern Life Assurance 10.02%
Class A Company
400 Broadway
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Large Cap Growth Fund - Western and Southern Life Insurance 9.81%
Class A Company
400 Broadway
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Large Cap Growth Fund - A.G. Edwards & Sons Inc. Custodian 10.20%
Class B FBO A Customer's Account
23133 Brookdale Street
St. Clair Shores, MI
-----------------------------------------------------------------------------------------------
Large Cap Growth Fund - A.G. Edwards & Sons Inc. Custodian 10.20%
Class B FBO A Customer's Account
23133 Brookdale Street
St. Clair Shores, MI
-----------------------------------------------------------------------------------------------
Large Cap Growth Fund - Donaldson Lufkin & Jenrette 8.50%
Class B FBO A Customer's Account
P.O. Box 2052
Jersey City, NJ
-----------------------------------------------------------------------------------------------
Large Cap Growth Fund - Glen M. Hanson 6.64%
Class B 6 Keating Drive
Cold Spring, KY
-----------------------------------------------------------------------------------------------
Large Cap Growth Fund - Charles J. Summerville 8.93%
Class B 2052 Clarence Avenue
Lakewood, OH
-----------------------------------------------------------------------------------------------
Large Cap Growth Fund - Pershing LLC* 28.10%
Class B P.O. Box 2052
Jersey City, NJ
-----------------------------------------------------------------------------------------------
Large Cap Growth Fund - Wells Fargo Investments LLC 6.66%
Class B 608 Second Avenue South
Minneapolis, MN
-----------------------------------------------------------------------------------------------
Large Cap Growth Fund - Donaldson Lufkin & Jenrette 12.37%
Class C P.O. Box 2052
Jersey City, NJ
-----------------------------------------------------------------------------------------------
Large Cap Growth Fund - Brian G. McElheny 5.75%
Class C 207 W. Jackson
Carbondale, IL
-----------------------------------------------------------------------------------------------
Large Cap Growth Fund - Haley Stone Supply Inc. 5.81%
Class C 1085 Collins Court
Oakland, MI
-----------------------------------------------------------------------------------------------
Growth Opportunities Fund - Fidelity Investments Institutional 18.79%
Class A 100 Magellan Way KW1C
Covington, KY
-----------------------------------------------------------------------------------------------
75
|
-----------------------------------------------------------------------------------------------
Growth Opportunities Fund - Fifth Third Bank - RPS 5.05%
Class A MD 1090BB
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Growth Opportunities Fund - National Financial Services Corp. 5.20%
Class A For Benefit of a Customer's Account
P.O. Box 370
New York, NY
-----------------------------------------------------------------------------------------------
Growth Opportunities Fund - National Financial Services Corp. 6.21%
Class A For Benefit of a Customer's Account
1 Wall Street
New York, NY
-----------------------------------------------------------------------------------------------
Emerging Growth Fund-Class A Merrill Lynch, Pierce Fenner & Smith 17.62%
Incorporated
For the Sole Benefit of its Customers
4800 Deer Lake Drive East
Jacksonville, FL
-----------------------------------------------------------------------------------------------
Emerging Growth Fund-Class A Fifth Third Bank - RPS 6.16%
MD 1090BB
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Emerging Growth Fund-Class B Merrill Lynch, Pierce Fenner & Smith 15.21%
Incorporated
For the Sole Benefit of its Customers
4800 Deer Lake Drive East
Jacksonville, FL
-----------------------------------------------------------------------------------------------
Emerging Growth Fund-Class C Merrill Lynch, Pierce Fenner & Smith 38.50%
Incorporated
For the Sole Benefit of its Customers
4800 Deer Lake Drive East
Jacksonville, FL
-----------------------------------------------------------------------------------------------
Enhanced 30 Fund-Class A The Western & Southern Life Insurance Company 19.84%
400 Broadway
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Enhanced 30 Fund-Class A The Western & Southern Life Insurance 54.68%
Company*
400 Broadway
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Enhanced 30 Fund-Class B Merrill Lynch, Pierce Fenner & Smith 16.06%
Incorporated
For the Sole Benefit of its Customers
4800 Deer Lake Drive East
Jacksonville, FL
-----------------------------------------------------------------------------------------------
Enhanced 30 Fund-Class C Brenda L. Andreas 5.41%
406 Red Barn Road
Willow Grove, PA
-----------------------------------------------------------------------------------------------
Enhanced 30 Fund-Class C Merrill Lynch, Pierce Fenner & Smith 20.21%
Incorporated
For the Sole Benefit of its Customers
4800 Deer Lake Drive East
Jacksonville, FL
-----------------------------------------------------------------------------------------------
Enhanced 30 Fund-Class C Stifel Nicolaus & Co. Inc. 7.05%
501 North Broadway
St. Louis, MO
-----------------------------------------------------------------------------------------------
76
|
-----------------------------------------------------------------------------------------------
Value Plus Fund-Class A Columbus Life Insurance Company 22.42%
400 Broadway
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Value Plus Fund-Class A Fifth Third Bank - RPS 21.93%
MD 1090BB
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Value Plus Fund-Class A NFSC FEBO 5.27%
P.O. Box 370
New York, NY
-----------------------------------------------------------------------------------------------
Value Plus Fund-Class A NFSC FEBO 7.27%
1 Wall Street
New York, NY
-----------------------------------------------------------------------------------------------
Value Plus Fund-Class A The Western & Southern Life Insurance Co. 19.85%
400 Broadway
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Value Plus Fund-Class B Donald P. Morgan 5.73%
3716 S Three Mile Road
Bay City, MI
-----------------------------------------------------------------------------------------------
Value Plus Fund-Class B Mikey N. Goolsby 5.77%
266 County Road 461A
Brazoria, TX
-----------------------------------------------------------------------------------------------
Value Plus Fund-Class B Scott & Stringfellow Inc. 5.09%
909 East Main Street
Richmond, VA
-----------------------------------------------------------------------------------------------
Value Plus Fund-Class B Francis H. Ehlmann 6.09%
3221 Bowman Ridge
Saint Charles, MO
-----------------------------------------------------------------------------------------------
Value Plus Fund-Class B Donaldson, Lufkin & Jenrette 5.68%
FBO A Customer's Account
P.O. Box 2052
Jersey City, NJ
-----------------------------------------------------------------------------------------------
Value Plus Fund-Class B Donaldson, Lufkin & 8.29%
Jenrette FBO A
Customer's Account
P.O. Box 2052
Jersey City, NJ
-----------------------------------------------------------------------------------------------
Value Plus Fund-Class B PaineWebber 6.37%
For the Benefit of its Customers
P.O. Box 3321
Weehawken, NJ
-----------------------------------------------------------------------------------------------
Value Plus Fund-Class C The Western & Southern Life Insurance Company 13.52%
400 Broadway
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Value Plus Fund-Class C Western-Southern Life Insurance 9.52%
Company
400 Broadway
Cincinnati, OH
-----------------------------------------------------------------------------------------------
77
|
-----------------------------------------------------------------------------------------------
Small Cap Growth Fund-Class A Merrill Lynch, Pierce Fenner & Smith 5.99%
Incorporated
For the Sole Benefit of its Customers
4800 Deer Lake Drive East
Jacksonville, FL
-----------------------------------------------------------------------------------------------
Small Cap Growth Fund-Class A SEI Private Trust Company 9.56%
c/o Irwin Union
One Freedom Valley Drive
Oaks, PA
-----------------------------------------------------------------------------------------------
Small Cap Growth Fund-Class A Western & Southern Life* 25.75%
400 Broadway MS 80
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Small Cap Growth Fund-Class A The Western & Southern Life Insurance Co. 20.03%
400 Broadway
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Small Cap Growth Fund-Class A The Western & Southern Life Assurance Co. 11.45%
400 Broadway
Cincinnati, OH
-----------------------------------------------------------------------------------------------
Small Cap Growth Fund-Class B First Southwest Company FBO 5.93%
325 N St Paul, Suite 800
Dallas, TX
-----------------------------------------------------------------------------------------------
Small Cap Growth Fund-Class B Merrill Lynch, Pierce Fenner & Smith 17.11%
Incorporated
For the Sole Benefit of its Customers
4800 Deer Lake Drive East
Jacksonville, FL
-----------------------------------------------------------------------------------------------
Small Cap Growth Fund-Class C Merrill Lynch, Pierce Fenner & Smith 56.16%
Incorporated
For the Sole Benefit of its Customers
4800 Deer Lake Drive East
Jacksonville, FL
-----------------------------------------------------------------------------------------------
|
*May be deemed to control a Fund (or class) by virtue of the fact that it owned of record more than 25% of the outstanding shares as of July 3, 2003.
As of July 3, 2003, the Trustees and officers of the Trust as a group owned of record or beneficially less than 1% of the outstanding shares of the Trust and of each Fund (or class thereof).
Brown Brothers Harriman & Co., 140 Broadway, New York, New York 10005, serves as the Trust's custodian. Brown Brothers Harriman acts as the Trust's depository, safe keeps its portfolio securities, collects all income and other payments with respect thereto, disburses funds as instructed and maintains records in connection with its duties.
The firm of Ernst & Young LLP, 250 East Fifth Street, Cincinnati, Ohio, has been selected as independent auditors for the Trust for fiscal year ending March 31, 2004. Ernst & Young LLP will perform an audit of the Trust's financial statements for its fiscal year end and advise the Trust as to certain accounting matters.
TRANSFER AGENT. The Trust's transfer agent, Integrated Fund Services, Inc. ("Integrated"), 221 East Fourth Street, Cincinnati, Ohio 45202, maintains the records of each shareholder's account, answers shareholders' inquiries concerning their accounts, processes purchases and redemptions of the Funds' shares, acts as dividend and distribution disbursing agent and performs other shareholder service functions. For providing transfer agent and shareholder services to the Trust, Integrated receives a monthly per account fee from each Fund, plus out of-pocket expenses. Integrated is an affiliate of the Advisor by reason of common ownership.
ACCOUNTING AND PRICING AGENT. Integrated provides accounting and pricing services to the Trust. For calculating daily NAV per share and maintaining all necessary books and records to enable Integrated to perform its duties, each Fund pays Integrated a fee based on the asset size of the Fund, plus out-of-pocket expenses. The Funds also pay the costs of outside pricing services.
Prior to March 17, 2002, Investors Bank & Trust Company provided accounting and pricing and administrative services to the Emerging Growth Fund and the Value Plus Fund. Set forth below are the accounting and pricing fees paid by the Funds during the stated fiscal periods:
3-31-03 3-31-02 12-31-00
------- ------- --------
Emerging Growth Fund $ 66,234 $196,006* $ 83,161*
Value Plus Fund 52,782 147,233* 98,093*
3-31-03 3-31-02 3-31-01
------- ------- -------
Enhanced 30 Fund $ 45,750 $ 47,000 $ 32,000
Large Cap Growth 47,250 52,000 41,000
Growth Opportunities Fund 56,750 59,000 46,000
Small Cap Growth Fund 19,169
|
* Represents a unified fee that includes accounting, administration and custody fees.
ADMINISTRATIVE AGENT. Integrated also provides administrative services to the Funds. These administrative services include supplying non-investment related statistical and research data, internal regulatory compliance services, executive and administrative services, supervising the preparation of tax returns, reports to shareholders of the Funds, reports to and filings with the SEC and state securities commissions, and materials for meetings of the Board of Trustees. For the performance of these administrative services, Integrated receives a monthly fee from each Fund based on its average daily net assets, plus out-of-pocket expenses. The fees paid for administrative services by the Funds for the fiscal year ended March 31, 2003 are set forth below. The administrative fees paid by the Emerging Growth Fund and Value Plus Fund during prior fiscal years are reflected in the accounting and pricing fee chart above. The Enhanced 30 Fund, the Large Cap Growth Fund and the Growth Opportunities Fund did not began paying administrative fees until August 1, 2002.
3-31-03
-------
Emerging Growth Fund $151,466
Value Plus Fund 37,217
Enhanced 30 Fund 3,025
Large Cap Growth Fund 13,745
Growth Opportunities Fund 41,073
Small Cap Growth Fund 3,806
|
The Trust's financial statements as of March 31, 2003 appear in the Trust's annual report, which is incorporated by reference herein. The financial statements were audited by Ernst & Young LLP.
APPENDIX
BOND AND COMMERCIAL PAPER RATINGS
Set forth below are descriptions of the ratings of Moody's, S&P and Fitch, which represent their opinions as to the quality of the securities which they undertake to rate. It should be emphasized, however, that ratings are relative and subjective and are not absolute standards of quality.
MOODY'S BOND RATINGS
Aaa. Bonds that are rated Aaa are judged to be the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa. Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa securities.
A. Bonds that are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa. Bonds that are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba. Bonds that are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B. Bonds that are rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa. Bonds that are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca. Bonds that are rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C. Bonds that are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
S&P'S BOND RATINGS
AAA. Bonds rated AAA have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA. Bonds rated AA have a very strong capacity to pay interest and repay principal and differ from higher rated issues only in a small degree.
A. Bonds rated A have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in the highest rated categories.
BBB. Bonds rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for bonds in this category than in higher rated categories.
BB, B, CCC, CC and C. Bonds rated BB, B, CCC, CC, and C are regarded, on balance, as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of this obligation. BB indicates the lowest degree of speculation and C the highest degree of speculation. While such bonds will likely have some quality and protective characteristics, they are outweighed by large uncertainties of major risk exposures to adverse conditions.
D. Bonds rated D are in default, and payment of interest and/or repayment of principal is in arrears.
Plus (+) or Minus (-). The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
NR. Not rated.
FITCH RATINGS:
AAA - "AAA ratings denote the lowest expectation of credit risk. They are assigned only in cases of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events."
AA - "AA ratings denote a very low expectation of credit risk. They indicate strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events."
A - "A ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings."
BBB - "BBB ratings indicate that there is currently a low expectation of credit risk. Capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment grade category."
BB - "BB ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade."
B - "B ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment."
CCC, CC, C - "Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A 'CC' rating indicates that default of some kind appears probable. 'C' ratings signal imminent default."
DDD, DD and D - "Securities are not meeting current obligations and are extremely speculative. 'DDD' designates the highest potential for recovery of amounts outstanding on any securities involved. For U.S. corporates, for example, 'DD' indicates expected recovery of 50%-90% of such outstanding, and 'D' the lowest recovery potential, i.e. below 50%."
UNRATED. Where no rating has been assigned or where a rating has been suspended or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the effect of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa-1, A-1, Baa-1, Ba-1 and B-1.
S&P'S COMMERCIAL PAPER RATINGS
A. S& P's commercial paper rating is a current opinion of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from "A" for the highest-quality obligations to "D" for the lowest. These categories are as follows:
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."
A-3 Issues carrying this designation have an adequate capacity for timely
payment. The are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
B Issues rated "B" are regarded as having only speculative capacity for
timely payment.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date
due, even if the applicable grace period has not expired, unless S&P
believes such payments will be made during such grace period.
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structures with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; well-established access to a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable capacity for repayment of short-term promissory obligations. The effect of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and the requirement for relatively high financial leverage. Adequate alternate liquidity is maintained.
MOODY'S CORPORATE NOTE RATINGS
MIG-1 "Notes which are rated MIG-1 are judged to be of the best quality.
There is present strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing."
MIG-2 "Notes which are rated MIG-2 are judged to be of high quality. Margins
of protection are ample although not so large as in the preceding
group."
S&P'S CORPORATE NOTE RATINGS
SP-1 "Debt rated SP-1 has very strong or strong capacity to pay principal
and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation."
SP-2 "Debt rated SP-2 has satisfactory capacity to pay principal and
interest."
SP-3 "Debt rated SP-3 has speculative capacity to pay principal and
interest."
85
|
PART C. OTHER INFORMATION ------ ----------------- |
(a) ARTICLES OF INCORPORATION Restated Agreement and Declaration of Trust and Amendment No. 1 dated May 24, 1994, Amendment No. 2 dated February 28, 1997 and Amendment No. 3 dated August 11, 1997, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 36, is incorporated by reference.
Amendment No. 4 to Restated Agreement and Declaration of Trust dated February 12, 1998, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 42, is incorporated by reference.
Amendments to Restated Agreement and Declaration of Trust dated March 16, 2000, which were filed as Exhibits to Registrant's Post-Effective Amendment No. 42 is incorporated by reference.
Amendment to Restated Agreement and Declaration of Trust dated April 6, 2000, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 42 is incorporated by reference.
Amendment to Restated Agreement and Declaration of Trust, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 45 is incorporated by reference.
Amendment to Restated Agreement and Declaration of Trust, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 45 is incorporated by reference.
Amendment to Restated Agreement and Declaration of Trust, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 48 is incorporated by reference.
Amendment dated November 7, 2002 to Restated Agreement and Declaration of Trust is filed herewith.
(b) BYLAWS Bylaws with Amendments adopted July 17, 1984 and April 5, 1989, which were filed as Exhibits to Registrant's Post-Effective Amendment No.36, are hereby incorporated by reference.
(c) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS Article IV of Registrant's Restated Agreement and Declaration of Trust provides the following rights for security holders:
LIQUIDATION. In event of the liquidation or dissolution of the Trust, the Shareholders of each Series that has been established and designated shall be entitled to receive, as a Series, when and as declared by the Trustees, the excess of the assets belonging to that Series over the liabilities belonging to that Series. The assets so distributable to the Shareholders of any particular Series shall be distributed among such Shareholders in proportion to the number of Shares of that Series held by them and recorded on the books of the Trust.
VOTING. All shares of all Series shall have "equal voting rights" as such term is defined in the Investment Company Act of 1940 and except as otherwise provided by that Act or rules, regulations or orders promulgated thereunder. On each matter submitted to a vote of the Shareholders, all shares of each Series shall vote as a single class except as to any matter with respect to which a vote of all Series voting as a single series is required by the 1940 Act or rules and regulations promulgated thereunder, or would be required under the Massachusetts Business Corporation Law if the Trust were a Massachusetts business corporation. As to any matter which does not affect the interest of a particular Series, only the holders of Shares of the one or more affected Series shall be entitled to vote.
REDEMPTION BY SHAREHOLDER. Each holder of Shares of a particular Series shall have the right at such times as may be permitted by the Trust, but no less frequently than once each week, to require the Trust to redeem all or any part of his Shares of that Series at a redemption price equal to the net asset value per Share of that Series next determined in accordance with subsection (h) of this Section 4.2 after the Shares are properly tendered for redemption.
Notwithstanding the foregoing, the Trust may postpone payment of the redemption price and may suspend the right of the holders of Shares of any Series to require the Trust to redeem Shares of that Series during any period or at any time when and to the extent permissible under the 1940 Act, and such redemption is conditioned upon the Trust having funds or property legally available therefor.
TRANSFER. All Shares of each particular Series shall be transferable, but transfers of Shares of a particular Series will be recorded on the Share transfer records of the Trust applicable to that Series only at such times as Shareholders shall have the right to require the Trust to redeem Shares of that Series and at such other times as may be permitted by the Trustees.
Article V of Registrant's Restated Agreement and Declaration of Trust provides the following rights for security holders:
VOTING POWERS. The Shareholders shall have power to vote only (i) for
the election or removal of Trustees as provided in Section 3.1, (ii)
with respect to any contract with a Contracting Party as provided in
Section 3.3 as to which Shareholder approval is required by the 1940
Act, (iii) with respect to any termination or reorganization of the
Trust or any Series to the extent and as provided in Sections 7.1 and
7.2, (iv) with respect to any amendment of this Declaration of Trust
to the extent and as provided in Section 7.3, (v) to the same extent
as the stockholders of a Massachusetts business corporation as to
whether or not a court action, proceeding or claim should or should
not be brought or maintained derivatively or as a class action on
behalf of the Trust or the Shareholders, and (vi) with respect to such
additional matters relating to the Trust as may be required by the
1940 Act, this Declaration of Trust, the Bylaws or any registration of
the Trust with the Commission (or any successor agency) in any state,
or as the Trustees may consider necessary or desirable. There shall be
no cumulative voting in the election of any Trustee or Trustees.
Shares may be voted in person or by proxy.
(d) INVESTMENT ADVISORY CONTRACTS
(i) Advisory Agreement with Touchstone Advisors, Inc. is filed herewith.
(ii) Subadvisory Agreement between Touchstone Advisors, Inc. and Mastrapasqua Asset Management, Inc. for the Growth Opportunities Fund which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 42 is incorporated by reference.
(iii) Subadvisory Agreement between Touchstone Advisors, Inc. and TCW Investment Management Company for the Emerging Growth Fund, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 45 is incorporated by reference.
(iv) Subadvisory Agreement between Touchstone Advisors, Inc. and Westfield Capital Management, Inc. for the Emerging Growth Fund is filed herewith.
(v) Subadvisory Agreement between Touchstone Advisors, Inc. and Fort Washington Investment Advisors, Inc. for the Value Plus Fund is filed herewith.
(vi) Subadvisory Agreement between Touchstone Advisors, Inc. and Fort Washington Investment Advisors, Inc. for the Large Cap Growth Fund is filed herewith.
(vii) Subadvisory Agreement between Touchstone Advisors, Inc. and Todd Investment Advisors, Inc. for the Enhanced 30 Fund is filed herewith.
(viii) Subadvisory Agreement betweeen Touchstone Advisors, Inc. and Bjurman, Barry & Associates for the Small Cap Growth Fund, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 48 is hereby incorporated by reference.
(x) Subadvisory Agreement between Touchstone Advisors, Inc. and Longwood Investment Advisors, Inc. for the Small Cap Growth Fund, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 48 is hereby incorporated by reference.
(e) UNDERWRITING CONTRACTS
(i) Distribution Agreement with Touchstone Securities, Inc., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 45, is incorporated by reference.
(ii) Form of Dealer's Agreement, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 45, is incorporated by reference.
(iii) Form of Administration Agreement, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 45, is incorporated by reference.
(f) BONUS OR PROFIT SHARING CONTRACTS
Touchstone Trustee Deferred Compensaton Plan, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 43, is incorporated by reference.
(g) CUSTODIAN AGREEMENTS
(i) Custodian Agreement with Brown Brothers Harriman & Co. is filed herewith.
(ii) Securities Lending Agreement with Brown Brothers Harriman & Co. is filed herewith.
(h) OTHER MATERIAL CONTRACTS
(i) Accounting Services Agreement dated December 31, 2002 with Integrated Fund Services, Inc. is filed herewith.
(ii) Transfer Agency Agreement dated December 31, 2002 with Integrated Fund Services, Inc. is filed herewith.
(iii) Administration Agreement dated December 31, 2002 with Integrated Fund Services, Inc. is filed herewith.
(iv) Allocation Agreement for Allocation of Fidelty Bond Proceeds, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 43, is hereby incorporated by reference.
(vi) Amended Expense Limitation Agreement with Touchstone Advisors, Inc., which was filed as an Exhibit to Registrant's Post- Effective Amendment No. 47, is hereby incorporated by reference.
(vii) Amended Sponsor Agreement with Touchstone Advisors, Inc. is filed herewith.
(i) LEGAL OPINION
Opinion and Consent of Counsel, which was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1, is hereby incorporated by reference.
(j) OTHER OPINIONS
Opinion of Independent Auditors is filed herewith.
(k) OMITTED FINANCIAL STATEMENTS
None.
(l) INITIAL CAPITAL AGREEMENTS Copy of Letter of Initial Stockholder, which was filed as an Exhibit to Registrant's Pre-Effective Amendment No. 1, is hereby incorporated by reference.
(m) RULE 12B-1 PLAN
(i) Registrant's Plans of Distribution Pursuant to Rule 12b-1 for Class A Shares and Class C Shares, which were filed as an Exhibit to Registrant's Post-Effective Amendment No. 42, are incorporated by reference.
(ii) Registrant's Plan of Distribution Pursuant to Rule 12b-1 for Class B Shares, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 45, is incorported by reference.
(n) RULE 18f-3 PLAN
Amended Rule 18f-3 Plan Adopted with Respect to the Multiple Class Distribution System is filed herewith.
(o) CODE OF ETHICS
(i) Registrant's Code of Ethics, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 42. is incorporated by reference.
(ii) Code of Ethics for Touchstone Securities, Inc., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 42, is incorporated by reference.
(iii) Code of Ethics for Touchstone Advisors, Inc., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 42, is incorporated by reference.
(iv) Code of Ethics for Fort Washington Investment Advisors, Inc., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 42, is incorporated by reference.
(v) Code of Ethics for Westfield Capital Management, Inc., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 41, is incorporated by reference.
(vi) Code of Ethics for Todd Investment Advisors, Inc., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 41, is incorporated by reference.
(vii) Code of Ethics for Mastrapasqua Asset Management, Inc. is filed herewith.
(viii) Code of Ethics for The TCW Group, Inc., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 43, is incorporated by reference.
(ix) Code of Ethics for Bjurman, Barry & Associates, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 48 is hererby incorporated by reference.
(xi) Code of Ethics for Longwood Investment Advisors, Inc., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 48 is hereby incorporated by reference.
(b) The Registrant maintains a mutual fund and investment advisory professional and directors and officers liability policy. The policy provides coverage to the Registrant, its trustees and officers, Touchstone Advisors, Inc. ("Touchstone"), Fort Washington Investment Advisors, Inc. and Todd Investment Advisors, Inc. Coverage under the policy includes losses by reason of any act error, omission, misstatement, misleading statement, neglect or breach of duty. The Registrant may not pay for insurance which protects the Trustees and officers against liabilities rising from action involving willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of their offices.
The Advisory Agreement and the Subadvisory Agreements provide that Touchstone (or a Subadvisor) shall not be liable for any act or omission in the course of rendering services, absent willful misfeasance, bad faith or gross negligence or reckless disregard by Touchstone (or a Subadvisor) of its obligations under the Agreement.
A. TOUCHSTONE ADVISORS, INC. ("Touchstone") is a registered investment adviser which provides investment advisory services to the Funds. Touchstone also serves as the investment adviser to Touchstone Investment Trust, Touchstone Tax-Free Trust and Touchstone Variable Series Trust, registered investment companies.
The following list sets forth the business and other connections of the directors and executive officers of Touchstone. Unless otherwise noted, the address of the corporations listed below is 221 East Fourth Street, Cincinnati, Ohio 45202.
(1) Jill T. McGruder, President and a Director of the Advisor.
(a) President and a Director of Fort Washington Brokerage Services, Inc., a broker-dealer, and a Director of IFS Fund Distributors, Inc., a broker-dealer and Integrated Fund Services, Inc., a transfer agent.
(b) A Director of Capital Analysts Incorporated, 3 Radnor Corporate Center, Radnor, PA, an investment adviser and broker-dealer.
(c) President, Chief Executive Officer and a Director of IFS Financial Services, Inc., a holding company and Touchstone Securities, Inc., a broker-dealer.
(d) President and a Director of IFS Agency Services, Inc., an insurance agency, IFS Insurance Agency, Inc., an insurance agency and IFS Systems, Inc., an information systems provider, 400 Broadway, Cincinnati, Ohio.
(e) Senior Vice President of The Western-Southern Life Insurance Company, 400 Broadway, Cincinnati, Ohio, an insurance company.
(f) A Trustee of Touchstone Strategic Trust, Touchstone Investment Trust, Touchstone Tax-Free Trust and Touchstone Variable Series Trust.
(g) President of Touchstone Strategic Trust, Touchstone Investment Trust, Touchstone Tax-Free Trust and Touchstone Variable Series Trust until November 2002.
(2) Edward S. Heenan, Vice President & Comptroller of the Advisor
(a) Director, Vice President & Comptroller of IFS Financial Services, Inc., IFS Agency Services, Inc., IFS Insurance Agency, Inc. and IFS Systems, Inc.
(b) Director and Controller of Touchstone Securities, Inc.
(3) Patricia J. Wilson, Chief Compliance Officer of the Advisor
(a) Chief Compliance Officer of Touchstone Securities, Inc.
(4) Donald J. Wuebbling, Chief Legal Officer and Director of the Advisor
(a) Director of Touchstone Securities, Inc., IFS Agency Services, Inc., IFS Insurance Agency, Inc. and IFS Systems, Inc.
(b) Vice President and General Counsel of The Western and Southern Life Insurance Company
(c) Secretary of Fort Washington Investment Advisors, Inc., 420 E. Fourth Street, Cincinnati, OH 45202 and IFS Financial Services, Inc.
(5) William F. Ledwin, a Director of the Advisor
(a) A Director of Fort Washington Brokerage Services, Inc., Integrated Fund Services, Inc., IFS Fund Distributors, Inc., Touchstone Advisors, Inc., IFS Agency Services, Inc., Capital Analysts Incorporated, IFS Insurance Agency, Inc., Touchstone Securities, Inc., IFS Financial Services, Inc., IFS Systems, Inc. and Eagle Realty Group, Inc., 421 East Fourth Street, a real estate brokerage and management service provider.
(b) President and a Director of Fort Washington Investment Advisors, Inc.
(c) Vice President and Chief Investment Officer of Columbus Life Insurance Company, 400 East Fourth Street, Cincinnati, OH., a life insurance company.
(d) Senior Vice President and Chief Investment Officer of The Western-Southern Life Insurance Company.
(6) Richard K. Taulbee, Vice President of the Advisor
(a) Vice President of IFS Financial Services, Inc., IFS Agency Services, Inc., IFS Insurance Agency, Inc., IFS Systems, Inc. and Touchstone Securities, Inc.
(b) Assistant Treasurer of Fort Washington Investment Advisors, Inc.
(7) James J. Vance, Vice President & Treasurer of the Advisor
(a) Vice President & Treasurer of The Western and Southern Life Insurance Company, Fort Washington Investment Advisors, Inc., IFS Financial Services, Inc., IFS Agency Services, Inc., IFS Insurance Agency, Inc., IFS Systems, Inc. and Touchstone Securities, Inc.
(b) Assistant Treasurer of Fort Washington Brokerage Services, Inc., Integrated Fund Services, Inc. and IFS Fund Distributors, Inc.
(c) Treasurer of Touchstone Variable Series Trust, Touchstone Strategic Trust, Touchstone Investment Trust and Touchstone Tax-Free Trust
(8) Terrie A. Wiedenheft - Chief Financial Officer of the Advisor
(a) Senior Vice President, Chief Financial Officer and Treasurer of Integrated Fund Services, Inc., IFS Fund Distributors, Inc. and Fort Washington Brokerage Services, Inc.
(b) Chief Financial Officer of IFS Financial Services, Inc. and Touchstone Securities, Inc.
(c) Assistant Treasurer of Fort Washington Investment Advisors, Inc.
(d) Controller of Touchstone Investment Trust, Touchstone Tax-Free Trust, Touchstone Strategic Trust and Touchstone Variable Series Trust.
(9) Robert F. Morand, Secretary of the Advisor
(a) Secretary of Touchstone Securities, Inc.
(10) James N. Clark, a Director of the Advisor
(11) Patrick T. Bannigan, Senior Vice President of the Advisor
(a) Senior Vice President of Touchstone Securities, Inc.
(b) President of Touchstone Investment Trust, Touchstone Strategic Trust, Touchstone Tax-Free Trust and Touchstone Variable Series Trust.
(12) Mike Spangler, Vice President, Business Operations of the Advisor
(a) Vice President, Business Operations of Touchstone Securities, Inc.
(b) Vice President of Touchstone Investment Trust, Touchstone Strategic Trust, Touchstone Tax-Free Trust and Touchstone Variable Series Trust.
B. FORT WASHINGTON INVESTMENT ADVISORS, INC.("Ft. Washington") is a registered investment adviser which provides sub-advisory services to the Value Plus Fund and the Large Cap Growth Fund. Ft. Washington serves as the Sub-Advisor to Touchstone Investment Trust, Touchstone Tax-Free Trust and certain series of Touchstone Variable Series Trust. Ft. Washington also provides investment advice to institutional and individual clients.
The following list sets forth the business and other connections of the directors and executive officers of Ft. Washington.
(1) William F. Ledwin, President and a director of Ft.
Washington
See biography above
(2) John F. Barrett, a Director of Ft. Washington
(a) President and Chief Executive Officer of The Western and Southern Life Insurance Company
(b) Trustee of Touchstone Variable Series Trust, Touchstone Strategic Trust, Touchstone Investment Trust and Touchstone Tax-Free Trust
(3) Donald J. Wuebbling, Secretary of Ft. Washington
See biography above
(4) James J. Vance, Treasurer of Ft. Washington
See biography above
(5) Rance G. Duke, Vice President and Senior Portfolio Manager of Ft. Washington
(a) Second Vice President and Senior Portfolio Manager of The Western and Southern Life Insurance Company
(6) John C. Holden, Vice President and Senior Portfolio Manager of Ft. Washington
(7) Charles E. Stutenroth IV, Vice President and Senior Portfolio Manager of Ft. Washington
(8) Brendan M. White, Vice President and Senior Portfolio Manager of Ft. Washington
(9) John J. Goetz, Vice President of Ft. Washington
(10) Timothy J. Policinski, Vice President and Senior Portfolio Manager of Ft. Washington
(a) Vice President of Lincoln Investment Managmement until June 2001.
(11) James A. Markley, Managing Director of Ft. Washington
(13) Roger M. Lanham - Vice President and Senior Portfolio Manager of Ft. Washington
(14) Augustine A. Long, Managing Director, Marketing of Ft.
Washington
(15) John J. O'Connor, Director of Research of Ft. Washington
(16) Thomas L. Finn, Vice President and Senior Portfolio Manager of Ft. Washington
(a) Vice President and Senior Portfolio Manager of Provident Financial Group until May 2002.
(17) Nicolas P. Sargen, Chief Investment Officer of Ft.
Washington
(a) Managing Director, Global Market Strategies of JP Morgan Chase until April 2003
(18) Michele Hawkins, Compliance Officer of Ft. Washington
(19) Terrie A. Wiedenhedt, Assistant Treasurer of Ft. Washington
C. MASTRAPASQUA ASSET MANAGEMENT,INC.("MASTRAPASQUA")is a registered investment adviser providing investment advisory services to the Growth Opportunities Fund. The address of Mastrapasqua is 814 Church Street, Suite 600, Nashville, Tennessee. The following are officers of Mastrapasqua:
(1) Frank Mastrapasqua - Chairman, Chief Executive Officer and Portfolio Manager
(2) Thomas A. Trantum - President and Portfolio Manager
(3) Mauro M. Mastrapasqua - First Vice President and Associate Portfolio Manager
D. TCW INVESTMENT MANAGEMENT COMPANY ("TCW") is a registered investment adviser providing sub-advisory services to the Emerging Growth Fund. The address of TCW 865 South Figueroa Street, Los Angeles California 90017. The following are the executive officers and directors of TCW:
(1) Alvin R. Albe - Director, President and CEO
(2) Thomas E. Larkin - Director and Vice Chairman
(3) Marc I. Stern - Director and Chairman
(4) William C. Sonneborn - Executive Vice President & Chief Operating Officer
(5) Michael E. Cahill - General Counsel & Secretary
(6) David S. Devito - Chief Financial Officer
(7) Hilary G. Lord - Chief Compliance Officer
(8) Robert D. Beyer, Executive Vice President and Chief Investment Officer
E. WESTFIELD CAPITAL MANAGEMENT COMPANY, LLC ("WESTFIELD") is a registered adviser providing sub-advisory services to the Emerging Growth Fund. The address of Westfield is One Financial Center, Boston, MA 02111. The following are executive officers and directors of Westfield:
(1) Charles M. Hazard - Director
(2) Arthur J. Bauernfeind - Director, Chairman and Chief Executive Officer
(3) Stephen C. Demirjian - Director, Co-President and Portfolio Manager
(4) William A. Muggia - Director, Co-President and Chief Investment Officer
(5) Timothy L. Vaill - Director
(6) Karen A. Digravio - Director, Chief Financial Officer and Executive Vice President
F. TODD INVESTMENT ADVISORS, INC. ("TODD") is a registered adviser providing sub-advisory services to the Enhanced 30 Fund. The address of Todd is 3160 National City Tower, Louisville, KY 40202. The following are officers and directors of Todd:
(1) Bosworth M. Todd - Chairman and Director
(2) Robert P. Bordogna - President, Chief Executive Officer, Chief Investment Officer
(3) William F. Ledwin - Director
(4) Curtiss M. Scott, Jr. - Partner, Equity Portfolio Manager
(6) Gayle S. Dorsey - Partner, Private Client Services
(7) Margaret C. Bell - Partner, Director of Marketing
(8) Jennifer J. Doss, Partner, Secretary/Treasurer
(9) Margaret C. Bell, Partner, Director of Marketing
(10) John J. White, Partner, Director of Research
(11) John C. Feduchak, Director of Managed Account Programs
H. BJURMAN, BARRY & ASSOCIATES ("BJURMAN") is a registered adviser providing sub-advisory services to the Small Cap Growth Fund. The address of Bjurman is 10100 Santa Monica Boulevard, Suite 1200, Los Angeles, CA. The following are officers and directors of Bjurman:
(1) George A. Bjurman, President, Chief Executive Officer and Director
(2) Thomas O. Barry, Senior Executive Vice President, Chief Investment Officer and Director
I. LONGWOOD INVESTMENT ADVISORS, INC. ("LONGWOOD") is a registered advisor providing sub-advisory services to the Small Cap Growth Fund. The address of Longwood is One International Place, Suite 240, Boston, MA. The following are officers of Longwood:
(1) John P. McNiff, President
(2) Robert A. Davidson, Vice President
(3) Leonard M. Sorgini, Chief Financial Officer
(4) Regan I. Royston, Director of Operations
(a) Touchstone Securities, Inc. also acts as underwriter for Touchstone Investment Trust, Touchstone Tax-Free Trust and Touchstone Variable Series Trust. Unless otherwise noted, the address of the persons named below is 221 East Fourth Street, Cincinnati, Ohio 45202. *The address is 420 East Fourth Street, Cincinnati, Ohio 45202. **The address is 400 Broadway, Cincinnati, Ohio 45202. ***The address is 515 West Market Street, Louisville, Kentucky 40202.
POSITION POSITION
WITH WITH
(b) NAME UNDERWRITER REGISTRANT
----- ----------- ----------
|
Jill T. McGruder President/Director Trustee
William F. Ledwin* Director None
James N. Clark** Director None
Patrick T. Bannigan Senior Vice President
President
Michael S. Spangler Vice President Vice President
Patricia J. Wilson Chief Compliance None
Officer
Richard K. Taulbee** Vice President None
James J. Vance** Treasurer Assistant
Treasurer
Edward S. Heenan** Controller/Director None
Robert F. Morand** Secretary None
Terrie A. Wiedenheft Chief Financial Controller
Officer
Don W. Cummings** Vice President None
Joseph F. Vap*** Asst.Treasurer None
Mark W. Murphy*** Asst.Vice President None
Lisa C. Heffley*** Asst.Vice President None
Patricia L. Tackett*** Asst.Vice President None
David L. Anders*** Asst.Vice President None
Laurel S. Durham*** Asst.Vice President None
|
(c) None
(b) Within five business days after receipt of a written application by shareholders holding in the aggregate at least 1% of the shares then outstanding or shares then having a net asset value of $25,000, whichever is less, each of whom shall have been a shareholder for at least six months prior to the date of application (hereinafter the "Petitioning Shareholders"), requesting to communicate with other shareholders with a view to obtaining signatures to a request for a meeting for the purpose of voting upon removal of any Trustee of the Registrant, which application shall be accompanied by a form of communication and request which such Petitioning Shareholders wish to transmit, Registrant will:
(i) provide such Petitioning Shareholders with access to a list of the names and addresses of all shareholders of the Registrant; or
(ii) inform such Petitioning Shareholders of the approximate number of shareholders and the estimated costs of mailing such communication, and to undertake such mailing promptly after tender by such Petitioning Shareholders to the Registrant of the material to be mailed and the reasonable expenses of such mailing.
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act, the Registrant certifies that it meets all of the requirements for effectiveness of this registration statement under rule 485(b) under the Securities Act and has duly caused this registration statement to be signed on its behalf by the undersigned, duly authorized, in the City of Cincinnati, State of Ohio, on the 31st day of July, 2003.
TOUCHSTONE STRATEGIC TRUST
/s/ Patrick T. Bannigan By:--------------------------- Patrick T. Bannigan President |
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the 31st day of July, 2003.
/s/ Patrick T. Banigan ----------------------- President PATRICK T. BANNIGAN /s/ Terrie A. Wiedenheft ----------------------- Controller TERRIE A. WIEDENHEFT |
By: /s/ Tina D. Hosking ----------------------- Tina D.Hosking *Attorney-in-Fact July 31, 2003 |
EXHIBIT INDEX
1. Amendment dated November 7, 2002 to Restated Agreement and Declaration of Trust
2. Advisory Agreement with Touchstone Advisors, Inc.
3. Sub-Advisory Agreement with Westfield Capital Management for Emerging Growth Fund
4. Sub-Advisory Agreement with Fort Washington Investment Advisors, Inc. for Value Plus Fund
5. Sub-Advisory Agreement with Fort Washington Investment Advisors, Inc. for Large Cap Growth Fund
6. Sub-Advisory Agreement with Todd Investment Advisors, Inc. for Enhanced 30 Fund
7. Custodian Agreement with Brown Brothers Harriman & Co.
8. Form of Securities Lending Agreement with Brown Brothers Harriman & Co.
9. Form of Accounting Services Agreement with Integrated Fund Services, Inc.
10. Form of Transfer Agency Agreement with Integrated Fund Services, Inc.
11. Form of Administration Agreement with Integrated Fund Services, Inc.
12. Amended Sponsor Agreement with Touchstone Advisors, Inc.
13. Consent of Independent Auditors
14. Amended Rule 18f-3 Plan Adopted with Respect to the Multiple Class Distribution System
15. Code of Ethics for Mastrapasqua Asset Management, Inc.
TOUCHSTONE STRATEGIC TRUST
AMENDMENT TO RESTATED AGREEMENT AND DECLARATION OF TRUST
The undersigned hereby certifies that she is the duly elected Secretary of Touchstone Strategic Trust and that pursuant to Section 7.3 of the Trust's Restated Agreement and Declaration of Trust, the Trustees at a meeting on February 21, 2002 at which a quorum was present, adopted the following resolutions:
RESOLVED, that pursuant to Section 7.3 of the Restated Agreement and Declaration of Trust of Touchstone Strategic Trust ("TST") and effective as of August 1, 2002, the name of the Equity Fund, a series of TST, shall be changed to the Large Cap Growth Fund; and
FURTHER RESOLVED, that the Agreement and Declaration of Trust of TST or other Trust documents and records, as necessary or appropriate, be amended to reflect the name change of this series; and
FURTHER RESOLVED, that the officers of TST be, and they hereby are, authorized and directed to take such further actions as necessary to effect the purpose of these resolutions.
The undersigned hereby certifies that pursuant to Section 7.3 of the Trust's Restated Agreement and Declaration of Trust, the Trustees at a meeting on May 16, 2002 at which a quorum was present, adopted the following resolutions:
"WHEREAS, it is in the best interests of Touchstone Strategic Trust (the Trust) to change the name of the Growth/Value Fund series of the Trust;
THEREFORE BE IT RESOLVED, that the name of the Growth/Value Fund, a series of the Trust, be changed to the 'Growth Opportunities Fund'; and
FURTHER RESOLVED, that the Trust's Restated Agreement and Declaration of Trust and other Trust documents and records, as necessary or appropriate, be amended to reflect the name change of such series; and
FURTHER RESOLVED, that the officers of the Trust be, and they hereby are, authorized to take such further actions as necessary to effect the purpose of these resolutions."
The undersigned certifies that the actions to effect the foregoing
Amendment were duly taken in the manner provided by the Restated Agreement and
Declaration of Trust, that the Amendment became effective August 1, 2002 and
that she is causing this Certificate to be signed and filed as provided in
Section 7.4 of the Restated Agreement and Declaration of Trust.
Witness my hand this 7th day of November 2002.
/s/ Tina D. Hosking ------------------------------ Tina D. Hosking, Secretary |
INVESTMENT ADVISORY AGREEMENT
TOUCHSTONE STRATEGIC TRUST
INVESTMENT ADVISORY AGREEMENT, dated as of May 1, 2000, amended December 31, 2002, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and TOUCHSTONE STRATEGIC TRUST, a Massachusetts business trust created pursuant to an Agreement and Declaration of Trust dated November 18, 1982, as amended from time to time (the "Trust").
