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. 56
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /x/
Amendment No. 56
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(Check appropriate box or boxes.)
TOUCHSTONE STRATEGIC TRUST FILE NOS. 811-3651 and 2-80859
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(Exact name of Registrant as Specified in Charter)
221 East Fourth Street, Suite 300, Cincinnati, Ohio 45202
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(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number, including Area Code (513) 362-8000
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Jill T. McGruder, 221 East Fourth Street, Cincinnati, OH 45202
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
(check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on ______________ pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on ______________ pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
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If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
TOUCHSTONE
INVESTMENTS
TOUCHSTONE LARGE CAP GROWTH FUND - CLASS I
RESEARCH O DESIGN O SELECT O MONITOR
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.
November 11, 2004
PROSPECTUS
TOUCHSTONE INVESTMENTS
TOUCHSTONE LARGE CAP GROWTH FUND - CLASS I
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 that also includes 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.
LARGE CAP GROWTH FUND
The Fund is non-diversified and may invest up to 10% of its total assets in the securities of one company. The Fund may also invest up to 25% of its total assets in the securities of one industry. The Fund's investments may include companies in the technology sector.
The Fund is designed to achieve the highest possible returns while minimizing risk. The sub-advisor's selection process focuses on fast growing companies that offer innovative products, services or technologies to a rapidly expanding marketplace. These may include companies in the technology sector. The sub-advisor uses an objective, "bottom-up," quantitative screening process designed to identify and select inefficiently priced growth stocks with superior returns compared to their risk characteristics. The sub-advisor mainly buys stocks of companies that it believes are poised to rise in price. The investment process focuses on "growth" variables including, but not limited to, earnings growth, reinvestment rate and operating margin expansion.
The sub-advisor attempts to uncover stocks with strong return potential and acceptable risk characteristics. The sub-advisor uses its proprietary computer model to calculate and analyze a "reward/risk ratio." The reward/risk ratio is designed to identify stocks with above average market returns and risk levels that are reasonable for higher return rates. The sub-advisor then applies two or more sets of criteria to identify the most attractive stocks. Examples of these criteria include earnings growth, profit margins, reasonable price/earnings ratios based on expected future earnings, and various other fundamental criteria. Stocks with the best combination of growth ratios are blended into the Fund's portfolio.
Every quarter the sub-advisor evaluates its tests and re-weights their influence on the computer models as necessary. This allows the sub-advisor to continuously monitor which factors appear to be currently in favor in the financial markets. If a security does not meet the criteria of the sub-advisor's reward/risk ratio and there are other available securities that do, the sub-advisor will probably sell the security that does not meet its criteria.
o If the stock market as a whole goes down
o Because large cap companies may be unable to respond quickly to
new competitive challenges, such as changes in technology and
consumer tastes, and also may not be able to attain the high
growth rate of successful smaller companies, especially during
extended periods of economic expansion.
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 quantitative 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
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
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 the Fund's investments and risks under the "Investment Strategies and Risks" section of this Prospectus.
LARGE CAP GROWTH FUND -- CLASS A TOTAL RETURNS*
YEAR TOTAL RETURN
1998 41.17% Best Quarter:
4th Quarter 1999 +40.00%
1999 63.03%
Worst Quarter:
2000 -7.66% 1st Quarter 2001 -27.98%
2001 -23.47%
2002 -26.70%
2003 35.60%
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The year-to-date return for the Fund's Class A shares as of September 30, 2004 is ____%.
*Effective October 6, 2003, substantially all of the assets of the Navellier Large Cap Growth Portfolio, a series of The Navellier Millennium Funds, and the Navellier Large Cap Growth Portfolio, a series of The Navellier Performance Funds, were transferred into the Touchstone Large Cap Growth Fund for which shareholders of the Navellier Millennium Large Cap Growth Portfolio and the Navellier Performance Large Cap Growth Portfolio received shares of the Touchstone Large Cap Growth Fund. The performance and accounting history of the Navellier Performance Large Cap Growth Portfolio have been assumed by the Touchstone Large Cap Growth Fund and are reflected in the bar chart above and performance table below. On October 6, 2003, the Fund replaced its sub-advisor, Fort Washington Investment Advisors, Inc., with Navellier Management, Inc. Thereafter, Navellier & Associates, Inc. assumed the sub-advisory duties of its sister company, Navellier Management, Inc.