WHEREAS, the Trust is an open-end diversified management investment company registered under the Investment Company Act of 1940, as amended, (the "1940 Act"); and
WHEREAS, shares of beneficial interest in the Trust are divided into separate series (each, along with any series which may in the future be established, a "Fund"); and
WHEREAS, the Trust desires to avail itself of the services, information, advice, assistance and facilities of an investment advisor and to have an investment advisor perform for it various investment advisory and research services and other management services; and
WHEREAS, the Advisor is an investment advisor registered under the Investment Advisers Act of 1940, as amended, and desires to provide investment advisory services to the Trust;
NOW THEREFORE, in consideration of the terms and conditions hereinafter set forth, it is agreed as follows:
1. EMPLOYMENT OF THE ADVISOR. The Trust hereby employs the Advisor to manage the investment and reinvestment of the assets of each Fund subject to the control and direction of the Trust's Board of Trustees, for the period on the terms hereinafter set forth. The Advisor hereby accepts such employment and agrees during such period to render the services and to assume the obligations herein set forth for the compensation herein provided. The Advisor shall for all purposes herein be deemed to be independent contractor and shall, except as expressly provided or authorized (whether herein or otherwise), have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE ADVISOR. In providing the services and assuming the obligations set forth herein, the Advisor may, at its expense, employ one or more sub-advisors for any Fund. Any agreement between the Advisor and a sub-advisor shall be subject to the renewal, termination and amendment provisions of paragraph 10 hereof. The Advisor undertakes to provide the following services and to assume the following obligations:
a) The Advisor will manage the investment and reinvestment of the assets of each Fund, subject to and in accordance with the respective investment objectives and policies of each Fund and any directions which the Trust's Board of Trustees may issue from time to time. In pursuance of the foregoing, the Advisor may engage separate investment advisors ("Sub-Advisor(s)") to make all determinations with respect to the investment of the assets of each Fund, to effect the purchase and sale of portfolio securities and to take such steps as may be necessary to implement the same. Such determination and services by each Sub-Advisor shall also include determining the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the portfolio securities shall be exercised. The Advisor shall, and shall cause each Sub-Advisor to, render regular reports to the Trust's Board of Trustees concerning the Trust's and each Fund's investment activities.
b) The Advisor shall, or shall cause the respective Sub-Advisor(s) to place orders for the execution of all portfolio transactions, in the name of the respective Fund and in accordance with the policies with respect thereto set forth in the Trust's registration statements under the 1940 Act and the Securities Act of 1933, as such registration statements may be amended from time to time. In connection with the placement of orders for the execution of portfolio transactions, the Advisor shall create and maintain (or cause the Sub-Advisors to create and maintain) all necessary brokerage records for each Fund, which records shall comply with all applicable laws, rules and regulations, including but not limited to records required by Section 31(a) of the 1940 Act. All records shall be the property of the Trust and shall be available for inspection and use by the Securities and Exchange Commission (the "SEC"), the Trust or any person retained by the Trust. Where applicable, such records shall be maintained by the Advisor (or Sub-Advisor) for the periods and in the places required by Rule 31a-2 under the 1940 Act.
c) In the event of any reorganization or other change in the Advisor, its investment principals, supervisors or members of its investment (or comparable) committee, the Advisor shall give the Trust's Board of Trustees written notice of such reorganization or change within a reasonable time (but not later than 30 days) after such reorganization or change.
d) The Advisor shall bear its expenses of providing services to the
Trust pursuant to this Agreement except such expenses as are
undertaken by the Trust. In addition, the Advisor shall pay the
salaries and fees, if any, of all Trustees, officers and
employees of the Trust who are affiliated persons, as defined in
Section 2(a)(3) of the 1940 Act, of the Advisor.
e) The Advisor will manage, or will cause the Sub-Advisors to manage, the Fund assets and the investment and reinvestment of such assets so as to comply with the provisions of the 1940 Act and with Subchapter M of the Internal Revenue Code of 1986, as amended.
3. EXPENSES. The Trust shall pay the expenses of its operation, including
but not limited to (i) charges and expenses for Trust accounting, pricing and
appraisal services and related overhead, (ii) the charges and expenses of the
Trust's auditors; (iii) the charges and expenses of any custodian, transfer
agent, plan agent, dividend disbursing agent and registrar appointed by the
Trust with respect to the Funds; (iv) brokers' commissions, and issue and
transfer taxes, chargeable to the Trust in connection with securities
transactions to which the Trust is a party; (v) insurance premiums, interest
charges, dues and fees for Trust membership in trade associations and all taxes
and fees payable by the Trust to federal, state or other governmental agencies;
(vi) fees and expenses involved in registering and maintaining registrations of
the Trust and/or shares of the Trust with the SEC, state or blue sky securities
agencies and foreign countries, including the preparation of Prospectuses and
Statements of Additional Information for filing with the SEC; (vii) all expenses
of meetings of Trustees and of shareholders of the Trust and of preparing,
printing and distributing prospectuses, notices, proxy statements and all
reports to shareholders and to governmental agencies; (viii) charges and
expenses of legal counsel to the Trust; (ix) compensation of Trustees of the
Trust; and (x) interest on borrowed money, if any.
4. COMPENSATION OF THE ADVISOR.
a) As compensation for the services rendered and obligations assumed hereunder by the Advisor, the Trust shall pay to the Advisor monthly a fee that is equal on an annual basis to that percentage of the average daily net assets of each Fund set forth on Schedule 1 attached hereto (and with respect to any future Fund, such percentage as the Trust and the Advisor may agree to from time to time). Such fee shall be computed and accrued daily. If the Advisor serves as investment advisor for less than the whole of any period specified in this Section 4a, the compensation to the Advisor shall be prorated. For purposes of calculating the Advisor's fee, the daily value of each Fund's net assets shall be computed by the same method as the Trust uses to compute the net asset value of that Fund.
b) The Advisor will pay all fees owing to each Sub-Advisor, and the Trust shall not be obligated to the Sub-Advisors in any manner with respect to the compensation of such Sub-Advisors.
c) The Advisor reserves the right to waive all or a part of its fee.
5. ACTIVITIES OF THE ADVISOR. The services of the Advisor to the Trust hereunder are not to be deemed exclusive, and the Advisor shall be free to render similar services to others. It is understood that the Trustees and officers of the Trust are or may become interested in the Advisor as stockholders, officers or otherwise, and that stockholders and officers of the Advisor
are or may become similarly interested in the Trust, and that the Advisor may become interested in the Trust as a shareholder or otherwise.
6. USE OF NAMES. The Trust will not use the name of the Advisor in any prospectus, sales literature or other material relating to the Trust in any manner not approved prior thereto by the Advisor; except that the Trust may use such name in any document which merely refers in accurate terms to its appointment hereunder or in any situation which is required by the SEC or a state securities commission; and provided further, that in no event shall such approval be unreasonably withheld. The Advisor will not use the name of the Trust in any material relating to the Advisor in any manner not approved prior thereto by the Trust; except that the Advisor may use such name in any document which merely refers in accurate terms to the appointment of the Advisor hereunder or in any situation which is required by the SEC or a state securities commission. In all other cases, the parties may use such names to the extent that the use is approved by the party named, it being agreed that in no event shall such approval be unreasonably withheld.
The Trustees of the Trust acknowledge that the Advisor has reserved for itself the rights to the name "Touchstone Strategic Trust" (or any similar names) and that use by the Trust of such name shall continue only with the continuing consent of the Advisor, which consent may be withdrawn at any time, effective immediately, upon written notice thereof to the Trust.
7. LIMITATION OF LIABILITY OF THE ADVISOR.
a) Absent willful misfeasance, bad faith, gross negligence, or
reckless disregard of obligations or duties hereunder on the part
of the Advisor, the Advisor shall not be subject to liability to
the Trust or to any shareholder in any Fund for any act or
omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security. As used in this
Section 7, the term "Advisor" shall include Touchstone Advisors,
Inc. and/or any of its affiliates and the directors, officers and
employees of Touchstone Advisors, Inc. and/or any of its
affiliates.
b) The Trust will indemnify the Advisor against, and hold it harmless from, any and all losses, claims, damages, liabilities or expenses (including reasonable counsel fees and expenses) resulting from acts or omissions of the Trust. Indemnification shall be made only after: (i) a final decision on the merits by a court or other body before whom the proceeding was brought that the Trust was liable for the damages claimed or (ii) in the absence of such a decision, a reasonable determination based upon a review of the facts, that the Trust was liable for the damages claimed, which determination shall be made by either (a) the vote of a majority of a quorum of Trustees of the Trust who are neither "interested persons" of the Trust nor parties to the proceeding ("disinterested non-party Trustees") or (b) an independent legal counsel satisfactory to the parties hereto, whose determination shall be set forth in a written opinion. The Advisor shall be entitled to advances from the Trust for payment of the
reasonable expenses incurred by it in connection with the matter as to which it is seeking indemnification in the manner and to the fullest extent that would be permissible under the applicable provisions of the General Corporation Law of Ohio. The Advisor shall provide to the Trust a written affirmation of its good faith belief that the standard of conduct necessary for indemnification under such law has been met and a written undertaking to repay any such advance if it should ultimately be determined that the standard of conduct has not been met. In addition, at least one of the following additional conditions shall be met: (i) the Advisor shall provide security in form and amount acceptable to the Trust for its undertaking; (ii) the Trust is insured against losses arising by reason of the advance; or (iii) a majority of a quorum of the Trustees of the Trust, the members of which majority are disinterested non-party Trustees, or independent legal counsel in a written opinion, shall have determined, based on a review of facts readily available to the Trust at the time the advance is proposed to be made, that there is reason to believe that the Advisor will ultimately be found to be entitled to indemnification.
8. LIMITATION OF TRUST'S LIABILITY. The Advisor acknowledges that it has received notice of and accepts the limitations upon the Trust's liability set forth in its Declaration of Trust. The Advisor agrees that the Trust's obligations hereunder in any case shall be limited to the Trust and to its assets and that the Advisor shall not seek satisfaction of any such obligation from the holders of the shares of any Fund nor from any Trustee, officer, employee or agent of the Trust.
9. FORCE MAJEURE. The Advisor shall not be liable for delays or errors occurring by reason of circumstances beyond its control, including but not limited to acts of civil or military authority, national emergencies, work stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or failure of communication or power supply. In the event of equipment breakdowns beyond its control, the Advisor shall take reasonable steps to minimize service interruptions but shall have no liability with respect thereto.
10. RENEWAL, TERMINATION AND AMENDMENT.
a) This Agreement shall continue in effect, unless sooner terminated as hereinafter provided, for a period of one year from the date hereof and it shall continue indefinitely thereafter as to each Fund, provided that such continuance is specifically approved by the parties hereto and, in addition, at least annually by (i) the vote of holders of a majority of the outstanding voting securities of the affected Fund or by vote of a majority of the Trust's Board of Trustees and (ii) by the vote of a majority of the Trustees who are not parties to this Agreement or interested persons of the Advisor, cast in person at a meeting called for the purpose of voting on such approval.
b) This Agreement may be terminated at any time, with respect to any Fund(s), without payment of any penalty, by the Trust's Board of Trustees or by a vote of the majority of the outstanding voting securities of the affected Fund(s)
upon 60 days' prior written notice to the Advisor and by the Advisor upon 60 days' prior written notice to the Trust.
c) This Agreement may be amended at any time by the parties hereto, subject to approval by the Trust's Board of Trustees and, if required by applicable SEC rules and regulations, a vote of the majority of the outstanding voting securities of any Fund affected by such change. This Agreement shall terminate automatically in the event of its assignment.
d) The terms "assignment," "interested persons" and "majority of the outstanding voting securities" shall have the meaning set forth for such terms in the 1940 Act.
11. SEVERABILITY. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
12. MISCELLANEOUS. Each party agrees to perform such further actions and execute such further documents as are necessary to effectuate the purposes hereof. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Ohio. The captions in this Agreement are included for convenience only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, all as of the day and year first above written. Pursuant to the Trust's Agreement and Declaration of Trust, dated as of November 18, 1982, the obligations of this Agreement are not binding upon any of the Trustees or shareholders of the Trust individually, but bind only the Trust estate.
TOUCHSTONE STRATEGIC TRUST
By: /s/ Patrick T. Bannigan
----------------------------
Patrick T. Bannigan
President
|
TOUCHSTONE ADVISORS, INC.
By: /s/ Michael S. Spangler
----------------------------
Michael S. Spangler
Vice President
|
SCHEDULE 1
LARGE CAP GROWTH FUND
The Fund pays the Advisor a fee equal to the annual rate of 0.75% on the first $200 million of average daily net assets; 0.70% of the next $300 million of average daily net assets; and 0.50% of such assets in excess of $500 million.
GROWTH OPPORTUNITIES FUND
The Fund pays the Advisor a fee equal to the annual rate of 1.00% on the first $50 million of average daily net assets; 0.90% of the next $50 million of average daily net assets; 0.80% of the next $100 million of average daily net assets; and 0.75% of such assets in excess of $200 million.
EMERGING GROWTH FUND
The Fund pays the Advisor a fee equal to the annual rate of 0.80% of average daily net assets.
ENHANCED 30 FUND
The Fund pays the Advisor a fee equal to the annual rate of 0.65% on the first $100 million of average daily net assets; 0.60% of the next $100 million of average daily net assets; 0.55% of the next $100 million of average daily net assets; and 0.50% of such assets in excess of $300 million.
VALUE PLUS FUND
The Fund pays the Advisor a fee equal to the annual rate of 0.75% on the first $100 million of average daily net assets; 0.70% of the next $100 million of average daily net assets; 0.65% of the next $100 million of average daily net assets; and 0.60% of such assets in excess of $300 million.
SMALL CAP GROWTH FUND
The Fund pays the Advisor a fee equal to the annual rate of 1.25% of average daily net assets.
SUB-ADVISORY AGREEMENT
EMERGING GROWTH FUND
TOUCHSTONE STRATEGIC TRUST
This SUB-ADVISORY AGREEMENT is made as of May 1, 2000, amended December 31, 2002, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and WESTFIELD CAPITAL MANAGEMENT COMPANY, LLC., a Delaware corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the Investment Advisers Act of 1940, as amended, and has been retained by Touchstone Strategic Trust (the "Trust"), a Massachusetts business trust organized pursuant to an Agreement and Declaration of Trust dated November 18, 1982 and registered as an open-end diversified management investment company under the Investment Company Act of 1940 (the "1940 Act"), to provide investment advisory services with respect to certain assets of the Emerging Growth Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it with portfolio management services in connection with the Advisor's investment advisory activities on behalf of the Fund, and the Sub-Advisor is willing to furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the Investment Advisory Agreement between the Trust and the Advisor, attached hereto as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the Sub-Advisor to manage the investment and reinvestment of that portion of the assets of the Fund allocated to it by the Advisor (such portion being herein called the "Fund Assets"), subject to the control and direction of the Advisor and the Trust's Board of Trustees, for the period and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such employment and agrees during such period to render the services and to perform the duties called for by this Agreement for the compensation herein provided. The Sub-Advisor shall at all times maintain its registration as an investment advisor under the Investment Advisers Act of 1940 and shall otherwise comply in all material respects with all applicable laws and regulations, both state and federal. The Sub-Advisor shall for all purposes herein be deemed an independent contractor and shall, except as expressly provided or authorized (whether herein or otherwise), have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust or the Fund.
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the Fund Assets, subject to and in accordance with the investment objectives, policies and restrictions of the Fund and any directions which the Advisor or the Trust's Board of Trustees may give from time to time with respect to the Fund. In furtherance of the foregoing, the Sub-Advisor will make all determinations with respect to the investment of the Fund Assets and the purchase and sale of portfolio securities and shall take such steps as may be necessary or advisable to implement the same. The Sub-Advisor also will determine the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the portfolio securities will be exercised. The Sub-Advisor will render regular reports to the Trust's Board of Trustees and to the Advisor (or such other advisor or advisors as the Advisor shall engage to assist it in the evaluation of the performance and activities of the Sub-Advisor). Such reports shall be made in such form and manner and with respect to such matters regarding the Fund and the Sub-Advisor as the Trust or the Advisor shall from time to time request.
b. The Sub-Advisor shall provide support to the Advisor with respect to the marketing of the Fund, including but not limited to: (i) permission to use the Sub-Advisor's name as provided in Section 5, (ii) permission to use the past performance and investment history of the Sub-Advisor as the same is applicable to the Fund, (iii) access to the individual(s) responsible for day-to-day management of the Fund for marketing conferences, teleconferences and other activities involving the promotion of the Fund, subject to the reasonable request of the Advisor, (iv) permission to use biographical and historical data of the Sub-Advisor and individual manager(s), and (v) permission to use the names of those institutional clients to which the Sub-Advisor provides investment management services, subject to receipt of the consent of such clients to the use of their names.
c. The Sub-Advisor will, in the name of the Fund, place orders for the execution of all portfolio transactions in accordance with the policies with respect thereto set forth in the Trust's registration statements under the 1940 Act and the Securities Act of 1933, as such registration statements may be in effect from time to time. In connection with the placement of orders for the execution of portfolio transactions, the Sub-Advisor will create and maintain all necessary brokerage records of the Fund in accordance with all applicable laws, rules and regulations, including but not limited to records required by Section 31(a) of the 1940 Act. All records shall be the property of the Trust and shall be available for inspection and use by the Securities and Exchange Commission (the "SEC"), the Trust or any person retained by the Trust. Where applicable, such records shall be maintained by the Advisor for the periods and in the places required by Rule 31a-2 under the 1940 Act. When placing orders with brokers and dealers, the Sub-Advisor's primary objective shall be to obtain the most favorable price and execution available for the Fund, and in placing such orders the Sub-Advisor may consider a number of factors, including, without limitation, the overall direct net economic result to the Fund (including commissions, which may not be the lowest available but ordinarily
should not be higher than the generally prevailing competitive range), the
financial strength and stability of the broker, the efficiency with which
the transaction will be effected, the ability to effect the transaction at
all where a large block is involved and the availability of the broker or
dealer to stand ready to execute possibly difficult transactions in the
future. Consistent with the Conduct Rules of the National Association of
Securities Dealers, Inc., and subject to seeking the most favorable price
and execution, the Sub-Advisor may give consideration to sales of shares of
the Fund as a factor in the selection of brokers and dealers to execute
portfolio transactions of the Fund. The Sub-Advisor is specifically
authorized, to the extent authorized by law (including, without limitation,
Section 28(e) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), to pay a broker or dealer who provides research services
to the Sub-Advisor an amount of commission for effecting a portfolio
transaction in excess of the amount of commission another broker or dealer
would have charged for effecting such transaction, in recognition of such
additional research services rendered by the broker or dealer, but only if
the Sub-Advisor determines in good faith that the excess commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer viewed in terms of the particular
transaction or the Sub-Advisor's overall responsibilities with respect to
discretionary accounts that it manages, and that the Fund derives or will
derive a reasonably significant benefit from such research services. The
Sub-Advisor will present a written report to the Board of Trustees of the
Trust, at least quarterly, indicating total brokerage expenses, actual or
imputed, as well as the services obtained in consideration for such
expenses, broken down by broker-dealer and containing such information as
the Board of Trustees reasonably shall request.
d. In the event of any reorganization or other change in the Sub-Advisor, its investment principals, supervisors or members of its investment (or comparable) committee, the Sub-Advisor shall give the Advisor and the Trust's Board of Trustees written notice of such reorganization or change within a reasonable time (but not later than 30 days) after such reorganization or change.
e. The Sub-Advisor will bear its expenses of providing services to the Fund pursuant to this Agreement except such expenses as are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the investment and reinvestment of such assets so as to comply with the provisions of the 1940 Act and with Subchapter M of the Internal Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties undertaken hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor a monthly fee equal on an annual basis to 0.50% of the first $50 million of the average daily net assets of the Fund managed by the Sub-Advisor, 0.45% of the average daily net assets of the Fund managed by the Sub-Advisor in excess of $50 million and up to $150 million and
0.40% of the average daily net assets of the Fund managed by the Sub-Advisor in excess of $150 million. Such fee shall be computed and accrued daily. If the Sub-Advisor serves in such capacity for less than the whole of any period specified in this Section 3a, the compensation to the Sub-Advisor shall be prorated. For purposes of calculating the Sub-Advisor's fee, the daily value of the Fund's net assets shall be computed by the same method as the Trust uses to compute the net asset value of the Fund for purposes of purchases and redemptions of shares thereof.
b. The Sub-Advisor reserves the right to waive all or a part of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor may perform investment advisory services for various other clients, including other investment companies. The Sub-Advisor will report to the Board of Trustees of the Trust (at regular quarterly meetings and at such other times as such Board of Trustees reasonably shall request) (i) the financial condition and prospects of the Sub-Advisor, (ii) the nature and amount of transactions affecting the Fund that involve the Sub-Advisor and affiliates of the Sub-Advisor, (iii) information regarding any potential conflicts of interest arising by reason of its continuing provision of advisory services to the Fund and to its other accounts, and (iv) such other information as the Board of Trustees shall reasonably request regarding the Fund, the Fund's performance, the services provided by the Sub-Advisor to the Fund as compared to its other accounts and the plans of, and the capability of, the Sub-Advisor with respect to providing future services to the Fund and its other accounts. At least annually, the Sub-Advisor shall report to the Trustees information regarding the composite return of such of its other accounts as are comparable, in investment objective and composition, to the Fund. The Sub-Advisor agrees to submit to the Trust a statement defining its policies with respect to the allocation of investment opportunities among the Fund and its other clients.
It is understood that the Sub-Advisor may become interested in the Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's statement of financial condition) and will hereafter supply to the Advisor, promptly upon the preparation thereof, copies of all amendments or restatements of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name of the Sub-Advisor in any prospectus, sales literature or other material relating to the Advisor or the Trust in any manner not approved in advance by the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses of its name which merely refer in accurate terms to its appointment hereunder or which are required by the SEC or a state securities commission; and provided further, that in no event shall such approval be unreasonably withheld. The Sub-Advisor shall not use the name of the Advisor or the Trust in any material relating to the Sub-Advisor in any manner not approved in advance by the Advisor or the Trust, as the case may be; provided, however, that the Advisor and the Trust shall each approve all uses of their respective names which merely refer in accurate terms to the appointment of the Sub-Advisor
hereunder or which are required by the SEC or a state securities commission; and, provided further, that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful misfeasance, bad faith, gross negligence, or reckless disregard of obligations or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be subject to liability to the Advisor, the Trust or to any shareholder in the Fund for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. As used in this Section 6, the term "Sub-Advisor" shall include the Sub-Advisor and/or any of its affiliates and the directors, officers and employees of the Sub-Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that it has received notice of and accepts the limitations upon the Trust's liability set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under the Advisory Agreement) shall be limited in any event to the assets of the Fund and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from the holders of shares of the Fund nor from any Trustee, officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or errors occurring by reason of circumstances beyond its control, including but not limited to acts of civil or military authority, national emergencies, work stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or failure of communication or power supply. In the event of equipment breakdowns beyond its control, the Sub-Advisor shall take reasonable steps to minimize service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner terminated as hereinafter provided for a period of one year from the date hereof and it shall continue thereafter provided that such continuance is specifically approved by the parties and, in addition, at least annually by (i) the vote of the holders of a majority of the outstanding voting securities (as herein defined) of the Fund or by vote of a majority of the Trust's Board of Trustees and (ii) by the vote of a majority of the Trustees who are not parties to this Agreement or interested persons of either the Advisor or the Sub-Advisor, cast in person at a meeting called for the purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a vote of the majority of the outstanding voting securities of the Fund, in any such case upon not less than 60 days' prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60 days' prior written notice to the Advisor and the Trust. This Agreement shall terminate automatically in the event of its assignment.
c. This Agreement may be amended at any time by the parties hereto, subject to approval by the Trust's Board of Trustees and, if required by applicable SEC rules and
regulations, a vote of the majority of the outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the outstanding voting securities" shall have the meaning set forth for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or shall be found to be invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing addressed and delivered personally (or by telecopy) or mailed postage-paid, to the other party at such address as such other party may designate in accordance with this paragraph for the receipt of such notice. Until further notice to the other party, it is agreed that the address of the Trust and that of the Advisor for this purpose shall be 221 East Fourth Street, Cincinnati, OH 45202 and that the address of the Sub-Advisor shall be One Financial Center, 23rd Floor, Boston, Massachusetts 02111.
12. MISCELLANEOUS. Each party agrees to perform such further actions and execute such further documents as are necessary to effectuate the purposes hereof. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Ohio. The captions in this Agreement are included for convenience only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
By: /s/ Patrick T. Bannigan ---------------------------- Name: Patrick T. Bannigan Title: Senior Vice President |
WESTFIELD CAPITAL MANAGEMENT COMPANY, LLC.
By: /s/ William A. Muggia -------------------------------- Name: William A. Muggia Title: President and Chief Investment Officer |
SUB-ADVISORY AGREEMENT
VALUE PLUS FUND
TOUCHSTONE STRATEGIC TRUST
This SUB-ADVISORY AGREEMENT is made as of May 1, 2000, amended December 31, 2002, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and FORT WASHINGTON INVESTMENT ADVISORS, INC., an Ohio corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the Investment Advisers Act of 1940, as amended, and has been retained by Touchstone Strategic Trust (the "Trust"), a Massachusetts business trust organized pursuant to an Agreement and Declaration of Trust dated November 18, 1982 and registered as an open-end diversified management investment company under the Investment Company Act of 1940 (the "1940 Act"), to provide investment advisory services to the Value Plus Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it with portfolio management services in connection with the Advisor's investment advisory activities on behalf of the Fund, and the Sub-Advisor is willing to furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the Investment Advisory Agreement between the Trust and the Advisor, attached hereto as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the Sub-Advisor to manage the investment and reinvestment of those assets of the Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control and direction of the Advisor and the Trust's Board of Trustees, for the period and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such employment and agrees during such period to render the services and to perform the duties called for by this Agreement for the compensation herein provided. The Sub-Advisor shall at all times maintain its registration as an investment advisor under the Investment Advisers Act of 1940 and shall otherwise comply in all material respects with all applicable laws and regulations, both state and federal. The Sub-Advisor shall for all purposes herein be deemed an independent contractor and shall, except as expressly provided or authorized (whether herein or otherwise), have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust or the Fund.
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the assets of the Fund, subject to and in accordance with the investment objectives, policies and restrictions of the Fund and any directions which the Advisor or the Trust's Board of Trustees may give from time to time with respect to the Fund. In furtherance of the foregoing, the Sub-Advisor will make all determinations with respect to the investment of the assets of the Fund and the purchase and sale of portfolio securities and shall take such steps as may be necessary or advisable to implement the same. The Sub-Advisor also will determine the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the portfolio securities will be exercised. The Sub-Advisor will render regular reports to the Trust's Board of Trustees and to the Advisor (or such other advisor or advisors as the Advisor shall engage to assist it in the evaluation of the performance and activities of the Sub-Advisor). Such reports shall be made in such form and manner and with respect to such matters regarding the Fund and the Sub-Advisor as the Trust or the Advisor shall from time to time request.
b. The Sub-Advisor shall provide support to the Advisor with respect to the marketing of the Fund, including but not limited to: (i) permission to use the Sub-Advisor's name as provided in Section 5, (ii) permission to use the past performance and investment history of the Sub-Advisor as the same is applicable to the Fund, (iii) access to the individual(s) responsible for day-to-day management of the Fund for marketing conferences, teleconferences and other activities involving the promotion of the Fund, subject to the reasonable request of the Advisor, (iv) permission to use biographical and historical data of the Sub-Advisor and individual manager(s), and (v) permission to use the names of clients to which the Sub-Advisor provides investment management services, subject to any restrictions imposed by clients on the use of such names.
c. The Sub-Advisor will, in the name of the Fund, place orders for the execution of all portfolio transactions in accordance with the policies with respect thereto set forth in the Trust's registration statements under the 1940 Act and the Securities Act of 1933, as such registration statements may be in effect from time to time. In connection with the placement of orders for the execution of portfolio transactions, the Sub-Advisor will create and maintain all necessary brokerage records of the Fund in accordance with all applicable laws, rules and regulations, including but not limited to records required by Section 31(a) of the 1940 Act. All records shall be the property of the Trust and shall be available for inspection and use by the Securities and Exchange Commission (the "SEC"), the Trust or any person retained by the Trust. Where applicable, such records shall be maintained by the Advisor for the periods and in the places required by Rule 31a-2 under the 1940 Act. When placing orders with brokers and dealers, the Sub-Advisor's primary objective shall be to obtain the most favorable price and execution available for the Fund, and in placing such orders the Sub-Advisor may consider a number of factors, including, without limitation, the overall direct net economic result to the Fund (including commissions, which may not be the lowest available but ordinarily should not be higher
than the generally prevailing competitive range), the financial strength and stability of the broker, the efficiency with which the transaction will be effected, the ability to effect the transaction at all where a large block is involved and the availability of the broker or dealer to stand ready to execute possibly difficult transactions in the future. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking the most favorable price and execution, the Sub-Advisor may give consideration to sales of shares of the Fund as a factor in the selection of brokers and dealers to execute portfolio transactions of the Fund. The Sub-Advisor is specifically authorized, to the extent authorized by law (including, without limitation, Section 28(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), to pay a broker or dealer who provides research services to the Sub-Advisor an amount of commission for effecting a portfolio transaction in excess of the amount of commission another broker or dealer would have charged for effecting such transaction, in recognition of such additional research services rendered by the broker or dealer, but only if the Sub-Advisor determines in good faith that the excess commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer viewed in terms of the particular transaction or the Sub-Advisor's overall responsibilities with respect to discretionary accounts that it manages, and that the Fund derives or will derive a reasonably significant benefit from such research services. The Sub-Advisor will present a written report to the Board of Trustees of the Trust, at least quarterly, indicating total brokerage expenses, actual or imputed, as well as the services obtained in consideration for such expenses, broken down by broker-dealer and containing such information as the Board of Trustees reasonably shall request.
d. In the event of any reorganization or other change in the Sub-Advisor, its investment principals, supervisors or members of its investment (or comparable) committee, the Sub-Advisor shall give the Advisor and the Trust's Board of Trustees written notice of such reorganization or change within a reasonable time (but not later than 30 days) after such reorganization or change.
e. The Sub-Advisor will bear its expenses of providing services to the Fund pursuant to this Agreement except such expenses as are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the investment and reinvestment of such assets so as to comply with the provisions of the 1940 Act and with Subchapter M of the Internal Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties undertaken hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor a monthly fee equal on an annual basis to 0.45% on the first $100 million of the Fund's average daily net assets; 0.40% on the next $100 million of average daily net assets; 0.35% on the next $100 million of average daily net assets; and 0.30% of such assets in excess of $300
million Such fee shall be computed and accrued daily. If the Sub-Advisor serves in such capacity for less than the whole of any period specified in this Section 3a, the compensation to the Sub-Advisor shall be prorated. For purposes of calculating the Sub-Advisor's fee, the daily value of the Fund's net assets shall be computed by the same method as the Trust uses to compute the net asset value of the Fund for purposes of purchases and redemptions of shares thereof.
b. The Sub-Advisor reserves the right to waive all or a part of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor may perform investment advisory services for various other clients, including other investment companies. The Sub-Advisor will report to the Board of Trustees of the Trust (at regular quarterly meetings and at such other times as such Board of Trustees reasonably shall request) (i) the financial condition and prospects of the Sub-Advisor, (ii) the nature and amount of transactions affecting the Fund that involve the Sub-Advisor and affiliates of the Sub-Advisor, (iii) information regarding any potential conflicts of interest arising by reason of its continuing provision of advisory services to the Fund and to its other accounts, and (iv) such other information as the Board of Trustees shall reasonably request regarding the Fund, the Fund's performance, the services provided by the Sub-Advisor to the Fund as compared to its other accounts and the plans of, and the capability of, the Sub-Advisor with respect to providing future services to the Fund and its other accounts. At least annually, the Sub-Advisor shall report to the Trustees the total number and type of such other accounts and the approximate total asset value thereof (but not the identities of the beneficial owners of such accounts). The Sub-Advisor agrees to submit to the Trust a statement defining its policies with respect to the allocation of business among the Fund and its other clients.
It is understood that the Sub-Advisor may become interested in the Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's statement of financial condition) and will hereafter supply to the Advisor, promptly upon the preparation thereof, copies of all amendments or restatements of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name of the Sub-Advisor in any prospectus, sales literature or other material relating to the Advisor or the Trust in any manner not approved in advance by the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses of its name which merely refer in accurate terms to its appointment hereunder or which are required by the SEC or a state securities commission; and provided further, that in no event shall such approval be unreasonably withheld. The Sub-Advisor shall not use the name of the Advisor or the Trust in any material relating to the Sub-Advisor in any manner not approved in advance by the Advisor or the Trust, as the case may be; provided, however, that the Advisor and the Trust shall each approve all uses of their respective names which merely refer in accurate terms to the appointment of the Sub-Advisor hereunder or which
are required by the SEC or a state securities commission; and, provided further, that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful misfeasance, bad faith, gross negligence, or reckless disregard of obligations or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be subject to liability to the Advisor, the Trust or to any shareholder in the Fund for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. As used in this Section 6, the term "Sub-Advisor" shall include the Sub-Advisor and/or any of its affiliates and the directors, officers and employees of the Sub-Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that it has received notice of and accepts the limitations upon the Trust's liability set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under the Advisory Agreement) shall be limited in any event to the assets of the Fund and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from the holders of shares of the Fund nor from any Trustee, officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or errors occurring by reason of circumstances beyond its control, including but not limited to acts of civil or military authority, national emergencies, work stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or failure of communication or power supply. In the event of equipment breakdowns beyond its control, the Sub-Advisor shall take reasonable steps to minimize service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner terminated as hereinafter provided for a period of one year from the date hereof and it shall continue thereafter provided that such continuance is specifically approved by the parties and, in addition, at least annually by (i) the vote of the holders of a majority of the outstanding voting securities (as herein defined) of the Fund or by vote of a majority of the Trust's Board of Trustees and (ii) by the vote of a majority of the Trustees who are not parties to this Agreement or interested persons of either the Advisor or the Sub-Advisor, cast in person at a meeting called for the purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a vote of the majority of the outstanding voting securities of the Fund, in any such case upon not less than 60 days' prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60 days' prior written notice to the Advisor and the Trust. This Agreement shall terminate automatically in the event of its assignment.
c. This Agreement may be amended at any time by the parties hereto, subject to approval by the Trust's Board of Trustees and, if required by applicable SEC rules and regulations, a vote of the majority of the outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the outstanding voting securities" shall have the meaning set forth for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or shall be found to be invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing addressed and delivered personally (or by telecopy) or mailed postage-paid, to the other party at such address as such other party may designate in accordance with this paragraph for the receipt of such notice. Until further notice to the other party, it is agreed that the address of the Trust and that of the Advisor for this purpose shall be 221 East Fourth Street, Cincinnati, Ohio 45202 and that the address of the Sub-Advisor shall be 420 East Fourth Street, Cincinnati, Ohio 45202.
12. MISCELLANEOUS. Each party agrees to perform such further actions and execute such further documents as are necessary to effectuate the purposes hereof. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Ohio. The captions in this Agreement are included for convenience only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
By: /s/ Patrick T. Bannigan
-------------------------
Name: Patrick T. Bannigan
Title: Senior Vice President
FORT WASHINGTON INVESTMENT ADVISORS FORT WASHINGTON INVESTMENT ADVISORS
By: /s/ Augustine A. Long By: /s/ William F. Ledwin
------------------------ --------------------------
Name: Augustine A. Long Name: William F. Ledwin
Title: Managing Director Title: President
Marketing
6
|
SUB-ADVISORY AGREEMENT
LARGE CAP GROWTH FUND
TOUCHSTONE STRATEGIC TRUST
This SUB-ADVISORY AGREEMENT is made as of May 1, 2000, amended December 31, 2002, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and FORT WASHINGTON INVESTMENT ADVISORS, INC., an Ohio corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the Investment Advisers Act of 1940, as amended, and has been retained by Touchstone Strategic Trust (the "Trust"), a Massachusetts business trust organized pursuant to an Agreement and Declaration of Trust dated November 18, 1982 and registered as an open-end diversified management investment company under the Investment Company Act of 1940 (the "1940 Act"), to provide investment advisory services to the Large Cap Growth Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it with portfolio management services in connection with the Advisor's investment advisory activities on behalf of the Fund, and the Sub-Advisor is willing to furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the Investment Advisory Agreement between the Trust and the Advisor, attached hereto as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the Sub-Advisor to manage the investment and reinvestment of those assets of the Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control and direction of the Advisor and the Trust's Board of Trustees, for the period and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such employment and agrees during such period to render the services and to perform the duties called for by this Agreement for the compensation herein provided. The Sub-Advisor shall at all times maintain its registration as an investment advisor under the Investment Advisers Act of 1940 and shall otherwise comply in all material respects with all applicable laws and regulations, both state and federal. The Sub-Advisor shall for all purposes herein be deemed an independent contractor and shall, except as expressly provided or authorized (whether herein or otherwise), have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust or the Fund.
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the assets of the Fund, subject to and in accordance with the investment objectives, policies and restrictions of the Fund and any directions which the Advisor or the Trust's Board of Trustees may give from time to time with respect to the Fund. In furtherance of the foregoing, the Sub-Advisor will make all determinations with respect to the investment of the assets of the Fund and the purchase and sale of portfolio securities and shall take such steps as may be necessary or advisable to implement the same. The Sub-Advisor also will determine the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the portfolio securities will be exercised. The Sub-Advisor will render regular reports to the Trust's Board of Trustees and to the Advisor (or such other advisor or advisors as the Advisor shall engage to assist it in the evaluation of the performance and activities of the Sub-Advisor). Such reports shall be made in such form and manner and with respect to such matters regarding the Fund and the Sub-Advisor as the Trust or the Advisor shall from time to time request.
b. The Sub-Advisor shall provide support to the Advisor with respect to the marketing of the Fund, including but not limited to: (i) permission to use the Sub-Advisor's name as provided in Section 5, (ii) permission to use the past performance and investment history of the Sub-Advisor as the same is applicable to the Fund, (iii) access to the individual(s) responsible for day-to-day management of the Fund for marketing conferences, teleconferences and other activities involving the promotion of the Fund, subject to the reasonable request of the Advisor, (iv) permission to use biographical and historical data of the Sub-Advisor and individual manager(s), and (v) permission to use the names of clients to which the Sub-Advisor provides investment management services, subject to any restrictions imposed by clients on the use of such names.
c. The Sub-Advisor will, in the name of the Fund, place orders for the execution of all portfolio transactions in accordance with the policies with respect thereto set forth in the Trust's registration statements under the 1940 Act and the Securities Act of 1933, as such registration statements may be in effect from time to time. In connection with the placement of orders for the execution of portfolio transactions, the Sub-Advisor will create and maintain all necessary brokerage records of the Fund in accordance with all applicable laws, rules and regulations, including but not limited to records required by Section 31(a) of the 1940 Act. All records shall be the property of the Trust and shall be available for inspection and use by the Securities and Exchange Commission (the "SEC"), the Trust or any person retained by the Trust. Where applicable, such records shall be maintained by the Advisor for the periods and in the places required by Rule 31a-2 under the 1940 Act. When placing orders with brokers and dealers, the Sub-Advisor's primary objective shall be to obtain the most favorable price and execution available for the Fund, and in placing such orders the Sub-Advisor may consider a number of factors, including, without limitation, the overall direct net economic result to the Fund (including commissions, which may not be the lowest available but ordinarily should not be higher
than the generally prevailing competitive range), the financial strength and stability of the broker, the efficiency with which the transaction will be effected, the ability to effect the transaction at all where a large block is involved and the availability of the broker or dealer to stand ready to execute possibly difficult transactions in the future. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking the most favorable price and execution, the Sub-Advisor may give consideration to sales of shares of the Fund as a factor in the selection of brokers and dealers to execute portfolio transactions of the Fund. The Sub-Advisor is specifically authorized, to the extent authorized by law (including, without limitation, Section 28(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), to pay a broker or dealer who provides research services to the Sub-Advisor an amount of commission for effecting a portfolio transaction in excess of the amount of commission another broker or dealer would have charged for effecting such transaction, in recognition of such additional research services rendered by the broker or dealer, but only if the Sub-Advisor determines in good faith that the excess commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer viewed in terms of the particular transaction or the Sub-Advisor's overall responsibilities with respect to discretionary accounts that it manages, and that the Fund derives or will derive a reasonably significant benefit from such research services. The Sub-Advisor will present a written report to the Board of Trustees of the Trust, at least quarterly, indicating total brokerage expenses, actual or imputed, as well as the services obtained in consideration for such expenses, broken down by broker-dealer and containing such information as the Board of Trustees reasonably shall request.
d. In the event of any reorganization or other change in the Sub-Advisor, its investment principals, supervisors or members of its investment (or comparable) committee, the Sub-Advisor shall give the Advisor and the Trust's Board of Trustees written notice of such reorganization or change within a reasonable time (but not later than 30 days) after such reorganization or change.
e. The Sub-Advisor will bear its expenses of providing services to the Fund pursuant to this Agreement except such expenses as are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the investment and reinvestment of such assets so as to comply with the provisions of the 1940 Act and with Subchapter M of the Internal Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties undertaken hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor a monthly fee equal on an annual basis to 0.45% on the first $200 million of the Fund's average daily net assets; 0.40% on the next $300 million of average daily net assets; and 0.20% of such assets in excess of $500 million. Such fee shall be computed and accrued daily. If the
Sub-Advisor serves in such capacity for less than the whole of any period specified in this Section 3a, the compensation to the Sub-Advisor shall be prorated. For purposes of calculating the Sub-Advisor's fee, the daily value of the Fund's net assets shall be computed by the same method as the Trust uses to compute the net asset value of the Fund for purposes of purchases and redemptions of shares thereof.
b. The Sub-Advisor reserves the right to waive all or a part of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor may perform investment advisory services for various other clients, including other investment companies. The Sub-Advisor will report to the Board of Trustees of the Trust (at regular quarterly meetings and at such other times as such Board of Trustees reasonably shall request) (i) the financial condition and prospects of the Sub-Advisor, (ii) the nature and amount of transactions affecting the Fund that involve the Sub-Advisor and affiliates of the Sub-Advisor, (iii) information regarding any potential conflicts of interest arising by reason of its continuing provision of advisory services to the Fund and to its other accounts, and (iv) such other information as the Board of Trustees shall reasonably request regarding the Fund, the Fund's performance, the services provided by the Sub-Advisor to the Fund as compared to its other accounts and the plans of, and the capability of, the Sub-Advisor with respect to providing future services to the Fund and its other accounts. At least annually, the Sub-Advisor shall report to the Trustees the total number and type of such other accounts and the approximate total asset value thereof (but not the identities of the beneficial owners of such accounts). The Sub-Advisor agrees to submit to the Trust a statement defining its policies with respect to the allocation of business among the Fund and its other clients.
It is understood that the Sub-Advisor may become interested in the Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's statement of financial condition) and will hereafter supply to the Advisor, promptly upon the preparation thereof, copies of all amendments or restatements of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name of the Sub-Advisor in any prospectus, sales literature or other material relating to the Advisor or the Trust in any manner not approved in advance by the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses of its name which merely refer in accurate terms to its appointment hereunder or which are required by the SEC or a state securities commission; and provided further, that in no event shall such approval be unreasonably withheld. The Sub-Advisor shall not use the name of the Advisor or the Trust in any material relating to the Sub-Advisor in any manner not approved in advance by the Advisor or the Trust, as the case may be; provided, however, that the Advisor and the Trust shall each approve all uses of their respective names which merely refer in accurate terms to the appointment of the Sub-Advisor hereunder or which
are required by the SEC or a state securities commission; and, provided further, that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful misfeasance, bad faith, gross negligence, or reckless disregard of obligations or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be subject to liability to the Advisor, the Trust or to any shareholder in the Fund for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. As used in this Section 6, the term "Sub-Advisor" shall include the Sub-Advisor and/or any of its affiliates and the directors, officers and employees of the Sub-Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that it has received notice of and accepts the limitations upon the Trust's liability set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under the Advisory Agreement) shall be limited in any event to the assets of the Fund and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from the holders of shares of the Fund nor from any Trustee, officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or errors occurring by reason of circumstances beyond its control, including but not limited to acts of civil or military authority, national emergencies, work stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or failure of communication or power supply. In the event of equipment breakdowns beyond its control, the Sub-Advisor shall take reasonable steps to minimize service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner terminated as hereinafter provided for a period of one year from the date hereof and it shall continue thereafter provided that such continuance is specifically approved by the parties and, in addition, at least annually by (i) the vote of the holders of a majority of the outstanding voting securities (as herein defined) of the Fund or by vote of a majority of the Trust's Board of Trustees and (ii) by the vote of a majority of the Trustees who are not parties to this Agreement or interested persons of either the Advisor or the Sub-Advisor, cast in person at a meeting called for the purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a vote of the majority of the outstanding voting securities of the Fund, in any such case upon not less than 60 days' prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60 days' prior written notice to the Advisor and the Trust. This Agreement shall terminate automatically in the event of its assignment.
c. This Agreement may be amended at any time by the parties hereto, subject to approval by the Trust's Board of Trustees and, if required by applicable SEC rules and regulations, a vote of the majority of the outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the outstanding voting securities" shall have the meaning set forth for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or shall be found to be invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing addressed and delivered personally (or by telecopy) or mailed postage-paid, to the other party at such address as such other party may designate in accordance with this paragraph for the receipt of such notice. Until further notice to the other party, it is agreed that the address of the Trust and that of the Advisor for this purpose shall be 221 East Fourth Street, Cincinnati, Ohio 45202 and that the address of the Sub-Advisor shall be 420 East Fourth Street, Cincinnati, Ohio 45202.
12. MISCELLANEOUS. Each party agrees to perform such further actions and execute such further documents as are necessary to effectuate the purposes hereof. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Ohio. The captions in this Agreement are included for convenience only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
By: /s/ Patrick T. Bannigan
-------------------------
Name: Patrick T. Bannigan
Title: Senior Vice President
By: /s/ Augustine A. Long By: /s/ William F. Ledwin
------------------------ --------------------------
Name: Augustine A. Long Name: William F. Ledwin
Title: Managing Director Title: President
Marketing
|
SUB-ADVISORY AGREEMENT
ENHANCED 30 FUND
TOUCHSTONE STRATEGIC TRUST
This SUB-ADVISORY AGREEMENT is made as of May 1, 2000, amended December 31, 2002, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and TODD INVESTMENT ADVISORS, INC., a Kentucky corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the Investment Advisers Act of 1940, as amended, and has been retained by Touchstone Strategic Trust (the "Trust"), a Massachusetts business trust organized pursuant to an Agreement and Declaration of Trust dated November 18, 1982 and registered as an open-end diversified management investment company under the Investment Company Act of 1940 (the "1940 Act"), to provide investment advisory services to the Enhanced 30 Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it with portfolio management services in connection with the Advisor's investment advisory activities on behalf of the Fund, and the Sub-Advisor is willing to furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the Investment Advisory Agreement between the Trust and the Advisor, attached hereto as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the Sub-Advisor to manage the investment and reinvestment of those assets of the Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control and direction of the Advisor and the Trust's Board of Trustees, for the period and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such employment and agrees during such period to render the services and to perform the duties called for by this Agreement for the compensation herein provided. The Sub-Advisor shall at all times maintain its registration as an investment advisor under the Investment Advisers Act of 1940 and shall otherwise comply in all material respects with all applicable laws and regulations, both state and federal. The Sub-Advisor shall for all purposes herein be deemed an independent contractor and shall, except as expressly provided or authorized (whether herein or otherwise), have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust or the Fund.
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the assets of the Fund, subject to and in accordance with the investment objectives, policies and restrictions of the Fund and any directions which the Advisor or the Trust's Board of Trustees may give from time to time with respect to the Fund. In furtherance of the foregoing, the Sub-Advisor will make all determinations with respect to the investment of the assets of the Fund and the purchase and sale of portfolio securities and shall take such steps as may be necessary or advisable to implement the same. The Sub-Advisor also will determine the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the portfolio securities will be exercised. The Sub-Advisor will render regular reports to the Trust's Board of Trustees and to the Advisor (or such other advisor or advisors as the Advisor shall engage to assist it in the evaluation of the performance and activities of the Sub-Advisor). Such reports shall be made in such form and manner and with respect to such matters regarding the Fund and the Sub-Advisor as the Trust or the Advisor shall from time to time request.
b. The Sub-Advisor shall provide support to the Advisor with respect to the marketing of the Fund, including but not limited to: (i) permission to use the Sub-Advisor's name as provided in Section 5, (ii) permission to use the past performance and investment history of the Sub-Advisor as the same is applicable to the Fund, (iii) access to the individual(s) responsible for day-to-day management of the Fund for marketing conferences, teleconferences and other activities involving the promotion of the Fund, subject to the reasonable request of the Advisor, (iv) permission to use biographical and historical data of the Sub-Advisor and individual manager(s), and (v) permission to use the names of clients to which the Sub-Advisor provides investment management services, subject to any restrictions imposed by clients on the use of such names.
c. The Sub-Advisor will, in the name of the Fund, place orders for the execution of all portfolio transactions in accordance with the policies with respect thereto set forth in the Trust's registration statements under the 1940 Act and the Securities Act of 1933, as such registration statements may be in effect from time to time. In connection with the placement of orders for the execution of portfolio transactions, the Sub-Advisor will create and maintain all necessary brokerage records of the Fund in accordance with all applicable laws, rules and regulations, including but not limited to records required by Section 31(a) of the 1940 Act. All records shall be the property of the Trust and shall be available for inspection and use by the Securities and Exchange Commission (the "SEC"), the Trust or any person retained by the Trust. Where applicable, such records shall be maintained by the Advisor for the periods and in the places required by Rule 31a-2 under the 1940 Act. When placing orders with brokers and dealers, the Sub-Advisor's primary objective shall be to obtain the most favorable price and execution available for the Fund, and in placing such orders the Sub-Advisor may consider a number of factors, including, without limitation, the overall direct net economic result to the Fund (including commissions, which may not be the lowest available but ordinarily should not be higher
than the generally prevailing competitive range), the financial strength and stability of the broker, the efficiency with which the transaction will be effected, the ability to effect the transaction at all where a large block is involved and the availability of the broker or dealer to stand ready to execute possibly difficult transactions in the future. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking the most favorable price and execution, the Sub-Advisor may give consideration to sales of shares of the Fund as a factor in the selection of brokers and dealers to execute portfolio transactions of the Fund. The Sub-Advisor is specifically authorized, to the extent authorized by law (including, without limitation, Section 28(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), to pay a broker or dealer who provides research services to the Sub-Advisor an amount of commission for effecting a portfolio transaction in excess of the amount of commission another broker or dealer would have charged for effecting such transaction, in recognition of such additional research services rendered by the broker or dealer, but only if the Sub-Advisor determines in good faith that the excess commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer viewed in terms of the particular transaction or the Sub-Advisor's overall responsibilities with respect to discretionary accounts that it manages, and that the Fund derives or will derive a reasonably significant benefit from such research services. The Sub-Advisor will present a written report to the Board of Trustees of the Trust, at least quarterly, indicating total brokerage expenses, actual or imputed, as well as the services obtained in consideration for such expenses, broken down by broker-dealer and containing such information as the Board of Trustees reasonably shall request.
d. In the event of any reorganization or other change in the Sub-Advisor, its investment principals, supervisors or members of its investment (or comparable) committee, the Sub-Advisor shall give the Advisor and the Trust's Board of Trustees written notice of such reorganization or change within a reasonable time (but not later than 30 days) after such reorganization or change.
e. The Sub-Advisor will bear its expenses of providing services to the Fund pursuant to this Agreement except such expenses as are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the investment and reinvestment of such assets so as to comply with the provisions of the 1940 Act and with Subchapter M of the Internal Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties undertaken hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor a monthly fee equal on an annual basis to 0.40% on the first $100 million of the Fund's average daily net assets; 0.35% on the next $100 million of average daily net assets; 0.30% on the next $100 million of average daily net assets; and 0.25% of such assets in excess of $300
million If the Sub-Advisor serves in such capacity for less than the whole of any period specified in this Section 3a, the compensation to the Sub-Advisor shall be prorated. For purposes of calculating the Sub-Advisor's fee, the daily value of the Fund's net assets shall be computed by the same method as the Trust uses to compute the net asset value of the Fund for purposes of purchases and redemptions of shares thereof.
b. The Sub-Advisor reserves the right to waive all or a part of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor may perform investment advisory services for various other clients, including other investment companies. The Sub-Advisor will report to the Board of Trustees of the Trust (at regular quarterly meetings and at such other times as such Board of Trustees reasonably shall request) (i) the financial condition and prospects of the Sub-Advisor, (ii) the nature and amount of transactions affecting the Fund that involve the Sub-Advisor and affiliates of the Sub-Advisor, (iii) information regarding any potential conflicts of interest arising by reason of its continuing provision of advisory services to the Fund and to its other accounts, and (iv) such other information as the Board of Trustees shall reasonably request regarding the Fund, the Fund's performance, the services provided by the Sub-Advisor to the Fund as compared to its other accounts and the plans of, and the capability of, the Sub-Advisor with respect to providing future services to the Fund and its other accounts. At least annually, the Sub-Advisor shall report to the Trustees the total number and type of such other accounts and the approximate total asset value thereof (but not the identities of the beneficial owners of such accounts). The Sub-Advisor agrees to submit to the Trust a statement defining its policies with respect to the allocation of business among the Fund and its other clients.
It is understood that the Sub-Advisor may become interested in the Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's statement of financial condition) and will hereafter supply to the Advisor, promptly upon the preparation thereof, copies of all amendments or restatements of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name of the Sub-Advisor in any prospectus, sales literature or other material relating to the Advisor or the Trust in any manner not approved in advance by the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses of its name which merely refer in accurate terms to its appointment hereunder or which are required by the SEC or a state securities commission; and provided further, that in no event shall such approval be unreasonably withheld. The Sub-Advisor shall not use the name of the Advisor or the Trust in any material relating to the Sub-Advisor in any manner not approved in advance by the Advisor or the Trust, as the case may be; provided, however, that the Advisor and the Trust shall each approve all uses of their respective names which merely refer in accurate terms to the appointment of the Sub-Advisor hereunder or which
are required by the SEC or a state securities commission; and, provided further, that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful misfeasance, bad faith, gross negligence, or reckless disregard of obligations or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be subject to liability to the Advisor, the Trust or to any shareholder in the Fund for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. As used in this Section 6, the term "Sub-Advisor" shall include the Sub-Advisor and/or any of its affiliates and the directors, officers and employees of the Sub-Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that it has received notice of and accepts the limitations upon the Trust's liability set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under the Advisory Agreement) shall be limited in any event to the assets of the Fund and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from the holders of shares of the Fund nor from any Trustee, officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or errors occurring by reason of circumstances beyond its control, including but not limited to acts of civil or military authority, national emergencies, work stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or failure of communication or power supply. In the event of equipment breakdowns beyond its control, the Sub-Advisor shall take reasonable steps to minimize service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner terminated as hereinafter provided for a period of one year from the date hereof and it shall continue thereafter provided that such continuance is specifically approved by the parties and, in addition, at least annually by (i) the vote of the holders of a majority of the outstanding voting securities (as herein defined) of the Fund or by vote of a majority of the Trust's Board of Trustees and (ii) by the vote of a majority of the Trustees who are not parties to this Agreement or interested persons of either the Advisor or the Sub-Advisor, cast in person at a meeting called for the purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a vote of the majority of the outstanding voting securities of the Fund, in any such case upon not less than 60 days' prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60 days' prior written notice to the Advisor and the Trust. This Agreement shall terminate automatically in the event of its assignment.
c. This Agreement may be amended at any time by the parties hereto, subject to approval by the Trust's Board of Trustees and, if required by applicable SEC rules and regulations, a vote of the majority of the outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the outstanding voting securities" shall have the meaning set forth for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or shall be found to be invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing addressed and delivered personally (or by telecopy) or mailed postage-paid, to the other party at such address as such other party may designate in accordance with this paragraph for the receipt of such notice. Until further notice to the other party, it is agreed that the address of the Trust and that of the Advisor for this purpose shall be 221 East Fourth Street, Cincinnati, Ohio 45202 and that the address of the Sub-Advisor shall be 3160 National City Tower, Louisville, Kentucky 40202.
12. MISCELLANEOUS. Each party agrees to perform such further actions and execute such further documents as are necessary to effectuate the purposes hereof. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Ohio. The captions in this Agreement are included for convenience only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
By: /s/ Patrick T. Bannigan -------------------------- Name: Patrick T. Bannigan Title: Senior Vice President |
TODD INVESTMENT ADVISORS, INC.
By: /s/ Robert P. Bordogna
--------------------------
Name: Robert P. Bordogna
Title:President & Chief Executive Officer
|
ADDENDUM TO SUB-ADVISORY AGREEMENT
ENHANCED 30 FUND
TOUCHSTONE STRATEGIC TRUST
This Agreement is entered into as of December 31, 2002 by and between Touchstone Advisors, Inc. ("Touchstone") and Todd Investment Advisors, Inc. ("Todd").
WHEREAS, Touchstone and Todd entered into a Sub-Advisory Agreement dated as of May 1, 2000, amended December 31, 2002, (the "Sub-Advisory Agreement") with respect to the Enhanced 30 Fund (the "Fund"), a series of Touchstone Strategic Trust; and
WHEREAS, Touchstone and Todd wish to enter into this Addendum to the Sub-Advisory Agreement;
NOW, THEREFORE, it is agreed by and between the parties hereto as follows:
1. Todd will waive compensation due to it pursuant to Section 3 of the Sub-Advisory Agreement such that Todd will receive a monthly fee equal on an annual basis to 0.25% of the Fund's average daily net assets until such time as is mutually agreed upon by Touchstone and Todd.
2. Except for the provisions of this Addendum, the Sub-Advisory Agreement shall continue in full force and effect and be binding upon the parties notwithstanding the execution and delivery of this Addendum.
3. This Addendum shall be binding upon the parties and, to the extent permitted by the Sub-Advisory Agreement, their respective successors and assigns.
IN WITNESS WHEREOF, each of the parties hereto has caused this Addendum to be duly executed and delivered in its name and on its behalf by their respective officers thereunto duly authorized, all as of the day and year first above written.
Touchstone Advisors, Inc. Todd Investment Advisors, Inc. By: /s/ Patrick T. Bannigan By: /s/ Bosworth M. Todd -------------------------------- ----------------------------- Print Name: Patrick T. Bannigan Print Name: Bosworth M. Todd Print Title: Senior Vice President Print Title: Chairman Date: December 31, 2002 Date: December 31, 2002 |
THIS AGREEMENT, dated as of February 7, 2003, between Touchstone Investment Trust, Touchstone Strategic Trust, and Touchstone Variable Series Trust, business trusts organized under the laws of the State of Massachusetts, and registered with the Commission under the 1940 Act acting with respect to each series of each Trust (individually a FUND and collectively, the FUNDS), and BROWN BROTHERS HARRIMAN & CO., a limited partnership formed under the laws of the State of New York (BBH&CO. or the CUSTODIAN),
W I T N E S S E T H:
WHEREAS, the Fund wishes to employ BBH&Co. to act as custodian for the Fund and to provide related services, all as provided herein, and BBH&Co. is willing to accept such employment, subject to the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Fund and BBH&Co. hereby agree, as follows:
1. APPOINTMENT OF CUSTODIAN. The Fund hereby appoints BBH&Co. as the Fund's custodian, and BBH&Co. hereby accepts such appointment. All Investments of the Fund delivered to the Custodian or its agents or Subcustodians shall be dealt with as provided in this Agreement. The duties of the Custodian with respect to the Fund's Investments shall be only as set forth expressly in this Agreement which duties are generally comprised of safekeeping and various administrative duties that will be performed in accordance with Instructions and as reasonably required to effect Instructions.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE FUND. The Fund hereby represents, warrants and covenants each of the following:
2.1 This Agreement has been, and at the time of delivery of each Instruction such Instruction will have been, duly authorized, executed and delivered by the Fund. This Agreement does not violate any
Applicable Law or conflict with or constitute a default under the Fund's prospectus or other organic document, agreement, judgment, order or decree to which the Fund is a party or by which it or its Investments is bound.
2.2 By providing an Instruction with respect to the first acquisition of an Investment in a jurisdiction other than the United States of America, the Fund shall be deemed to have confirmed to the Custodian that the Fund has (a) assessed and accepted all material Country or Sovereign Risks and accepted responsibility for their occurrence, (b) made all determinations required to be made by the Fund under the 1940 Act, and (iii) appropriately and adequately disclosed to its shareholders, other investors and all persons who have rights in or to such Investments, all material investment risks, including those relating to the custody and settlement infrastructure or the servicing of securities in such jurisdiction.
2.3 The Fund shall safeguard and shall solely be responsible for the safekeeping of any testkeys, identification codes, passwords, other security devices or statements of account with which the Custodian provides it. In furtherance and not limitation of the foregoing, in the event the Fund utilizes any on-line service offered by the Custodian, the Fund and the Custodian shall be fully responsible for the security of each party's connecting terminal, access thereto and the proper and authorized use thereof and the initiation and application of continuing effective safeguards in respect thereof. Additionally, if the Fund uses any on-line or similar communications service made available by the Custodian, the Fund shall be solely responsible for ensuring the security of its access to the service and for the use of the service, and shall only attempt to access the service and the Custodian's computer systems as directed by the Custodian. If the Custodian provides any computer software to the Fund relating to the services described in this Agreement, the Fund will only use the software for the purposes for which the Custodian provided the software to the Fund, and will abide by the license agreement accompanying the software and any other security policies which the Custodian provides to the Fund.
3. REPRESENTATION AND WARRANTY OF BBH&CO. BBH&Co. hereby represents and warrants that this Agreement has been duly authorized, executed and delivered by BBH&Co. and does not and will not violate any Applicable Law or conflict with or constitute a default under BBH&Co.'s limited partnership agreement or any agreement, instrument, judgment, order or decree to which BBH&Co. is a party or by which it is bound.
4. INSTRUCTIONS. Unless otherwise explicitly indicated herein, the Custodian shall perform its duties pursuant to Instructions. As used herein, the term INSTRUCTION shall mean a directive initiated by the Fund, acting directly or through its board of directors, officers or other Authorized Persons, which directive shall conform to the requirements of this Section 4.
4.1 AUTHORIZED PERSONS. For purposes hereof, an AUTHORIZED PERSON shall be a person or entity authorized to give Instructions for or on behalf of the Fund by written notices to the Custodian or otherwise in accordance with procedures delivered to and acknowledged by the Custodian, including without limitation the Fund's Investment Adviser or Foreign Custody Manager. The Custodian may treat any Authorized Person as having full authority of the Fund to issue Instructions hereunder unless the notice of authorization contains explicit limitations as to said authority. The Custodian shall be entitled to rely upon the authority of Authorized Persons until it receives appropriate written
notice from the Fund to the contrary.
4.2 FORM OF INSTRUCTION. Each Instruction shall be transmitted by such secured or authenticated electro-mechanical means as the Custodian shall make available to the Fund from time to time unless the Fund shall elect to transmit such Instruction in accordance with Subsections 4.2.1 through 4.2.3 of this Section.
4.2.1 FUND DESIGNATED SECURED-TRANSMISSION METHOD. Instructions may be transmitted through a secured or tested electro-mechanical means identified by the Fund or by an Authorized Person entitled to give Instruction and acknowledged and accepted by the Custodian; it being understood that such acknowledgment shall authorize the Custodian to receive and process such means of delivery but shall not represent a judgment by the Custodian as to the reasonableness or security of the method determined by the Authorized Person.
4.2.2 WRITTEN INSTRUCTIONS. Instructions may be transmitted in a writing that bears the manual signature of Authorized Persons.
4.2.3 OTHER FORMS OF INSTRUCTION. Instructions may also be transmitted by another means determined by the Fund or Authorized Persons and acknowledged and accepted by the Custodian (subject to the same limits as to acknowledgements as is contained in Subsection 4.2.1, above) including Instructions given orally or by SWIFT, telex or telefax (whether tested or untested).
When an Instruction is given by means established under Subsections 4.2.1 through 4.2.3 above, it shall be the responsibility of the Custodian to use reasonable care to adhere to any security or other procedures established in writing between the Custodian and the Authorized Person with respect to such means of Instruction, but such Authorized Person shall be solely responsible for determining that the particular means chosen is reasonable under the circumstances. Oral Instructions shall be binding upon the Custodian only if and when the Custodian takes action with respect thereto. With respect to telefax instructions, the parties agree and acknowledge that receipt of legible instructions cannot be assured, that the Custodian cannot verify that authorized signatures on telefax instructions are original or properly affixed, and that the Custodian shall not be liable for losses or expenses incurred through actions taken in reliance on inaccurately stated, illegible or unauthorized telefax instructions. The provisions of Section 4A of the Uniform Commercial Code shall apply to Funds Transfers performed in accordance with Instructions. The Funds Transfer Services Schedule and the Electronic and Online Services Schedule to this Agreement shall comprise a designation of form of a means of delivering Instructions for purposes of this Section 4.2.
4.3 COMPLETENESS AND CONTENTS OF INSTRUCTIONS. The Authorized Person shall be responsible for assuring the adequacy and accuracy of Instructions. Particularly, upon any acquisition or disposition or other dealing in the Fund's Investments and upon any delivery and transfer of any Investment or moneys, the person initiating such Instruction shall give the Custodian an Instruction with appropriate detail, including, without limitation:
4.3.1 The transaction date and the date and location of settlement;
4.3.2 The specification of the type of transaction;
4.3.3 A description of the Investments or moneys in question, including, as appropriate, quantity, price per unit, amount of money to be received or delivered and currency information. Where an Instruction is communicated by electronic means, or otherwise where an Instruction contains an identifying number such as a CUSIP, SEDOL or ISIN number, the Custodian shall be entitled to rely on such number as controlling notwithstanding any inconsistency contained in such Instruction, particularly with respect to Investment description; and
4.3.4 The name of the broker or similar entity concerned with execution of the transaction.
If the Custodian shall determine that an Instruction is either unclear or incomplete, the Custodian may give prompt notice of such determination to the Fund, and the Fund shall thereupon amend or otherwise reform such Instruction. In such event, the Custodian shall have no obligation to take any action in response to the Instruction initially delivered until the redelivery of an amended or reformed Instruction
4.4 TIMELINESS OF INSTRUCTIONS. In giving an Instruction, the Fund shall take into consideration delays which may occur due to the involvement of a Subcustodian or agent, differences in time zones, and other factors particular to a given market, exchange or issuer. When the Custodian has established specific timing requirements or deadlines with respect to particular classes of Instruction, or when an Instruction is received by the Custodian at such a time that it could not reasonably be expected to have acted on such instruction due to time zone differences or other factors beyond its reasonable control, the execution of any Instruction received by the Custodian after such deadline or at such time (including any modification or revocation of a previous Instruction) shall be at the risk of the Fund.
5. SAFEKEEPING OF FUND ASSETS. The Custodian shall hold Investments delivered to it or Subcustodians for the Fund in accordance with the provisions of this Section. The Custodian shall not be responsible for (a) the safekeeping of Investments not delivered or that are not caused to be issued to it or its Subcustodians; or, (b) pre-existing faults or defects in Investments that are delivered to the Custodian, or its Subcustodians. The Custodian is hereby authorized to hold with itself or a Subcustodian, and to record in one or more accounts, all Investments delivered to and accepted by the Custodian, any Subcustodian or their respective agents pursuant to an Instruction or in consequence of any corporate action. The Custodian shall hold Investments for the account of the Fund and shall segregate Investments from assets belonging to the Custodian and shall cause its Subcustodians to segregate Investments from assets belonging to the Subcustodian in an account held for the Fund or in an account maintained by the Subcustodian generally for non-proprietary assets of the Custodian.
5.1 USE OF SECURITIES DEPOSITORIES. The Custodian may deposit and maintain Investments in any Securities Depository, either directly or through one or more Subcustodians appointed by the Custodian. Investments held in a Securities Depository shall be held (a) subject to the agreement, rules, statement of terms and conditions or other document or conditions effective between the Securities Depository and the Custodian or the Subcustodian, as the case may be, and (b) in an account for the Fund or in bulk segregation in an account maintained for the non-proprietary assets of the entity holding such Investments in the Depository. If market practice or the rules and regulations of the Securities Depository prevent the Custodian, the Subcustodian or (any agent of either) from holding its client assets in such a separate account, the Custodian, the Subcustodian or other agent shall as appropriate segregate such Investments for benefit of the Fund or for benefit of clients of the Custodian generally on its own books.
5.2 CERTIFICATED ASSETS. Investments which are certificated may be held in registered or bearer form: (a) in the Custodian's vault; (b) in the vault of a Subcustodian or agent of the Custodian or a Subcustodian; or (c) in an account maintained by the Custodian, Subcustodian or agent at a Securities Depository; all in accordance with customary market practice in the jurisdiction in which any Investments are held.
5.3 REGISTERED ASSETS. Investments which are registered may be registered in the name of the Custodian, a Subcustodian, or in the name of the Fund or a nominee for any of the foregoing, and may be held in any manner set forth in paragraph 5.2 above with or without any identification of fiduciary capacity in such registration.
5.4 BOOK ENTRY ASSETS. Investments which are represented by book-entry may be so held in an account maintained by the Book-entry Agent on behalf of the Custodian, a Subcustodian or another agent of the Custodian, or a Securities Depository.
5.5 REPLACEMENT OF LOST INVESTMENTS. In the event of a loss of Investments for which the Custodian is responsible under the terms of this Agreement, the Custodian shall replace such Investment, or in the event that such replacement cannot be effected, the Custodian shall pay to the Fund the fair market value of such Investment based on the last available price as of the close of business in the relevant market on the date that a claim was first made to the Custodian with respect to such loss, or, if less, such other amount as shall be agreed by the parties as the date for settlement.
6. ADMINISTRATIVE DUTIES OF THE CUSTODIAN. The Custodian shall perform the following administrative duties with respect to Investments of the Fund.
6.1 PURCHASE OF INVESTMENTS. Pursuant to Instruction, Investments purchased for the account of the Fund shall be paid for (a) against delivery thereof to the Custodian or a Subcustodian, as the case may be, either directly or through a Clearing Corporation or a Securities Depository (in accordance with the rules of such Securities Depository or such Clearing Corporation), or (b) otherwise in accordance with an Instruction, Applicable Law, generally accepted trade practices, or the terms of the instrument representing such
6.2 SALE OF INVESTMENTS. Pursuant to Instruction, Investments sold for the account of the Fund shall be delivered (a) against payment therefor in cash, by check or by bank wire transfer, (b) by credit to the account of the Custodian or the applicable Subcustodian, as the case may be, with a Clearing Corporation or a Securities Depository (in accordance with the rules of such Securities Depository or such Clearing Corporation), or (c) otherwise in accordance with an Instruction, Applicable Law, generally accepted trade practices, or the terms of the instrument representing such Investment.
6.3 DELIVERY AND RECEIPT IN CONNECTION WITH BORROWINGS OF THE FUND OR OTHER COLLATERAL AND MARGIN REQUIREMENTS. Pursuant to Instruction, the Custodian may deliver or receive Investments or cash of the Fund in connection with borrowings or loans by the Fund and other collateral and margin requirements.
6.4 FUTURES AND OPTIONS. If, pursuant to an Instruction, the Custodian shall become a party to an agreement with the Fund and a futures commission merchant regarding margin (TRI-PARTY AGREEMENT), the Custodian shall (a) receive and retain, to the extent the same are provided to the Custodian, confirmations or other documents evidencing the purchase or sale by the Fund of exchange-traded futures contracts and commodity options, (b) when required by such Tri-Party Agreement, deposit and maintain in an account opened pursuant to such Agreement (MARGIN ACCOUNT), segregated either physically or by book-entry in a Securities Depository for the benefit of any futures commission merchant, such Investments as the Fund shall have designated as initial, maintenance or variation "margin" deposits or other collateral intended to secure the Fund's performance of its obligations under the terms of any exchange-traded futures contracts and commodity options; and (c) thereafter pay, release or transfer Investments into or out of the margin account in accordance with the provisions of such Agreement. Alternatively, the Custodian may deliver Investments, in accordance with an Instruction, to a futures commission merchant for purposes of margin requirements in accordance with Rule 17f-6. The Custodian shall in no event be responsible for the acts and omissions of any futures commission merchant to whom Investments are delivered pursuant to this Section; for the sufficiency of Investments held in any Margin Account; or, for the performance of any terms of any exchange-traded futures contracts and commodity options.
6.5 CONTRACTUAL OBLIGATIONS AND SIMILAR INVESTMENTS. From time to time, the
Fund's Investments may
include Investments that are not ownership interests as may be represented by certificate (whether registered or bearer), by entry in a Securities Depository or by book entry agent, registrar or similar agent for recording ownership interests in the relevant Investment. If the Fund shall at any time acquire such Investments, including without limitation deposit obligations, loan participations, repurchase agreements and derivative arrangements, the Custodian shall (a) receive and retain, to the extent the same are provided to the Custodian, confirmations or other documents evidencing the arrangement; and (b) perform on the Fund's account in accordance with the terms of the applicable arrangement, but only to the extent directed to do so by Instruction. The Custodian shall have no responsibility for agreements running to the Fund as to which it is not a party other than to retain, to the extent the same are provided to the Custodian, documents or copies of documents evidencing the arrangement and, in accordance with Instruction, to include such arrangements in reports made to the Fund.
6.6 EXCHANGE OF SECURITIES. Unless otherwise directed by Instruction, the Custodian shall: (a) exchange securities held for the account of the Fund for other securities in connection with any reorganization, recapitalization, conversion, split-up, change of par value of shares or similar event, and (b) deposit any such securities in accordance with the terms of any reorganization or protective plan.
6.7 SURRENDER OF SECURITIES. Unless otherwise directed by Instruction, the Custodian may surrender securities: (a) in temporary form for definitive securities; (b) for transfer into the name of an entity allowable under Section 5.3; and (c) for a different number of certificates or instruments representing the same number of shares or the same principal amount of indebtedness.
6.8 RIGHTS, WARRANTS, ETC. Pursuant to Instruction, the Custodian shall (a) deliver warrants, puts, calls, rights or similar securities to the issuer or trustee thereof, or to any agent of such issuer or trustee, for purposes of exercising such rights or selling such securities, and (b) deposit securities in response to any invitation for the tender thereof.
6.9 MANDATORY CORPORATE ACTIONS. Unless otherwise directed by Instruction, the Custodian shall: (a) comply with the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions or similar rights of securities ownership affecting securities held on the Fund's account and promptly notify the Fund of such action; and (b) collect all stock dividends, rights and other items of like nature with respect to such securities.
6.10 INCOME COLLECTION. Unless otherwise directed by Instruction, the Custodian shall collect any amount due and payable to the Fund with respect to Investments and promptly credit the amount collected to a Principal or Agency Account; provided, however, that the Custodian shall not be responsible for: (a) the collection of amounts due and payable with respect to Investments that are in default; or (b) the collection of cash or share entitlements with
respect to Investments that are not registered in the name of the Custodian or its Subcustodians. The Custodian is hereby authorized to endorse and deliver any instrument required to be so endorsed and delivered to effect collection of any amount due and payable to the Fund with respect to Investments.
6.11 OWNERSHIP CERTIFICATES AND DISCLOSURE OF THE FUND'S INTEREST. The Custodian is hereby authorized to execute on behalf of the Fund ownership certificates, affidavits or other disclosure required under Applicable Law or established market practice in connection with the receipt of income, capital gains or other payments by the Fund with respect to Investments, or in connection with the sale, purchase or ownership of Investments.
With respect to securities issued in the United States of America, the Custodian [ ] may [ ] may not release the identity of the Fund to an issuer which requests such information pursuant to the Shareholder Communications Act of 1985 for the specific purpose of direct communications between such issuer and the Fund. IF NO BOX IS CHECKED, THE CUSTODIAN SHALL RELEASE SUCH INFORMATION UNTIL IT RECEIVES CONTRARY INSTRUCTIONS FROM THE FUND. With respect to securities issued outside of the United States of America, information shall be released in accordance with law or custom of the particular country in which such security is located.
6.12 PROXY MATERIALS. The Custodian shall deliver, or cause to be delivered, to the Fund proxy forms, notices of meeting, and any other notices or announcements materially affecting or relating to Investments received by the Custodian or any nominee.
6.13. TAXES. The Custodian shall, where applicable, assist the Fund in the reclamation of taxes withheld on dividends and interest payments received by the Fund. In the performance of its duties with respect to tax withholding and reclamation, the Custodian shall be entitled to rely on the advice of counsel and upon information and advice regarding the Fund's tax status that is received from or on behalf of the Fund without duty of separate inquiry.
6.14 OTHER DEALINGS. The Custodian shall otherwise act as directed by Instruction, including without limitation effecting the free payments of moneys or the free delivery of securities, provided that such Instruction shall indicate the purpose of such payment or delivery and that the Custodian shall record the party to whom such payment or delivery is made.
The Custodian shall attend to all nondiscretionary details in connection with the sale or purchase or other administration of Investments, except as otherwise directed by an Instruction, and may make payments to itself or others for minor expenses of administering Investments under this Agreement; provided that the Fund shall have the right to request an accounting with respect to such expenses.
In fulfilling the duties set forth in Sections 6.6 through 6.10 above, the Custodian shall provide to the Fund all
material information pertaining to a corporate action which the Custodian actually receives; provided that the Custodian shall not be responsible for the completeness or accuracy of such information. Information relative to any pending corporate action made available to the Fund via any of the services described in the Electronic and Online Services Schedule shall constitute delivery of such information by the Custodian hereunder. Any advance credit of cash or shares expected to be received as a result of any corporate action shall be subject to actual collection and may, when the Custodian deems collection unlikely, be reversed by the Custodian.
The Custodian may at any time or times in its discretion appoint (and may at any time remove) agents (other than Subcustodians) to carry out some or all of the administrative provisions of this Agreement (AGENTS), provided, however, that the appointment of such agent shall not relieve the Custodian of its administrative obligations under this Agreement.
7. CASH ACCOUNTS, DEPOSITS AND MONEY MOVEMENTS. Subject to the terms and conditions set forth in this Section 7, the Fund hereby authorizes the Custodian to open and maintain, with itself or with Subcustodians, cash accounts in United States Dollars, in such other currencies as are the currencies of the countries in which the Fund maintains Investments or in such other currencies as the Fund shall from time to time request by Instruction.
7.1 TYPES OF CASH ACCOUNTS. Cash accounts opened on the books of the Custodian (PRINCIPAL ACCOUNTS) shall be opened in the name of the Fund. Such accounts collectively shall be a deposit obligation of the Custodian and shall be subject to the terms of this Section 7 and the general liability provisions contained in Section 10. Cash accounts opened on the books of a Subcustodian may be opened in the name of the Fund or the Custodian or in the name of the Custodian for its customers generally (AGENCY ACCOUNTS). Such deposits shall be obligations of the Subcustodian and shall be treated as an Investment of the Fund. Accordingly, the Custodian shall be responsible for exercising reasonable care in the administration of such accounts but shall not be liable for their repayment in the event such Subcustodian, by reason of its bankruptcy, insolvency or otherwise, fails to make repayment.
7.2 PAYMENTS AND CREDITS WITH RESPECT TO THE CASH ACCOUNTS. The Custodian shall make payments from or deposits to any of said accounts in the course of carrying out its administrative duties, including but not limited to income collection with respect to the Fund's Investments, and otherwise in accordance with Instructions. The Custodian
and its Subcustodians shall be required to credit amounts to the cash accounts only when moneys are actually received in cleared funds in accordance with banking practice in the country and currency of deposit. Any credit made to any Principal or Agency Account before actual receipt of cleared funds shall be provisional and may be reversed by the Custodian in the event such payment is not actually collected. Unless otherwise specifically agreed in writing by the Custodian or any Subcustodian, all deposits shall be payable only at the branch of the Custodian or Subcustodian where the deposit is made or carried.
7.3 CURRENCY AND RELATED RISKS. The Fund bears risks of holding or
transacting in any currency. The Custodian shall not be liable for any loss or
damage arising from the applicability of any law or regulation now or hereafter
in effect, or from the occurrence of any event, which may delay or affect the
transferability, convertibility or availability of any currency in the country
(a) in which such Principal or Agency Accounts are maintained or (b) in which
such currency is issued, and in no event shall the Custodian be obligated to
make payment of a deposit denominated in a currency during the period during
which its transferability, convertibility or availability has been affected by
any such law, regulation or event. Without limiting the generality of the
foregoing, neither the Custodian nor any Subcustodian shall be required to repay
any deposit made at a foreign branch of either the Custodian or Subcustodian if
such branch cannot repay the deposit due to a cause for which the Custodian
would not be responsible in accordance with the terms of Section 10 of this
Agreement unless the Custodian or such Subcustodian expressly agrees in writing
to repay the deposit under such circumstances. All currency transactions in any
account opened pursuant to this Agreement are subject to exchange control
regulations of the United States and of the country where such currency is the
lawful currency or where the account is maintained. Any taxes, costs, charges or
fees imposed on the convertibility of a currency held by the Fund shall be for
the account of the Fund.
7.4 FOREIGN EXCHANGE TRANSACTIONS. The Custodian shall, subject to the terms of this Section, settle foreign exchange transactions (including contracts, futures, options and options on futures) on behalf and for the account of the Fund with such currency brokers or banking institutions, including Subcustodians, as the Fund may direct pursuant to Instructions. The Custodian may act as principal in any foreign exchange transaction with the Fund in accordance with Section 7.4.2 of this Agreement. The obligations of the Custodian in respect of all foreign exchange transactions (whether or not the Custodian shall act as principal in such transaction) shall be contingent on the free, unencumbered transferability of the currency transacted on the actual settlement date of the transaction.
7.4.1 THIRD PARTY FOREIGN EXCHANGE TRANSACTIONS. The Custodian shall process foreign exchange transactions (including without limitation contracts, futures, options, and options on futures), where any third party acts as principal counterparty to the Fund on the same basis it performs
duties as agent for the Fund with respect to any other of the Fund's Investments. Accordingly the Custodian shall only be responsible for delivering or receiving currency on behalf of the Fund in respect of such contracts pursuant to Instructions. The Custodian shall not be responsible for the failure of any counterparty (including any Subcustodian) in such agency transaction to perform its obligations thereunder. The Custodian (a) shall transmit cash and Instructions to and from the currency broker or banking institution with which a foreign exchange contract or option has been executed pursuant hereto, (b) may make free outgoing payments of cash in the form of Dollars or foreign currency without receiving confirmation of a foreign exchange contract or option or confirmation that the countervalue currency completing the foreign exchange contract has been delivered or received or that the option has been delivered or received, and (c) shall hold all confirmations, certificates and other documents and agreements received by the Custodian and evidencing or relating to such foreign exchange transactions in safekeeping. The Fund accepts full responsibility for its use of third-party foreign exchange dealers and for execution of said foreign exchange contracts and options and understands that the Fund shall be responsible for any and all costs and interest charges which may be incurred by the Fund or the Custodian as a result of the failure or delay of third parties to deliver foreign exchange.
7.4.2 FOREIGN EXCHANGE WITH THE CUSTODIAN AS PRINCIPAL. The Custodian may undertake foreign exchange transactions with the Fund as principal as the Custodian and the Fund may agree from time to time. In such event, the foreign exchange transaction will be performed in accordance with the particular agreement of the parties, or in the event a principal foreign exchange transaction is initiated by Instruction in the absence of specific agreement, such transaction will be performed in accordance with the usual commercial terms of the Custodian.
7.5 DELAYS. If no event of Force Majeure shall have occurred and be
continuing and in the event that a delay shall have been caused by the
negligence or willful misconduct of the Custodian in carrying out an Instruction
to credit or transfer cash, the Custodian shall be liable to the Fund: (a) with
respect to Principal Accounts, for interest to be calculated at the rate
customarily paid on such deposit and currency by the Custodian on overnight
deposits at the time the delay occurs for the period from the day when the
transfer should have been effected until the day it is in fact effected; and,
(b) with respect to Agency Accounts, for interest to be calculated at the rate
customarily paid on such deposit and currency by the Subcustodian on overnight
deposits at the time the delay occurs for the period from the day when the
transfer should have been effected until the day it is in fact effected. The
Custodian shall not be liable for delays in carrying out such Instructions to
transfer cash which are not due to the Custodian's own negligence or willful
misconduct.
7.6 ADVANCES. If, for any reason in the conduct of its safekeeping duties pursuant to Section 5 hereof or its administration of the Fund's assets pursuant to Section 6 hereof, the Custodian or any Subcustodian advances monies to facilitate settlement or otherwise for benefit of the Fund (whether or not any Principal or Agency Account shall be overdrawn either during, or at the end of, any Business Day), the Fund hereby does:
7.6.1 acknowledge that the Fund shall have no right or title to any Investments purchased with such Advance save a right to receive such Investments upon: (a) the debit of the Principal or Agency Account; or, (b) if such debit would produce an overdraft in such account, other
reimbursement of the associated Advance;
7.6.2 grant to the Custodian a security interest in all Investments; and,
7.6.3 agree that the Custodian may secure the resulting Advance by perfecting a security interest in all Investments under Applicable Law.
Neither the Custodian nor any Subcustodian shall be obligated to advance monies to the Fund, and in the event that such Advance occurs, any transaction giving rise to an Advance shall be for the account and risk of the Fund and shall not be deemed to be a transaction undertaken by the Custodian for its own account and risk. If such Advance shall have been made by a Subcustodian or any other person, the Custodian may assign the security interest and any other rights granted to the Custodian hereunder to such Subcustodian or other person. If the Fund shall fail to repay when due the principal balance of an Advance and accrued and unpaid interest thereon, the Custodian or its assignee, as the case may be, shall be entitled to utilize the available cash balance in any Agency or Principal Account and to dispose of any Investments to the extent necessary to recover payment of all principal of, and interest on, such Advance in full. The Custodian may assign any rights it has hereunder to a Subcustodian or third party. Any security interest in Investments taken hereunder shall be treated as financial assets credited to securities accounts under Articles 8 and 9 of the Uniform Commercial Code (1997). Accordingly, the Custodian shall have the rights and benefits of a secured creditor that is a securities intermediary under such Articles 8 and 9.
7.7 INTEGRATED ACCOUNT. For purposes hereof, deposits maintained in all Principal Accounts (whether or not denominated in Dollars) shall collectively constitute a single and indivisible current account with respect to the Fund's obligations to the Custodian, or its assignee, and balances in such Principal Accounts shall be available for satisfaction of the Fund's obligations under this Section 7. The Custodian shall further have a right of offset against the balances in any Agency Account maintained hereunder to the extent that the aggregate of all Principal Accounts is overdrawn.
8. SUBCUSTODIANS AND SECURITIES DEPOSITORIES. Subject to the provisions hereinafter set forth in this Section 8, the Fund hereby authorizes the Custodian to utilize Securities Depositories to act on behalf of the Fund and to appoint
from time to time and to utilize Subcustodians. With respect to securities and funds held by a Subcustodian, either directly or indirectly (including by a Securities Depository or Clearing Corporation), notwithstanding any provisions of this Agreement to the contrary, payment for securities purchased and delivery of securities sold may be made prior to receipt of securities or payment, respectively, and securities or payment may be received in a form, in accordance with (a) governmental regulations, (b) rules of Securities Depositories and clearing agencies, (c) generally accepted trade practice in the applicable local market, (d) the terms and characteristics of the particular Investment, or (e) the terms of Instructions.
8.1 DOMESTIC SUBCUSTODIANS AND SECURITIES DEPOSITORIES. The Custodian may deposit and/or maintain, either directly or through one or more agents appointed by the Custodian, Investments of the Fund in any Securities Depository in the United States, including The Depository Trust Company, provided such Depository meets applicable requirements of the Federal Reserve Bank or of the Securities and Exchange Commission. The Custodian may, at any time and from time to time, appoint any bank as defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act on behalf of the Fund as a Subcustodian for purposes of holding Investments of the Fund in the United States.