The table compares the Fund's average annual total returns to those of the Russell 1000 Growth Index. The table shows the effect of the applicable sales charge. The returns shown in the table are for Class A shares only. There is no performance information for Class I, Class B or Class C shares since they have not operated for a full calendar year. The returns for other classes of shares offered by the Fund, including Class I shares, will differ from the Class A 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, 2003
Since Class
1 Year 5 Years Started1
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LARGE CAP GROWTH FUND CLASS A
Return Before Taxes 27.84% 1.54% 7.68%
Return After Taxes on Distributions2 27.84% 1.52% 7.66%
Return After Taxes on Distributions and Sale of Fund Shares 18.10% 1.31% 6.68%
Russell 1000 Growth Index3 29.75% -5.11% 1.57%
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1 Class A shares began operations on December 19, 1997.
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 The Russell 1000 Growth Index is an unmanaged index that measures the
performance of those Russell 1000 securities with higher price-to-book ratios
and higher forecasted growth values. (The Russell 1000 securities offer
investors access to the extensive large cap segment of the U.S. equity
universe representing approximately 92% of the U.S. market.) The Index
reflects no deductions for fees, expenses or taxes.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT). There are no
shareholder transaction fees.
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
------------------------------------------------------------------------------- Management Fees 0.75% ------------------------------------------------------------------------------- Other Expenses1 0.37% ------------------------------------------------------------------------------- Total Annual Fund Operating Expenses 1.12% ------------------------------------------------------------------------------- Fee Waiver and/or Expense Reimbursement 0.07% ------------------------------------------------------------------------------- Net Expenses2 1.05% ------------------------------------------------------------------------------ |
1 Other Expenses are based on estimated amounts for the current fiscal year.
2 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
1.05%. Touchstone Advisors has agreed to maintain these expense limitations
until at least March 31, 2006.
EXAMPLE. The following example should help you compare the cost of investing in Class I shares of the Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in Class I shares 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 that contractual fee waivers are reflected only for the length of the contractual limit, i.e., the first year in the example. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
------------------------------------------------------------------------------ 1 Year $ 107 3 Years $ 349 5 Years $ 610 10 Years $ 1,357 ------------------------------------------------------------------------------ |
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.
INVESTMENT STRATEGIES AND RISKS
Does the Fund Have Other Investment Strategies, in Addition to its Principal
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.
INVESTMENT GRADE DEBT SECURITIES are generally rated BBB or better by Standard & Poor's Rating Service and Fitch Ratings or Baa or better by Moody's Investors Service, Inc.
THE PRINCIPAL RISKS OF INVESTING IN THE FUND ARE LISTED BELOW.
MARKET RISK. A fund that invests in common stocks is subject to stock market risk. Stock prices in general may decline over short or even extended periods, regardless of the success or failure of a particular company's operations. Stock markets tend to run in cycles, with periods when stock prices generally go up and periods when they generally go down. In addition, stocks fall into three broad market capitalization categories - large cap, mid cap and small cap. Investing primarily in one category carries the risk that due to market conditions, that category may be out of favor. For example, if valuations of large cap companies appear to be greatly out of proportion to the valuations of small or mid cap companies, investors may migrate to the stocks of small and mid-sized companies, causing a fund that invests in these companies to increase in value more rapidly than a fund that invests in larger, fully-valued companies. The price of stocks tends to go up and down more than the price of bonds.
o Large Cap Companies. Large cap stock risk is the risk that stocks of larger companies may underperform relative to those of small and mid-sized companies. Larger, more established companies may be unable to respond quickly to new competitive challenges, such as changes in technology and consumer tastes. Many larger companies may not be able to attain the high growth rate of successful smaller companies, especially during extended periods of economic expansion.
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.
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. 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 OTHER RISKS ARE LISTED BELOW.
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.
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 the 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.
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's 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 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, 2003, Touchstone Advisors had approximately $2.6 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 advisory fee paid by the Fund during its most recent fiscal year was 0.75% of its average daily net assets.
Navellier has been registered as an investment advisor since 1987 and provides investment advisory services to individuals, institutions and mutual funds. Navellier makes the day-to-day decisions regarding buying and selling specific securities for the Fund, according to its investment goals and strategies. Navellier has managed the Fund since 2004 and its sister company, Navellier Management, Inc. managed the Fund form its inception until 2004.
Louis G. Navellier and Shawn C. Price are primarily responsible for managing the Fund and have managed the Fund since its inception. Mr. Navellier has been the President and Chief Executive Officer of Navellier since 1998 and Mr. Price has been a Portfolio Manager for Navellier since 1991.
The sub-advisory fee paid by Touchstone Advisors to Navellier during the Fund's most recent fiscal year was 0.45% of the Fund's average daily net assets.
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. The Fund offers four classes of shares: Class A, Class B, Class C and Class I shares. Class A, Class B and Class C shares are offered in a separate prospectus. For more information about these shares, telephone Touchstone Securities, Inc. (Touchstone) (Nationwide call toll-free 1.800.543.0407) or your financial adviser.