8.2 FOREIGN SUBCUSTODIANS AND SECURITIES DEPOSITORIES. Unless instructed otherwise by the Fund, the Custodian may deposit and/or maintain non-U.S. Investments of the Fund in any non-U.S. Securities Depository provided such Securities Depository meets the requirements of an "eligible securities depository" under Rule 17f-7 promulgated under the 1940 Act, or any successor rule or regulation ("Rule 17f-7") or which by order of the Securities and Exchange Commission is exempted therefrom. Prior to the time that securities are placed with such depository, but subject to the provisions of Section 8.2.4 below, the Custodian shall have prepared an assessment of the custody risks associated with maintaining assets with the Securities Depository and shall have established a system to monitor such risks on a continuing basis in accordance with subsection 8.2.3 of this Section. Additionally, the Custodian may, at any time and from time to time, appoint (a) any bank, trust company or other entity meeting the requirements of an "eligible foreign custodian" under Rule 17f-5 or which by order of the Securities and Exchange Commission is exempted therefrom, or (b) any bank as defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act on behalf of the Fund as a Subcustodian for purposes of holding Investments of the Fund outside the United States. Such appointment of foreign Subcustodians
shall be subject to approval of the Fund in accordance with Subsections 8.2.1 and 8.2.2 hereof, and use of non-U.S. Securities Depositories shall be subject to the terms of Subsections 8.2.3 and 8.2.4 hereof. An Instruction to open an account in a given country shall comprise authorization of the Custodian to hold assets in such country in accordance with the terms of this Agreement. The Custodian shall not be required to make independent inquiry as to the authorization of the Fund to invest in such country.
8.2.1 BOARD APPROVAL OF FOREIGN SUBCUSTODIANS. Unless and except to the extent that the Board has delegated to and the Custodian has accepted delegation of review of certain matters concerning the appointment of Subcustodians pursuant to Subsection 8.2.2 below, the Custodian shall, prior to the appointment of any Subcustodian for purposes of holding Investments of the Fund outside the United States, obtain written confirmation of the approval of the Board of Trustees or Directors of the Fund with respect to (a) the identity of a Subcustodian, and (b) the Subcustodian agreement which shall govern such appointment, such approval to be signed by an Authorized Person.
8.2.2 DELEGATION OF BOARD REVIEW OF SUBCUSTODIANS. From time to time, the Custodian may agree to perform certain reviews of Subcustodians and of Subcustodian Contracts as delegate of the Fund's Board. In such event, the Custodian's duties and obligations with respect to this delegated review will be performed in accordance with the terms of the attached 17f-5 Delegation Schedule to this Agreement.
8.2.3 MONITORING AND RISK ASSESSMENT OF SECURITIES DEPOSITORIES. Prior to the placement of any assets of the Fund with a non-U.S. Securities Depository, the Custodian: (a) shall provide to the Fund or its authorized representative an assessment of the custody risks associated with maintaining assets within such Securities Depository; and (b) shall have established a system to monitor the custody risks associated with maintaining assets with such Securities Depository on a continuing basis and to promptly notify the Fund or its Investment Adviser of any material changes in such risk. In performing its duties under this subsection, the Custodian shall use reasonable care and may rely on such reasonable sources of information as may be available including but not limited to: (i) published ratings; (ii) information supplied by a Subcustodian that is a participant in such Securities Depository; (iii) industry surveys or publications; (iv) information supplied by the depository itself, by its auditors (internal or external) or by the relevant Foreign Financial Regulatory Authority. It is acknowledged that information procured through some or all of these sources may not be independently verifiable by the Custodian and that direct access to Securities Depositories is limited under most circumstances. Accordingly, the Custodian shall not be responsible for errors or omissions in its duties hereunder provided that it has performed its monitoring and assessment duties with reasonable care. The risk assessment shall be provided to the Fund or its Investment Advisor by such means as the Custodian shall reasonably establish. Advices of material change in such assessment may be provided by the Custodian in the manner established as customary between the Fund and the Custodian for transmission of material market information.
8.2.4 SPECIAL TRANSITIONAL RULE. It is acknowledged that Rule 17f-7 has an effective date of July 1, 2001 and that the Custodian will require a period of time to fully prepare risk assessment information and to establish a risk monitoring system as provided in Subsection 8.2.3 above. Accordingly, until July 1, 2001, the Custodian shall use reasonable efforts to implement the measures required by Subsection 8.2.3, and shall in the interim provide to the Fund or its Investment Advisor the depository information customarily provided and shall promptly inform the Fund or its Investment Advisor of any material development affecting the custody risks associated with the maintenance of assets with a particular Securities Depository of which it becomes aware in the course of its general duties under this Agreement or from its duties under Subsection 8.2.3 above as such duties have been implemented at any given time.
8.3 RESPONSIBILITY FOR SUBCUSTODIANS. Except as provided in the last sentence of this Section 8.3, the Custodian shall be liable to the Fund for any loss or damage to the Fund caused by or resulting from the acts or omissions of any Subcustodian to the extent that such acts or omissions would be deemed to be negligence, gross negligence or willful misconduct in accordance with the terms of the relevant subcustodian agreement under the laws, circumstances and practices prevailing in the place where the act or omission occurred. The liability of the Custodian in respect of the countries and subcustodians so designated by the Custodian, from time to time, on the Global Custody Network Listing, shall be subject to the additional condition that the Custodian actually recovers such loss or damage from the Subcustodian.
8.4 NEW COUNTRIES. The Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed investment which is to be held in a country in which no Subcustodian is authorized to act in order that the Custodian shall, if it deems appropriate to do so, have sufficient time to establish a subcustodial arrangement in accordance herewith. In the event, however, the Custodian is unable to establish such arrangements prior to the time such investment is to be acquired, the Custodian is authorized to designate at its discretion a local safekeeping agent, and the use of such local safekeeping agent shall be at the sole risk of the Fund, and accordingly the Custodian shall be responsible to the Fund for the actions of such agent if and only to the extent the Custodian shall have recovered from such agent for any damages caused the Fund by such agent.
9. RESPONSIBILITY OF THE CUSTODIAN. In performing its duties and obligations hereunder, the Custodian shall use reasonable care under the facts and circumstances prevailing in the market where performance is effected. Subject to the specific provisions of this Section, the Custodian shall be liable for any direct damage incurred by the Fund in consequence of the Custodian's negligence, bad faith or willful misconduct. In no event shall the Custodian be liable hereunder for any special, indirect, punitive or consequential damages arising out of, pursuant to or in connection with this Agreement even if the Custodian has been advised of the possibility of such damages. It is agreed that the Custodian shall have no duty to assess the risks inherent in the Fund's Investments or to provide investment advice with respect to such Investments and that the Fund as principal shall bear any risks attendant to particular Investments such as failure of counterparty or issuer.
10.1 LIMITATIONS OF PERFORMANCE. The Custodian shall not be responsible under this Agreement for any failure to perform its duties, and shall not liable hereunder for any loss or damage in association with such failure to perform, for or in consequence of the following causes:
10.1.1 FORCE MAJEURE. FORCE MAJEURE shall mean any circumstance or event which is beyond the reasonable control of the Custodian, a Subcustodian or any agent of the Custodian or a Subcustodian and which adversely affects the performance by the Custodian of its obligations hereunder, by the Subcustodian of its obligations under its Subcustody Agreement or by any other agent of the Custodian or the Subcustodian, including any event caused by, arising out of or involving (a) an act of God, (b) accident, fire, water damage or explosion, (c) any computer, system or other equipment failure or malfunction caused by any computer virus or the malfunction or failure of any communications medium, (d) any interruption of the power supply or other utility service, (e) any strike or other work stoppage, whether partial or total, (f) any delay or disruption resulting from or reflecting the occurrence of any Sovereign Risk, (g) any disruption of, or suspension of trading in, the securities, commodities or foreign exchange markets, whether or not resulting from or reflecting the occurrence of any Sovereign Risk, (h) any encumbrance on the transferability of a currency or a currency position on the actual settlement date of a foreign exchange transaction, whether or not resulting from or reflecting the occurrence of any Sovereign Risk, or (i) any other cause similarly beyond the reasonable control of the Custodian.
10.1.2 COUNTRY RISK. COUNTRY RISK shall mean, with respect to the acquisition, ownership, settlement or custody of Investments in a jurisdiction, all risks relating to, or arising in consequence of, systemic and markets factors affecting the acquisition, payment for or ownership of Investments including (a) the prevalence of crime and corruption, (b) the inaccuracy or unreliability of business and financial information, (c) the instability or volatility of banking and financial systems, or the absence or inadequacy of an infrastructure to support such systems, (d) custody and settlement infrastructure of the market in which such Investments are transacted and held, (e) the acts, omissions and operation of any Securities Depository, (f) the risk of the bankruptcy or insolvency of banking agents, counterparties to cash and securities transactions, registrars or transfer agents, and (g) the existence of market conditions which prevent the orderly execution or settlement of transactions or which affect the value of assets.
10.1.3 SOVEREIGN RISK. SOVEREIGN RISK shall mean, in respect of any
jurisdiction, including the United States of America, where Investments is
acquired or held hereunder or under a Subcustody Agreement, (a) any act of
war, terrorism, riot, insurrection or civil commotion, (b) the imposition
of any investment, repatriation or exchange control restrictions by any
Governmental Authority, (c) the confiscation, expropriation or
nationalization of any Investments by any Governmental Authority, whether
de facto or de jure, (iv) any devaluation or revaluation of the currency,
(d) the imposition of taxes, levies or other charges affecting Investments,
(vi) any change in the Applicable Law, or (e) any other economic or
political risk incurred or experienced.
10.2. LIMITATIONS ON LIABILITY. The Custodian shall not be liable for any loss, claim, damage or other liability arising from the following causes:
10.2.1 FAILURE OF THIRD PARTIES. The failure of any third party including: (a) any issuer of Investments or book-entry or other agent of and issuer; (b) any counterparty with respect to any Investment, including any issuer of exchange-traded or other futures, option, derivative or commodities contract; (c) failure of an Investment Advisor, Foreign Custody Manager or other agent of the Fund; or (d) failure of other third parties similarly beyond the control or choice of the Custodian.
10.2.2 INFORMATION SOURCES. The Custodian may rely upon information received from
issuers of Investments or agents of such issuers, information received from Subcustodians and from other commercially reasonable sources such as commercial data bases and the like, but shall not be responsible for specific inaccuracies in such information, provided that the Custodian has relied upon such information in good faith, or for the failure of any commercially reasonable information provider.
10.2.3 RELIANCE ON INSTRUCTION. Action by the Custodian or the Subcustodian in accordance with an Instruction, even when such action conflicts with, or is contrary to any provision of, the Fund's declaration of trust, certificate of incorporation or by-laws, Applicable Law, or actions by the trustees, directors or shareholders of the Fund.
10.2.4 RESTRICTED SECURITIES. The limitations inherent in the rights, transferability or similar investment characteristics of a given Investment of the Fund.
11. INDEMNIFICATION. The Fund hereby indemnifies the Custodian and each Subcustodian, and their respective agents, nominees and the partners, employees, officers and directors, and agrees to hold each of them harmless from and against all claims and liabilities, including counsel fees and taxes, incurred or assessed against any of them in connection with the performance of this Agreement and any Instruction. If a Subcustodian or any other person indemnified under the preceding sentence, gives written notice of claim to the Custodian, the Custodian shall promptly give written notice to the Fund. Not more than thirty (30) days following the date of such notice, unless the Custodian shall be liable under Section 9 hereof in respect of such claim, the Fund will pay the amount of such claim or reimburse the Custodian for any payment made by the Custodian in respect thereof. The Custodian hereby indemnifies the Fund, and its respective agents, nominees and the partners, employees, officers and directors, and agrees to hold each of them harmless from and against all direct claims and liabilities, including reasonable counsel fees and taxes, incurred or assessed against any of them in connection with the performance of this Agreement. Not more than thirty (30) days following the date of written notice of a claim from the Fund to the Custodian, unless the Fund shall be liable in respect of such claim, the Custodian will pay the amount of such claim or reimburse the Fund for any payment made by the Fund in respect thereof.
12. REPORTS AND RECORDS. The Custodian shall:
12.1 create and maintain records relating to the performance of its obligations under this Agreement;
12.2 make available to the Fund, its auditors, agents and employees, during regular business hours of the Custodian, upon reasonable request and during normal business hours of the Custodian, all records
maintained by the Custodian pursuant to paragraph 12.1 above, subject, however, to all reasonable security requirements of the Custodian then applicable to the records of its custody customers generally; and
12.3 make available to the Fund all Electronic Reports; it being understood that the Custodian shall not be liable hereunder for the inaccuracy or incompleteness thereof or for errors in any information included therein.
The Fund shall examine all records, howsoever produced or transmitted, promptly upon receipt thereof and notify the Custodian promptly of any discrepancy or error therein. Unless the Fund delivers written notice of any such discrepancy or error within a reasonable time after its receipt thereof, such records shall be deemed to be true and accurate. It is understood that the Custodian now obtains and will in the future obtain information on the value of assets from outside sources which may be utilized in certain reports made available to the Fund. The Custodian deems such sources to be reliable but it is acknowledged and agreed that the Custodian does not verify nor represent nor warrant as to the accuracy or completeness of such information and accordingly shall be without liability in selecting and using such sources and furnishing such information.
13. MISCELLANEOUS.
13.1 PROXIES, ETC. The Fund will promptly execute and deliver, upon request, such proxies, powers of attorney or other instruments as may be necessary or desirable for the Custodian to provide, or to cause any Subcustodian to provide, custody services.
13.2 ENTIRE AGREEMENT. Except as specifically provided herein, this Agreement (together with any exhibits, schedules or other agreements or documents referenced herein) constitutes the entire agreement between the Fund and the Custodian with respect to the subject matter hereof. Accordingly, this Agreement supersedes any custody agreement or other oral or written agreements heretofore in effect between the Fund and the Custodian with respect to the custody of the Fund's Investments.
13.3 WAIVER AND AMENDMENT. No provision of this Agreement may be waived, amended or modified, and no addendum to this Agreement shall be or become effective, or be waived, amended or modified, except by an instrument in writing executed by the party against which enforcement of such waiver, amendment or modification is sought; provided, however, that an Instruction shall, whether or not such Instruction shall constitute a waiver,
amendment or modification for purposes hereof, shall be deemed to have been accepted by the Custodian when it commences actions pursuant thereto or in accordance therewith.
13.4 GOVERNING LAW AND JURISDICTION. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND BE GOVERNED BY THE LAWS OF, THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW OF SUCH STATE. THE PARTIES HERETO IRREVOCABLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE FEDERAL COURTS LOCATED IN NEW YORK CITY IN THE BOROUGH OF MANHATTAN.
13.5 NOTICES. Notices and other writings contemplated by this Agreement, other than Instructions, shall be delivered (a) by hand, (b) by first class registered or certified mail, postage prepaid, return receipt requested, (c) by a nationally recognized overnight courier, or (d) by facsimile transmission, provided that any notice or other writing sent by facsimile transmission shall also be mailed, postage prepaid, to the party to whom such notice is addressed. All such notices shall be addressed, as follows:
If to the Fund:
Touchstone Investments
221 East Fourth Street, Suite 300
Cincinnati, OH 45202
Mr. Patrick T. Bannigan
Telephone: 513.362.8339
Facsimile 513.362.8319
If to the Custodian:
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Attn: Manager, Securities Department Telephone: (617) 772-1818 Facsimile: (617) 772-2263,
or such other address as the Fund or the Custodian may have designated in writing to the other.
13.6 HEADINGS. Paragraph headings included herein are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof.
13.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. This Agreement shall become effective when one or more counterparts have been signed and delivered by the Fund and the Custodian.
13.8 CONFIDENTIALITY. The parties hereto agree that each shall treat confidentially the terms and conditions of this Agreement and all information provided by each party to the other regarding its business and operations. All confidential information provided by a party hereto shall be used by any other party hereto solely for the purpose of rendering or obtaining services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party without the prior consent of such providing party. The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Agreement, or that is required to be disclosed by or to any bank examiner of the Custodian or any Subcustodian, any Regulatory Authority, any auditor of the parties hereto, or by judicial or administrative process or otherwise by Applicable Law.
13.9 COUNSEL. In fulfilling its duties hereunder, the Custodian shall be entitled to receive and act upon the advice of (i) counsel regularly retained by the Custodian in respect of such matters, (ii) counsel for the Fund or (iii) such counsel as the Fund and the Custodian may agree upon, with respect to all matters, and the Custodian shall be without liability for any action reasonably taken or omitted pursuant to such advice.
13.10 CONFLICT. Nothing contained in this Agreement shall prevent the Custodian and its associates from (i) dealing as a principal or an intermediary in the sale, purchase or loan of the Fund's Investments to, or from the Custodian or its associates; (ii) acting as a custodian, a subcustodian, a trustee, an agent, securities dealer, an investment manager or in any other capacity for any other client whose interests may be adverse to the interest of the Fund; or (iii) buying, holding, lending, and dealing in any way in any assets for the benefit of its own account, or for the account of any other client whose interests may be adverse to the Fund notwithstanding that the same or similar assets may be held or dealt in by, or for the account of the Fund by the Custodian. The Fund hereby voluntarily consents to, and waives any potential conflict of interest between the Custodian and/or its associates and the Fund, and agrees that:
(a) the Custodian's and/or its associates' engagement in any such transaction shall not disqualify the Custodian from continuing to perform as the custodian of the Fund under this Agreement;
(b) the Custodian and/or its associates shall not be under any duty to disclose any information in connection with any such transaction to the Fund;
(c) the Custodian and/or its associates shall not be liable to account to the Fund for any profits or
benefits made or derived by or in connection with any such transaction; and
(d) the Fund shall use all reasonable efforts to disclose this provision, among other provisions in this Agreement, to its shareholders.
14. DEFINITIONS. The following defined terms will have the respective meanings set forth below.
14.1 ADVANCE(S) shall mean any extension of credit by or through the Custodian or by or through any Subcustodian and shall include amounts paid to third parties for account of the Fund or in discharge of any expense, tax or other item payable by the Fund.
14.2 AGENCY ACCOUNT(S) shall mean any deposit account opened on the books of a Subcustodian or other banking institution in accordance with Section 7.1 hereof.
14.3 AGENT(S) shall have the meaning set forth in the last sentence of
Section 6 hereof.
14.4 APPLICABLE LAW shall mean with respect to each jurisdiction, all (a) laws, statutes, treaties, regulations, guidelines (or their equivalents); (b) orders, interpretations licenses and permits; and (c) judgments, decrees, injunctions writs, orders and similar actions by a court of competent jurisdiction; compliance with which is required or customarily observed in such jurisdiction.
14.5 AUTHORIZED PERSON(S) shall mean any person or entity authorized to give Instructions on behalf of the Fund in accordance with Section 4.1 hereof.
14.6 BOOK-ENTRY AGENT(S) shall mean an entity acting as agent for the issuer of Investments for purposes of recording ownership or similar entitlement to Investments, including without limitation a transfer agent or registrar.
14.7 CLEARING CORPORATION shall mean any entity or system established for purposes of providing securities settlement and movement and associated functions for a given market.
14.8 DELEGATION SCHEDULE shall mean any separate schedule entered into between the Custodian and the Fund or its authorized representative with respect to certain matters concerning the appointment and administration of Subcustodians delegated to the Custodian pursuant to Rule 17f-5.
14.9 ELECTRONIC AND ONLINE SERVICES SCHEDULE shall mean any separate schedule to this agreement entered into between the Custodian and the Fund or its authorized representative with respect to certain matters concerning electronic and online services as described therein and as may be made available from time to time by the Custodian to the Fund.
14.10 ELECTRONIC REPORTS shall mean any reports prepared by the Custodian and remitted to the Fund or its
authorized representative via the internet or electronic mail.
14.11 FOREIGN CUSTODY MANAGER shall mean the Fund's foreign custody manager appointed pursuant to Rule 17f-5 of the 1940 Act.
14.12 FOREIGN FINANCIAL REGULATORY AUTHORITY shall have the meaning given by Section 2(a)(50) of the 1940 Act.
14.13 FUNDS TRANSFER SERVICES SCHEDULE shall mean any separate schedule entered into between the Custodian and the Fund or its authorized representative with respect to certain matters concerning the processing of payment orders from Principal Accounts of the Fund.
14.15 GLOBAL CUSTODY NETWORK LISTING shall mean the Countries and Subcustodians approved for Investments in non-U.S. Markets.
14.16 INSTRUCTION(S) shall have the meaning assigned in Section 4 hereof.
14.17 INVESTMENT ADVISOR shall mean any person or entity who is an Authorized Person to give Instructions with respect to the investment and reinvestment of the Fund's Investments.
14.18 INVESTMENT(S) shall mean any investment asset of the Fund, including without limitation securities, bonds, notes, and debentures as well as receivables, derivatives, contractual rights or entitlements and other intangible assets.
14.20 MARGIN ACCOUNT shall have the meaning set forth in Section 6.4 hereof.
14.21 PRINCIPAL ACCOUNT(S) shall mean deposit accounts of the Fund carried on the books of BBH&Co. as principal in accordance with Section 7 hereof.
14.22 SAFEKEEPING ACCOUNT shall mean an account established on the books of the Custodian or any Subcustodian for purposes of segregating the interests of the Fund (or clients of the Custodian or Subcustodian) from the assets of the Custodian or any Subcustodian.
14.23 SECURITIES DEPOSITORY shall mean a central or book entry system or agency established under Applicable Law for purposes of recording the ownership and/or entitlement to investment securities for a given market that, if a foreign Securities Depository, meets the definitional requirements of Rule 17f-7 under the 1940 Act.
14.25 SUBCUSTODIAN(S) shall mean each foreign bank appointed by the Custodian pursuant to Section 8 hereof, but shall not include Securities Depositories.
14.26 TRI-PARTY AGREEMENT shall have the meaning set forth in Section 6.4 hereof.
14.27 1940 ACT shall mean the Investment Company Act of 1940.
15. COMPENSATION. The Fund agrees to pay to the Custodian (a) a fee in an amount set forth in the fee letter between the Fund and the Custodian in effect on the date hereof or as amended from time to time, and (b) all out-of-pocket expenses incurred by the Custodian, including the fees and expenses of all Subcustodians, and payable from time to time. Amounts payable by the Fund under and pursuant to this Section 14 shall be payable by wire transfer to the Custodian at BBH&Co. in New York, New York.
16. TERMINATION. This Agreement may be terminated by either party in accordance with the provisions of this Section. The provisions of this Agreement and any other rights or obligations incurred or accrued by any party hereto prior to termination of this Agreement shall survive any termination of this Agreement.
16.1 NOTICE AND EFFECT. This Agreement may be terminated by either party by written notice effective no sooner than sixty (60) consecutive calendar days following the date that notice to such effect shall be delivered to other party at its address set forth in paragraph 13.5 hereof.
16.2 SUCCESSOR CUSTODIAN. In the event of the appointment of a successor custodian, it is agreed that the Investments of the fund held by the Custodian or any Subcustodian shall be delivered to the successor custodian in accordance with reasonable Instructions. The Custodian agrees to cooperate with the Fund in the execution of documents and performance of other actions necessary or desirable in order to facilitate the succession of the new custodian. If no successor custodian shall be appointed, the Custodian shall in like manner transfer the Fund's Investments in accordance with Instructions.
16.3 DELAYED SUCCESSION. If no Instruction has been given as of the effective date of termination, Custodian may at any time on or after such termination date and upon ten (10) consecutive calendar days written notice to the
Fund either (a) deliver the Investments of the Fund held hereunder to the Fund at the address designated for receipt of notices hereunder; or (b) deliver any investments held hereunder to a bank or trust company having a capitalization of $2,000,000 USD equivalent and operating under the Applicable law of the jurisdiction where such Investments are located, such delivery to be at the risk of the Fund. In the event that Investments or moneys of the Fund remain in the custody of the Custodian or its Subcustodians after the date of termination owing to the failure of the Fund to issue Instructions with respect to their disposition or owing to the fact that such disposition could not be accomplished in accordance with such Instructions despite diligent efforts of the Custodian, the Custodian shall be entitled to compensation for its services with respect to such Investments and moneys during such period as the Custodian or its Subcustodians retain possession of such items and the provisions of this Agreement shall remain in full force and effect until disposition in accordance with this Section is accomplished.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as of the date first above written.
BROWN BROTHERS HARRIMAN & CO. TOUCHSTONE INVESTMENT TRUST
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE VARIABLE SERIES TRUST
By: /s/ Stokley P. Towles By: /s/ Patrick T. Bannigan
----------------------- --------------------------
Name: Stokley P. Towles Name: Patrick T. Bannigan
Title:Partner Title: President & Managing Director
Date: January 27th, 2003 Date: January 23, 2003
|
FUNDS TRANSFER SERVICES SCHEDULE TO CUSTODIAN AGREEMENT
1. EXECUTION OF PAYMENT ORDERS. Brown Brothers Harriman & Co. (the CUSTODIAN) is hereby instructed by Touchstone Investment Trust, Touchstone Strategic Trust, and Touchstone Variable Series Trust, business trusts organized under the laws of the State of Massachusetts, and registered with the Commission under the 1940 Act acting with respect to each series of each Trust (individually a FUND and collectively, the FUNDS) to execute each payment order, whether denominated in United States dollars or other applicable currencies, received by the Custodian in the Funds' name as sender and authorized and confirmed by an Authorized Person as defined in a Custodian Agreement dated as of February 7, 2003, by and between the Custodian and the Funds, as amended or restated from time thereafter (the AGREEMENT), provided that the Funds have sufficient available funds on deposit in a Principal Account as defined in the Agreement and provided that the order (i) is received by the Custodian in the manner specified in this Funds Transfer Services Schedule or any amendment hereafter; (ii) complies with any written instructions and restrictions of the Funds as set forth in this Funds Transfer Services Schedule or any amendment hereafter; (iii) is authorized by the Funds or is verified by the Custodian in compliance with a security procedure set forth in Paragraph 2 below for verifying the authenticity of a funds transfer communication sent to the Custodian in the name of the Funds or for the detection of errors set forth in any such communication; and (iv) contains sufficient data to enable the Custodian to process such transfer.
2. SECURITY PROCEDURE. The Funds hereby elect to use the procedure selected below as its security procedure (the SECURITY PROCEDURE). The Security Procedure will be used by the Custodian to verify the authenticity of a payment order or a communication amending or canceling a payment order. The Custodian will act on instructions received provided the instruction is authenticated by the Security Procedure. The Funds agree and acknowledge in connection with (i) the size, type and frequency of payment orders normally issued or expected to be issued by the Funds to the Custodian, (ii) all of the security procedures offered to the Funds by the Custodian, and (iii) the usual security procedures used by customers and receiving banks similarly situated, that authentication through the Security Procedure shall be deemed commercially reasonable for the authentication of all payment orders submitted to the Custodian. The Funds hereby elect (PLEASE CHOOSE ONE) the following Security Procedure as described below:
[ ] BIDS AND BIDS WORLDVIEW PAYMENT PRODUCTS. BIDS and BIDS Worldview
Payment Products, are on-line payment order authorization facilities with built-in authentication procedures. The Custodian and the Funds shall each be responsible for maintaining the confidentiality of passwords or other codes to be used by them in connection with BIDS. The Custodian will act on instructions received through BIDS without duty of further confirmation unless the Funds notify the Custodian that its password is not secure.
[ ] SWIFT. The Custodian and the Funds shall comply with SWIFT's authentication procedures. The Custodian will act on instructions received via SWIFT provided the instruction is authenticated by the SWIFT system.
[ ] TESTED TELEX. The Custodian will accept payment orders sent by tested telex, provided the test key matches the algorithmic key the Custodian and Funds have agreed to use.
[ ] COMPUTER TRANSMISSION. The Custodian is able to accept transmissions sent from the Funds' computer facilities to the Custodian's computer facilities provided such transmissions are encrypted and digitally certified or are otherwise authenticated in a reasonable manner based on available technology. Such procedures shall be established in an operating protocol between the Custodian and the Funds.
[ ] TELEFAX INSTRUCTIONS. A payment order transmitted to the Custodian by telefax transmission shall transmitted by the Funds to a telephone number specified from time to time by the Custodian for such purposes. If it detects no discrepancies, the Custodian will then either:
1. If the telefax requests a repetitive payment order, the Custodian may call the Funds at its last known telephone number, request to speak to the Funds or Authorized Person, and confirm the authorization and the details of the payment order (a CALLBACK); or
2. If the telefax requests a non-repetitive order, the Custodian will perform a Callback.
All faxes must be accompanied by a fax cover sheet which indicates the sender's name, Fund's name, telephone number, fax number, number of pages, and number of transactions or instructions attached.
[ ] TELEPHONIC. A telephonic payment order shall be called into the Custodian at the telephone number designated from time to time by the Custodian for that purpose. The caller shall identify herself/himself as an Authorized Person. The Custodian shall obtain the payment order data from the caller. The Custodian shall then:
1. If a telephonic repetitive payment order, the Custodian may perform a Callback; or
2. If a telephonic non-repetitive payment order, the Custodian will perform a Callback.
In the event the Funds choose a procedure which is not a Security Procedure as described above, the Funds agree to be bound by any payment order (whether or not authorized) issued in its name and accepted by the Custodian in compliance with the procedure selected by the Funds.
3. REJECTION OF PAYMENT ORDERS. The Custodian shall give the Funds timely notice of the Custodian's rejection of a payment order. Such notice may be given in writing or orally by telephone, each of which is hereby deemed commercially reasonable. In the event the Custodian fails to execute a properly executable payment order and fails to give the Funds notice of the Custodian's non-execution, the Custodian shall be liable only for the Funds' actual damages and only to the extent that such damages are recoverable under UCC 4A (as defined in Paragraph 7 below). Notwithstanding anything in this Funds Transfer Services Schedule and the Agreement to the contrary, the Custodian shall in no event be liable for any consequential or special damages under this Funds Transfer Services Schedule, whether or not such damages relate to services covered by UCC 4A, even if the Custodian has been advised of the possibility of such damages. Whenever compensation in the form of interest is payable by the Custodian to the Funds pursuant to this Funds Transfer Services Schedule, such compensation will be payable in accordance with UCC 4A.
4. CANCELLATION OF PAYMENT ORDERS. The Funds may cancel a payment order but the Custodian shall have no liability for the Custodian's failure to act on a cancellation instruction unless the Custodian has received such cancellation instruction at a time and in a manner affording the Custodian reasonable opportunity to act prior to the Custodian's execution of the order. Any cancellation shall be sent and confirmed in the manner set forth in Paragraph 2 above.
5. RESPONSIBILITY FOR THE DETECTION OF ERRORS AND UNAUTHORIZED PAYMENT ORDERS. Except as may be provided, the Custodian is not responsible for detecting any Funds error contained in any payment order sent by the Funds to the Custodian. In the event that the Funds' payment order to the Custodian either (i) identifies the beneficiary by both a name and an identifying or bank account number and the name and number identify different persons or entities, or (ii) identifies any bank by both a name and an identifying number and the number identifies a person or entity different from the bank identified by name, execution of the payment order, payment to the beneficiary, cancellation of the payment order or actions taken by any bank in respect of such payment order may be made solely on the basis of the number. The Custodian shall not be liable for interest on the amount of any payment order that was not authorized or was erroneously executed unless the Funds so notify the Custodian within thirty (30) business days following the Funds' receipt of notice that such payment order had been processed. If a payment order in the name of the Funds and accepted by the Custodian was not authorized by the Funds, the liability of the parties will be governed by the applicable provisions of UCC 4A.
6. LAWS AND REGULATIONS. The rights and obligations of the Custodian and the Funds with respect to any payment order executed pursuant to this Funds Transfer Services Schedule will be governed by any applicable laws, regulations, circulars and funds transfer system rules, the laws and regulations of the United States of America and of other relevant countries including exchange control regulations and limitations on dealings or other sanctions, and including without limitation those sanctions imposed under the law of the United States of America by the Office of Foreign Assets Control. Any taxes, fines, costs, charges or fees imposed by relevant authorities on such transactions shall be for the account of the Funds.
7. MISCELLANEOUS. All accounts opened by the Funds or its authorized agents at the Custodian subsequent to the date hereof shall be governed by this Funds Transfer Schedule. All terms used in this Funds Transfer Services Schedule shall have the meaning set forth in Article 4A of the Uniform Commercial Code as currently in effect in the State of New York (UCC 4A) unless otherwise set forth herein. The terms and conditions of this Funds Transfer Services Schedule are in addition to, and do not modify or otherwise affect, the terms and conditions of the Agreement and any
other agreement or arrangement between the parties hereto.
8. INDEMNIFICATION. The Custodian does not recommend the sending of instructions by telefax or telephonic means as provided in Paragraph 2. BY ELECTING TO SEND INSTRUCTIONS BY TELEFAX OR TELEPHONIC MEANS, THE FUNDS AGREE TO INDEMNIFY THE CUSTODIAN AND ITS PARTNERS, OFFICERS AND EMPLOYEES FOR ALL LOSSES THEREFROM.
OPTIONAL: The Custodian will perform a Callback if instructions are sent by telefax or telephonic means as provided in Paragraph 2. THE FUNDS MAY, AT ITS OWN RISK AND BY HEREBY AGREEING TO INDEMNIFY THE CUSTODIAN AND ITS PARTNERS, OFFICERS AND EMPLOYEES FOR ALL LOSSES THEREFROM, ELECT TO WAIVE A CALLBACK BY THE CUSTODIAN BY INITIALLING HERE: _____
Accepted and agreed:
BROWN BROTHERS HARRIMAN & CO. TOUCHSTONE INVESTMENT TRUST
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE VARIABLE SERIES TRUST
By: /s/ Stokley P. Towles By: /s/ Patrick T. Bannigan
--------------------- ------------------------
Name: Stokley P. Towles Name: Patrick T. Bannigan
Title:Partner Title: President & Managing Director
Date: January 27th, 2003 Date: January 23, 2003
|
ELECTRONIC AND ON-LINE SERVICES
SCHEDULE
This Electronic and On-Line Services Schedule (this SCHEDULE) to a Custodian Agreement dated as of February 7, 2003, (as amended from time to time hereafter, the AGREEMENT) by and between Brown Brothers Harriman & Co. (WE, US OUR) and Touchstone Investment Trust, Touchstone Strategic Trust, and Touchstone Variable Series Trust, business trusts organized under the laws of the State of Massachusetts, and registered with the Commission under the 1940 Act acting with respect to each series of each Trust (YOU, YOUR), provides general provisions governing your use of and access to the Services (as hereinafter defined) provided to you by us via the Internet (at www.bbhco.com or such other URL as we may instruct you to use to access our products) and via a direct dial-up connection between your computer and our computers, as of February 7, 2003 (the EFFECTIVE DATE). Use of the Services constitutes acceptance of the terms and conditions of this Schedule, any Appendices hereto, the Terms and Conditions posted on our web site, and any terms and conditions specifically governing a particular Service or our other products, which may be set forth in the Agreement or in a separate related agreement (collectively, the RELATED AGREEMENTS).
1. GENERAL TERMS.
You will be granted access to our suite of online products, which may include, but shall not be limited to the following services via the Internet or dial-up connection (each separate service is a SERVICE; collectively referred to as the SERVICES):
1.1. BIDS(R) and BIDS WorldView, a system for effectuating securities and fund trade instruction and execution, processing and handling instructions, and for the input and retrieval of other information;
1.2. F/X WorldView, a system for executing foreign exchange trades;
1.3. Fund WorldView, a system for receiving fund and prospectus information;
1.4. BBHCOnnect, a system for placing securities trade instructions and following the status and detail of trades;
1.5. ActionViewSM, a system for receiving certain corporate action information;
1.6. Risk View, an interactive portfolio risk analysis tool; and
1.7. Such other services as we shall from time to time offer.
2. SECURITY / PASSWORDS.
2.1. A digital certificate and/or an encryption key may be required to access certain Services. You may apply for a digital certificate and/or an encryption key by following the procedures set forth at http://www.bbh.com/certs/. You also will need an identification code (ID) and password(s) (PASSWORD) to access the Services.
2.2. You agree to safeguard your digital certificate and/or encryption key, ID, and Password and not to give or make available, intentionally or otherwise, your digital certificate, ID, and/or Password to any unauthorized person. You must immediately notify us in writing if you believe that your digital certificate and/or encryption key, Password, or ID has been compromised or if you suspect unauthorized access to your account by means of the Services or otherwise, or when a person to whom a digital certificate and/or an encryption key, Password, or ID has been assigned leaves or is no longer permitted to access the Services.
2.3. We will not be responsible for any breach of security, or for any unauthorized trading or theft by any third party, caused by your failure (be it intentional, unintentional, or negligent) to maintain the confidentiality of your ID and/or Password and/or the security of your digital certificate and/or encryption key.
3. INSTRUCTIONS.
3.1. Proper instructions under this Schedule shall be provided as designated in the Related Agreements (Instructions).
3.2. The following additional provisions apply to Instructions provided via the Services:
a. Instructions sent by electronic mail will not be accepted or acted upon.
b. You authorize us to act upon Instructions received through the Services utilizing your digital certificate, ID, and/or Password as though they were duly authorized written instructions, without any duty of verification or inquiry on our part, and agree to hold us harmless for any losses you experience as a result.
c. From time to time, the temporary unavailability of third party telecommunications or computer systems required by the Services may result in a delay in processing Instructions. In such an event, we shall not be liable to you or any third party for any liabilities, losses, claims, costs, damages, penalties, fines, obligations, or expenses of any kind (including without limitation, reasonable attorneys', accountants', consultants', or experts' fees and disbursements) that you experience due to such a delay.
4. ELECTRONIC DOCUMENTS.
We may make periodic statements, disclosures, notices, and other documents available to you electronically, and, subject to any delivery and receipt verification procedures required by law, you agree to receive such documents electronically and to check the statements for accuracy. If you believe any such statement contains incorrect information, you must follow the procedures set forth in the Related Agreement(s).
5. MALICIOUS CODE.
You understand and agree that you will be responsible for the introduction
(by you, your employees, agents, or representatives) into the Services,
whether intentional or unintentional, of (i) any virus or other code,
program, or sub-program that damages or interferes with the operation of
the computer system containing the code, program or sub-program, or halts,
disables, or interferes with the operation of the Services themselves; or
(ii) any device, method, or token whose knowing or intended purpose is to
permit any person to circumvent the normal security of the Services or the
system containing the software code for the Services (MALICIOUS CODE). You
agree to take all necessary actions and precautions to prevent the
introduction and proliferation of any Malicious Code into those systems
that interact with the Services.
6. INDEMNIFICATION.
For avoidance of doubt, you hereby agree that the provisions in the Related Agreement(s) related to your indemnification of us and any limitations on our liability and responsibilities to you shall be applicable to this Agreement, and are hereby expressly incorporated herein. You agree that the Services are comprised of telecommunications and computer systems, and that it is possible that Instructions, information, transactions, or account reports might be added to, changed, or omitted by electronic or programming malfunction, unauthorized access, or other failure of the systems which comprise the Services, despite the security features that have been designed into the Services. You agree that we will not be liable for any action taken or not taken in complying with the terms of this Schedule, except for our willful misconduct or gross negligence. The provisions of this paragraph shall survive the termination of this Schedule and the Related Agreements.
7. PAYMENT.
You may be charged for services hereunder as set forth in a fee schedule from time to time agreed by us.
8. TERM/TERMINATION.
8.1. This Schedule is effective as of the date you sign it or first use the
Services, whichever is first, and continues in effect until such time
as either you or we terminate the Schedule in accordance with this
Section 8 and/or until your off-line use of the Services is
terminated.
8.2. We may terminate your access to the Services at any time, for any reason, with five (5) business days prior notice; provided that we may terminate your access to the Services with no prior notice (i) if your account with us is closed, (ii) if you fail to comply with any of the terms of this Agreement, (iii) if we believe that your continued access to the Services poses a security risk, or (iv) if we believe that you are violating or have violated applicable laws, and we will not be liable for any loss you may experience as a result of such
termination. You may terminate your access to the Services at any time by giving us ten (10) business days notice. Upon termination, we will cancel all your Passwords and IDs and any in-process or pending Instructions will be carried out or cancelled, at our sole discretion.
9. MISCELLANEOUS.
9.1. NOTICES. All notices, requests, and demands (other than routine operational communications, such as Instructions) shall be in such form and effect as provided in the Related Agreement(s).
9.2. INCONSISTENT PROVISIONS. Each Service may be governed by separate terms and conditions in addition to this Schedule and the Related Agreement(s). Except where specifically provided to the contrary in this Schedule, in the event that such separate terms and conditions conflict with this Schedule and the Related Agreement(s), the provisions of this Schedule shall prevail to the extent this Schedule applies to the transaction in question.
9.3. BINDING EFFECT; ASSIGNMENT; SEVERABILITY. This Schedule shall be binding on you, your employees, officers and agents. We may assign or delegate our rights and duties under this Schedule at any time without notice to you. Your rights under this Schedule may not be assigned without our prior written consent. In the event that any provision of this Schedule conflicts with the law under which this Schedule is to be construed or if any such provision is held invalid or unenforceable by a court with jurisdiction over you and us, such provision shall be deemed to be restated to effectuate as nearly as possible the purposes of the Schedule in accordance with applicable law. The remaining provisions of this Schedule and the application of the challenged provision to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each such provision shall be valid and enforceable to the full extent permitted by law.
9.4. CHOICE OF LAW; JURY TRIAL. This Schedule shall be governed by and construed, and the legal relations between the parties shall be determined, in accordance with the laws of the State of New York, without giving effect to the principles of conflicts of laws. Each party agrees to waive its right to trial by jury in any action or proceeding based upon or related to this Agreement. The parties agree that all actions and proceedings based upon or relating to this Schedule shall be litigated exclusively in the federal and state courts located within New York City, New York.
[CLIENT] ("YOU")
TOUCHSTONE INVESTMENT TRUST
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE VARIABLE SERIES TRUST
By: /s/ Patrick T. Bannigan
----------------------------------
Name: Patrick T. Bannigan
Title: President & Managing Director
Date: January 23, 2003
|
By its execution of this Delegation Schedule dated as of February 7, 2003,
[FUND], a management investment company registered with the Securities and
Exchange Commission (the COMMISSION) under the Investment Company Act of 1940,
as amended, (the 1940 ACT), acting through its Board of Directors/Trustees or
its duly appointed representative (the FUND), hereby appoints BROWN BROTHERS
HARRIMAN & CO., a New York limited partnership with an office in Boston,
Massachusetts (the DELEGATE) as its delegate to perform certain functions with
respect to the custody of Fund's Assets outside the United States.
1. MAINTENANCE OF FUND'S ASSETS ABROAD. The Fund, acting through its Board or
its duly authorized representative, hereby instructs Delegate pursuant to the
terms of the Custodian Agreement dated as of the date hereof executed by and
between the Fund and the Delegate (the CUSTODIAN AGREEMENT) to place and
maintain the Fund's Assets in countries outside the United States in accordance
with Instructions received from the Fund's Investment Advisor. Such instruction
shall represent an Instruction under the terms of the Custodian Agreement. The
Fund acknowledges that (a) the Delegate shall perform services hereunder only
with respect to the countries where it accepts delegation as Foreign Custody
Manager as indicated on your Global Custody Network Listing; (b) depending on
conditions in the particular country, advance notice may be required before the
Delegate shall be able to perform its duties hereunder in or with respect to
such country (such advance notice to be reasonable in light of the specific
facts and circumstances attendant to performance of duties in such country); and
(c) nothing in this Delegation Schedule shall require the Delegate to provide
delegated or custodial services in any country, and there may from time to time
be countries as to which the Delegate determines it will not provide delegation
services.
2. DELEGATION. Pursuant to the provisions of Rule 17f-5 under the 1940 Act as amended, the Board hereby delegates to the Delegate, and the Delegate hereby accepts such delegation and agrees to perform, only those duties set forth in this Delegation Schedule concerning the safekeeping of the Fund's
Assets in each of the countries as to which it acts as the Board's delegate. The Delegate is hereby authorized to take such actions on behalf of or in the name of the Fund as are reasonably required to discharge its duties under this Delegation Schedule, including, without limitation, to cause the Fund's Assets to be placed with a particular Eligible Foreign Custodian in accordance herewith. The Fund confirms to the Delegate that the Fund or its investment adviser has considered the Sovereign Risk and prevailing Country Risk as part of its continuing investment decision process, including such factors as may be reasonably related to the systemic risk of maintaining the Fund's Assets in a particular country, including, but not limited to, financial infrastructure, prevailing custody and settlement systems and practices (including the use of any Securities Depository in the context of information provided by the Custodian in the performance of its duties as required under Rule 17f-7 and the terms of the Custodian Agreement governing such duties), and the laws relating to the safekeeping and recovery of the Fund's Assets held in custody pursuant to the terms of the Custodian Agreement.
3. SELECTION OF ELIGIBLE FOREIGN CUSTODIAN AND CONTRACT ADMINISTRATION. The Delegate shall perform the following duties with respect to the selection of Eligible Foreign Custodians and administration of certain contracts governing the Fund's foreign custodial arrangements:
(a) SELECTION OF ELIGIBLE FOREIGN CUSTODIAN. The Delegate shall place and maintain the Fund's Assets with an Eligible Foreign Custodian; provided that the Delegate shall have determined that the Fund's Assets will be subject to reasonable care based on the standards applicable to custodians in the relevant market after considering all factors relevant to the safekeeping of such assets including without limitation:
(i) The Eligible Foreign Custodian's practices, procedures, and internal controls, including, but not limited to, the physical protections available for certificated securities (if applicable), the controls and procedures for dealing with any Securities Depository, the method of keeping custodial records, and the security and data protection practices;
(ii) Whether the Eligible Foreign Custodian has the requisite financial strength to provide reasonable care for the Fund's Assets;
(iii) The Eligible Foreign Custodian's general reputation and standing; and
(iv) Whether the Fund will have jurisdiction over and be able to enforce judgments against the Eligible Foreign Custodian, such as by virtue of the existence of any offices of such Eligible Foreign Custodian in the United States or such Eligible Foreign Custodian's appointment
of an agent for service of process in the United States or consent to jurisdiction in the United States.
The Delegate shall be required to make the foregoing determination to the best of its knowledge and belief based only on information reasonably available to it.
(b) CONTRACT ADMINISTRATION. The Delegate shall cause that the foreign custody arrangements with an Eligible Foreign Custodian shall be governed by a written contract that the Delegate has determined will provide reasonable care for Fund assets based on the standards applicable to custodians in the relevant market. Each such contract shall, except as set forth in the last paragraph of this subsection (b), include provisions that provide:
(i) For indemnification or insurance arrangements (or any combination of the foregoing) such that the Fund will be adequately protected against the risk of loss of assets held in accordance with such contract;
(ii) That the Fund's Assets will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the Eligible Foreign Custodian or its creditors except a claim of payment for their safe custody or administration or, in the case of cash deposits, liens or rights in favor of creditors of such Custodian arising under bankruptcy, insolvency or similar laws;
(iii) That beneficial ownership of the Fund's Assets will be freely transferable without the payment of money or value other than for safe custody or administration;
(iv) That adequate records will be maintained identifying the Fund's Assets as belonging to the Fund or as being held by a third party for the benefit of the Fund;
(v) That the Fund's independent public accountants will be given access to those records described in (iv) above or confirmation of the contents of such records; and
(vi) That the Delegate will receive sufficient and timely periodic reports with respect to the safekeeping of the Fund's Assets, including, but not limited to, notification of any transfer to or from the Fund's account or a third party account containing the Fund's Assets.
Such contract may contain, in lieu of any or all of the provisions specified in this Section 3(b), such other provisions that the Delegate determines will provide, in their entirety, the same or a greater level of care and protection for the Fund's Assets as the specified provisions, in their entirety.
(c) LIMITATION TO DELEGATED SELECTION. Notwithstanding anything in this Delegation Schedule to the contrary, the duties under this Section 3 shall apply only to Eligible Foreign Custodians selected by the Delegate and shall not apply to Securities Depositories or to any Eligible Foreign Custodian that the Delegate is directed to use pursuant to Section 7 of this Delegation Schedule.
4. MONITORING. The Delegate shall establish a system to monitor at reasonable intervals (but at least annually) the appropriateness of maintaining the Fund's Assets with each Eligible Foreign Custodian that has been selected by the Delegate pursuant to Section 3 of this Delegation Schedule. The Delegate shall monitor the continuing appropriateness of placement of the Fund's Assets in accordance with the criteria established under Section 3(a) of this Delegation Schedule. The Delegate shall monitor the continuing appropriateness of the contract governing the Fund's arrangements in accordance with the criteria established under Section 3(b) of this Delegation Schedule.
5. REPORTING. At least annually and more frequently as mutually agreed between the parties, the Delegate shall provide to the Board written reports specifying placement of the Fund's Assets with each Eligible Foreign Custodian selected by the Delegate pursuant to Section 3 of this Delegation Schedule and shall promptly report as to any material changes to such foreign custody arrangements. Delegate will prepare such a report with respect to any Eligible Foreign Custodian that the Delegate has been instructed to use pursuant to Section 7 of this Delegation Schedule only to the extent specifically agreed with respect to the particular situation.
6. WITHDRAWAL OF FUND'S ASSETS. If the Delegate determines that an arrangement
with a specific Eligible Foreign Custodian selected by the Delegate under
Section 3 of this Delegation Schedule no longer meets the requirements of said
Section, Delegate shall withdraw the Fund's Assets from the non-complying
arrangement as soon as reasonably practicable; provided, however, that if in the
reasonable judgment of the Delegate, such withdrawal would require liquidation
of any of the Fund's Assets or would materially impair the liquidity, value or
other investment characteristics of the Fund's Assets, it shall be the duty of
the Delegate to provide information regarding the particular circumstances and
to act only in accordance with Instructions of the Fund or its Investment
Advisor with respect to such liquidation or other withdrawal.
7. DIRECTION AS TO ELIGIBLE FOREIGN CUSTODIAN. Notwithstanding this Delegation Schedule, the
Fund, acting through its Board, its Investment Advisor or its other authorized representative, may direct the Delegate to place and maintain the Fund's Assets with a particular Eligible Foreign Custodian, including without limitation with respect to investment in countries as to which the Custodian will not provide delegation services. In such event, the Delegate shall be entitled to rely on any such instruction as an Instruction under the terms of the Custodian Agreement and shall have no duties under this Delegation Schedule with respect to such arrangement save those that it may undertake specifically in writing with respect to each particular instance.
8. STANDARD OF CARE. In carrying out its duties under this Delegation Schedule, the Delegate agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for safekeeping the Fund's Assets would exercise.
9. REPRESENTATIONS. The Delegate hereby represents and warrants that it is a U.S. Bank and that this Delegation Schedule has been duly authorized, executed and delivered by the Delegate and is a legal, valid and binding agreement of the Delegate.
The Fund hereby represents and warrants that its Board of Directors has determined that it is reasonable to rely on the Delegate to perform the delegated responsibilities provided for herein and that this Delegation Schedule has been duly authorized, executed and delivered by the Fund and is a legal, valid and binding agreement of the Fund.
10. EFFECTIVENESS; TERMINATION. This Delegation Schedule shall be effective as of the date on which this Delegation Schedule shall have been accepted by the Delegate, as indicated by the date set forth below the Delegate's signature. This Delegation Schedule may be terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Such termination shall be effective on the 30th calendar day following the date on which the non-terminating party shall receive the foregoing notice. The foregoing to the contrary notwithstanding, this Delegation Schedule shall be deemed to have been terminated concurrently with the termination of the Custodian Agreement.
11. NOTICES. Notices and other communications under this Delegation Schedule are to be made in accordance with the arrangements designated for such purpose under the Custodian Agreement unless otherwise indicated in a writing referencing this Delegation Schedule and executed by both parties.
12. DEFINITIONS. Capitalized terms in this Delegation Schedule have the following meanings:
a. ELIGIBLE FOREIGN CUSTODIAN - shall have the meaning set forth in Rule 17f-5(a)(1) and shall also include a U.S. Bank.
b. FUND'S ASSETS - shall mean any of the Fund's investments (including foreign currencies) for which the primary market is outside the United States, and such cash and cash equivalents as are reasonably necessary to effect the Fund's transactions in such investments.
c. INSTRUCTIONS - shall have the meaning set forth in the Custodian Agreement.
d. SECURITIES DEPOSITORY - shall have the meaning set forth in Rule 17f-7.
e. SOVEREIGN RISK - shall have the meaning set forth in Section [6.3] of the Custodian Agreement.
f. U.S. BANK - shall mean a bank which qualifies to serve as a custodian of assets of investment companies under Section 17(f) of the Act.
13. GOVERNING LAW AND JURISDICTION. This Delegation Schedule shall be construed in accordance with the laws of the State of New York. The parties hereby submit to the exclusive jurisdiction of the Federal courts sitting in the State of New York or the Commonwealth of Massachusetts or of the state courts of either such State or such Commonwealth.
14. FEES. Delegate shall perform its functions under this Delegation Schedule for the compensation determined under the Custodian Agreement.
15. INTEGRATION. This Delegation Schedule sets forth all of the Delegate's duties with respect to the selection and monitoring of Eligible Foreign Custodians, the administration of contracts with Eligible Foreign Custodians, the withdrawal of assets from Eligible Foreign Custodians and the issuance of reports in connection with such duties. The terms of the Custodian Agreement shall apply generally as to matters not expressly covered in this Delegation Schedule, including dealings with the Eligible Foreign Custodians in the course of discharge of the Delegate's obligations under the Custodian Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as of the date first above written.
BROWN BROTHERS HARRIMAN & CO. TOUCHSTONE INVESTMENT TRUST
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE VARIABLE SERIES TRUST
By: /s/ Stokley P. Towles By: /s/ Patrick T. Bannigan
--------------------- ----------------------------
Name: Stokley P. Towles Name: Patrick T. Bannigan
Title:Partner Title: President & Managing Director
Date: January 27th, 2003 Date: January 23, 2003
|
SECURITIES LENDING AGENCY AGREEMENT dated as of March 27, 2003 among Touchstone Investment Trust, Touchstone Strategic Trust, and Touchstone Variable Series Trust (each a "Trust"), business trusts organized under the laws of Massachusetts and registered with the Securities and Exchange commission under the 1940 Act, acting with respect to each series thereof as set forth on Exhibit A hereto (each a "Series") (each Trust on behalf of each of its respective Series thereof, each the "Fund") and BROWN BROTHERS HARRIMAN & CO., a New York limited partnership with an office in Boston, Massachusetts ("BBH&CO").
WHEREAS, the Fund has appointed BBH&CO as its custodian pursuant to a Custodian Agreement dated February 7, 2003 (the "Custodian Agreement"); and
WHEREAS, the Fund intends to lend securities to securities brokers and other borrowers which have been or will be approved by the Fund; and
WHEREAS, the Fund intends to appoint BBH&CO as its lending agent to act as its agent in connection with the securities lending program and to lend in accordance with operational procedures established by BBH&CO and which govern securities lending activity by the Fund, hereinafter referred to as "Operational Procedures";
NOW, THEREFORE, in consideration of the premises and agreements contained herein, the parties hereto, intending to be bound, hereby agree as follows:
1. Appointment. The Fund hereby appoints BBH&CO as its lending agent for the purposes set forth herein. BBH&CO hereby accepts such appointment. BBH&CO is acting solely as a directed agent of the Fund hereunder and owes no fiduciary duties to any person with respect to this Agreement. BBH&CO shall have no duties or responsibilities in respect to securities lending transactions except those expressly set forth in this Agreement.
2. Authorizations. The Fund hereby authorizes BBH&CO to act as its agent as set forth in this Section.
2.1 Lending of Available Securities. The Fund hereby authorizes the lending of those securities identified in Schedule 1 hereto ("Available Securities") which are held in accounts maintained with BBH&CO or its subcustodians, or, in the case of third party lending, either the Fund's custodian or subcustodian (each a "Custody Account").
2.2 Lending to Approved Borrowers under Approved Terms. The Fund hereby authorizes the lending of Available Securities to any one or more of the institutions prescribed by the Fund and listed on Schedule 2 hereto (each, an "Approved Borrower"). Any such loan shall be on the terms set forth in Schedule 3 hereof unless the Fund otherwise authorizes in writing (the terms set forth in Schedules 2 and 3 as well as any terms otherwise authorized by the Fund in writing, "Approved Terms").
2.3 Authorizations by Fund. The Fund hereby authorizes and empowers BBH&CO to execute in the Fund's name all agreements and documents as may be necessary or appropriate in their judgment to carry out the purposes of this Agreement. It is understood and agreed that BBH&CO is authorized to supply any information regarding the Fund and any loan of securities effected pursuant to a securities loan agreement ("SLA") that is required by this Agreement or under applicable law.
The Fund may, at the request of the BBH&CO, approve changes to the Available Securities, Approved Borrowers or Approved Terms by executing an updated Schedule 1, 2 or 3 as appropriate and delivering it to BBH&CO.
3. Securities Loan Agreement. BBH&CO is hereby authorized to execute a SLA as the Fund's agent on a disclosed basis with each Approved Borrower. The SLA will be in substantially the form of Schedule 3 annexed hereto. Subject to the preceding sentence, the Fund hereby authorizes BBH&CO to revise, without notice to the Fund, the terms of any SLA with any Approved Borrower as BBH&CO deems necessary or appropriate, in its discretion, for the effectuation of any transaction contemplated hereby or thereby. The Fund agrees to be bound by the terms of SLA's entered into by BBH&CO with Approved Borrowers with respect to the Fund's participation in the securities lending program as though the Fund were itself a party to all of such agreements. The Fund specifically approves such form of agreement and agrees, upon request, to promptly furnish or cause to be furnished to BBH&CO the Fund's financial statements to enable BBH&CO to comply with any request therefor by any Approved Borrower in connection with any SLA. BBH&CO shall negotiate on behalf of the Fund with each Approved Borrower all terms of a securities loan, including the amounts or fees to be received or paid pursuant to the applicable SLA. BBH&CO may prepare a transactional confirmation in respect of each loan effected pursuant to an SLA, setting forth the securities borrowed and the material terms of the loan, and may transmit the same to the Approved Borrower in accordance with such SLA. The Fund understands and agrees that the identity of the Fund will be disclosed by BBH&CO to the Approved Borrower in accordance with the SLA.
4. Loan of Securities. During the term of any securities loan, the Fund shall permit the loaned securities to be transferred, pursuant to an SLA, into the name of and voted (where applicable) by an Approved Borrower. BBH&CO is authorized in its discretion to terminate any securities loan entered into with an Approved Borrower without prior notice to the Fund, subject to the conditions of the relevant SLA. The Fund may itself instruct BBH&CO to terminate any loan on any date, subject to the conditions of the relevant SLA. BBH&CO agrees to comply with any such instruction.
4.1 Limits on Return of Loaned Securities. The Fund acknowledges that, under the applicable SLA, Approved Borrowers will not be required to return loaned securities immediately upon receipt of notice from BBH&CO terminating the applicable loan, but instead will be required to return such loaned securities within such period of time following such notice which is equal to the earlier of (i) the standard settlement period for trades of the loaned securities entered into on the date of such notice in the principal market therefor, or (ii) five business days (as defined in the SLA) from the giving of such notice.
4.2 Recall of Loaned Securities. Upon receiving a notice from the Fund that Available Securities which have been lent to an Approved Borrower should no longer be considered Available Securities (whether because of the sale of such securities or otherwise), BBH&CO shall (a) notify promptly thereafter the Approved Borrower which has borrowed such securities that the loan of such securities is terminated and that such securities are to be returned within the time specified by the applicable SLA, or (b) otherwise cause to be delivered, at its discretion, an equivalent amount of such security if such amount is available to be loaned from assets of other clients participating in BBH&CO's securities lending program, to the Fund.
4.3 Notification of Sales of Loaned Securities. The Fund hereby acknowledges its obligation to BBH&CO, as applicable, to provide notification of any sale of securities which are out on loan by the close of business, in the principal market therefor, on trade date of such sale.
5. Loan Collateral. For each loan of securities, the Approved Borrower shall pledge as collateral the following items: (a) cash in U.S. dollars or foreign currency; (b) securities issued or fully guaranteed by the United States government or issued and unconditionally guaranteed by any agencies thereof or issued or fully guaranteed by a foreign sovereign; or (c) irrevocable performance letters of credit issued by banks approved by the Fund on the attached Schedule 4 (which may from time to time be updated in writing) (collectively, "Collateral") having an initial market value (as determined by BBH&CO pursuant to the applicable SLA) at least equal to the market value of the loaned securities (as determined pursuant to the applicable SLA).
5.1 Receipt of Collateral. In respect of the commencement of any loan, BBH&CO shall instruct the Approved Borrower to transfer to BBH&CO the required Collateral (except for letters of credit which shall be transferred to and received, held and administered by BBH&CO as provided above). Collateral will be received from an Approved Borrower prior to or simultaneous with delivery of securities loaned. If the Approved Borrower does not provide Collateral to BBH&CO, as previously agreed, then BBH&CO will cancel the corresponding loan instruction prior to delivery.
5.2 Holding and Administration of Collateral. All Collateral consisting of cash and securities shall be received, held and administered by BBH&CO (as set forth in Operational Procedures) for the benefit of the Fund in the applicable Custody Account or other account established for the purpose of holding Collateral. Collateral consisting of cash shall be placed in an investment listed in the attached Schedule 5 ("Permitted Investments") in accordance with Section 7 hereof. Collateral consisting of letters of credit shall be received, held and administered by BBH&CO for the benefit of the Fund in accordance with the terms of this Agreement and particularly of this Section 5.2.
5.2.1 Maintenance of Collateral Margin. In respect of
loans of securities entered into on behalf of the Fund, BBH&CO will value on a daily basis, in accordance with the applicable SLA, the loaned securities and all Collateral and, where applicable, BBH&CO shall, in accordance with the provisions of the applicable SLA, request the Approved Borrower to deliver sufficient additional Collateral to the Fund to satisfy the |
applicable margin requirement. If, as a result of marking-to-market, Collateral is required to be returned to the Approved Borrower under the SLA, BBH&CO will timely return such Collateral to the Approved Borrower. BBH&CO is authorized in respect of any securities loan or loans to consent to any adjustment in the amount available to be drawn under any letter of credit in order to satisfy any requirement under an SLA to return excess Collateral to Approved Borrower as a result of marking-to-market.
5.2.2 Substitution of Collateral. The Fund acknowledges and
agrees that, pursuant to any SLA, BBH&CO may permit an
Approved Borrower to substitute Collateral, which is of
the type specified in Section 5 hereto, during the term
of any loan so long as the required margin in respect
of such loan continues to be satisfied at the time of
such substitution.
5.2.3 Return of Collateral. Upon termination of the loan,
BBH&CO shall instruct the Approved Borrower to return
the loaned securities to the applicable Custody
Account. BBH&CO will instruct any subcustodian, if
applicable, to accept such return delivery of loaned
securities. BBH&CO shall monitor the return of loaned
securities. Once BBH&CO has confirmed settlement of the
return of the loaned securities, BBH&CO shall effect,
on behalf of the Fund, the redemption of any Permitted
Investment, if applicable, and effect the return of
Collateral due the Approved Borrower in accordance with
the Approved Borrower's transfer instructions with
respect thereto.
6. Income, Corporate Actions and Substitute Payments. Income,
|
corporate actions and Substitute Payments (as defined in Sections 6.1 and 6.2) shall be dealt with as provided in this Section 6.
6.1 Income and Related Payments to Borrower. Where Collateral consists of securities and the Approved Borrower, pursuant to an SLA, is due to receive an amount equal to the interest or distribution declared ("Collateral Substitute Payment") in respect of such Collateral during the term of the related securities loan, BBH&CO shall promptly remit or cause to be remitted such Collateral Substitute Payment on behalf of the Fund to the Approved Borrower in accordance with such Approved Borrower's instructions. BBH&CO shall likewise remit, or cause to be remitted, to any Approved Borrower the applicable Cash Collateral Fee (as defined in the SLA) when due in accordance with the Approved Borrower's instructions.
6.2 Income and Related Payments to Fund. BBH&CO shall instruct each Approved Borrower which is a party to an SLA to remit any payment in-lieu-of the interest or distribution declared on loaned securities ("Loan Substitute Payment") which is (i) denominated in a currency other than U.S. dollars and (ii) denominated in U.S. dollars when the Loan Substitute Payment is not automatically distributed to the BBH&CO depository account on behalf of the Fund by the applicable depository, and BBH&CO shall receive, hold and administer the same, for the account of the Fund. BBH&CO shall also instruct each Approved Borrower which is a party to an SLA to remit any other fees payable on loaned securities to BBH&CO for the account of the Fund, and BBH&CO shall receive, hold and administer the same for the account of the Fund.
6.3 Corporate Actions and Proxy Rights. The Fund acknowledges that, with respect to securities which are out on loan over the applicable record date for such action, unless otherwise agreed hereto, it will not be entitled to (i) participate in any dividend reinvestment program; (ii) receive stock in an optional cash/stock dividend plan; or (iii) vote any proxies. Corporate actions will otherwise be processed in accordance with the SLA and the Operational Procedures.
7. Investment of Cash Collateral. Pursuant to the SLA, the Fund shall have the right to invest cash Collateral received in respect of any loan, subject to an obligation, upon the termination of the loan, to return to the borrower the amount of cash initially pledged (as adjusted for any interim marks-to-market).
7.1 Collateral Investment Direction. The Fund hereby authorizes and directs BBH&CO to cause to be invested, on the Fund's behalf and at the Fund's sole risk, all Collateral in the form of cash by effecting purchase and sales and/or subscriptions and redemptions of such Collateral in any Permitted Investment set forth on Schedule 5 hereto (which may from time to time be updated in writing by the Fund). BBH&CO shall, where applicable, send timely instructions to the transfer agent of the Permitted Investment with respect to any cash transfers required to be completed in conjunction with any subscription or redemption in a Permitted Investment.
7.2 Collateral Investment Risk. Any such investment shall be at the sole risk of the Fund. Any income or gains and losses from investing and reinvesting any cash Collateral delivered by an Approved Borrower pursuant to an SLA shall be at the Fund's risk, and the Fund agrees that to the extent any such losses reduce the amount of cash below the amount required to be returned to the Approved Borrower upon the termination of any loan (including any Cash Collateral Fee), the Fund will, on demand of BBH&CO, immediately pay or cause to be paid to such Approved Borrower an equivalent amount in cash.
8. Statements. BBH&CO will provide to the Fund (i) upon request, a daily statement of activity setting forth information relating to loaned securities, marks-to-market and termination and (ii) on or about the 7th (seventh) Business Day of each month, a statement indicating for the preceding calendar month the securities lent by the Fund, the value of such securities, the identity of the Approved Borrowers, the nature and amount of Collateral pledged or delivered as security for the loaned securities, the income received (or loss incurred) from the daily investment of cash Collateral, the amounts of any fees or payments paid with respect to each loan and such other information as the parties hereto may agree to from time to time. For purposes hereof, "Business Day" means any day on which BBH&CO is open for business in Boston, Massachusetts. BBH&CO (unless otherwise instructed by the Fund) shall instruct any Approved Borrower to remit directly to BBH&CO, as applicable, all amounts and fees due the Fund pursuant to any loan of securities, which BBH&CO shall in turn pay to the Fund.
9. SIPC Coverage. THE PARTIES ACKNOWLEDGE THAT THE PROVISIONS OF THE SECURITIES INVESTOR PROTECTION ACT OF 1970 MAY NOT PROTECT THE FUND WITH RESPECT TO THE SECURITIES LOAN TRANSACTION AND THAT, THEREFORE, THE COLLATERAL DELIVERED BY AN APPROVED BORROWER TO THE FUND MAY CONSTITUTE THE ONLY SOURCE OF SATISFACTION OF THE OBLIGATION OF THE APPROVED BORROWER IN THE EVENT THE APPROVED BORROWER (OR ITS AGENT) FAILS TO RETURN THE SECURITIES.
10. Fund Information. The Fund covenants and agrees to promptly furnish to BBH&CO any information regarding the Fund which is necessary to effect transactions on behalf of the Fund including, but not limited to, restrictions it wishes to impose with respect to the acceptance of forms of collateral or lending to any Approved Borrower(s) or any limitations imposed pursuant to any applicable law, regulation, authority, charter, by-law, statute or other instrument.
11. Tax Treatment. The Fund acknowledges that the tax treatment of Substitute Payments may differ from the tax treatment of the interest or dividend to which such payment relates and that the Fund has made its own determination as to the tax treatment of any securities loan transactions undertaken pursuant to this Agreement and of any dividends, distributions, remuneration or other funds received hereunder. The Fund also acknowledges that, to the extent that either the Fund or the Approved Borrower is a non-U.S. resident, BBH&CO may be required to withhold tax on amounts payable to or by the Fund pursuant to a securities loan and may at any time claim from the Fund any shortfall in the amount BBH&CO so withheld.
12. Responsibility of BBH&CO. Subject to the requirements of applicable law, BBH&CO shall not be liable with respect to any losses incurred by the Fund in connection with this securities lending program or under any provision hereof, except to the extent that such losses result from its gross negligence or willful misconduct in the performance of its duties under this Agreement. BBH&CO shall not be liable for losses, costs, expenses or liabilities caused by or resulting from the acts or omissions of the Fund or of any agent or third party custodian of the Fund. BBH&CO shall not be responsible for any special, punitive, indirect or consequential damages, whether or not BBH&CO has been apprised of the likelihood of such damages.
13. BBH&CO Indemnity. BBH&CO hereby indemnifies the Fund (which, for purposes of this paragraph shall include its respective officers, directors, partners, managers, employees and agents) from and against any and all claims, damages, liabilities, losses, costs or expenses (including the reasonable fees and expenses of counsel) incurred, suffered or sustained by the Fund, which directly arise from BBH&CO's negligent performance under this Agreement, except to the extent that such claims, damages, liabilities, losses, costs or expenses were caused solely by the negligence or misconduct of the Fund. This indemnity shall survive the termination of this Agreement and the resignation or removal of BBH&CO as agent.
14. Fund Indemnity. The Fund hereby indemnifies BBH&CO (which, for purposes of this paragraph shall include their respective officers, directors, partners, managers, employees and agents) from and against any and all claims, damages, liabilities, losses, costs or expenses (including the reasonable fees and expenses of counsel) incurred, suffered or sustained by BBH&CO, which directly or indirectly arise from performance of this Agreement or any transaction effected pursuant to an SLA, except to the extent that such claims, damages, liabilities, losses, costs or expenses were caused solely by the negligence or misconduct of BBH&CO. This indemnity shall survive the termination of this Agreement and the resignation or removal of BBH&CO as agent.
15. Security Interest. The Fund hereby grants a lien and security interest (each a "Security Interest") to BBH&CO in its interest in any and all property now or hereafter held on behalf of the Fund in any custody account or clearance or settlement account maintained with BBH&CO or to which this Agreement relates, said Security Interests to secure payment and performance of any indebtedness or other liability the Fund incurs to BBH&CO, including (without limitation) reimbursement of any payment made under this Agreement in advance of the receipt of good funds for account of the Fund, as the case may be, in respect of any securities lending transaction hereunder ("Securities Lending Obligations"); BBH&CO's security interests granted hereunder as security for Securities Lending Obligations of the Fund to BBH&CO in respect of any securities lending transaction hereunder shall rank pari passu with any Security Interest granted by the Fund to BBH&CO under the Custodian Agreement. In the event that the custody account is held with a third party custodian, the Fund shall undertake to notify said custodian of the Security interest and shall take all reasonable steps to secure the perfection of the same.
16. Representations and Warranties. Each party represents and warrants to each other that (i) it has due authority to enter into and perform this Agreement and any transactions contemplated thereby; (ii) the execution and performance of this Agreement and any transaction contemplated thereby has been duly authorized by all necessary action, corporate or otherwise, and does not and will not violate any law, regulation, charter, by-law or other instrument, restriction or provision applicable to it; and (iii) this Agreement constitutes such party's legal, valid and binding obligation enforceable in accordance with its terms. In addition, the Fund represents that: (a) any loan authorized hereunder and the performance of this Agreement in respect of such loan is authorized by the prospectus and other constitutive documents of the Fund (including any limits as to the aggregate amount of authorized lending under such documents); and (b) as to any securities lent at any time and from time to time on behalf of the Fund, the Fund shall be the owner thereof with clear title thereto and no lien, charge or encumbrance upon such securities shall exist.
17. Non-Exclusivity of Agency Service and Similar Matters. The Fund acknowledges that BBH&CO, acting on behalf of other accounts, may effect transactions with or for the same institutions to which loans of securities may be made hereunder, which transactions may give rise to potential conflict of interest situations. The Fund further acknowledges that BBH&CO may engage in securities lending transactions as agent for other lenders. Lending opportunities among borrowers shall be allocated by BBH&CO in an equitable manner.
18. Force Majeure. Neither the Fund nor BBH&CO shall be responsible or
liable for any failure or delay in the performance of its obligations under this
Agreement arising out of, or caused directly or indirectly by, circumstances
beyond its control, including without limitation, acts of God; earthquakes;
fires; floods; wars; civil or military disturbances; sabotage; epidemics; riots;
interruptions, loss or malfunctions of utilities, transportation, computer
(hardware or software) or communications service; accidents; labor disputes;
acts of civil or military authority; governmental actions; or inability to
obtain labor, material, equipment or transportation. Without limiting the
foregoing, BBH&CO shall not be responsible for economic, political or investment
risks incurred through the Fund's participation in this securities lending
program, provided, however that BBH&CO in the event of any such failure or delay
(i) shall not discriminate against the Fund in favor of any other customer of
BBH&CO in making resources available to perform its obligations under this
Agreement and (ii) shall use reasonable efforts to ameliorate the effects of any
such failure of delay.
19. Reliance on Fund Communications. BBH&CO shall be entitled to conclusively rely upon any certification, notice or other communication (including by telephone (if promptly confirmed in writing), telex, facsimile, telegram or cable) reasonably believed by it to be genuine and correct and to have been signed or sent by or on behalf of an approved person ("Approved Person") of the party sending such certification, notice or other communication. Set forth in Schedule 6 hereto is a list of Approved Persons for each of the parties hereto, which list may be amended by any party from time to time upon notice to the other parties. No provision of this Agreement shall require BBH&CO to expend or risk its own funds in the performance of its duties hereunder. BBH&CO reserves the right to notify the Fund of any restrictions (self-imposed or otherwise) concerning its activities worldwide. BBH&CO shall have the right to consult with counsel with respect to its rights and duties hereunder and shall not be liable for actions taken or not taken in reliance on such advice.
20. Compensation. The basis of BBH&CO's compensation for its activities hereunder and in respect of any loan is set forth in Schedule 7 hereto. BBH&CO shall notify the Fund, on or about the 7th (seventh) Business Day of each month, of the amount of fees due BBH&CO hereunder and, promptly upon receipt of such notice, the Fund shall effect the requisite payment to BBH&CO in immediately available funds of U.S. dollars, or pursuant to such other means as provided for in the Operational Procedures.
21. Termination. This Agreement may be terminated at the option of any of the parties and shall be effective upon delivery of written notice to the other parties hereto or on such date as the written notice shall provide; provided that the Fund's indemnification shall survive any such termination. The Fund may remove BBH&CO as lending agent, with or without cause. Such removal shall be effective upon delivery of written notice to the party being removed.
22. Action on Termination. It is agreed that (a) upon receipt of notice of termination, no further loans shall be made hereunder by BBH&CO and (b) BBH&CO shall, within a reasonable time after termination of this Agreement, terminate any and all outstanding loans. The provisions hereof shall continue in full force and effect in all other respects until all loans have been terminated and all obligations satisfied as herein provided.
23. Notices. All notices, demands and other communications hereunder shall be in writing and delivered or transmitted (as the case may be) by registered mail, facsimile, telex, courier, or be effected by telephone promptly confirmed in writing and delivered or transmitted as aforesaid, to the intended recipient in accordance with Schedule 8 hereto. Notices shall be effective upon receipt.
24. Governing Law and Jurisdiction. This agreement shall be governed by and construed in accordance with the laws of the State of New York without reference to conflict of law provisions thereof. The parties hereto hereby irrevocably consent to the exclusive jurisdiction of (and waive dispute of venue in) the courts of the State of New York and the federal courts located in New York City in the Borough of Manhattan.
25. Amendments and Effect. This Agreement shall not be modified or amended except by an instrument in writing signed by the parties hereto. This Agreement supersedes any other agreement between the parties hereto concerning loans of securities owned by the Fund. This Agreement shall not be assigned by any party without the prior written consent of the other parties. This Agreement may be executed in several counterparts each of which shall be an original and all of which shall constitute one and the same. This Agreement constitutes the entire understanding of the parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed in its name and behalf as of the day and year first set forth above.
Touchstone Investment Trust for itself and on behalf of each series thereof set forth in Exhibit A hereto
By: ___________________________
Name: Michael S. Spangler Title: Vice President
Touchstone Strategic Trust for itself and on behalf of each series thereof set forth in Exhibit A hereto
By: ___________________________
Name: Michael S. Spangler Title: Vice President
Touchstone Variable Series Trust for itself and on behalf of each series thereof set forth in Exhibit A hereto
By: ___________________________
Name: Michael S. Spangler Title: Vice President
BROWN BROTHERS HARRIMAN & CO.
AS AGENT
By: ___________________________
Name:
Title:
EXHIBIT A
Touchstone Investment Trust on behalf
of the following Series thereof:
Touchstone Intermediate Term U.S. Government Bond Fund
Touchstone U.S. Government Money Market Fund
Touchstone Institutional U.S. Government Money Market Fund
Touchstone Money Market Fund
Touchstone High Yield Fund
Touchstone Core Bond Fund
Touchstone Strategic Trust on behalf
of each of the following Series thereof:
Touchstone Enhanced 30 Fund
Touchstone Large Cap Growth Fund
Touchstone Growth Opportunities Fund
Touchstone International Equity Fund
Touchstone Value Plus Fund
Touchstone Small Cap Growth Fund
Touchstone Emerging Growth Fund
Touchstone Variable Series Trust on behalf of each of the following Series thereof:
Touchstone Balanced Fund
Touchstone Bond Fund
Touchstone Value Plus Fund
Touchstone Enhanced 30 Fund
Touchstone Large Cap Growth Fund
Touchstone Growth & Income Fund
Touchstone Growth/Value Fund (Closing effective 04/25/03)
Touchstone High Yield Fund
Touchstone International Equity Fund
Touchstone Money Market Fund
Touchstone Small Cap Value Fund (named Touchstone Third Avenue Value Fund
effective 04/28/03)
Touchstone Standby Income Fund (Closing effectie 04/25/03)
Touchstone Emerging Growth Fund
Touchstone Baron Small Cap Fund (New fund 04/25/03)
SCHEDULE 1
All Securities held in each series set forth on Exhibit A hereto of Touchstone Investment Trust, Touchstone Strategic Trust, and Touchstone Variable Series Trust held in custody at BBH.
SCHEDULE 2
Approved U.S. Borrowers
ABN AMRO Incorporated
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Bear, Stearns Securities Corp.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
ING Financial Markets LLC
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated/MS Securities Services Inc.
Salomon Smith Barney Inc.
SG Cowen Securities Corporation
UBS PaineWebber Inc.
UBS Warburg LLC
SCHEDULE 3
FORM OF SECURITIES LOAN AGREEMENT
SCHEDULE 4
List of Approved
Issuers of Letters of Credit
SCHEDULE 5
PERMITTED INVESTMENTS
FOR CASH COLLATERAL
Securities Lending Investment Fund, a series of the Brown Brothers Investment Trust
SCHEDULE 6
LIST OF APPROVED PERSONS
For the Fund:
For the Agent:
Christine A. Donovan
Bonnie L. Hammerl
Lawrence M. Stein
Lisa M. Lambert
Stephen F. Nazzaro
Mark H. Payson
Elizabeth A. Seidel
Luke A. McCabe
David A. Jacobson
SCHEDULE 7
FEES
SCHEDULE 8
NOTICES
If to the Fund: Touchstone Investments
Address: 221 East Fourth Street, Suite 300, Cincinnati, OH 45202
Attn: Michael S. Spangler, Vice President
Telephone: 513.362.8339
Facsimile: 513.362.8319
|
If to the Agent:
Address: 50 Milk Street
Boston, MA 02109
Attn: Bonnie L. Hammerl
Telephone: (617) 772-6140
Facsimile: (617) 772-2404
|
AGREEMENT dated as of December 31, 2002 between Touchstone Strategic Trust (the "Trust"), a Massachusetts business trust, and Integrated Fund Services, Inc. ("Integrated"), an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, shares of beneficial interest in the Trust are divided into separate series (along with any series which may in the future be established, the "Funds" or, each, a "Fund"); and
WHEREAS, the Trust wishes to employ Integrated to serve as its accounting services agent on behalf of the Funds; and
WHEREAS, Integrated wishes to provide such services to the Trust under the conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained in this Agreement, the Trust and Integrated agree as follows:
The Trust hereby employs Integrated as agent to perform those services described in this Agreement for the Trust. Integrated shall act under such appointment and perform the obligations thereof upon the terms and conditions hereinafter set forth.
The Trust will furnish from time to time certified copies of each resolution of the Board of Trustees authorizing officers to give instructions to Integrated and such other certifications, documents or opinions that Integrated may, in its discretion, deem necessary or appropriate in the proper performance of its duties.
Integrated will maintain and keep current the general ledger for the Funds, recording all income and expenses, capital share activity and security transactions of the Funds. Integrated will calculate the net asset value of each of the Funds and the per share net asset value of each of the Funds, in accordance with the Trust's current prospectus and statement of additional information, once daily as of the time selected by the Trust's Board of Trustees. Integrated will prepare and maintain a daily valuation of all securities and other assets of the Funds in accordance with instructions from a designated officer of the Trust and in the manner
set forth in the Trust's current prospectus and statement of additional information. In valuing securities of the Funds, Integrated may contract with, and rely upon market quotations provided by, outside services.
Integrated shall process each request received from the Trust or its authorized agents for payment of the Funds' expenses. Upon receipt of written instructions signed by an officer or other authorized agent of the Trust, Integrated shall prepare checks in the appropriate amounts which shall be signed by an authorized officer of Integrated and mailed to the appropriate party.
Subject to the direction and control of the Trustees of the Trust, Integrated shall perform the services to the Trust detailed in Schedule A.
The Trust acknowledges that the data bases, computer programs, screen formats, report formats, interactive design techniques, and documentation manuals furnished to the Trust by Integrated as part of the Trust's ability to access certain Trust-related data ("Customer Data") maintained by Integrated on data bases under the control and ownership of Integrated or other third party ("Data Access Services") constitute copyrighted, trade secret, or other proprietary information (collectively, "Proprietary Information") of substantial value to Integrated or other third party. In no event shall Proprietary Information be deemed Customer Data. The Trust agrees to treat all Proprietary Information as proprietary to Integrated and further agrees that it shall not divulge any Proprietary Information to any person or organization except as may be provided hereunder.
Integrated shall cooperate with the Trust's independent public accountants and shall take all reasonable action in the performance of its obligations under this Agreement to assure that the necessary information is made available to such accountants for the expression of their unqualified opinion where required for any document for the Trust.
A. Integrated may provide additional special reports upon the request of the Trust or the Trust's investment adviser, which may result in an additional charge, the amount of which shall be agreed upon between the parties.
B. Integrated may provide such other services with respect to the Trust as may be reasonably requested by the Trust, which may result in an additional charge, the amount of which shall be agreed upon between the parties.
C. Integrated may provide exception processing upon the request of the Trust or the Trust's investment adviser, which may result in an additional charge, the amount of which shall be agreed upon between the parties. Exception processing includes, but is not limited to, processing which:
(a) requires Integrated to use methods and procedures other than those usually employed by Integrated to perform its obligations under this Agreement;
(b) involves the provision of information to Integrated after the commencement of the nightly processing cycle of Integrated's transfer agency, administration and/or fund accounting processing system; or
(c) requires more manual intervention by Integrated, either in the entry of data or in the modification or amendment of reports generated by Integrated's transfer agency, administration and/or fund accounting processing system than is usually required.
Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof.
Integrated may, at its expense, and, upon prior written approval from the Trust, subcontract with any entity or person concerning the provision of the services contemplated hereunder; provided, however, that Integrated shall not be relieved of any of its obligations under this Agreement by the appointment of such subcontractor and provided further, that Integrated shall be responsible for all acts of such subcontractor as if such acts were its own.
For performing its services under this Agreement, the Trust shall pay Integrated a monthly fee with respect to each Fund in accordance with the schedule attached hereto as Schedule B.
Integrated shall furnish, at its expense and without cost to the Trust the services of its personnel to the extent that such services are required to carry out its obligations under this Agreement. All costs and expenses not expressly assumed by Integrated under this Paragraph shall be paid by the Trust, including, but not limited to, costs and expenses of officers and employees of Integrated in attending meetings of the Board of Trustees and shareholders of the Trust, as well as costs and expenses for all regulatory filings, postage, envelopes, checks, drafts, continuous forms, bank charges, reports, communications and other materials, file interface expenses, telephone, telegraph and remote transmission lines, EDGARization, printing, use of outside pricing services, use of outside firms, necessary outside record storage, media for storage
of records (e.g., microfilm, microfiche, computer tapes), pro rata expenses for preparation of Integrated's Fund Accounting SAS 70 reports, costs and fees, including employee time and system expenses, associated with exception processing and resolution of errors not caused by Integrated, and any and all assessments, taxes or levies assessed on Integrated for services provided under this Agreement.
A. Neither the Trust nor its agents shall circulate any printed matter which contains any reference to Integrated without the prior written approval of Integrated, excepting solely such printed matter as merely identifies Integrated as Administrative Services Agent, Transfer, Shareholder Servicing and Dividend Disbursing Agent and Accounting Services Agent. The Trust will submit printed matter requiring approval to Integrated in draft form, allowing sufficient time for review by Integrated and its counsel prior to any deadline for printing.
B. Integrated shall not circulate any printed matter that contains any reference to the Trust without the prior written approval of the Trust, excepting solely such printed matter as merely identifies the Trust as a client of Integrated. Integrated will submit printed matter requiring approval to the Trust in draft form, allowing sufficient time for review by the Trust and its counsel prior to any deadline for printing.
In the event of equipment failures beyond Integrated's control, Integrated shall take all steps necessary to minimize service interruptions but shall have no liability with respect thereto. Integrated shall endeavor to enter into one or more agreements making provision for emergency use of electronic data processing equipment to the extent appropriate equipment is available.
A. Integrated may rely on information reasonably believed by it to be accurate and reliable. Except as may otherwise be required by the 1940 Act and the rules thereunder, neither Integrated nor its directors, officers, employees, shareholders, agents, control persons or affiliates of any thereof shall be subject to any liability for, or any damages, including consequential damages, expenses or losses incurred by the Trust in connection with, any error of judgment, mistake of law, any act or omission connected with or arising out of any services rendered under or payments made pursuant to this Agreement or any other matter to which this Agreement relates, except by reason of willful misfeasance, bad faith or gross negligence on the part of any such persons in the performance of the duties of Integrated under this Agreement or by reason of reckless disregard by any of such persons of the obligations and duties of Integrated under this Agreement. Integrated may apply to the Trust at any time for instructions and may consult counsel for the Trust, or its own counsel, and with accountants and other experts with respect to any matter arising in connection with its duties hereunder, and Integrated shall not be liable or accountable for any action taken or omitted by it in good faith in accordance with such instruction, or with the opinion of such counsel, accountants, or other experts. Integrated shall
not be held to have notice of any change of authority of any officers, employees, or agents of the Trust until receipt of written notice thereof have been received by Integrated from the Trust.
B. Any person, even though also a director, officer, employee, shareholder or agent of Integrated, or any of its affiliates, who may be or become an officer, trustee, employee or agent of the Trust, shall be deemed, when rendering services to the Trust or acting on any business of the Trust, to be rendering such services to or acting solely as an officer, trustee, employee or agent of the Trust and not as a director, officer, employee, shareholder or agent of or one under the control or direction of Integrated or any of its affiliates, even though paid by one of these entities.