PRINCIPAL UNDERWRITER. Touchstone, the Trust's principal underwriter, at its expense (from a designated percentage of its income) currently provides additional compensation to certain dealers. Touchstone pursues a focused distribution strategy with a limited number of dealers who have sold shares of the Fund or other Touchstone Funds. Additional compensation is limited to such dealers. Touchstone reviews and makes changes to the focused distribution strategy on a continual basis. These payments are generally based on a pro rata share of a dealer's sales. Touchstone may also provide compensation in connection with conferences, sales or training programs for employees, seminars for the public, advertising and other dealer-sponsored programs.
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 that your account is closed.
o You may invest in Class I shares by establishing an account through financial institutions that have appropriate selling agreements with Touchstone.
o Before investing in the Fund through your financial institution, you should read any materials provided by your financial institution together with this Prospectus.
o The minimum amount for initial investments in Class I shares of the Fund is $10,000. There is no minimum amount for additional investments.
o Your financial institution will act as the shareholder of record of your Class I shares.
o Touchstone reserves the right to reject any purchase request that it regards as disruptive to efficient portfolio management, including exchanges from other Touchstone Funds. 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.
o Purchase orders received by financial institutions before 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 net asset value (NAV). Purchase orders received by financial institutions after the close of the regular session of trading on the NYSE are processed at the NAV next determined on the following business day. It is the responsibility of the financial institution to transmit orders that will be received by Touchstone in proper form and in a timely manner.
o Touchstone considers a purchase or sales order as received when an authorized financial institution, or its authorized designee, receives the order in proper form. These orders will be priced based on the Fund's NAV next computed after such order is received in proper form.
o Financial institutions may set different minimum initial and additional investment requirements, may impose other restrictions or may charge you fees for their services.
o Financial institutions may designate intermediaries to accept purchase and sales orders on the Fund's behalf.
o Your financial institution may receive compensation from the Fund, Touchstone, Touchstone Advisors or their affiliates.
o For more information about how to purchase shares, telephone Touchstone (Nationwide call toll-free 1.800.543.0407) or your financial institution.
EXCHANGES. You may exchange Class I shares of the Fund for Class I shares of another Touchstone Fund at NAV.
o You do not have to pay a fee for your exchange.
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.
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 Sub-Advisor.
AUTOMATIC INVESTMENT OPTIONS. Dividends and capital gains will be automatically reinvested in the Fund unless you indicate otherwise. You may also choose to have your dividends or capital gains paid to you in cash.
o Your financial institution is responsible for making sure that sale requests are transmitted to Touchstone in proper form and in a timely manner.
o Your financial institution may charge you a fee for selling your shares.
o Redemption proceeds will only be wired to a commercial bank or brokerage firm in the United States.
o Your financial institution will be required to provide an original Medallion Signature Guaranteed letter of instruction to Touchstone in order to redeem shares in amounts of $100,000 or more.
DELAY OF PAYMENT. It is possible that the payments 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 Fund's 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). 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 the Fund does not
price its shares, the 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.
The Fund intends to distribute to its shareholders substantially all of its income and capital gains. The Fund's dividends are distributed and paid annually. Distributions of any capital gains earned by the 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 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 is 15%.
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 foreign taxes and distributions paid by the Fund during the prior taxable year.
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the Fund's financial performance for the past 5 years. Certain information reflects financial results for a single Fund share. The total returns in the tables 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, 2003 and thereafter was 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 prior periods was audited by other independent accountants. Information for Class I shares is not available since this class began operations in November 2004. The returns for Class I shares may differ from the returns of other classes of shares due to differences in expenses among the classes.
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PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
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THREE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ------------------------------------------------------------------
2004(A) 2003 2002 2001 2000 1999
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Net asset value at beginning of period .... $ 16.53 $ 12.19 $ 16.63 $ 21.73 $ 23.59 $ 14.47
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Income (loss) from investment operations:
Net investment loss .................... (0.03) (0.07) (0.12) (0.13) (0.20) (0.12)
Net realized and unrealized gains
(losses) on investments ............. 0.81 (4.41) (4.32) (0.97) (1.61) 9.24
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Total from investment operations .......... 0.78 (4.34) (4.44) (0.10) (1.81) 9.12
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Distributions from net realized gains ..... -- -- -- -- (0.05) --
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Net asset value at end of period .......... $ 17.31 $ 16.53 $ 12.19 $ 16.63 $ 21.73 $ 23.59
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Total return(B) ........................... 4.72%(C) 35.60% 26.70 (23.47%) (7.66%) 63.03%
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Net assets at end of period (000's) ....... $ 69,860 $ 62,187 $ 13,831 $ 20,835 $ 44,068 $ 12,667
Ratio of net expenses to
average net assets ..................... 1.30%(D) 1.39% 1.49 1.49% 1.48% 1.49%
Ratio of net investment loss to
average net assets ..................... (0.78%)(D) (0.93%) (0.82) (0.82%) (1.14%) (0.99%)
Portfolio turnover ........................ 60%(D) 60%(E) 115 115% 54% 75%
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(A) Effective after the close of business on December 31, 2003, 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.