C. Notwithstanding any other provision of this Agreement, the Trust
shall indemnify and hold harmless Integrated, its directors, officers,
employees, shareholders, agents, control persons and affiliates of any thereof
from and against any and all losses, damages, claims, suits, actions, demands,
expenses and liabilities (whether with or without basis in fact or law),
including legal fees and expenses and investigation expenses, of any and every
nature which Integrated may sustain or incur or which may be asserted against
Integrated by any person by reason of, or as a result of: (i) any action taken
or omitted to be taken by Integrated in good faith in reliance upon any
certificate, instrument, order or share certificate believed by it to be genuine
and to be signed, countersigned or executed by any duly authorized person, upon
the oral instructions or written instructions of an authorized person of the
Trust or upon the opinion of legal counsel for the Trust or its own counsel; or
(ii) any action taken or omitted to be taken by Integrated in connection with
its appointment in good faith in reliance upon any law, act, regulation or
interpretation of the same even though the same may thereafter have been
altered, changed, amended or repealed. However, indemnification under this
subparagraph shall not apply to actions or omissions of Integrated or its
directors, officers, employees, shareholders or agents in cases of its or their
own gross negligence, willful misconduct, bad faith, or reckless disregard of
its or their own duties hereunder.
D. Notwithstanding anything to the contrary in this Agreement, in no event shall Integrated be liable to the Trust or any third party for any special, consequential, punitive or incidental damages, even if advised of the possibility of such damages.
A. The provisions of this Agreement shall be effective on the date first above written, shall continue in effect for two years ("Initial Term") from that date and shall continue in force for one year thereafter ("Renewal Term"), but only so long as such continuance is approved (1) by Integrated, (2) the Trust, (3) by a vote of a majority of the Trust's Trustees who are not parties to this Agreement or interested persons (as defined in the 1940 Act) of any such party, and (4) by vote of a majority of the Trust's Board of Trustees or a majority of the Trust's outstanding voting securities.
B. Any party may terminate this Agreement at the end of the Initial Term or at the end of any subsequent Renewal Term by giving the other parties at least one hundred twenty (120) days' prior written notice of such termination specifying the date fixed therefor. In the event this Agreement is terminated by the Trust prior to the end of the Initial Term or any subsequent Renewal Term the Trust shall make a one-time cash payment to Integrated in consideration of services provided under this Agreement, and not as a penalty, equal to the remaining balance of the fees payable to Integrated under this Agreement through the end of the Initial Term or Renewal Term, as applicable. The Trust shall likewise reimburse Integrated for any out-of-pocket expenses and disbursements ("out-of-pocket expenses") reasonably incurred by Integrated in connection with the services provided under this Agreement within 30 days of notification to the Trust of such out-of-pocket expenses regardless of whether such out-of-pocket expenses were incurred before or after the termination of this Agreement.
C. If a party materially fails to perform its duties and obligations hereunder (a "Defaulting Party") resulting in a material loss to another party or parties, such other party or parties (the "Non-Defaulting Party") may give written notice thereof to the Defaulting Party, which such notice shall set forth with sufficient detail the nature of the breach. The Defaulting Party shall have ninety (90) days from its receipt of notice to cure the breach. If such material breach shall not have been remedied to commercially reasonable operating standards, the Non-Defaulting Party may terminate this Agreement by giving sixty (60) days written notice of such termination to the Defaulting Party. If Integrated is the Non-Defaulting Party, its termination of this Agreement shall not constitute a waiver of any rights or remedies with respect to services it performed prior to such termination, or the right of Integrated to receive such compensation as may be due as of the date of termination or to be reimbursed for all reasonable out-of-pocket expenses. In all cases, termination by the Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party of any other rights it might have under this Agreement or otherwise against a Defaulting Party.
D. In the case of the following transactions, not in the ordinary course of business, namely, the merger of the Trust, or a Fund, into or the consolidation of the Trust, or a Fund, with another investment company, the sale by the Trust, or a Fund, of all, or substantially all, of its assets to another investment company, or the liquidation or dissolution of the Trust, or a Fund, and distribution of its assets, this Agreement will terminate with respect to the applicable Fund or Funds and Integrated shall be released from any and all obligations hereunder upon the payment of the fees, disbursements and expenses due to Integrated through the end of the then current term of this Agreement. The parties acknowledge and agree that the damages provision set forth above in paragraph B shall be applicable in those instances in which Integrated is not retained to provide fund accounting services subsequent to the transactions listed above.
E. Integrated will be entitled to collect from the Trust all reasonable expenses incurred in conjunction with termination of this Agreement, including but not limited to out-of-pocket expenses, employee time, system fees and fees charged by third parties with whom Integrated has contracted.
Nothing in this Agreement shall prevent Integrated or any affiliated person (as defined in the 1940 Act) of Integrated from providing services for any other person, firm or corporation (including other investment companies); provided, however, that Integrated expressly represents that it will undertake no activities which, in its judgment, will adversely affect the performance of its obligations to the Trust under this Agreement.
The parties hereto acknowledge and agree that nothing contained herein shall be construed to require Integrated to perform any services for the Trust which services could cause Integrated to be deemed an "investment adviser" of the Trust within the meaning of Section 2(a)(20) of the 1940 Act or to supersede or contravene the Trust's prospectus or statement of additional information or any provisions of the 1940 Act and the rules thereunder. Except as otherwise provided in this Agreement and except for the accuracy of information furnished to it by Integrated, the Trust assumes full responsibility for complying with all applicable requirements of the 1940 Act, the Securities Act of 1933, as amended, and any other laws, rules and regulations of governmental authorities having jurisdiction, it being acknowledged that the Trust is relying on the best efforts of Integrated.
It is expressly agreed that the obligations of the Trust hereunder shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Trust, personally, but bind only the trust property of the Trust. The execution and delivery of this Agreement have been authorized by the Trustees of the Trust and signed by an officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trust.
In the event any provision of this Agreement is determined to be void or unenforceable, such determination shall not affect the remainder of this Agreement, which shall continue to be in force.
This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act shall be resolved by reference to such term or provision of the 1940 Act and to interpretations thereof, if any, by the United States Courts or in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission ("SEC") issued pursuant to said 1940 Act. In addition, where the effect of a requirement of the 1940 Act,
reflected in any provision of this Agreement, is revised by rule, regulation or order of the SEC, such provision shall be deemed to incorporate the effect of such rule, regulation or order.
Both parties hereto agree that any non-public information obtained hereunder concerning the other party is confidential and may not be disclosed without the consent of the other party, except as may be required by applicable law or at the request of a governmental agency. The parties further agree that a breach of this provision would irreparably damage the other party and accordingly agree that each of them is entitled, in addition to all other remedies at law or in equity to an injunction or injunctions without bond or other security to prevent breaches of this provision.
All notices required or permitted under this Agreement shall be in writing (including telex and telegraphic communication) and shall be (as elected by the person giving such notice) hand delivered by messenger or courier service, telecommunicated, or mailed (airmail if international) by registered or certified mail (postage prepaid), return receipt requested, addressed to:
To the Trust: Touchstone Strategic Trust
221 East Fourth Street, Suite 300
Cincinnati, Ohio 45202
Attention: Patrick T. Bannigan
To Integrated: Integrated Fund Services, Inc.
221 East Fourth Street, Suite 300
Cincinnati, Ohio 45202
Attention: Scott A. Englehart
|
or to such other address as any party may designate by notice complying with the terms of this Paragraph. Each such notice shall be deemed delivered (a) on the date delivered if by personal delivery; (b) on the date telecommunicated if by telegraph; (c) on the date of transmission with confirmed answer back if by telex, telefax or other telegraphic method or e-mail; and (d) on the date upon which the return receipt is signed or delivery is refused or the notice is designated by the postal authorities as not deliverable, as the case may be, if mailed.
This Agreement may not be amended or modified except by a written agreement executed by all parties.
Each of the undersigned expressly warrants and represents that he has the full power and authority to sign this Agreement on behalf of the party indicated, and that his signature will operate to bind the party indicated to the foregoing terms.
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Integrated assumes no responsibility hereunder, and shall not be liable, for any damage, loss of data, delay or any other loss whatsoever caused by events beyond its control, including and without limitation, acts of God, interruption of power or other utility, transportation, mail, or communication services, acts of civil or military authority, sabotages, war, insurrection, riots, national emergencies, explosion, flood, accident, earthquake or other catastrophe, fire, strike or other labor problems, legal action, present or future law, governmental order, rule or regulation, or shortages of suitable parts, materials, labor or transportation.
The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.
TOUCHSTONE STRATEGIC TRUST
By:/s/ Patirck T. Bannigan ------------------------------------- Its: President |
INTEGRATED FUND SERVICES, INC.
By: /s/ Scott A. Englehart ------------------------------------- Its: President |
SCHEDULE A
In consideration of the compensation detailed in this Agreement, Integrated shall perform the following Accounting services:
1. Calculate net asset value and per share net asset value in accordance with the 1940 Act and the Trust's prospectus.
2. Record all security transactions including appropriate gains and losses from the sale of portfolio securities.
3. Record interest income and dividend income.
4. Record each Fund's capital share activities based upon purchase and redemption transactions received by the transfer agent.
5. Calculate a daily cash figure for investment purposes.
6. Monitor and seek authorization for payment of expenses of each Fund.
7. Periodically report to the Trust or its authorized agents share purchases and redemptions and trial balances of each Fund.
8. Prepare the necessary supporting computations on a book and tax basis to ensure each Fund complies with the requirements of Section 851 of the Internal Revenue Code.
9. Facilitate and perform tax planning and administration.
10. Monitor all tax compliance calculations to ensure that each Fund qualifies as a regulated investment company pursuant to Subchapter M of the Internal Revenue Code.
11. Assist independent accountants with the annual audit by preparing necessary annual audit work papers.
12. Generate fund performance calculations (including after-tax returns) and automated report dissemination.
13. Maintain complete, accurate and current all records with respect to the Trust required to be maintained by the Trust under the Internal Revenue Code of 1986, as amended (the "Code"), and under the rules and regulations of the 1940 Act, and preserve said records in the manner and for the periods prescribed in the Code and the 1940 Act.
AGREEMENT dated as of December 31, 2002 between Touchstone Strategic Trust (the "Trust"), a Massachusetts business trust, and Integrated Fund Services, Inc. ("Integrated"), an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, shares of beneficial interest in the Trust are divided into separate series (each, along with any series which may in the future be established, a "Fund," collectively, the "Funds"); and
WHEREAS, the Trust wishes to employ Integrated to serve as its transfer, shareholder servicing and dividend disbursing agent on behalf of the Funds; and
WHEREAS, Integrated wishes to provide such services to the Trust under the conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained in this Agreement, the Trust and Integrated agree as follows:
The Trust hereby employs Integrated as agent to perform those services described in this Agreement for the Trust. Integrated shall act under such appointment and perform the obligations thereof upon the terms and conditions hereinafter set forth.
The Trust will furnish from time to time the following documents:
A. Each resolution of the Board of Trustees of the Trust authorizing the original issue of the shares of the Funds;
B. Each Registration Statement filed with the Securities and Exchange Commission (the "SEC") and amendments thereof;
C. A certified copy of the Agreement and Declaration of Trust and the Bylaws of the Trust and each amendment thereto;
D. Certified copies of each resolution of the Board of Trustees authorizing officers to give instructions to Integrated;
E. Copies of all agreements with service providers on behalf of the Funds, including advisory agreements, sub-advisory agreements, underwriting and dealer agreements and custody agreements in effect;
F. Copies of all documents relating to special investment or withdrawal plans which are offered or may be offered in the future by the Trust and for which Integrated is to act as plan agent; and
G. Such other certificates, documents or opinions that Integrated may, in its discretion, deem necessary or appropriate in the proper performance of its duties.
Integrated shall record the issuance of shares of the Funds and maintain pursuant to applicable rules of the SEC a record of the total number of shares of the Funds which are authorized, issued and outstanding, based upon data provided to it by the Trust. Integrated shall also provide the Trust on a regular basis or upon reasonable request the total number of Fund shares which are authorized, issued and outstanding, but shall have no obligation when recording the issuance of Fund shares, except as otherwise set forth herein, to monitor the issuance of such shares or to take cognizance of any laws relating to the issue or sale of such shares, which functions shall be the sole responsibility of the Trust. Integrated shall not handle physical shares.
Upon receipt of a proper request for transfer and upon surrender to Integrated of certificates, if any, in proper form for transfer, Integrated shall approve such transfer and shall take all necessary steps to effectuate the transfer as indicated in the transfer request. Upon approval of the transfer, Integrated shall notify the Trust in writing of each such transaction and shall make appropriate entries on the shareholder records maintained by Integrated.
Upon receipt of any check or other instrument drawn or endorsed to it as agent for, or identified as being for the account of, the Trust or a Fund, Integrated shall stamp the check or instrument with the date of receipt, determine the amount thereof due each Fund and shall forthwith process the same for collection. Upon receipt of notification of receipt of funds eligible for share purchases in accordance with the Trust's then current prospectus and statement of additional information, Integrated shall notify the Trust, at the close of each business day, in writing of the amount of said funds credited to the Trust and deposited in its account with the Custodian.
Upon receipt of an order for the purchase of shares of a Fund, accompanied by sufficient information to enable Integrated to establish a shareholder account, Integrated shall, as of the next determination of net asset value after receipt of such order in accordance with the Trust's then current prospectus and statement of additional information, compute the number of shares due to the shareholder, credit the share account of the shareholder, subject to collection of
the funds, with the number of shares so purchased, shall notify the Trust in writing or by computer report at the close of each business day of such transactions and shall mail to the shareholder and/or dealer of record a notice of such credit when required by applicable securities laws or regulations.
In the event that Integrated is notified by the Trust's Custodian that any check or other order for the payment of money is returned unpaid for any reason, Integrated will:
A. Give prompt notification to the Trust of the non-payment of said check;
B. In the absence of other instructions from the Trust, take such steps as may be necessary to redeem any shares purchased on the basis of such returned check and cause the proceeds of such redemption plus any dividends declared with respect to such shares to be credited to the account of the Trust and to request the Trust's Custodian to forward such returned check to the person who originally submitted the check; and
C. Notify the Trust of such actions and correct the Trust's records maintained by Integrated pursuant to this Agreement.
The Trust shall furnish Integrated with appropriate evidence of Trustee action authorizing the declaration of dividends and other distributions. Integrated shall establish procedures in accordance with the Trust's then current prospectus and statement of additional information and with other authorized actions of the Trust's Board of Trustees under which it will have available from the Custodian or the Trust any required information for each dividend and other distribution. After deducting any amount required to be withheld by any applicable laws, Integrated shall, as agent for each shareholder who so requests, invest the dividends and other distributions in full and fractional shares in accordance with the Trust's then current prospectus and statement of additional information. If a shareholder has elected to receive dividends or other distributions in cash, then Integrated shall disburse dividends to shareholders of record in accordance with the Trust's then current prospectus and statement of additional information. Integrated shall, on or before the mailing date of such checks, notify the Trust and the Custodian of the estimated amount of cash required to pay such dividend or distribution, and the Trust shall instruct the Custodian to make available sufficient funds therefore in the appropriate account of the Trust. Integrated shall mail to the shareholders periodic statements, as requested by the Trust, showing the number of full and fractional shares and the net asset value per share of shares so credited. When requested by the Trust, Integrated shall prepare and file with the Internal Revenue Service, and when required, shall address and mail to shareholders, such returns and information relating to dividends and distributions paid by the Trust as are required to be so prepared, filed and mailed by applicable laws, rules and regulations.
Integrated shall, at least annually, furnish in writing to the Trust the names and addresses, as shown in the shareholder accounts maintained by Integrated, of all shareholders for which there are, as of the end of the calendar year, dividends, distributions or redemption proceeds for which checks or share certificates mailed in payment of distributions have been returned. Integrated shall use its best efforts to contact the shareholders affected and to follow any other written instructions received from the Trust concerning the disposition of any such unclaimed dividends, distributions or redemption proceeds.
A. Integrated shall process, in accordance with the Trust's then current prospectus and statement of additional information, each order for the redemption of shares accepted by Integrated. Upon its approval of such redemption transactions, Integrated, if requested by the Trust, shall mail to the shareholder and/or dealer of record a confirmation showing trade date, number of full and fractional shares redeemed, the price per share and the total redemption proceeds. For each such redemption, Integrated shall either: (a) prepare checks in the appropriate amounts for approval and verification by the Trust and signature by an authorized officer of Integrated and mail the checks to the appropriate person, or (b) in the event redemption proceeds are to be wired through the Federal Reserve Wire System or by bank wire, cause such proceeds to be wired subject to approval and verification of the appropriate amounts by the Trust in federal funds to the bank account designated by the shareholder, or (c) effectuate such other redemption procedures which are authorized by the Trust's Board of Trustees or its then current prospectus and statement of additional information. The requirements as to instruments of transfer and other documentation, the applicable redemption price and the time of payment shall be as provided in the then current prospectus and statement of additional information, subject to such supplemental instructions as may be furnished by the Trust and accepted by Integrated. If Integrated or the Trust determines that a request for redemption does not comply with the requirements for redemptions in accordance with the Trust's then current prospectus and statement of additional information, Integrated shall notify the shareholder indicating the reason therefore.
B. If shares of a Fund are eligible for exchange with shares of any other investment company, Integrated, in accordance with the then current prospectus and statement of additional information and exchange rules of the Trust, shall review and approve all exchange requests and shall, on behalf of the Fund's shareholders, process such approved exchange requests.
C. Integrated shall notify the Trust and the Custodian on each business day of the amount of cash required to meet payments made pursuant to the provisions of this Paragraph, and, on the basis of such notice, the Trust shall instruct the Custodian to make available from time to time sufficient funds therefore in the appropriate account of the Trust. Procedures for effecting redemption orders accepted from shareholders or dealers of record by telephone or other methods shall be established by mutual agreement between Integrated and the Trust consistent with the Trust's then current prospectus and statement of additional information.
D. The authority of Integrated to perform its responsibilities under Paragraph 3, Paragraph 5, and this Paragraph 10 shall be suspended with respect to any Fund upon receipt of notification by it of the suspension of the determination of such Fund's net asset value.
Integrated will process automatic withdrawal orders pursuant to the provisions of the withdrawal plans duly executed by shareholders and the current prospectus and statement of additional information of the Trust. Payments upon such withdrawal order shall be made by Integrated from the appropriate account maintained by the Trust with the Custodian on approximately the last business day of each month in which a payment has been requested, and Integrated will withdraw from a shareholder's account and present for repurchase or redemption as many shares as shall be sufficient to make such withdrawal payment pursuant to the provisions of the shareholder's withdrawal plan and the current prospectus and statement of additional information of the Trust. From time to time on new automatic withdrawal plans a check for payment date already past may be issued upon request by the shareholder.
Integrated will send written confirmations to the dealers of record containing all details of the wire-order purchases placed by each such dealer by the close of business on the business day following receipt of such orders by Integrated. Upon receipt of any check drawn or endorsed to the Trust (or Integrated, as agent) or otherwise identified as being payment of an outstanding wire-order, Integrated will stamp said check with the date of its receipt and deposit the amount represented by such check to Integrated's deposit accounts maintained with the Custodian. Integrated will cause the Custodian to transfer federal funds in an amount equal to the net asset value of the shares so purchased to the Trust's account with the Custodian, and will notify the Trust before noon of each business day of the total amount deposited in the Trust's deposit accounts, and in the event that payment for a purchase order is not received by Integrated or the Custodian on the tenth business day following receipt of the order, prepare a National Association of Securities Dealers ("NASD") "notice of failure of dealer to make payment."
Integrated shall withhold such sums as are required to be withheld under applicable federal and state income tax laws, rules and regulations.
Integrated will process such accumulation plans, automatic withdrawal plans, group programs and other plans or programs for investing in shares of the Trust mutually agreed upon by Integrated and the Trust in accordance with the Trust's current prospectus and statement of additional information and will act as plan agent for shareholders pursuant to the terms of such plans and programs duly executed by such shareholders, if so agreed upon by Integrated and the Trust.
A. Prior to the commencement of Integrated's responsibilities under this Agreement, if applicable, the Trust shall deliver or cause to be delivered over to Integrated (i) an accurate, certified list of shareholders of each Fund, showing each shareholder's address of record, number of shares owned and whether such shares are represented by outstanding share certificates and (ii) all shareholders records, files, and other materials necessary or appropriate for proper performance of the functions assumed by Integrated under this Agreement including, without limitation, special instructions regarding withholding, dividend options and householding (collectively referred to as the "Materials"). The Trust shall on behalf of each applicable Fund or class indemnify and hold Integrated harmless from and against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to any error, omission, inaccuracy or other deficiency of the Materials, or out of the failure of the Trust to provide any portion of the Materials or to provide any information in the Trust's possession or control reasonably needed by Integrated to perform the services described in this Agreement.
B. Integrated shall create and maintain all records required by applicable laws, rules and regulations, including but not limited to records required by Section 31(a) of the 1940 Act and the rules thereunder, as the same may be amended from time to time, pertaining to the various functions performed by it and not otherwise created and maintained by another party pursuant to contract with the Trust. All such records shall be the property of the Trust at all times and shall be available for inspection and use by the Trust. Where applicable, such records shall be maintained by Integrated for the periods and in the places required by Rules 31a-1 and 31a-2 under the 1940 Act. The retention of such records shall be at the expense of the Trust. Integrated shall make available during regular business hours all records and other data created and maintained pursuant to this Agreement for reasonable audit and inspection by the Trust or its agents, or any regulatory agency having authority over the Trust.
Integrated shall maintain records for each shareholder account showing the following:
A. Names, addresses and tax identifying numbers;
B. Name of the dealer of record, if any;
C. Number of shares held of each Fund;
D. Historical information regarding the account of each shareholder, including dividends and distributions in cash or invested in shares;
E. Information with respect to the source of all dividends and distributions allocated among income, realized short-term gains and realized long-term gains;
F. Any instructions from a shareholder including all forms furnished by the Trust and executed by a shareholder with respect to (i) dividend or distribution elections and (ii) elections with respect to payment options in connection with the redemption of shares;
G. Any correspondence relating to the current maintenance of a shareholder's account;
H. Any stop or restraining order placed against a shareholder's account;
I. Information with respect to withholding in the case of a foreign account or any other account for which withholding is required by the Internal Revenue Code of 1986, as amended; and
J. Any information required in order for Integrated to perform the calculations contemplated under this Agreement.
Integrated will provide and maintain adequate personnel, records and equipment to receive and answer all shareholder inquiries relating to account status, share purchases, redemptions and exchanges and other investment plans available to Trust shareholders. Integrated will answer written correspondence from shareholders relating to their share accounts and such other written or oral inquiries as may from time to time be mutually agreed upon, and Integrated will notify the Trust of any correspondence or inquiries which may require an answer from the Trust. Integrated will maintain all NASD correspondence necessary to adhere to all NASD regulations.
Subject to the direction and control of the Trustees of the Trust, Integrated will perform the services to the Trust detailed in Schedule A.
The Trust acknowledges that the data bases, computer programs, screen formats, report formats, interactive design techniques, and documentation manuals furnished to the Trust by Integrated as part of the Trust's ability to access certain Trust-related data ("Customer Data") maintained by Integrated on data bases under the control and ownership of Integrated or other third party ("Data Access Services") constitute copyrighted, trade secret, or other proprietary information (collectively, "Proprietary Information") of substantial value to Integrated or other third party. In no event shall Proprietary Information be deemed Customer Data. The Trust agrees to treat all Proprietary Information as proprietary to Integrated and further agrees that it shall not divulge any Proprietary Information to any person or organization except as may be provided hereunder.
Integrated shall cooperate with the Trust's independent public accountants and shall take all reasonable action in the performance of its obligations under this Agreement to assure that the necessary information is made available to such accountants for the expression of their unqualified opinion where required for any document for the Trust.
A. Integrated may provide additional special reports upon the request of the Trust or the Trust's investment adviser, which may result in an additional charge, the amount of which shall be agreed upon between the parties.
B. Integrated may provide such other services with respect to the Trust as may be reasonably requested by the Trust, which may result in an additional charge, the amount of which shall be agreed upon between the parties.
C. Integrated may provide exception processing upon the request of the Trust or the Trust's investment adviser, which may result in an additional charge, the amount of which shall be agreed upon between the parties. Exception processing includes, but is not limited to, processing which:
(a) requires Integrated to use methods and procedures other than those usually employed by Integrated to perform its obligations under this Agreement;
(b) involves the provision of information to Integrated after the commencement of the nightly processing cycle of Integrated's transfer agency, administration and/or fund accounting processing system; or
(c) requires more manual intervention by Integrated, either in the entry of data or in the modification or amendment of reports generated by Integrated's transfer agency, administration and/or fund accounting processing system than is usually required.
Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof.
Integrated may, at its expense, and, upon prior written approval from the Trust, subcontract with any entity or person concerning the provision of the services contemplated hereunder; provided, however, that Integrated shall not be relieved of any of its obligations under this Agreement by the appointment of such subcontractor and provided further, that Integrated shall be responsible for all acts of such subcontractor as if such acts were its own.
For performing its services under this Agreement, the Trust shall pay Integrated a monthly fee in accordance with the schedule attached hereto as Schedule B.
Integrated shall furnish, at its expense and without cost to the Trust the services of its personnel to the extent that such services are required to carry out its obligations under this Agreement. All costs and expenses not expressly assumed by Integrated under this Paragraph shall be paid by the Trust, including, but not limited to, costs and expenses of officers and employees of Integrated in attending meetings of the Board of Trustees and shareholders of the Trust, as well as costs and expenses for all regulatory filings, postage, envelopes, checks, drafts, continuous forms, bank charges, reports, communications, proxies, statements and other materials, file interface expenses (e.g., Fanmail, Broker Browser, Expeditor, other distribution partners), label file creation, Blue Sky filing fees, telephone, telegraph and remote transmission lines, EDGARization, printing, confirmations, fulfillment and any other shareholder correspondence, use of outside solicitation, tabulation and mailing firms, necessary outside record storage, media for storage of records (e.g., microfilm, microfiche, computer tapes), pro rata expenses for preparation of Integrated's Transfer Agent SAS 70 reports, costs and fees, including employee time and system expenses, associated with exception processing and resolution of errors not caused by Integrated, and any and all assessments, taxes or levies assessed on Integrated for services provided under this Agreement. Postage for mailings of dividends, proxies, reports and other mailings to all shareholders shall be advanced to Integrated three business days prior to the mailing date of such materials.
A. Neither the Trust nor its agents shall circulate any printed matter which contains any reference to Integrated without the prior written approval of Integrated, excepting solely such printed matter as merely identifies Integrated as Administrative Services Agent, Transfer, Shareholder Servicing and Dividend Disbursing Agent and Accounting Services Agent. The Trust will submit printed matter requiring approval to Integrated in draft form, allowing sufficient time for review by Integrated and its counsel prior to any deadline for printing.
B. Integrated shall not circulate any printed matter that contains any reference to the Trust without the prior written approval of the Trust, excepting solely such printed matter as merely identifies the Trust as a client of Integrated. Integrated will submit printed matter requiring approval to the Trust in draft form, allowing sufficient time for review by the Trust and its counsel prior to any deadline for printing.
In the event of equipment failures beyond Integrated's control, Integrated shall take all steps necessary to minimize service interruptions but shall have no liability with respect thereto. Integrated shall endeavor to enter into one or more agreements making provision for emergency use of electronic data processing equipment to the extent appropriate equipment is available.
A. Integrated may rely on information reasonably believed by it to be accurate and reliable. Except as may otherwise be required by the 1940 Act and the rules thereunder, neither Integrated nor its directors, officers, employees, shareholders, agents, control persons or affiliates of any thereof shall be subject to any liability for, or any damages, including consequential damages, expenses or losses incurred by the Trust in connection with, any error of judgment, mistake of law, any act or omission connected with or arising out of any services rendered under or payments made pursuant to this Agreement or any other matter to which this Agreement relates, except by reason of willful misfeasance, bad faith or gross negligence on the part of any such persons in the performance of the duties of Integrated under this Agreement or by reason of reckless disregard by any of such persons of the obligations and duties of Integrated under this Agreement. Integrated may apply to the Trust at any time for instructions and may consult counsel for the Trust, or its own counsel, and with accountants and other experts with respect to any matter arising in connection with its duties hereunder, and Integrated shall not be liable or accountable for any action taken or omitted by it in good faith in accordance with such instruction, or with the opinion of such counsel, accountants, or other experts. Integrated shall not be held to have notice of any change of authority of any officers, employees, or agents of the Trust until receipt of written notice thereof have been received by Integrated from the Trust.
B. Any person, even though also a director, officer, employee, shareholder or agent of Integrated, or any of its affiliates, who may be or become an officer, trustee, employee or agent of the Trust, shall be deemed, when rendering services to the Trust or acting on any business of the Trust, to be rendering such services to or acting solely as an officer, trustee, employee or agent of the Trust and not as a director, officer, employee, shareholder or agent of or one under the control or direction of Integrated or any of its affiliates, even though paid by one of these entities.
C. Notwithstanding any other provision of this Agreement, the Trust
shall indemnify and hold harmless Integrated, its directors, officers,
employees, shareholders, agents, control persons and affiliates of any thereof
from and against any and all losses, damages, claims, suits, actions, demands,
expenses and liabilities (whether with or without basis in fact or law),
including legal fees and expenses and investigation expenses, of any and every
nature which Integrated may sustain or incur or which may be asserted against
Integrated by any person by reason of, or as a result of: (i) any action taken
or omitted to be taken by Integrated in good faith in reliance upon any
certificate, instrument, order or share certificate believed by it to be genuine
and to be signed, countersigned or executed by any duly authorized person, upon
the oral instructions or written instructions of an authorized person of the
Trust or upon the opinion of legal counsel for the Trust or its own counsel; or
(ii) any action taken or omitted to be taken by
Integrated in connection with its appointment in good faith in reliance upon any law, act, regulation or interpretation of the same even though the same may thereafter have been altered, changed, amended or repealed. However, indemnification under this subparagraph shall not apply to actions or omissions of Integrated or its directors, officers, employees, shareholders or agents in cases of its or their own gross negligence, willful misconduct, bad faith, or reckless disregard of its or their own duties hereunder.
D. Notwithstanding anything to the contrary in this Agreement, in no event shall Integrated be liable to the Trust or any third party for any special, consequential, punitive or incidental damages, even if advised of the possibility of such damages.
A. The provisions of this Agreement shall be effective on the date first above written, shall continue in effect for two years ("Initial Term") from that date and shall continue in force for one year thereafter ("Renewal Term"), but only so long as such continuance is approved (1) by Integrated, (2) the Trust, (3) by a vote of a majority of the Trust's Trustees who are not parties to this Agreement or interested persons (as defined in the 1940 Act) of any such party, and (4) by vote of a majority of the Trust's Board of Trustees or a majority of the Trust's outstanding voting securities.
B. Any party may terminate this Agreement at the end of the Initial Term or at the end of any subsequent Renewal Term by giving the other parties at least one hundred twenty (120) days' prior written notice of such termination specifying the date fixed therefor. In the event this Agreement is terminated by the Trust prior to the end of the Initial Term or any subsequent Renewal Term the Trust shall make a one-time cash payment to Integrated in consideration of services provided under this Agreement, and not as a penalty, equal to the remaining balance of the fees payable to Integrated under this Agreement through the end of the Initial Term or Renewal Term, as applicable. The Trust shall likewise reimburse Integrated for any out-of-pocket expenses and disbursements ("out-of-pocket expenses") reasonably incurred by Integrated in connection with the services provided under this Agreement within 30 days of notification to the Trust of such out-of-pocket expenses regardless of whether such out-of-pocket expenses were incurred before or after the termination of this Agreement.
C. If a party materially fails to perform its duties and obligations hereunder (a "Defaulting Party") resulting in a material loss to another party or parties, such other party or parties (the "Non-Defaulting Party") may give written notice thereof to the Defaulting Party, which such notice shall set forth with sufficient detail the nature of the breach. The Defaulting Party shall have ninety (90) days from its receipt of notice to cure the breach. If such material breach shall not have been remedied to commercially reasonable operating standards, the Non-Defaulting Party may terminate this Agreement by giving sixty (60) days written notice of such termination to the Defaulting Party. If Integrated is the Non-Defaulting Party, its termination of this Agreement shall not constitute a waiver of any rights or remedies with respect to services it performed prior to such termination, or the right of Integrated to receive such compensation as may be due as of the date of termination or to be reimbursed for all reasonable out-of-pocket expenses. In all cases, termination by the Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party of any other rights it might have under this Agreement or otherwise against a Defaulting Party.
D. In the case of the following transactions, not in the ordinary course of business, namely, the merger of the Trust, or a Fund, into or the consolidation of the Trust, or a Fund, with another investment company, the sale by the Trust, or a Fund, of all, or substantially all, of its assets to another investment company, or the liquidation or dissolution of the Trust, or a Fund, and distribution of its assets, this Agreement will terminate with respect to the applicable Fund or Funds and Integrated shall be released from any and all obligations hereunder upon the payment of the fees, disbursements and expenses due to Integrated through the end of the then current term of this Agreement. The parties acknowledge and agree that the damages provision set forth above in paragraph B shall be applicable in those instances in which Integrated is not retained to provide transfer agency services subsequent to the transactions listed above.
E. Integrated will be entitled to collect from the Trust all reasonable expenses incurred in conjunction with termination of this Agreement, including but not limited to out-of-pocket expenses, employee time, system fees and fees charged by third parties with whom Integrated has contracted.
Nothing in this Agreement shall prevent Integrated or any affiliated person (as defined in the 1940 Act) of Integrated from providing services for any other person, firm or corporation (including other investment companies); provided, however, that Integrated expressly represents that it will undertake no activities which, in its judgment, will adversely affect the performance of its obligations to the Trust under this Agreement.
The parties hereto acknowledge and agree that nothing contained herein shall be construed to require Integrated to perform any services for the Trust which services could cause Integrated to be deemed an "investment adviser" of the Trust within the meaning of Section 2(a)(20) of the 1940 Act or to supersede or contravene the Trust's prospectus or statement of additional information or any provisions of the 1940 Act and the rules thereunder. Except as otherwise provided in this Agreement and except for the accuracy of information furnished to it by Integrated, the Trust assumes full responsibility for complying with all applicable requirements of the 1940 Act, the Securities Act of 1933, as amended, and any other laws, rules and regulations of governmental authorities having jurisdiction, it being acknowledged that the Trust is relying on the best efforts of Integrated.
It is expressly agreed that the obligations of the Trust hereunder shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Trust, personally, but bind only the trust property of the Trust. The execution and delivery of this Agreement have been authorized by the Trustees of the Trust and signed by an officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trust.
In the event any provision of this Agreement is determined to be void or unenforceable, such determination shall not affect the remainder of this Agreement, which shall continue to be in force.
This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act shall be resolved by reference to such term or provision of the 1940 Act and to interpretations thereof, if any, by the United States Courts or in the absence of any controlling decision of any such court, by rules, regulations or orders of the SEC issued pursuant to said 1940 Act. In addition, where the effect of a requirement of the 1940 Act, reflected in any provision of this Agreement, is revised by rule, regulation or order of the SEC, such provision shall be deemed to incorporate the effect of such rule, regulation or order.
Both parties hereto agree that any non-public information obtained hereunder concerning the other party is confidential and may not be disclosed without the consent of the other party, except as may be required by applicable law or at the request of a governmental agency. The parties further agree that a breach of this provision would irreparably damage the other party and accordingly agree that each of them is entitled, in addition to all other remedies at law or in equity to an injunction or injunctions without bond or other security to prevent breaches of this provision.
All notices required or permitted under this Agreement shall be in writing (including telex and telegraphic communication) and shall be (as elected by the person giving such notice) hand delivered by messenger or courier service, telecommunicated, or mailed (airmail if international) by registered or certified mail (postage prepaid), return receipt requested, addressed to:
To the Trust: Touchstone Strategic Trust
221 East Fourth Street, Suite 300
Cincinnati, Ohio 45202
Attention: Patrick T. Bannigan
To Integrated: Integrated Fund Services, Inc.
221 East Fourth Street, Suite 300
Cincinnati, Ohio 45202
Attention: Scott A. Englehart
|
or to such other address as any party may designate by notice complying with the terms of this Paragraph. Each such notice shall be deemed delivered (a) on the date delivered if by personal delivery; (b) on the date telecommunicated if by telegraph; (c) on the date of transmission with confirmed answer back if by telex, telefax or other telegraphic method or e-mail; and (d) on the date upon which the return receipt is signed or delivery is refused or the notice is designated by the postal authorities as not deliverable, as the case may be, if mailed.
This Agreement may not be amended or modified except by a written agreement executed by all parties.
Each of the undersigned expressly warrants and represents that he has the full power and authority to sign this Agreement on behalf of the party indicated, and that his signature will operate to bind the party indicated to the foregoing terms.
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Integrated assumes no responsibility hereunder, and shall not be liable, for any damage, loss of data, delay or any other loss whatsoever caused by events beyond its control, including and without limitation, acts of God, interruption of power or other utility, transportation, mail, or communication services, acts of civil or military authority, sabotages, war, insurrection, riots, national emergencies, explosion, flood, accident, earthquake or other catastrophe, fire, strike or other labor problems, legal action, present or future law, governmental order, rule or regulation, or shortages of suitable parts, materials, labor or transportation.
The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.
TOUCHSTONE STRATEGIC TRUST
By: /s/ Patrick T. Bannigan ------------------------- Its: President |
INTEGRATED FUND SERVICES, INC.
By: /s/ Scott A. Englehart ------------------------- Its: President |
SCHEDULE A
In consideration of the compensation detailed in this Agreement, Integrated shall perform the following transfer agency and shareholder services:
1. Provide core transfer agency services including, but not limited to, receiving and distributing mail, making bank deposits, RPO processing, record retention, shareholder services, account resolution and quality control.
2. Answer telephone inquiries and accept financial transactions from shareholders.
3. Offer full NSCC functionality.
4. Provide shareholder recordkeeping across multiple share classes and load schedules.
5. Provide inquiry and transaction processing via the internet for shareholders.
6. Pay commissions, if required.
7. Reconcile transfer agent cash and commission accounts, as well as the demand deposit accounts.
8. Provide reports that illustrate sales, redemptions and trends in shareholder activity.
9. Produce tax forms, backup and NRA withholding deposits to the IRS, annual filing of 945 and 1042 returns.
10. Process and service various types of retirement accounts including IRA, Roth, SIMPLE, SEP, Education, 403(b) and 401(k).
11. Conduct annual solicitation of RMD and W4P information as well as maintaining IRA Custodian agreements.
INTEGRATED FUND SERVICES
ANTI-MONEY LAUNDERING COMPLIANCE PROGRAM SERVICE
AGREEMENT ADDENDUM
This Agreement, dated as of December 31, 2002, by and between INTEGRATED FUND SERVICES, INC. ("Integrated") and Touchstone Strategic Trust (the "Trust").
WHEREAS, Integrated and the Trust entered into a Transfer Agency Agreement dated as of December 31, 2002 (the "Service Agreement"); and
WHEREAS, Integrated and the Trust wish to amend this Service Agreement;
NOW, THEREFORE, it is agreed by and between the parties hereto as follows:
1. To the services described in the Service Agreement shall be added the Anti-Money Laundering Compliance Program Service in accordance with the Program Service description document (Attachment A to this Addendum). All other full or partial sections left unchanged in the Service Agreement shall remain the same throughout the term of this Agreement.
2. All terms utilized in this Addendum which are defined in the Service Agreement shall have the meaning set forth in the Service Agreement, unless the context otherwise requires.
3. Except as specifically amended in this Addendum, the Service Agreement shall continue in full force and effect and be binding upon the parties notwithstanding the execution and delivery of this Addendum.
4. To facilitate execution, this Addendum may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same Agreement.
5. This Addendum shall be binding upon the parties and, to the extent permitted by the Service Agreement, their respective successors and assigns.
6. This Addendum shall be governed by and construed in accordance with the laws of the State of Ohio.
7. This service shall begin on the date of this Addendum and shall automatically renew on the anniversary of the Service Agreement for each successive term.
IN WITNESS WHEREOF, each of the parties hereto has caused this Addendum to be duly executed and delivered in its name and on its behalf by their respective officers thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE STRATEGIC TRUST INTEGRATED FUND SERVICES, INC.
By: /s/ Patrick T. Bannigan By: /s/ Scott A. Englehart
------------------------- -------------------------
Print Name: Patrick T. Bannigan Print Name: Scott A. Englehart
------------------------- -------------------------
Print Title President Print Title: President
------------------------- -------------------------
Date: December 31, 2002 Date: December 31, 2002
------------------------- -------------------------
|
ATTACHMENT A
ANTI-MONEY LAUNDERING PROGRAM SERVICE
Integrated, as Transfer Agent for the Trust, shall perform the procedures as described below as required by the USA PATRIOT Act of 2001 (the "Act") and applicable sections of the Bank Secrecy Act and the Internal Revenue Service Code.
1. Develop and implement an anti-money laundering program reasonably designed to detect activities indicative of money laundering and achieve compliance with such regulatory requirements.
2. Monitor the accounts of the shareholders of each series of the Trust for suspicious activity.
3. Implement training programs to educate its officers and employees regarding its and the Trust's anti-money laundering policies and procedures.
4. Designate a compliance officer with sufficient authority to oversee Integrated's anti-money laundering policies and procedures and to interact with the Trust's Patriot Act Compliance Officer.
5. Conduct an independent audit of the Trust's anti-money laundering policies and procedures on an annual basis.
6. Provide the Trust with a report of the independent audit findings.
7. Provide appropriate federal agencies with information and records relating to the Trust's anti-money laundering program upon request, including access to inspect Integrated's activities related to the Trust's anti-money laundering program.
8. File Suspicious Activity Reports (SARs) or IRS Form 8300 reports as may be required.
9. Check shareholder names against lists of known or suspected terrorists or terrorist organizations such as those persons and organizations listed on Treasury's Office of Foreign Assets Control (OFAC) or the Securities and Exchange Commission's Control List.
10. Comply with Customer Identification Verification requirements.
11. Retain records on behalf of the Trust as required by the Act.
AGREEMENT dated as of December 31, 2002 between Touchstone Strategic Trust (the "Trust"), a Massachusetts business trust, and Integrated Fund Services, Inc. ("Integrated"), an Ohio corporation.
WHEREAS, the Trust is an investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, shares of beneficial interest in the Trust are divided into separate series (along with any series which may in the future be established, the "Funds" or, each, a "Fund"); and
WHEREAS, the Trust wishes to employ Integrated to serve as its administrative services agent on behalf of the Funds; and
WHEREAS, Integrated wishes to provide such services to the Trust under the conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained in this Agreement, the Trust and Integrated agree as follows:
The Trust hereby employs Integrated as agent to perform those services described in this Agreement for the Trust. Integrated shall act under such appointment and perform the obligations thereof upon the terms and conditions hereinafter set forth.
The Trust will furnish from time to time the following documents:
A. Each resolution of the Board of Trustees of the Trust authorizing the original issue of the shares of the Funds;
B. Each Registration Statement filed with the Securities and Exchange Commission (the "SEC") and amendments thereof;
C. A certified copy of the Agreement and Declaration of Trust and the Bylaws of the Trust and each amendment thereto;
D. Certified copies of each resolution of the Board of Trustees authorizing officers to give instructions to Integrated;
E. Copies of all agreements with service providers on behalf of the Funds, including advisory agreements, sub-advisory agreements, underwriting and dealer agreements and custody agreements in effect;
F. Copies of all documents relating to special investment or withdrawal plans which are offered or may be offered in the future by the Funds and for which Integrated is to act as plan agent; and
G. Such other certificates, documents or opinions that Integrated may, in its discretion, deem necessary or appropriate in the proper performance of its duties.
Subject to the direction and control of the Trustees of the Trust, Integrated shall perform the services to the Trust detailed in Schedule A.
Integrated will prepare in the appropriate form, file with the Internal Revenue Service and appropriate state agencies, and make available for mailing to shareholders of the Trust such returns for reporting dividends and distributions paid by the Funds as are required to be so prepared, filed and mailed.
Integrated shall maintain such records within its control and shall be requested by the Trust to assist the Trust in fulfilling the requirements of Form N-SAR.
The Trust acknowledges that the data bases, computer programs, screen formats, report formats, interactive design techniques, and documentation manuals furnished to the Trust by Integrated as part of the Trust's ability to access certain Trust-related data ("Customer Data") maintained by Integrated on data bases under the control and ownership of Integrated or other third party ("Data Access Services") constitute copyrighted, trade secret, or other proprietary information (collectively, "Proprietary Information") of substantial value to Integrated or other third party. In no event shall Proprietary Information be deemed Customer Data. The Trust agrees to treat all Proprietary Information as proprietary to Integrated and further agrees that it shall not divulge any Proprietary Information to any person or organization except as may be provided hereunder.
Integrated shall cooperate with the Trust's independent public accountants and shall take all reasonable action in the performance of its obligations under this Agreement to assure that the necessary information is made available to such accountants for the expression of their unqualified opinion where required for any document for the Trust.
A. Integrated may provide additional special reports upon the request of the Trust or the Trust's investment adviser, which may result in an additional charge, the amount of which shall be agreed upon between the parties.
B. Integrated may provide such other services with respect to the Trust as may be reasonably requested by the Trust, which may result in an additional charge, the amount of which shall be agreed upon between the parties.
C. Integrated may provide exception processing upon the request of the Trust or the Trust's investment adviser, which may result in an additional charge, the amount of which shall be agreed upon between the parties. Exception processing includes, but is not limited to, processing which:
(a) requires Integrated to use methods and procedures other than those usually employed by Integrated to perform its obligations under this Agreement;
(b) involves the provision of information to Integrated after the commencement of the nightly processing cycle of Integrated's transfer agency, administration and/or fund accounting processing system; or
(c) requires more manual intervention by Integrated, either in the entry of data or in the modification or amendment of reports generated by Integrated's transfer agency, administration and/or fund accounting processing system than is usually required.
Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof.
Integrated may, at its expense, and, upon prior written approval from the Trust, subcontract with any entity or person concerning the provision of the services contemplated hereunder; provided, however, that Integrated shall not be relieved of any of its obligations under this Agreement by the appointment of such subcontractor and provided further, that Integrated shall be responsible for all acts of such subcontractor as if such acts were its own.
For performing its services under this Agreement, the Trust shall pay Integrated a monthly fee with respect to each Fund in accordance with the schedule attached hereto as Schedule B.
Integrated shall furnish, at its expense and without cost to the Trust the services of its personnel to the extent that such services are required to carry out its obligations under this Agreement. All costs and expenses not expressly assumed by Integrated under this Paragraph shall be paid by the Trust, including, but not limited to, costs and expenses of, including costs and expenses of officers and employees of Integrated in attending or conducting, meetings of the Board of Trustees and shareholders of the Trust and portfolio compliance training, as well as costs and expenses for regulatory filings, postage, envelopes, checks, drafts, continuous forms, reports, communications, proxies, statements and other materials, label file creation, Blue Sky filing fees, telephone, telegraph and remote transmission lines, EDGARization, printing, fulfillment and any other shareholder correspondence, use of outside solicitation, tabulation and mailing firms, necessary outside record storage, media for storage of records (e.g., microfilm, microfiche, computer tapes), costs and fees, including employee time and system expenses, associated with exception processing and resolution of errors not caused by Integrated, and any and all assessments, taxes or levies assessed on Integrated for services provided under this Agreement. Postage for mailings of proxies, reports and other mailings to all shareholders shall be advanced to Integrated three business days prior to the mailing date of such materials.
A. Neither the Trust nor its agents shall circulate any printed matter which contains any reference to Integrated without the prior written approval of Integrated, excepting solely such printed matter as merely identifies Integrated as Administrative Services Agent, Transfer, Shareholder Servicing and Dividend Disbursing Agent and Accounting Services Agent. The Trust will submit printed matter requiring approval to Integrated in draft form, allowing sufficient time for review by Integrated and its counsel prior to any deadline for printing.
B. Integrated shall not circulate any printed matter that contains any reference to the Trust without the prior written approval of the Trust, excepting solely such printed matter as merely identifies the Trust as a client of Integrated. Integrated will submit printed matter requiring approval to the Trust in draft form, allowing sufficient time for review by the Trust and its counsel prior to any deadline for printing.
In the event of equipment failures beyond Integrated's control, Integrated shall take all steps necessary to minimize service interruptions but shall have no liability with respect thereto. Integrated shall endeavor to enter into one or more agreements making provision for emergency use of electronic data processing equipment to the extent appropriate equipment is available.
A. Integrated may rely on information reasonably believed by it to be accurate and reliable. Except as may otherwise be required by the 1940 Act and the rules thereunder, neither Integrated nor its directors, officers, employees, shareholders, agents, control persons or affiliates of any thereof shall be subject to any liability for, or any damages, including consequential damages, expenses or losses incurred by the Trust in connection with, any error of judgment, mistake of law, any act or omission connected with or arising out of any services rendered under or payments made pursuant to this Agreement or any other matter to which this Agreement relates, except by reason of willful misfeasance, bad faith or gross negligence on the part of any such persons in the performance of the duties of Integrated under this Agreement or by reason of reckless disregard by any of such persons of the obligations and duties of Integrated under this Agreement. Integrated may apply to the Trust at any time for instructions and may consult counsel for the Trust, or its own counsel, and with accountants and other experts with respect to any matter arising in connection with its duties hereunder, and Integrated shall not be liable or accountable for any action taken or omitted by it in good faith in accordance with such instruction, or with the opinion of such counsel, accountants, or other experts. Integrated shall not be held to have notice of any change of authority of any officers, employees, or agents of the Trust until receipt of written notice thereof have been received by Integrated from the Trust.
B. Any person, even though also a director, officer, employee, shareholder or agent of Integrated, or any of its affiliates, who may be or become an officer, trustee, employee or agent of the Trust, shall be deemed, when rendering services to the Trust or acting on any business of the Trust, to be rendering such services to or acting solely as an officer, trustee, employee or agent of the Trust and not as a director, officer, employee, shareholder or agent of or one under the control or direction of Integrated or any of its affiliates, even though paid by one of these entities.
C. Notwithstanding any other provision of this Agreement, the Trust shall indemnify and hold harmless Integrated, its directors, officers, employees, shareholders, agents, control persons and affiliates of any thereof from and against any and all losses, damages, claims, suits, actions, demands, expenses and liabilities (whether with or without basis in fact or law), including legal fees and expenses and investigation expenses, of any and every nature which Integrated may sustain or incur or which may be asserted against Integrated by any person by reason of, or as a result of: (i) any action taken or omitted to be taken by Integrated in good faith in reliance upon any certificate, instrument, order or share certificate believed by it to be genuine and to be signed, countersigned or executed by any duly authorized person, upon the oral instructions or written instructions of an authorized person of the Trust or upon the opinion of
legal counsel for the Trust or its own counsel; or (ii) any action taken or omitted to be taken by Integrated in connection with its appointment in good faith in reliance upon any law, act, regulation or interpretation of the same even though the same may thereafter have been altered, changed, amended or repealed. However, indemnification under this subparagraph shall not apply to actions or omissions of Integrated or its directors, officers, employees, shareholders or agents in cases of its or their own gross negligence, willful misconduct, bad faith, or reckless disregard of its or their own duties hereunder.
D. Notwithstanding anything to the contrary in this Agreement, in no event shall Integrated be liable to the Trust or any third party for any special, consequential, punitive or incidental damages, even if advised of the possibility of such damages.
A. The provisions of this Agreement shall be effective on the date first above written, shall continue in effect for two years ("Initial Term") from that date and shall continue in force for one year thereafter ("Renewal Term"), but only so long as such continuance is approved (1) by Integrated, (2) by the Trust, (3) by a vote of a majority of the Trust's Trustees who are not parties to this Agreement or interested persons (as defined in the 1940 Act) of any such party, and (4) by vote of a majority of the Trust's Board of Trustees or a majority of the Trust's outstanding voting securities.
B. Any party may terminate this Agreement at the end of the Initial Term or at the end of any subsequent Renewal Term by giving the other parties at least one hundred twenty (120) days' prior written notice of such termination specifying the date fixed therefor. In the event this Agreement is terminated by the Trust prior to the end of the Initial Term or any subsequent Renewal Term the Trust shall make a one-time cash payment to Integrated in consideration of services provided under this Agreement, and not as a penalty, equal to the remaining balance of the fees payable to Integrated under this Agreement through the end of the Initial Term or Renewal Term, as applicable. The Trust shall likewise reimburse Integrated for any out-of-pocket expenses and disbursements ("out-of-pocket expenses") reasonably incurred by Integrated in connection with the services provided under this Agreement within 30 days of notification to the Trust of such out-of-pocket expenses regardless of whether such out-of-pocket expenses were incurred before or after the termination of this Agreement.
C. If a party materially fails to perform its duties and obligations hereunder (a "Defaulting Party") resulting in a material loss to another party or parties, such other party or parties (the "Non-Defaulting Party") may give written notice thereof to the Defaulting Party, which such notice shall set forth with sufficient detail the nature of the breach. The Defaulting Party shall have ninety (90) days from its receipt of notice to cure the breach. If such material breach shall not have been remedied to commercially reasonable operating standards, the Non-Defaulting Party may terminate this Agreement by giving sixty (60) days' written notice of such termination to the Defaulting Party. If Integrated is the Non-Defaulting Party, its termination of this Agreement shall not constitute a waiver of any rights or remedies with respect to services it performed prior to such termination, or the right of Integrated to receive such compensation as may be due as of the date of termination or to be reimbursed for all reasonable out-of-pocket
expenses. In all cases, termination by the Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party of any other rights it might have under this Agreement or otherwise against a Defaulting Party.
D. In the case of the following transactions, not in the ordinary course of business, namely, the merger of the Trust, or a Fund, into or the consolidation of the Trust, or a Fund, with another investment company, the sale by the Trust, or a Fund, of all, or substantially all, of its assets to another investment company, or the liquidation or dissolution of the Trust, or a Fund, and distribution of its assets, this Agreement will terminate with respect to the applicable Fund or Funds and Integrated shall be released from any and all obligations hereunder upon the payment of the fees, disbursements and expenses due to Integrated through the end of the then current term of this Agreement. The parties acknowledge and agree that the damages provision set forth above in paragraph B shall be applicable in those instances in which Integrated is not retained to provide administration services subsequent to the transactions listed above.
E. Integrated will be entitled to collect from the Trust all reasonable expenses incurred in conjunction with termination of this Agreement, including but not limited to out-of-pocket expenses, employee time, system fees and fees charged by third parties with whom Integrated has contracted.
Nothing in this Agreement shall prevent Integrated or any affiliated person (as defined in the 1940 Act) of Integrated from providing services for any other person, firm or corporation (including other investment companies); provided, however, that Integrated expressly represents that it will undertake no activities which, in its judgment, will adversely affect the performance of its obligations to the Trust under this Agreement.
The parties hereto acknowledge and agree that nothing contained herein shall be construed to require Integrated to perform any services for the Trust which services could cause Integrated to be deemed an "investment adviser" of the Trust within the meaning of Section 2(a)(20) of the 1940 Act or to supersede or contravene the Trust's prospectus or statement of additional information or any provisions of the 1940 Act and the rules thereunder. Except as otherwise provided in this Agreement and except for the accuracy of information furnished to it by Integrated, the Trust assumes full responsibility for complying with all applicable requirements of the 1940 Act, the Securities Act of 1933, as amended, and any other laws, rules and regulations of governmental authorities having jurisdiction, it being acknowledged that the Trust is relying on the best efforts of Integrated.
It is expressly agreed that the obligations of the Trust hereunder shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Trust, personally, but bind only the trust property of the Trust. The execution and delivery of this Agreement have been authorized by the Trustees of the Trust and signed by an officer of the Trust, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trust.
In the event any provision of this Agreement is determined to be void or unenforceable, such determination shall not affect the remainder of this Agreement, which shall continue to be in force.
This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act shall be resolved by reference to such term or provision of the 1940 Act and to interpretations thereof, if any, by the United States Courts or in the absence of any controlling decision of any such court, by rules, regulations or orders of the SEC issued pursuant to said 1940 Act. In addition, where the effect of a requirement of the 1940 Act, reflected in any provision of this Agreement, is revised by rule, regulation or order of the SEC, such provision shall be deemed to incorporate the effect of such rule, regulation or order.
Both parties hereto agree that any non-public information obtained hereunder concerning the other party is confidential and may not be disclosed without the consent of the other party, except as may be required by applicable law or at the request of a governmental agency. The parties further agree that a breach of this provision would irreparably damage the other party and accordingly agree that each of them is entitled, in addition to all other remedies at law or in equity to an injunction or injunctions without bond or other security to prevent breaches of this provision.
All notices required or permitted under this Agreement shall be in writing (including telex and telegraphic communication) and shall be (as elected by the person giving such notice) hand delivered by messenger or courier service, telecommunicated, or mailed (airmail if international) by registered or certified mail (postage prepaid), return receipt requested, addressed to:
To the Trust: Touchstone Strategic Trust
221 East Fourth Street, Suite 300
Cincinnati, Ohio 45202
Attention: Patrick T. Bannigan
To Integrated: Integrated Fund Services, Inc.
221 East Fourth Street, Suite 300
Cincinnati, Ohio 45202
Attention: Scott A. Englehart
|
or to such other address as any party may designate by notice complying with the terms of this Paragraph. Each such notice shall be deemed delivered (a) on the date delivered if by personal delivery; (b) on the date telecommunicated if by telegraph; (c) on the date of transmission with confirmed answer back if by telex, telefax or other telegraphic method or e-mail; and (d) on the date upon which the return receipt is signed or delivery is refused or the notice is designated by the postal authorities as not deliverable, as the case may be, if mailed.
This Agreement may not be amended or modified except by a written agreement executed by all parties.
Each of the undersigned expressly warrants and represents that he has the full power and authority to sign this Agreement on behalf of the party indicated, and that his or her signature will operate to bind the party indicated to the foregoing terms.
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Integrated assumes no responsibility hereunder, and shall not be liable, for any damage, loss of data, delay or any other loss whatsoever caused by events beyond its control, including and without limitation, acts of God, interruption of power or other utility, transportation, mail, or communication services, acts of civil or military authority, sabotages, war, insurrection, riots, national emergencies, explosion, flood, accident, earthquake or other catastrophe, fire, strike or other labor problems, legal action, present or future law, governmental order, rule or regulation, or shortages of suitable parts, materials, labor or transportation.
The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.
TOUCHSTONE STRATEGIC TRUST
By: /s/ Patrick T. Bannigan ---------------------------------- Its: President |
INTEGRATED FUND SERVICES, INC.
By: /s/ Scott A. Englehart ---------------------------------- Its: President |
SCHEDULE A
In consideration of the compensation detailed in this Agreement, Integrated shall perform the following Administrative services:
1. Prepare and file post-effective amendments to the registration statements and other documents on behalf of the Trust with the Securities and Exchange Commission and other federal and state regulatory authorities as required by law.
2. Coordinate the scheduling of Board of Trustees' meetings, prepare the appropriate reports to the trustees and record and maintain the minutes.
3. Qualify each Fund for sale in various states ("blue sky" filings).
4. Maintain all books and records of the Trust as required by federal and state laws.
5. Coordinate the preparation, filing and distribution of proxy materials and periodic reports as required by law.
6. Coordinate and monitor third-party services.
7. Establish and maintain procedures for compliance with federal and state rules and regulations.
8. Provide officers for the Trust, if desired.
9. Prepare and maintain the necessary journals and schedules to report the required information on Form N-SAR.
10. Prepare financial statements and supporting statements, footnotes, per share information and schedule of investments for the inclusion in the semiannual and annual reports.
11. Conduct portfolio compliance training for Fund management and the investment adviser.
SPONSOR AGREEMENT
TOUCHSTONE ADVISORS, INC. AND
TOUCHSTONE STRATEGIC TRUST
AMENDMENT NO. 2
AMENDMENT dated as of October 22, 2002, between TOUCHSTONE STRATEGIC TRUST, a Massachusetts business trust (the "Trust"), and TOUCHSTONE ADVISORS, INC., an Ohio corporation ("Touchstone");
WHEREAS, the Trust is an open-end management investment company registered under the Investment Company Act of 1940, as amended;
WHEREAS, the Trust has engaged Touchstone to provide certain management services with respect to certain series of the Trust (each a "Fund") pursuant to the Sponsor Agreement dated as of May 1, 2000, as amended, between the Trust and Touchstone (the "Agreement"); and
WHEREAS, the Trust and Touchstone wish to amend the Agreement to extend the period during which the provisions of the Agreement related to operating expense waivers or reimbursement shall apply and to reflect the addition of the Small Cap Growth Fund.
NOW, THEREFORE, in consideration of the mutual covenants and agreements of the parties hereto as set forth in the Agreement and herein, acting pursuant to Section 7 of the Agreement, the Trust and Touchstone hereby amend the Agreement as follows:
(A) Section 3 of the Agreement shall read as follows:
a) Touchstone shall waive all or a portion of its fee pursuant to this Sponsor Agreement and/or reimburse a portion of the operating expenses (including amortization of organization expense, but excluding interest, taxes, brokerage commissions and other portfolio transaction expenses, capital expenditures and extraordinary expenses) ("Expenses") of each Class of the following Funds (each a "Class") such that, after such reimbursement, the aggregate Expenses of a Class shall be less than or equal, on an annual basis, to the following percentages of average daily net assets of the Class for the Fund's then-current fiscal year:
Touchstone International Equity Fund - Class A 1.60% Touchstone International Equity Fund - Class B 2.35% Touchstone International Equity Fund - Class C 2.35% Touchstone Emerging Growth Fund - Class A 1.50% Touchstone Emerging Growth Fund - Class B 2.25% Touchstone Emerging Growth Fund - Class C 2.25% Touchstone Enhanced 30 Fund - Class A 1.00% Touchstone Enhanced 30 Fund - Class B 1.75% Touchstone Enhanced 30 Fund - Class C 1.75% |
Touchstone Value Plus Fund - Class A 1.30% Touchstone Value Plus Fund - Class B 2.05% Touchstone Value Plus Fund - Class C 2.05% Touchstone Small Cap Growth Fund - Class A 1.95% Touchstone Small Cap Growth Fund - Class B 2.70% Touchstone Small Cap Growth Fund - Class C 2.70% |
Touchstone's obligations in this Section 3 may be terminated, with respect to any Fund or class of shares, by Touchstone as of the end of any calendar quarter after March 31, 2003, upon at least 30 days' prior written notice to the Trust (an "Expense Cap Termination").
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, all as of October 22, 2002. The undersigned has executed this Agreement not individually, but as an officer under the Trust's Declaration of Trust, and the obligations of this Agreement are not binding upon such person or upon any of the Trust's Trustees, officers or investors in the Funds individually, but bind only the Trust estate.
Touchstone Advisors, Inc. Touchstone Strategic Trust
By:/s/ Patrick T. Bannigan By: /s/ Tina D. Hosking
Name: Patrick T. Bannigan Name: Tina D. Hosking
---------------------------------- ----------------------
Title: Senior Vice President Title: Secretary
--------------------------------- -----------------------
|
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial Highlights" in the Prospectuses and "Auditors" and "Annual Report" in the Statement of Additional Information, both included in Post-Effective Amendment Number 49 to the Registration Statement (Form N-1A, No. 2-80859) of Touchstone Strategic Trust and to the use of our report on Touchstone Strategic Trust dated May 19, 2003, incorporated by reference therein.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Cincinnati, Ohio
July 28, 2003
|
Amended April 18, 2003
AMENDED RULE 18f-3 PLAN ADOPTED WITH RESPECT TO THE MULTIPLE
CLASS DISTRIBUTION SYSTEM OF TOUCHSTONE SECURITIES
Touchstone Investment Trust, Touchstone Tax-Free Trust, Touchstone Strategic Trust and Touchstone Variable Series Trust (the "Trusts") have each adopted this Plan pursuant to Rule 18f-3 promulgated under the Investment Company Act of 1940 (the "1940 Act"). The individual series of the Trusts that are not money market funds are referred to collectively, in whole or in part, as the context requires, as the "Funds." The individual series of the Trusts that are money market funds are referred to collectively, in whole or in part, as the context requires, as the "Money Market Funds." The Funds and the Money Market Funds are referred to collectively, in whole or in part, as the context requires, as the "Touchstone Funds."
Each Trust is an open-end management investment company registered under the 1940 Act. Touchstone Securities, Inc. (the "Distributor") acts as principal underwriter for each of the Touchstone Funds.
This Plan permits the Funds to issue and sell up to three classes of shares and the Money Market Funds to issue and sell up to five classes of shares for the purpose of establishing a multiple class distribution system (the "Multiple Class Distribution System"). The Plan further permits the Touchstone Funds to assess a contingent deferred sales charge ("CDSC") on certain redemptions of a class of shares and to waive the CDSC in certain instances. These guidelines set forth the conditions pursuant to which the Multiple Class Distribution System will operate and the duties and responsibilities of the Trustees of each Trust with respect to the Multiple Class Distribution System.
MULTIPLE CLASS DISTRIBUTION SYSTEM FOR THE FUNDS. The Multiple Class Distribution System enables each Fund to offer investors the option of purchasing shares in one of three manners: (1) subject to a conventional front-end sales load and a distribution fee not to exceed .35% of average net assets (Class A shares); (2) sold without a front-end sales load and subject to a CDSC and a distribution and service fee of up to 1% of average net assets (Class B shares); or (3) sold either without a front-end sales load or with a front-end sales load that is smaller than the sales load on Class A shares and subject to a CDSC and a distribution and service fee of up to 1% of average net assets (Class C shares).
The actual creation and issuance of multiple classes of shares will be made on a Fund-by-Fund basis, and some Funds may not in fact create or issue any new classes of shares or may create or issue only two of the three classes of shares described herein.
The three classes will each represent interests in the same portfolio of
investments of such Fund. The three classes will be identical except that (i)
the distribution fees payable by a Fund attributable to each class pursuant to
the distribution plans adopted by the Funds in accordance with Rule 12b-1 under
the 1940 Act will be higher for Class B shares and Class C shares than for Class
A shares; (ii) each class may bear different Class Expenses (as defined below);
(iii) each class will vote separately as a class with respect to a Fund's Rule
12b-1 distribution plan; (iv) each class may have different exchange privileges;
(v) each class may offer different shareholder services; and (vi) each class may
bear a different name or designation.
Investors purchasing Class A shares will do so at net asset value plus a front-end sales load in the traditional manner. The sales load may be subject to reductions for larger purchases, under a combined purchase privilege, under a right of accumulation or under a letter of intent.
The sales load may be subject to certain other reductions permitted by Section 22(d) of the 1940 Act and set forth in the registration statement of each Trust. The public offering price for the Class A shares will be computed in accordance with Rule 22c-1, Section 22(d) and other relevant provisions of the 1940 Act and the rules and regulations thereunder. Each Fund will also pay a distribution fee pursuant to the Fund's Rule 12b-1 distribution plan at an annual rate of up to .35% of the average daily net asset value of the Class A shares.
Investors purchasing Class B shares of a Fund will do so at net asset value without a front-end sales load. Each Fund will pay a distribution fee pursuant to the Fund's Rule 12b-1 distribution plan at an annual rate of up to 1% of the average daily net asset value of the Class B shares. In addition, an investor's proceeds from a redemption of Class B shares made within a specified period of time of his purchase generally will be subject to a CDSC imposed by the Distributor. The CDSC will range from 1% to 5% (but may be higher or lower) on shares redeemed during the first year after purchase and will be reduced at a rate of 1% (but may be higher or lower) per year over the CDSC period, so that redemptions of shares held after that period will not be subject to a CDSC. The CDSC will be made subject to the conditions set forth below. The Class B alternative is designed to permit the investor to purchase Class B shares without the assessment of a front-end sales load and at the same time permit the Distributor to pay financial intermediaries selling shares of each Fund a commission on the sale of the Class B shares.
Investors purchasing Class C shares will do so at net asset value without a front-end sales load or at net asset value plus a front-end sales load which is less than the front-end sales load applicable to Class A shares of such Fund. The sales load on Class C shares, if any, may be subject to reductions for larger purchases, under a combined purchase privilege or under a letter
of intent. The public offering price for the Class C shares will be computed in accordance with Rule 22c-1, Section 22(d) and other relevant provisions of the 1940 Act and the rules and regulations thereunder. Each Fund will pay a distribution fee pursuant to the distribution plan at an annual rate of up to 1% of the average daily net asset value of the Class C shares. In addition, an investor's proceeds from a redemption of Class C shares made within a specified period of time of his purchase generally will be subject to a CDSC imposed by the Distributor. The CDSC will range from 1% to 5% (but may be higher or lower) on shares redeemed during the first year after purchase and will be reduced at a rate of 1% (but may be higher or lower) per year over the CDSC period, so that redemptions of shares held after that period will not be subject to a CDSC. The CDSC will be made subject to the conditions set forth below. The Class C alternative is designed to permit the investor to purchase Class C shares without the assessment of a front-end sales load, or with a lower front-end sales load than Class A shares, subject to a CDSC for a shorter period of time than Class B shares, and at the same time permit the Distributor to pay financial intermediaries selling shares of each Fund a commission on the sale of the Class C shares.
Under the Trusts' distribution plans, the Distributor will not be entitled to any specific percentage of the net asset value of each class of shares of the Funds or other specific amount. As described above, each Fund will pay a distribution fee pursuant to its distribution plan at an annual rate of up to .35% of the average daily net asset value of such Fund's Class A shares and up to 1% of the average daily net asset value of such Fund's Class B and Class C shares. Under the Trusts' distribution plans, payments will be made for expenses incurred in providing distribution-related services (including, in the case of Class B and Class C shares, commission expenses as described in more detail below). Each Fund will accrue distribution expenses at a
rate (but not in excess of the applicable maximum percentage rate), which is reviewed quarterly by each Trust's Board of Trustees. Such rate is intended to provide for accrual of expenses at a rate that will not exceed the unreimbursed amounts actually expended for distribution by a Fund. If at any time the amount accrued by a Fund would exceed the amount of distribution expenses incurred with respect to such Fund during the fiscal year (plus, in the case of Class B and Class C shares, prior unreimbursed commission-related expenses), then the rate of accrual will be adjusted accordingly. In no event will the amount paid by the Funds exceed the unreimbursed expenses previously incurred in providing distribution-related services.
Proceeds from the distribution fee and, in the case of Class B and Class C shares, the CDSC, will be used to compensate financial intermediaries with a service fee based upon a percentage of the average daily net asset value of the shares maintained in the Funds by their customers and to defray the expenses of the Distributor with respect to providing distribution related services, including commissions paid on the sale of Class B and Class C shares.
MULTIPLE CLASS DISTRIBUTION SYSTEM FOR THE MONEY MARKET FUNDS. The Multiple Class Distribution System enables each Money Market Fund to offer investors the option of purchasing shares in one of five manners: (1) subject to a distribution fee not to exceed .35% of average net assets (Class A, Retail or Service shares "Retail" shares); (2) subject to no distribution fee with a higher minimum initial investment requirement ("Institutional" shares); (3) subject to no distribution fee and not eligible to receive certain services provided by broker-dealers ("Class I" shares); (4) subject to a CDSC and a distribution and service fee of up to 1% of average net assets ("Class B" shares); or (5) through a sweep vehicle and subject to a distribution and service fee of up to 1% of average net assets ("Class S" shares).
The actual creation and issuance of multiple classes of shares will be made on a fund-by-fund basis, and some Money Market Funds may not in fact create or issue any new class of shares described herein.
The five classes will each represent interests in the same portfolio of investments of such Money Market Fund. The five classes will be identical except that (i) Retail shares, Class B shares and Class S shares will be subject to distribution fees pursuant to the distribution plans adopted by the Money Market Funds in accordance with Rule 12b-1 under the 1940 Act, (ii) Class B shares may be subject to a CDSC; (iii) each class may bear different Class Expenses (as defined below); (iv) each class has exclusive voting rights with respect to matters affecting only that class; (v) each class may have different exchange privileges; (vi) each class may offer different shareholder services; and (vii) each class may bear a different name or designation.
Investors purchasing Retail shares of a Money Market Fund will do so at net asset value. Each Retail share will also pay a distribution fee pursuant to the Money Market Fund's Rule 12b-1 distribution plan at an annual rate of up to .35% of the average daily net asset value of the Retail shares.
Investors purchasing Institutional or Class I shares of a Money Market Fund will do so at net asset value. Each Institutional or Class I share will not be subject to any distribution fees.
Investors purchasing Class B shares of a Money Market Fund will do so at net asset value. Each Class B share will pay a distribution fee pursuant to the Money Market Fund's Rule 12b-1 distribution plan at an annual rate of up to 1% of the average daily net asset value of the Class B shares. Each Class B share may also be subject to a CDSC imposed by the Distributor. The CDSC will range from 1% to 5% (but may be higher or lower) on shares redeemed during the first year after purchase and will be reduced at a rate of 1% (but may be higher or lower) per
year over the CDSC period, so that redemptions of shares held after that period will not be subject to a CDSC. The CDSC will be made subject to the conditions set forth below. The Class B alternative is designed to provide Class B investors with a vehicle for holding their investments in a Money Market Fund, and at the same time permit the Distributor to pay financial intermediaries selling shares of each Money Market Fund a commission on the sale of the Class B shares. The period of time an investor's shares are held in Class B shares of a Money Market Fund will count towards the holding period for purposes of determining the CDSC.
Investors purchasing Class S shares of a Money Market Fund will do so at net asset value. Each Class S share will pay a distribution fee pursuant to the Money Market Fund's Rule 12b-1 distribution plan at an annual rate of up to 1% of the average daily net asset value of the Class S shares. The Class S alternative is designed to provide Class S investors with a sweep option to invest excess cash in brokerage accounts on a daily basis, and at the same time permit the Distributor to pay financial intermediaries selling shares of each Money Market Fund a commission on the sale of the Class S shares.
Under the Trusts' distribution plans, the Distributor will not be entitled to any specific percentage of the net asset value of Retail shares, Class B shares or Class S shares or other specific amount. As described above, each Retail share will pay a distribution fee pursuant to its distribution plan at an annual rate of up to .35% of the average daily net assets of such Money Market Fund's Retail shares and each Class B and Class S share will pay a distribution and service fee of up to 1% of the average daily net asset value of such Money Market Fund's Class B or Class S shares. Under the Trusts' distribution plans, payments will be made for expenses incurred in providing distribution-related services (including, in the case of Class B and Class S shares, commission expenses as described in more detail below). Retail shares, Class B shares
and Class S shares will accrue distribution expenses at a rate (but not in excess of the applicable maximum percentage rate) that is reviewed quarterly by each Trust's Board of Trustees. Such rate is intended to provide for accrual of expenses at a rate that will not exceed the unreimbursed amounts actually expended for distribution by a Money Market Fund. If at any time the amount accrued by a Money Market Fund would exceed the amount of distribution expenses incurred with respect to such Money Market Fund during the fiscal year (plus, in the case of Class B and Class S shares, prior unreimbursed commission-related expenses), then the rate of accrual will be adjusted accordingly. In no event will the amount paid by the Money Market Funds exceed the unreimbursed expenses previously incurred in providing distribution-related services.
Proceeds from the distribution fee will be used to compensate financial intermediaries with a service fee based upon a percentage of the average daily net asset value of the shares maintained in the Money Market Funds by their customers and to defray the expenses of the Distributor with respect to providing distribution related services.
GENERAL. All classes of shares of each Touchstone Fund will have identical voting, dividend, liquidation and other rights, preferences, powers, restrictions, limitations, qualifications, designations and terms and conditions, except for the differences mentioned above.
Under the Multiple Class Distribution System, the Board of Trustees could
determine that any of certain expenses attributable to the shares of a
particular class of shares will be borne by the class to which they were
attributable ("Class Expenses"). Class Expenses are limited to (a) transfer
agency fees identified by the Trusts as being attributable to a class of shares;
(b) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxy statements to
current shareholders of a specific class; (c) SEC and Blue
Sky registration fees incurred by a class of shares; (d) the expenses of administrative personnel and services as required to support the shareholders of a specific class; (e) litigation or other legal expenses relating to a specific class of shares; (f) Trustees' fees or expenses incurred as a result of issues relating to a specific class of shares; (g) accounting fees and expenses relating to a specific class of shares; and (h) additional incremental expenses not specifically identified above that are subsequently identified and determined to be properly allocated to one class of shares and approved by the Board of Trustees.
Under the Multiple Class Distribution System, certain expenses could be attributable to more than one Touchstone Fund ("Touchstone Fund Expenses"). All such Touchstone Fund Expenses would be first allocated among Touchstone Funds, based on the aggregate net assets of such Touchstone Funds, and then borne on such basis by each Touchstone Fund and without regard to class. Expenses that were attributable to a particular Touchstone Fund but not to a particular class thereof ("Series Expenses"), would be borne by each class on the basis of the net assets of such class in relation to the aggregate net assets of the Touchstone Fund. In addition to distribution fees, Class Expenses may be applied to the shares of a particular class. Any additional Class Expenses not specifically identified above in the preceding paragraph that are subsequently identified and determined to be properly applied to one class of shares shall not be so applied until approved by the Board of Trustees.
Subject to the approval of the Board of Trustees, certain expenses may be applied differently if their current application becomes no longer appropriate. For example, if a Class Expense is no longer attributable to a specific class, it may be charged to the applicable Touchstone Fund or Touchstone Funds, as appropriate. In addition, if application of all or a portion of a particular expense to a class is determined by the Internal Revenue Service or
counsel to the Trusts to result in a preferential dividend for which, pursuant to Section 562(c) of the Internal Revenue Code of 1986, as amended (the "Code"), a Touchstone Fund would not be entitled to a dividends paid deduction, all or a portion of the expense may be treated as a Series Expense or a Touchstone Fund Expense. Similarly, if a Touchstone Fund Expense becomes attributable to a specific Touchstone Fund it may be treated as a Series Expense.
Because of the varying distribution fees and Class Expenses that may be borne by each class of shares, the net income of (and dividends payable with respect to) each class may be different from the net income of (and dividends payable with respect to) the other classes of shares of a Touchstone Fund. Dividends paid to holders of each class of shares in a Touchstone Fund would, however, be declared and paid on the same days and at the same times and, except as noted with respect to the varying distribution fees and Class Expenses, would be determined and paid in the same manner. To the extent that a Fund has undistributed net income, the net asset value per share of each class of such Fund's shares will vary.
Each Touchstone Fund will briefly describe the salient features of the Multiple Class Distribution System in its prospectus and/or statement of additional information. Each Touchstone Fund will disclose in its prospectus the respective expenses, performance data, distribution arrangements, services, fees, sales loads, deferred sales loads and exchange privileges applicable to each class of shares offered through that prospectus. The shareholder reports of each Touchstone Fund will disclose the respective expenses and performance data applicable to each class of shares. The shareholder reports will contain, in the statement of assets and liabilities and statement of operations, information related to the Touchstone Fund as a whole generally and not on a per class basis. Each Touchstone Fund's per share data, however, will be prepared on a per class basis with respect to all classes of shares of such Touchstone
Fund. The information provided by the Distributor for publication in any newspaper or similar listing of the Funds' net asset values and public offering prices will separately present each class of shares.
The Class B and Class C alternatives for the Funds are designed to permit the investor to purchase shares without the assessment of a front-end sales load, or a lower front-end sales load than Class A shares, and at the same time permit the Distributor to pay financial intermediaries selling shares of the Funds a commission on the sale of the shares. Proceeds from the distribution fee and the CDSC will be used to compensate financial intermediaries with a service fee and to defray the expenses of the Distributor with respect to providing distribution related services, including commissions paid on the sale of shares of the Funds.
The Class B alternative for the Money Market Funds is designed to provide investors with an investment vehicle for Class B shares, and at the same time permit the Distributor to pay financial intermediaries selling shares of the Money Market Funds a commission on the sale of the shares. Proceeds from the distribution fee and the CDSC on Class B shares will be used to compensate financial intermediaries with a service fee and to defray the expenses of the Distributor with respect to providing distribution related services, including commissions paid on the sale of shares of the Money Market Funds.
The CDSC will not be imposed on redemptions of shares that were purchased more than a specified period, up to six years (the "CDSC Period") prior to their redemption. The CDSC will be imposed on the lesser of the aggregate net asset value of the shares being redeemed either at the time of purchase or redemption. No CDSC will be imposed on shares acquired through reinvestment of income dividends or capital gains distributions. In determining whether a CDSC is applicable, unless the shareholder otherwise specifically directs, it will be assumed that a
redemption is made first of any Class B or Class C shares derived from reinvestment of distributions, second of Class B or Class C shares held for a period longer than the CDSC Period, third of any Class A shares in the shareholder's account, and fourth of Class B or Class C shares held for a period not longer than the CDSC Period.
In addition, the Touchstone Funds will waive the CDSC on redemptions following the death or disability of a shareholder as defined in Section 72(m)(7) of the Internal Revenue Code of 1986. The Distributor will require satisfactory proof of death or disability before it determines to waive the CDSC. In cases of death or disability, the CDSC may be waived where the decedent or disabled person is either an individual shareholder or owns the shares with his or her spouse as a joint tenant with rights of survivorship if the redemption is made within one year of death or initial determination of disability. The Touchstone Funds may waive the CDSC on redemptions under other conditions, as described in the prospectus or statement of additional information.
Under the Multiple Class Distribution System, Class A shares of a Touchstone Fund (including Retail shares and Institutional shares of a Money Market Fund, but excluding shares of a variable annuity) will be exchangeable for (a) Class A shares of the other Funds, (b) shares of the Money Market Funds and (c) shares of any Touchstone Fund which offers only one class of shares (provided such Touchstone Fund does not impose a CDSC) on the basis of relative net asset value per share, plus an amount equal to the difference, if any, between the sales charge previously paid on the exchanged shares and sales charge payable at the time of the exchange on the acquired shares.
Class B shares of a Touchstone Fund will be exchangeable for (a) Class B shares of the other Touchstone Funds, and (b) shares of any Touchstone Fund which offers only one class of shares and which imposes a CDSC on the basis of relative net asset value per share.
Class C shares of a Fund will be exchangeable for (a) Class C shares of the other Funds, (b) shares of the Money Market Funds and (c) shares of any Fund which offers only one class of shares and which imposes a CDSC on the basis of relative net asset value per share.
Class S shares of a Money Market Fund will be exchangeable for Class S shares of the other Money Market Funds.
A Touchstone Fund will "tack" the period for which original Class B and Class C shares were held onto the holding period of the acquired shares for purposes of determining what, if any, CDSC is applicable in the event that the acquired shares are redeemed following the exchange. In the event of redemptions of shares after an exchange, an investor will be subject to the CDSC of the Fund with the longest CDSC period and/or highest CDSC schedule which may have been owned by him or her, resulting in the greatest CDSC payment. The period of time that Class B or Class C shares are held in a Money Market Fund will not count toward the CDSC holding period, unless such shares are held in Class B shares of a Money Market Fund. The Touchstone Funds will comply with Rule 11a-3 under the 1940 Act as to any exchanges.
The Board of Trustees has determined to rely on Rule 18f-3 under the 1940 Act and to discontinue reliance on an Order previously received from the Securities and Exchange Commission (the "SEC") exempting the Touchstone Funds from the provisions of Sections 18(f), 18(g) and 18(i) of the 1940 Act to the extent that the issuance and sale of multiple classes of shares representing interests in the same Touchstone Fund might be deemed: (a) to result in a
"senior security" within the meaning of Section 18(g); (b) prohibited by Section
18(f); and (c) to violate the equal voting provisions of Section 18(i).
The Distributor believes that the Multiple Class Distribution System as described herein will better enable the Touchstone Funds to meet the competitive demands of today's financial services industry. Under the Multiple Class Distribution System, an investor will be able to choose the method of purchasing shares that is most beneficial given the amount of his or her purchase, the length of time the investor expects to hold his or her shares, and other relevant circumstances. The Multiple Class Distribution System permits the Touchstone Funds to facilitate both the distribution of their securities and provide investors with a broader choice as to the method of purchasing shares without assuming excessive accounting and bookkeeping costs or unnecessary investment risks.
The allocation of expenses and voting rights relating to the Rule 12b-1 plans in the manner described is equitable and does not discriminate against any group of shareholders. In addition, such arrangements should not give rise to any conflicts of interest because the rights and privileges of each class of shares are substantially identical.
The Distributor believes that the Multiple Class Distribution System will not increase the speculative character of the shares of the Touchstone Funds. The Multiple Class Distribution System does not involve borrowing by the Touchstone Funds, nor will it affect the Touchstone Funds' existing assets or reserves, and does not involve a complex capital structure. Nothing in the Multiple Class Distribution System suggests that it will facilitate control by holders of any class of shares.
The Distributor believes that the ability of the Touchstone Funds to implement the CDSC is appropriate in the public interest, consistent with the protection of investors, and
consistent with the purposes fairly intended by the policy and provisions of the 1940 Act. The CDSC arrangement will provide investors the option of having their full payment invested for them at the time of their purchase of shares of the Funds with no deduction of a sales charge.
The operation of the Multiple Class Distribution System shall at all times be in accordance with Rule 18f-3 under the 1940 Act and all other applicable laws and regulations, and in addition, shall be subject to the following conditions:
1. Each class of shares will represent interests in the same portfolio of
investments of a Touchstone Fund, and be identical in all material respects,
except as set forth below. The only differences among the various classes of a
Touchstone Fund will relate solely to: (a) the impact of the disproportionate
Rule 12b-1 distribution plan payments allocated to each of the Class A shares,
Class B shares or Class C shares of a Fund; (b) the impact of the Rule 12b-1
distribution plan payments imposed on Retail shares, Class B shares or Class S
shares, but not Institutional or Class I shares of a Money Market Fund; (c)
Class Expenses, which are limited to (i) transfer agency fees (including the
incremental cost of monitoring a CDSC applicable to a specific class of shares),
(ii) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxies to current
shareholders of a specific class, (iii) SEC and Blue Sky registration fees
incurred by a class of shares, (iv) the expenses of administrative personnel and
services as required to support the shareholders of a specific class, (v)
litigation or other legal expenses relating to a specific class of shares, (vi)
Trustees' fees or expenses incurred as a result of issues relating to a specific
class of shares, and (vii) accounting fees and expenses relating to a specific
class of shares; (d) the fact that each class will vote separately as a class
with respect to the Rule 12b-1 distribution plans or any other
matter affecting only that class; (e) the different exchange privileges of the various classes of shares; (f) the different shareholder services offered among the various classes of shares; and (g) the designation of each class of shares of the Touchstone Funds. Any additional incremental expenses not specifically identified above that are subsequently identified and determined to be properly allocated to one class of shares shall not be so allocated until approved by the Board of Trustees.
2. The Trustees of each Trust, including a majority of the Trustees who are not interested persons of the Trust, have approved this Plan as being in the best interests of each class individually and each Touchstone Fund as a whole. In making this finding, the Trustees evaluated the relationship among the classes, the allocation of expenses among the classes, potential conflicts of interest among classes, and the level of services provided to each class and the cost of those services.
3. Any material changes to this Plan, including but not limited to a change in the method of determining Class Expenses that will be applied to a class of shares, will be reviewed and approved by votes of the Board of Trustees of each Trust, including a majority of the Trustees who are not interested persons of the Trust.
4. On an ongoing basis, the Trustees of each of the Trusts, pursuant to their fiduciary responsibilities under the 1940 Act and otherwise, will monitor each Touchstone Fund for the existence of any material conflicts between the interests of the classes of shares. The Trustees, including a majority of the Trustees who are not interested persons of the Trust, shall take such action as is reasonably necessary to eliminate any such conflicts that may develop. The Distributor will be responsible for reporting any potential or existing conflicts to the Trustees. If
a conflict arises, the Distributor at its own cost will remedy such conflict up to and including establishing a new registered management investment company.
5. The Trustees of each Trust will receive quarterly and annual Statements complying with paragraph (b)(3)(ii) of Rule 12b-1, as it may be amended from time to time. In the Statements, only distribution expenditures properly attributable to the sale of a class of shares will be used to support the Rule 12b-1 fee charged to shareholders of such class of shares. Expenditures not related to the sale of a particular class will not be presented to the Trustees to justify any fee attributable to that class. The Statements, including the allocations upon which they are based, will be subject to the review and approval of the independent Trustees in the exercise of their fiduciary duties.
6. Dividends paid by a Touchstone Fund with respect to each class of shares, to the extent any dividends are paid, will be calculated in the same manner, at the same time, on the same day, and will be in the same amount, except that distribution fee payments and Class Expenses relating to each respective class of shares will be borne exclusively by that class.
7. The Touchstone Funds have established the manner in which the net asset value of the multiple classes of shares will be determined and the manner in which dividends and distributions will be paid. Attached hereto as Exhibit A is a procedures memorandum and worksheets with respect to the methodology and procedures for calculating the net asset value and dividends and distributions of the various classes and the proper allocation of income and expenses among the classes.
8. The Distributor represents that it has in place, and will continue to maintain adequate facilities to ensure implementation of the methodology and procedures for calculating the net asset value and dividends and distributions among the various classes of shares.
9. If a Touchstone Fund offers separate classes of shares through separate prospectuses, each such prospectus will disclose (i) that the Touchstone Fund issues other classes, (ii) that those other classes may have different sales charges and other expenses, which may affect performance, (iii) a telephone number investors may call to obtain more information concerning the other classes available to them through their sales representative, and (iv) that investors may obtain information concerning those classes from their sales representative or the Distributor.
10. The Distributor has adopted compliance standards as to when Class A, Class B, Class C and Class S shares may appropriately be sold to particular investors. The Distributor will require all persons selling shares of the Touchstone Funds to agree to conform to such standards.
11. Each Touchstone Fund will briefly describe the salient features of the Multiple Class Distribution System in its prospectus and/or statement of additional information. Each Touchstone Fund will disclose in its prospectus the respective expenses, performance data, distribution arrangements, services, fees, sales loads, deferred sales loads and exchange privileges applicable to each class of shares offered through that prospectus. Each Touchstone Fund will disclose the respective expenses and performance data applicable to each class of shares in every shareholder report. The shareholder reports will contain, in the statement of assets and liabilities and statement of operations, information related to the Touchstone Fund as a whole generally and not on a per class basis. Each Touchstone Fund's per share data, however, will be prepared on a per class basis with respect to all classes of shares of such Touchstone Fund. The information provided by the Trusts for publication in any newspaper or similar listing
of the Funds' net asset values and public offering prices will separately present each class of shares.
12. The Trusts will comply with the provisions of Rule 6c-10 under the 1940 Act, IC-20916 (February 23, 1995), as such rule is currently adopted and as it may be amended.
EXHIBIT A
TOUCHSTONE INVESTMENT TRUST
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE TAX-FREE TRUST
TOUCHSTONE VARIABLE SERIES TRUST
MULTIPLE-CLASS FUNDS
METHODOLOGY, PROCEDURES
AND
INTERNAL ACCOUNTING CONTROLS
Touchstone Investment Trust, Touchstone Tax-Free Trust, Touchstone Strategic Trust and Touchstone Variable Series Trust (the "Trusts") are Massachusetts business trusts registered under the Investment Company Act of 1940 as open-end management investment companies. Touchstone Securities, Inc. (the "Distributor") serves as each Touchstone Fund's principal underwriter. The Distributor is a subsidiary of IFS Financial Services, Inc. The Trusts presently offer the following series of shares (collectively, the "Funds") representing interests in separate investment portfolios:
* Periodic (non-daily) dividend Funds
Each Fund may offer multiple classes of shares as more fully described in the Trusts' Rule 18f-3 Plan. The Multiple Class Distribution System would enable each Fund to offer investors the option of purchasing shares in one of three manners: (1) subject to a conventional front-end sales load and a distribution fee not to exceed .35% of average net assets (Class A shares); (2) sold without a front-end sales load and subject to a contingent deferred sales charge and a distribution and service fee of up to 1% of average net assets (Class B shares); or (3) sold either without a front-end sales load or with a front-end sales load that is smaller than the sales load on Class A shares and subject to a contingent deferred sales charge and a distribution and service fee of up to 1% of average net assets (Class C shares). Each Fund which invests primarily in domestic debt securities intends that substantially all net investment income will be declared as a dividend either daily or monthly and paid either daily or monthly. Each Fund designated by an asterisk in the above chart declares and pays net investment income at the end of each calendar quarter or at the end of each calendar year (such Funds are referred to herein as "periodic dividend Funds"). Future series of the Trusts may declare dividends daily or periodically. The Funds and any future series of the Trusts will declare and pay substantially all net realized gains, if any, at least annually.
The Trusts presently offer the following series of shares (collectively, the "Money Market Funds") representing interests in separate investment portfolios:
Touchstone Tax-Free Trust Touchstone Investment Trust
------------------------- ---------------------------
Ohio Tax-Free Money Market Fund Money Market Fund
California Tax-Free Money Market Fund U.S. Government Money Market Fund
Florida Tax-Free Money Market Fund
Tax-Free Money Market Fund Touchstone Variable Series Trust
--------------------------------
Money Market Fund
|
Each Money Market Fund may offer five classes of shares as more fully described in the Trusts' Rule 18f-3 Plan. The Multiple Class Distribution System would enable each Money Market Fund to offer investors the option of purchasing shares in one of five manners: (1) subject to a distribution fee not to exceed .35% of average net assets (Retail shares); (2) subject to no distribution fee with a higher minimum initial investment requirement (Institutional shares); (3) subject to no distribution fee and not eligible to receive certain services provided by broker-dealers (Class I shares); (4) subject to a distribution fee not to exceed 1% of average net assets and a CDSC (Class B shares); or (5) subject to a distribution fee not to exceed 1% of average net assets (Class S shares) . Each of the Money Market Funds intends that substantially all net investment income will be declared as a dividend daily and paid monthly.
Pursuant to an Accounting Services Agreement, Integrated Fund Services, Inc. maintains the accounting records and performs the daily calculations of net asset value for each Touchstone Fund. Thus the procedures and internal accounting controls for the Touchstone Funds include the participation of Integrated Fund Services, Inc. (the "Accounting Agent").
The internal accounting control environment of the Accounting Agent provides for minimal risk of error. This has been accomplished through the use of competent and well-trained employees, adequate facilities and established internal accounting control procedures.
Additional procedures and internal accounting controls have been designed for the multiple class funds. These procedures and internal accounting controls have been reviewed by management of the Trusts to ensure that the risks associated with multiple-class funds are adequately addressed.
The specific internal accounting control objectives and the related methodology, procedures and internal accounting controls to achieve these stated objectives are outlined below.
The three internal accounting control objectives to be achieved are:
(1) The daily net asset value for all classes of shares of each Touchstone Fund is accurately calculated.
(2) Recorded expenses of a Touchstone Fund are properly allocated between each class of shares.
(3) Dividend distributions are accurately calculated for each class of shares.
1. Control Objective
The daily net asset value for all classes of shares of each Touchstone Fund is accurately calculated.
a. Securities of the Funds will be valued daily at their current market value by a reputable pricing source. Security positions will be reconciled from the Trusts' records and to custody records and reviewed for completeness and accuracy.
b. Securities of the Money Market Funds will be valued daily on an amortized cost basis in accordance with written procedures adopted pursuant to Rule 2a-7 of the 1940 Act.
c. Prepaid and intangible assets will be amortized over their estimated useful lives. These assets will be reviewed monthly to ensure a proper presentation and amortization during the period.
d. Investment income, realized and unrealized gains or losses will be calculated daily from the Accounting Agents' portfolio system and reconciled to the general ledger. Yields and fluctuations in security prices will be monitored on a daily basis by personnel of the Accounting Agent. Interest and dividend receivable amounts will be reconciled to holdings reports.
e. An estimate of all expenses for each Touchstone Fund will be accrued daily. Daily expense accruals will be reviewed and revised, as required, to reflect actual payments made to vendors.
f. Capital accounts for each class of shares will be updated based on daily share activity and reconciled to transfer agent reported outstanding shares.
g. All balance sheet asset, liability and capital accounts will be reconciled to subsidiary records for completeness and accuracy.
h. For each Touchstone Fund, a pricing worksheet (see attached example) will be prepared daily which calculates the net asset value of settled shares by class (for the Money Market Funds and the other daily dividend funds) or net asset value of outstanding shares (for periodic dividend funds) and the percentage of net asset value of such class to the total of all classes of shares. Investment income and joint expenses will be allocated by class of shares according to such percentages. Realized and unrealized gains will be allocated by class of shares according to such percentages.
i. Prior day net assets by class will be rolled forward to current day net assets by class of shares by adjusting for current day income, expense and distribution activity. (There may or may not be distribution activity in the periodic dividend funds.) Net assets by class of shares will then be divided by the number of outstanding shares for each class to obtain the net asset value per share. Net asset values will be reviewed and approved by supervisors.
j. Net asset values per share of the different classes of shares for daily dividend funds should be identical except with respect to possible differences attributable to rounding. Differences, if any, will be investigated by the accounting supervisor.
k. Net asset values per share of the different classes of shares for the periodic dividend funds may be different as a result of accumulated income between distribution dates and the effect of class specific expenses. Other differences, if any, will be investigated by the accounting supervisor.
2. Control Objective
Recorded expenses of a Touchstone Fund are properly allocated between each class of shares.
a. Expenses will be classified as being either joint or class specific on the pricing worksheet.
b. Certain expenses will be attributable to more than one Touchstone Fund. Such expenses will be first allocated among the Touchstone Funds, based on the aggregate net assets of such Touchstone Funds, and then borne on such basis by each Touchstone Fund and without regard to class. These expenses could include, for example, Trustees' fees and expenses, unallocated audit and legal fees, insurance premiums, expenses relating to shareholder reports and printing expenses. Expenses that are attributable to a particular Touchstone Fund but not to a particular class thereof will be borne by each class on the basis of the net assets of such class in relation to the aggregate net assets of the Touchstone Fund. These expenses could include, for example, advisory fees and custodian fees, and fees related to the preparation of separate documents for current shareholders of a particular Touchstone Fund.
c. Class specific expenses are those identifiable with each individual class of shares. These expenses include 12b-1 distribution fees; transfer agent fees as identified by the Accounting Agent as being attributable to a specific class; printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses and proxies to current shareholders of a particular class; SEC and Blue Sky registration fees; the expenses of administrative personnel and services required to support the shareholders of a specific class; litigation or other legal expenses relating solely to one class of shares; Trustees' fees incurred as a result of issues relating to one class of shares; and accounting fees and expenses relating to a specific class of shares.
d. Joint expenses will be allocated daily to each class of shares based on the percentage of the net asset value of shares of such class to the total of the net asset value of shares of all classes of shares. Class specific expenses will be charged to
the specific class of shares. Both joint expenses and class specific expenses are compared against expense projections.
e. The total of joint and class specific expense limits will be reviewed to ensure that voluntary or contractual expense limits are not exceeded. Amounts will be adjusted to ensure that any limits are not exceeded. Expense waivers and reimbursements will be calculated and allocated to each class of shares based upon the pro rata percentage of the net assets of a Touchstone Fund as of the end of the prior day, adjusted for the previous day's share activity.
f. Each Fund and class will accrue distribution expenses at a rate (but not in excess of the applicable maximum percentage rate), which will be reviewed by the Board of Trustees on a quarterly basis. Such distribution expenses will be calculated at an annual rate not to exceed .25% (except that such amount is .35% for the series of Touchstone Investment Trust) of the average daily net assets of a Fund's Class A shares (including Retail/Service shares of a Money Market Fund) and not to exceed 1% of the average daily net assets of a Touchstone Fund's Class B shares, Class C shares and Class S shares. Under the distribution plans, payments will be made only for expenses incurred in providing distribution related services. Unreimbursed distribution expenses of the Distributor will be determined daily and the Distributor shall not be entitled to reimbursement for any amount with respect to any day in which there are no unreimbursed distribution expenses.
g. Expense accruals for both joint and class specific expenses are reviewed each month. Based upon these reviews, adjustments to expense accruals or expense projections are made as needed.
h. Expense ratios and yields for each class of shares will be reviewed daily to ensure that differences in yield relate solely to acceptable expense differentials.
i. Any change to the classification of expenses as joint or class specific is reviewed and approved by the Board of Trustees.
j. The Accounting Agent will perform detailed expense analyses to ensure that expenses are properly charged to each Touchstone Fund and to each class of shares. Any expense adjustments required as a result of this process will be made.
3. Control Objective
Dividend distributions are accurately calculated for each class of shares.
a. The Money Market Funds and the other daily dividend Funds declare substantially all net investment income daily.
b. The periodic dividend Funds declare substantially all net investment income periodically.
c. Investment income, including amortization of discount and premium, where applicable, is recorded by each Touchstone Fund and is allocated to each class of shares based upon its pro rata percentage of the net assets of the Touchstone Fund as of the end of the prior day, adjusted for the previous day's share activity.
d. For Money Market Funds and the other daily dividend Funds, distributable income is calculated for each class of shares on the pricing worksheet from which daily dividends and distributions are calculated. The dividend rates are calculated on a settlement date basis for class shares outstanding.
e. Each non-daily dividend Fund will determine the amount of accumulated income available for all classes after deduction of allocated expenses but before consideration of any class specific expenses. This amount will be divided by total outstanding shares for all classes combined to arrive at a gross dividend rate for all shares. From this gross rate, a class specific amount per share for each class (representing the unique and incrementally higher, if any, expenses accrued during the period to that class divided by the shares outstanding for that class) is subtracted. The result is the actual per share rate available for each class in determining amounts to distribute.
f. Realized capital gains, if any, are allocated daily to each class based upon its relative percentage of the total net assets of the Touchstone Fund as of the end of the prior day, adjusted for the previous day's share activity.
g. Capital gains are distributed at least once every twelve months with respect to each class of shares.
h. The capital gains distribution rate will be determined on the ex-date by dividing the total realized gains of the Touchstone Fund to be declared as a distribution by the total outstanding shares of the Touchstone Fund as of the record date.
i. Capital gains dividends per share should be identical for each class of shares within a Touchstone Fund. Differences, if any, will be investigated and resolved.
j. Distributions are reviewed annually by the Accounting Agents at fiscal year end and as required for excise tax purposes during the fiscal year to ensure compliance with IRS regulations and accuracy of calculations.
There are several pervasive procedures and internal accounting controls that impact all three of the previously mentioned objectives.
a. The Accounting Agent's supervisory personnel will be involved on a daily basis to ensure that the methodology and procedures for calculating the net asset value and dividend distribution for each class of shares is followed and a proper allocation of expenses among each class of shares is performed.
b. The Accounting Agent's fund accountants will receive overall supervision. Their work with regard to multiple class calculations will be reviewed and approved by supervisors.
c. The Accounting Agent's pricing worksheets will be clerically checked and verified against corresponding computer system generated reports.
Sample Multiple Class Worksheet
Allocation Methodology - Value of Shares Outstanding (periodic dividend Funds)
Value of Settled Shares Outstanding (daily dividend Funds)
Fund ______________________________
Date ______________________________
Total
(T) (A) (B) (C) (S)
---- ---- ---- ---- ----
1 Prior day NAV per share (unrounded) ____ ____ ____ ____ ____
Allocation Percentages
----------------------
Complete for all Funds:
2 Shares O/S - prior day ____ ____ ____ ____ ____
3 Prior day shares activity ____ ____ ____ ____ ____
4 Adjusted shares O/S [2 + 3] ____ ____ ____ ____ ____
5 Adjusted net assets [4 x 1] ____ ____ ____ ____ ____
6 % Assets by class ____ ____ ____ ____ ____
For daily dividend funds complete Rows 7 - 11
For periodic (non daily) dividend funds insert
same # from Rows 2 - 6
7 Settled shares prior day ____ ____ ____ ____ ____
8 Prior day settled shares activity ____ ____ ____ ____ ____
9 Adjusted settled shares O/S [7 & 8] ____ ____ ____ ____ ____
10 Adjusted settled assets [9 x 1] ____ ____ ____ ____ ____
11 % Assets by class ____ ____ ____ ____ ____
Income and Expenses
-------------------
12 Daily income * ____ ____ ____ ____ ____
Expenses
13 Management Fee* ____ ____ ____ ____ ____
14 12-1 Fee ____ ____ ____ ____ ____
15 Other Joint Expenses* ____ ____ ____ ____ ____
16 Direct Class Expenses ____ ____ ____ ____ ____
17 Daily expenses [13+14+15+16] ____ ____ ____ ____ ____
18 Daily Net Income [12 - 17] ____ ____ ____ ____ ____
19 Dividend Rate (Daily Dividend Funds Only) ____ ____ ____ ____
[18/9]
Capital
-------
20 Income distribution ____ ____ ____ ____ ____
21 Undistributed Net Income [18 - 20] ____ ____ ____ ____ ____
22 Capital share activity ____ ____ ____ ____ ____
23 Realized Gains/Losses:
24 Short-Term** ____ ____ ____ ____ ____
25 Long-Term** ____ ____ ____ ____ ____
26 Capital gain distribution ____ ____ ____ ____ ____
27 Unrealized appreciation/depreciation** ____ ____ ____ ____ ____
28 Daily net asset change ____ ____ ____ ____ ____
[21 + 22 + 24 + 25 + 26 + 27]
|
Sample Multiple Class Worksheet
Allocation Methodology - Value of Shares Outstanding (periodic dividend Funds)
Value of Settled Shares Outstanding (daily dividend Funds)
Fund ______________________________
Date ______________________________
Total
(T) (A) (B) (C) (S)
---- ---- ---- ---- ----
NAV Proof
---------
29 Prior day net assets ____ ____ ____ ____ ____
30 Current day net assets [28 + 29] ____ ____ ____ ____ ____
31 NAV per share [30 / 4] ____ ____ ____ ____ ____
32 Sales Load as a percent of offering price ____
33 Offering Price [31 / (100% - 32)] ____
|
* - Allocated based on Line 11 percentages. ** - Allocated based on Line 6 percentages.
MULTIPLE CLASS PRICING
FINANCIAL STATEMENT DISCLOSURE
- Assets and liabilities will be disclosed in accordance with standard reporting format.
- The following will be disclosed for each class:
NET ASSETS FOR FUNDS:
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on investments - net
Unrealized appreciation (depreciation) on investments - net
Net Assets - equivalent to $__ per share based on __ shares outstanding.
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on investments - net
Unrealized appreciation (depreciation) on investments - net
Net Assets - equivalent to $ __ per share based on __ shares outstanding.
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on investments - net
Unrealized appreciation (depreciation) on investments - net
Net Assets - equivalent to $ __ per share based on __ shares outstanding.
NET ASSETS FOR MONEY MARKET FUNDS:
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on investments - net
Net Assets - equivalent to $1.00 per share based on __ shares outstanding.
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on investments - net
Net Assets - equivalent to $1.00 per share based on __ shares outstanding.
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on investments - net
Net Assets - equivalent to $1.00 per share based on __ shares outstanding.
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on investments - net
Net Assets - equivalent to $1.00 per share based on __ shares outstanding.
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on investments - net
Net Assets - equivalent to $1.00 per share based on __ shares outstanding.
- Standard reporting format, except that class specific expenses will be disclosed for each class.
- Show components by each class of shares and in total as follows:
Total Class A Class B Class C Retail Institutional Class S Class I
----- ------- ------- ------- ------ ------------- ------- -------
Prior Year
--------------------------------------------------------------------------------
|
- Show components by each class as follows:
Total Class A Class B Class C Retail Institutional Class S Class I
----- ------- ------- ------- ------ ------------- ------- -------
Prior Year
--------------------------------------------------------------------------------
|
- Note on share transactions will include information on each class of shares for two years
- Notes will include additional disclosure regarding allocation of expenses between classes.
- Notes will describe the distribution arrangements, incorporating disclosure on any classes' 12b-1 fee arrangements.
MASTRAPASQUA ASSET MANAGEMENT, INC.
CODE OF ETHICS
PLUS
ANTI-MONEY LAUNDERING AND INSIDER TRADING POLICY AND PROCEDURES
I. INTRODUCTION
Mastrapasqua Asset Management ("Mastrapasqua") has adopted this Code of Ethics for the purpose of instructing all employees, officers, and directors of the investment adviser in its ethical obligations and to provide rules for its personal securities transactions. All such employees, officers, directors and trustees owe a fiduciary duty to the Client Accounts they manage. A fiduciary duty means a duty of loyalty, fairness and good faith towards the Client Accounts, and the obligation to adhere not only to the specific provisions of this Code but to the general principles that guide the Code.
II. STATEMENT OF GENERAL PRINCIPLES
(i) The duty at all times to place the interests of the Client Accounts first;
(ii) The requirement that all personal securities transactions be conducted in a manner consistent with the Code of Ethics and in such a manner as to avoid any actual or potential conflict of interest or any abuse of any individual's position of trust and responsibility; and
(iii) The fundamental standard that such employees, officers, directors and trustees should not take inappropriate advantage of their positions, or of their relationship with the Client Accounts.
The Company will not disclose any nonpublic personal information about a Client to any nonaffiliated third party unless the Client expressly gives permission to the Company to do so. The Client in writing must grant such permission, or denial of permission, to the Company. A copy of the permission/denial document will be filed in the Client file (see our Privacy Notice for further reference).
It is imperative that the personal trading activities of the employees, officers, and directors of Mastrapasqua be conducted with the highest regard for these general principles in order to avoid any possible conflict of interest, any appearance of a conflict, or activities that could lead to disciplinary action. This includes executing transactions through or for the benefit of a third party when the transaction is not in keeping with the general principles of this Code.
All personal securities transactions must comply with Mastrapasqua's Code of Ethics, Insider Trading Policy and Procedures and the Securities and Exchange Commission's Rule 17J-1. Under this rule, no Employee may:
(i) employ any device, scheme or artifice to defraud Client Accounts;
(ii) make to the Client Accounts or any of its beneficiaries any untrue statement of a material fact or omit to state to such client a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;
(iii) engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Client Accounts or any of their beneficiaries; or
(iv) engage in any manipulative practice with respect to the Client Accounts or any of their beneficiaries.
DEFINITIONS
A. Advisory Employees
Employees who participate in, make, or obtain information regarding recommendations with respect to the purchase or sale of securities. The Compliance Officer will maintain a current list of all Advisory Employees.
B. Beneficial Interest
Ownership or any benefits of ownership, including the opportunity to directly or indirectly profit or otherwise obtain financial benefits from any interest in a security.
C. Client Account
Any securities account or portfolio managed or directed by Mastrapasqua.
D. Compliance Officer
Nancy Acosta or, in her absence, the alternate Compliance Officer, Jim Basham, or their successors in such positions.
E. Employee Account
Each account in which an Employee or a member of his or her family has any direct or indirect Beneficial Interest or over which such person exercises control or influence, including, but not limited to, any joint account, partnership, corporation, trust or estate. An Employee's family members include the Employee's spouse, minor children, any person living in the home of the Employee, and any relative of the Employee (including in-laws) to whose support an Employee directly or indirectly contributes.
F. Employees
The employees, officers and directors of Mastrapasqua, including Advisory Employees. The Compliance Officer will maintain a current list of all Employees.
G. Exempt Transactions
Transactions which are (1) effected in an amount or in a manner over which the Employee has no direct or indirect influence or control; (2) pursuant to a systematic dividend reinvestment plan, systematic cash purchase plan or systematic withdrawal plan; (3) in connection with the exercise or sale of rights to purchase additional securities from an issuer and granted by such issuer pro-rata to all holders of a class of its securities; (4) in connection with the call by the issuer of a preferred stock or bond; (5) pursuant to the exercise by a second party of a put or call option; (6) closing transactions no more than five business days prior to the expiration of a related put or call option; or (7) with respect to any affiliated or unaffiliated registered open-end investment company.
H. Recommended List
The list of those Securities which the Advisory Employees currently are recommending for purchase or sale on behalf of Client Accounts.
I. Related Securities
Securities issued by the same issuer or issuer under common control, or when either security gives the holder any contractual rights with respect to the other security, including options, warrants or other convertible securities.
J. Securities
Any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, pre-organization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a "security," or any certificate or interest or participation in temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase (including options) any of the foregoing, including any option on a security that is convertible into or is exchangeable for any security that is held or to be acquired by a fund; except for the following: (1) securities issued by the government of the United States; (2) bankers' acceptances; (3) bank certificates of deposit; (4) commercial paper; (5) debt securities, provided that (a) the security has a credit rating of Aa or Aaa from Moody's Investor Services, AA or AAA from Standard & Poor's Ratings Group, or an equivalent rating from another rating service, or is unrated but comparably creditworthy, (b) the security matures within twelve months of purchase, (c) the market is very broad so that a large volume of transactions on a given day will have relatively little effect on yields, and (d) the market for the instrument features highly efficient machinery permitting quick and convenient trading in virtually any volume; and 6) shares of registered open-end investment companies.
K. Securities Transaction
The purchase or sale, or any action to accomplish the purchase or sale, of a Security for an Employee Account.
PERSONAL INVESTMENT GUIDELINES
A. Personal Accounts and Pre-Clearance
1. Employees must obtain prior written permission from the Compliance Officer to open or maintain a margin account, or a joint or partnership account with persons other than the Employee's spouse, parent, or child (including custodial accounts).
2. No Employee may execute a Securities Transaction without first obtaining Pre-Clearance from the Compliance Officer. Prior to execution, the Employee must submit the Pre-Clearance form to the Compliance Officer, or in the case of a Pre-Clearance request by the Compliance Officer, to the alternate Compliance Officer.
Clients Accounts have been notified in the ADV and have agreed as part of the Investment Management Agreement that (a) employee advisers will manage accounts and perform investment advisory services for others; (b) depending upon investment objectives and cash availability, that advisory employees may sell or recommend the sale of a particular security for certain accounts and buy or recommend the purchase of such security for other accounts, and accordingly, transactions in particular accounts may not be consistent with transactions in other accounts or with advisory employees investment recommendations; (c) where there is a limited supply of a security, advisory employees cannot assure absolute equality among all accounts and clients; and (d) advisory employees and /or employees may from time to time have an interest, direct or indirect, in a security which is purchased, sold or otherwise traded for the Client Account, and advisory employee may effect transactions in said security for the Client Account which may be the same as or different from the action which advisory employee or employee may take with respect thereto for its or their accounts.
Settlement of Securities Transactions must be made on or before settlement date. Extensions and pre-payments are not permitted.
The Personal Investment Guidelines in this Section III do not apply to Exempt Transactions. Employees must remember that regardless of the transaction's status as exempt or not exempt, the Employee's fiduciary obligations remain unchanged.
2. Employees may not execute a Securities Transaction on a day during which a purchase or sell order in that same Security or a Related Security is pending for, or is being actively considered on behalf of, a Client Account. In order to determine whether a Security is being actively considered on behalf of a Client Account, the Compliance Officer will consult the current Recommended List and, in the case of non-equity Securities, consult each Advisory Employee responsible for investing in non-equity Securities for any Client Account. Securities Transactions executed in violation of this prohibition, if not precleared, shall be unwound or, if not possible or practical, the Employee must disgorge to the appropriate Client Account(s) the value received by the Employee due to any favorable price differential received by the Employee. For example, if the Employee buys 100 shares at $10 per share, and a Client Account buys 1000 shares at $11 per share, the Employee will pay $100 (100 shares x $1 differential) to the Client Account.
Advisory Employees shall not purchase or sell a security within five calendar days before or two calendar days after a mutual fund for which the Advisory Employee makes or participates in making a recommendation trades in that security. Any profits realized on trades within this proscribed period shall be disgorged. This blackout period does not apply to money market mutual funds which are advised by Mastrapasqua.
3. Pre-Clearance requests involving a Securities Transaction by an Employee within two calendar days after any Client Account has traded in the same Security or a Related Security will be evaluated by the Compliance Officer to ensure that the proposed transaction by the Employee is consistent with this Code and that all contemplated Client Account activity in the Security has been completed. It is wholly within the Compliance Officer's discretion to determine when Pre-Clearance will or will not be given to an employee if the proposed transaction falls within the two-day period.
4. Pre-Clearance procedures apply to any Securities Transactions in a private placement. In connection with a private placement acquisition, the Compliance Officer will take into account, among other factors, whether the investment opportunity should be reserved for a Client Account, and whether the opportunity is being offered to the Employee by virtue of the Employee's position with Mastrapasqua. Employees who have been authorized to acquire securities in a private placement will, in connection therewith, be required to disclose that investment if and when the Employee takes part in any subsequent investment in the same issuer. In such circumstances, the determination to purchase Securities of that issuer on behalf of a Client Account will be subject to an independent review by the Compliance Officer or someone else with no personal interest in the issuer.
5. Employees are prohibited from acquiring low priced over-the-counter equity securities (or "penny stock") as defined in Section 3(a) of the Securities Exchange Act of 1934.
2. No Employee may accept from a customer or vendor gifts or gratuities in an amount greater than $100 per year that could be construed as compensation for services. If there is a question regarding receipt of a gift, gratuity or compensation, it is to be reviewed by the Compliance Officer.
3. All employees, officers, and directors are prohibited from taking personal advantage of any opportunity properly belonging to a fund.
III. COMPLIANCE PROCEDURES
2. The above disclosure and certification is also required quarterly, along with an additional certification that the Employee has complied with the requirements of this Code and has disclosed or reported all personal Securities Transactions required to be disclosed or reported pursuant to the requirements of this Code.
2. If authorized, the Pre-Clearance is valid for orders placed by the close of business on the second trading day after the authorization is granted. If during the two-day period the Employee becomes aware that the trade does not comply with this Code or that the statements made on the request form are no longer true, the Employee must immediately notify the Compliance Officer of that information and the Pre-Clearance may be terminated. If, during the two-day period, the trading desk is notified that a purchase or sell order for the same Security or Related Security is pending or is being considered on behalf of a Client Account, the trading desk will not execute the Employee Transaction and will notify the Employee and the Compliance Officer that the Pre-Clearance is terminated.
2. The Compliance Officer will check the trading confirmations provided by brokers to verify that the Employee obtained any necessary Pre-Clearance for the transaction. On a quarterly basis, the Compliance Officer will compare all confirmations with the Pre-Clearance records, to determine, among other things, whether any Client Account owned the Securities at the time of the transaction or purchased or sold the security within fifteen (15) days of the transaction.
3. If an Employee violates this Code, the Compliance Officer will report the violation to management personnel of Mastrapasqua for appropriate remedial action, which, in addition to the actions specifically delineated in other sections of this Code, may include a reprimand of the Employee, or suspension or termination of the Employee's relationship with Mastrapasqua.
4. The Compliance Officer will Annually prepare a written report to the Trustees of the various mutual funds that describes any issues under the code of ethics or insider trading policy and procedures since the last report to the Trustees, including, but not limited to, information about material violations of the code or procedures and sanctions imposed in response to the material violations; and certifies that the Adviser has adopted procedures reasonably necessary to prevent employees, officers, and directors from violating the code.
5. The Compliance Officer shall maintain and cause to be maintained:
(a) a copy of any code of ethics adopted by Mastrapasqua which
has been in effect during the previous five (5) years in
an easily accessible place;
(b) a record of any violation of any code of ethics, and of any
action taken as a result of such violation, in an easily
accessible place for at least five (5) years after the end of
the fiscal year in which the violation occurs;
(c) a copy of each report made as required by Section V(c)(4) for
at least five (5) years after the end of the fiscal year in
which the report is made, the first two (2) years in an easily
accessible place;
(d) a list of all persons who are, or within the past five years
have been, required to make reports or who were responsible
for reviewing these reports pursuant to any code of ethics
adopted by Mastrapasqua in an easily accessible place;
(e) a copy of each written report and certification required
pursuant to this Code for at least five (5) years after the
end of the fiscal year in which it is made, the first two (2)
years in an easily accessible place; and
(f) a record of any decision, and the reasons supporting the
decision, approving the acquisition by an employee of
securities under Section IV of this Code, for at least five
(5) years after the end of the fiscal year in which the
approval is granted.
IV. ANTI-MONEY LAUNDERING POLICY - USA PATRIOT ACT OF 2001
As a member of the financial services industry in its role as registered investment adviser, Mastrapasqua Asset Management has an obligation to comply with the provisions of the USA PATRIOT Act, which requires compliance by April 24, 2002.
As a registered investment adviser, Mastrapasqua Asset Management does not custody client funds nor accept client funds except those amounts that are earmarked as fees for our investment management services. In the case of intermediaries such as Wrap Programs, Institutional Accounts or Consultants we rarely have direct contact with the client. However, during the course of conducting normal business, we do have direct client contact both in the process of soliciting new business as well as servicing existing business. Primarily, sales and support personnel conduct such contact.
During the course of direct client contacts as well as intermediaries, Mastrapasqua Asset Management employees understand that they have a responsibility to be sensitive to any statements, actions, or inferences that could be construed to mean that funds under management could be illegitimate as to ownership or ultimate use. Should such an instance occur, the employee is to immediately communicate the concern to our Compliance Officer, who will in turn record and report the concern to senior management, where appropriate action will be initiated.
From a practical sense, effective compliance with the statute requires employee awareness and sensitivity to potentially illegal activity or handling of relevant assets. As such, every employee, who comes into direct contact with clients or with their representatives will be asked to sign a statement quarterly confirming that no suspicious activity or communication took place during the most recent three months. This will have the dual effect of constantly updating awareness as well as encouraging any questions. In addition, the Compliance Officer will conduct training on this policy with every new relevant employee, as well as provide one hour of ongoing training every year.
V. INSIDER TRADING
Advisers Act Section 204-A
A. SUPERVISORY RESPONSIBILITY. The Compliance Officer shall be responsible for implementing, monitoring and enforcing MAM's policies and procedures against insider trading.
B. SECTION 204A OF THE ADVISER ACT. Section 204A requires all investment advisers to establish, maintain and enforce written procedures designed to prevent the misuse of material, non-public information in violation of the Securities and Exchange Act of 1934. This conduct is frequently referred to as "insider trading."
C. DEFINITIONS
1. Insider. The term "insider" is broadly defined. It includes officers, directors and employees of MAM. In addition, a person can be a "temporary insider" if they enter into a special confidential relationship in the conduct of a company's affairs and, as a result, are given access to information solely for the company's purposes. A temporary insider can include, among others, the company's attorneys, accountants, consultants, bank lending officers, and the employees of such organizations. In addition, the Company may become a temporary insider of a client it advises or for which it performs other services. If a client expects the Company to keep the disclosed non-public information confidential and the relationship implies such a duty, then the Company will be considered an insider.
2. Insider Trading. The term "insider trading" is not defined in federal securities laws, but generally is used to refer to the effecting of securities transactions while in possession of material, non-public information (regardless of whether one is an "insider") or to the communication of material, non-public information to others. While the law concerning insider trading is not static, it is generally understood that the law prohibits:
a. Trading by an insider on the basis of material non-public information;
b. Trading by a non-insider (also called a "temporary insider") on the
basis of material non-public information, where the information was
either disclosed to the non-insider in violation of an insider's duty
to keep the information confidential or was misappropriated; and,
c. Communicating material non-public information to others.
3. Material Information. The term "material information" is generally defined as information that a reasonable investor would most likely consider important in making their investment decisions, or information that is reasonably certain to have a substantial effect on the price of a company's securities, regardless of whether the information is related directly to their business. Material information includes, but is not limited to: dividend changes; earnings estimates; changes in previously released earnings estimates; significant merger or acquisition proposals or agreements; major litigation; liquidation problems; and, extraordinary management developments.
4. Non-Public Information. Information is non-public until it has been effectively communicated to the marketplace. For example, information found in a report filed with the SEC, or appearing in Dow Jones, Reuters Economic Services, The Wall Street Journal or other publications of general circulation would be considered public information.
D. THE COMPANY'S POLICY ON INSIDER TRADING. All officers, directors, employees and IARs are prohibited from trading either personally or on behalf of others, on material non-public information or communicating material non-public information to others in violation of Section 204A. The Agreement to Abide by the Written Policy of the Company on Insider Trading must be read and signed by every officer, director, IAR and employee. Covered persons should be instructed to direct any questions regarding the Company's policy on insider trading to the Compliance Officer.
E. INTER-DEPARTMENTAL COMMUNICATIONS
SHARING OF INFORMATION. Inside Information is to be communicated only to such employees of MAM who have a "need to know" such information in the performance of their job responsibilities. When necessary to communicate material, non-public information to an employee, the Compliance Officer must document the:
a. name of the employee with whom the information was shared;
b. employee's position and department;
c. date of the communication;
d. nature of the communication;
e. identity of the security affected; and,
f. name of the person requesting that the information be communicated.
F. PREVENTION OF INSIDER TRADING. To prevent insider trading from occurring, the Compliance Officer shall:
1. design an appropriate educational program and provide educational materials to familiarize officers, directors, employees and IARs with the Company's policy;
2. answer questions and inquiries regarding the Company's policy;
3. review the Company's policy on a regular basis and update it as necessary to reflect regulatory and industry changes;
4. resolve issues as to whether information received by an officer, director, employee or IAR constitutes material and non-public information;
5. upon determination that an officer, director, employee, or IAR has possession of material non-public information:
a.implement measures to prevent dissemination of such information; and,
b.restrict officers, directors, employees and IARs from trading on any affected securities.
6. if necessary, physically separate the departments which regularly receive confidential material, including the separation of record-keeping and support systems;
7. hold meetings with all employees at least annually to review the policy.
G. DETECTION OF INSIDER TRADING. In order to detect insider trading, the Compliance Officer shall, on a quarterly basis:
1. review the trading activity reports filed by each officer, director, employee and IAR;
2. submit his or her trading records and other relevant information to another senior manager for review;
3. review the trading activity of accounts managed by MAM;
4. review trading activity involving MAM's own account; and
5. coordinate the review of such reports with other appropriate officers, directors, employees and IARs of the Company.
H. REPORTS TO MANAGEMENT
1. Immediate Reports. Immediately upon learning of a potential insider trading violation, the Compliance Officer shall prepare a written report to the management of MAM providing full details and recommendations for further action.
2. Annual Report. The Compliance Officer shall prepare an annual written report to the management of MAM setting forth the following:
a. A summary of existing procedures to detect and prevent insider trading;
b. Full details of any investigation, either internal or by a regulatory agency, of any suspected insider trading and the results of such investigation;
c. An evaluation of the Company's current procedures for monitoring and enforcing its insider trading policy and any recommendations for improvement; and,
d. A description of the Company's continuing education program regarding insider trading, including copies of any new materials used since the last report to management.
AGREEMENT TO ABIDE BY WRITTEN POLICY
ON INSIDER TRADING
MAM forbids any officer, director, employee, investment advisory representative, or other associated persons from trading, either personally or on behalf of others, on material non-public information or communicating material non-public information to others in violation of the Insider Trading and Securities Fraud Enforcement Act of 1988. This conduct is frequently referred to as "insider trading." This policy applies to every officer, director, employee, investment advisory representative and other associated persons and extends to activities within and outside their duties at MAM. The "Agreement to Abide by the Written Policy of the Company on Insider Trading" must be read and signed by all officers, directors, employees, investment advisory representatives and other associated persons. Any questions regarding this policy should be referred to the Compliance Officer.
The term "insider trading" is not clearly defined in federal or state securities laws, but generally is used to refer to the use of material non-public information to trade in securities (whether or not one is an "insider") or to communications of material non-public information to others.
While the law concerning insider trading is not static, it is generally understood that the law prohibits:
o Trading by an insider on the basis of material non-public information;
o Trading by a non-insider on the basis of material non-public information, where the information either was disclosed to the non-insider in violation of an insider's duty to keep it confidential or was misappropriated; or,
o Communicating material non-public information to others.
The elements of insider trading and penalties for such unlawful conduct are discussed below. If, after reviewing this policy statement, you have any questions you should consult the Compliance Officer.
The term "insider" is broadly defined. It includes officers, directors and employees of a company. In addition, a person can be a "temporary insider" if they enter into a special confidential relationship in the conduct of a company's affairs and, as a result, are given access to information solely for the company's purposes. A temporary insider can include, among others, a company's attorneys, accountants, consultants, bank lending officers, and the employees of such organizations. In addition, MAM may become a temporary insider of a client company it advises or which it performs other services. If a client company expects our Company to keep the disclosed non-public information confidential and the relationship implies such a duty, than our Company will be considered an insider.
Trading on insider information is not a basis for liability unless the information is material. "Material information" generally is defined as information that a reasonable investor would most likely consider important in making their investment decisions, or information that is reasonably certain to have a substantial effect on the price of a company's securities, regardless of whether the information is related directly to the company's business. Information that officers, directors, employees, investment advisory representatives and other associated persons should consider material includes, but is not limited to: dividend changes; earnings estimates; changes in previously released earnings estimates; significant merger or acquisition proposals or agreements; major litigation; liquidation problems; and extraordinary management developments.
Information is non-public until it has been effectively communicated to the marketplace. For example, information found in a report filed with the SEC, or appearing in Dow Jones, Reuters Economic Services, The Wall Street Journal or other publications of general circulation would be considered public information.
IV. Penalties for Insider Trading
Penalties for trading on or communicating material non-public information are severe, bother for individuals involved in such unlawful conduct and their employers. A person can be subject to some or all of the penalties described below even if they do not personally benefit from the activities surrounding the violation. Penalties include: civil injunctions; treble damages; disgorgement of profits; jail sentences; fines for the person who committed the violation of up to three times the profit gained or loss avoided, whether or non the person actually benefited; and, fines for the employer or other controlling person of up to the greater of $1,000,000 or three times the amount of the profit gained or loss avoided. In addition, any violation of this policy statement can be expected to result in serious sanctions by MAM, including dismissal of the persons involved.
The following procedures have been established to aid the officers, directors, employees, investment advisory representatives and other associated persons of MAM in avoiding insider trading. Failure to follow these procedures may result in dismissal, regulatory sanctions and criminal penalties.
A. IDENTIFY INSIDER INFORMATION
Before trading or making investment recommendations for yourself or others, including investment companies or private accounts managed by MAM, or in the securities of a company about which you may have potential insider information, ask yourself the following questions:
1. Is the information material? Is this information that an investor would consider important in making an investment decision? Is this information that would substantially effect the market price of the securities if generally disclosed?
2. Is the information non-public? To whom has this information been provided? Has the information been effectively communicated to the market place by being published in publications of general circulation?
B. If, after consideration of the above, the information is material and non-public, or if further questions arise as to whether the information is material and non-public, the following procedures shall be followed.
1. Report the matter immediately to the Compliance Officer.
2. Do not purchase, sell or recommend securities on behalf of yourself or others, including accounts managed by MAM.
3. Do not communicate the information inside or outside MAM other than to the Compliance Officer and/or the President.
4. After the Compliance Officer and/or the President have reviewed the issue, you will be instructed as to the proper course of action to take.
C. PERSONAL SECURITIES TRADING
1. All officers, directors, employees, investment advisory representatives and other associated persons of MAM are required to submit a report to the Company of every securities transaction in which they, their families (including spouse, minor children and adults living in the same household), and any trust of which they are trustees or in which they have a beneficial interest or are parties, within ten (10) days after the end of the calendar quarter in which the transactions were effected. The report shall include the names of the securities, dates of the transactions, quantities, prices and broker/dealer or other entity through which the transactions were effected.
This requirement may be satisfied by submitting copies of confirmations or account statements accompanied by a signed and dated notice of submission.
2. Any transactions by an officer, director, employee, investment advisory representative and other associated persons (including their related parties) through a broker/dealer, investment advisory firm or clearing firm, other than MAM, shall be reported to the Company within ten (10) days after such transactions are effected and such report shall include the names of the securities, dates of the transactions, quantities, prices and broker/dealer or other entity through which the transactions were effected. This requirement may be satisfied by submission of duplicate confirmations accompanied by a signed and dated notice of submission.
D. RESTRICTING ACCESS TO MATERIAL NON-PUBLIC INFORMATION
Information in your possession that you identify as material and non-public may not be communicated to anyone, including persons within MAM except as provided in paragraph 1 above. In addition, care should be taken so that such information is secure. For example, files containing material non-public information should be sealed.
E. RESOLVING ISSUES CONCERNING INSIDER TRADING
If, after consideration of the items set forth in paragraph 1, doubt remains as to whether information is material or non-public, or if there is any unresolved question as to the applicability or interpretation of the foregoing procedures, or as to the propriety of any action, it must be discussed with the Compliance Officer and/or the President before trading or communicating the information to anyone.
F. ACKNOWLEDGMENT
By affixing my signature below, I acknowledge that I have read and understood the foregoing policies and will comply in all respects with such policies.