(E) Reflects the portfolio turnover rate after realignment of the portfolio in connection with the acquisitions of the Navellier funds.
LARGE CAP GROWTH FUND - CLASS B
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PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
-----------------------------------------------------------------------------
THREE
MONTHS PERIOD
ENDED ENDED
MARCH 31, DECEMBER 31,
2004(A) 2003(B)
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Net asset value at beginning of period ........... $ 16.50 $ 15.45
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Income (loss) from investment operations:
Net investment loss ........................... (0.03) (0.06)
Net realized and unrealized gains
on investments ............................. 0.77 1.11
--------------------
Total from investment operations ................. 0.74 1.05
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Net asset value at end of period ................. $ 17.24 $ 16.50
====================
Total return(C) .................................. 4.48% 6.80%
====================
Net assets at end of period (000's) .............. $ 1,897 $ 1,003
====================
Ratio of net expenses to average net assets ...... 2.25%(D) 2.22%(D)
Ratio of net investment loss to average net assets (1.71%)(D) (1.80%)(D)
Portfolio turnover rate(D) ....................... 60% 60%(E)
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(A) Effective after the close of business on December 31, 2003, the Fund changed its fiscal year end to March 31.
(B) Represents the period from commencement of operations (October 4, 2003)
through December 31, 2003.
(C) Total returns shown exclude the effect of applicable sales loads and are not annualized.
(D) Annualized.
(E) Reflects the portfolio turnover rate after realignment of the portfolio in connection with the acquisitions of the Navellier funds.
LARGE CAP GROWTH FUND - CLASS C
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===============================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
-------------------------------------------------------------------------------
THREE
MONTHS PERIOD
ENDED ENDED
MARCH 31, DECEMBER 31,
2004(A) 2003(B)
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Net asset value at beginning of period ........... $ 16.50 $ 15.45
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Income (loss) from investment operations:
Net investment loss ........................... (0.04) (0.05)
Net realized and unrealized gains
on investments ............................. 0.78 1.10
----------------------
Total from investment operations ................. 0.74 1.05
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Net asset value at end of period ................. $ 17.24 $ 16.50
======================
Total return(C) .................................. 4.48% 6.80%
======================
Net assets at end of period (000's) .............. $ 4,310 $ 2,465
======================
Ratio of net expenses to average net assets ...... 2.25%(D) 2.21%(D)
Ratio of net investment loss to average net assets (1.70%)(D) (1.78%)(D)
Portfolio turnover rate(D) ....................... 60% 60%(E)
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(A) Effective after the close of business on December 31, 2003, the Fund changed its fiscal year end to March 31.
(B) Represents the period from commencement of operations (October 4, 2003)
through December 31, 2003.
(C) Total returns shown exclude the effect of applicable sales loads and are not annualized.
(D) Annualized.
(E) Reflects the portfolio turnover rate after realignment of the portfolio in connection with the acquisitions of the Navellier funds.
Touchstone Investments
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
1.800.543.0407
A Member of Western & Southern Financial Group
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
P.O. Box 5354
Cincinnati, Ohio 45201-5354
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 STRATEGIC TRUST
STATEMENT OF ADDITIONAL INFORMATION
November 11, 2004
Large Cap Growth Fund - Class I
This Statement of Additional Information is not a prospectus. It should be read together with the prospectus dated November 11, 2004 for Class I shares of the Large Cap Growth Fund. The Fund's financial statements are contained in its Annual Report, which is incorporated by reference into this Statement of Additional Information. You may receive a copy of the Fund's Prospectus or most recent Annual or Semiannual Report by writing the Trust at 221 East Fourth Street, Suite 300, Cincinnati, Ohio 45202-4133, by calling the Trust nationwide toll-free 800-543-0407, in Cincinnati 362-4921, or by visiting our website at touchstoneinvestments.com.
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........................................11
TRUSTEES AND OFFICERS..........................................13
THE INVESTMENT ADVISOR AND SUB-ADVISOR........................ 18
PROXY VOTING PROCEDURES........................................21
THE DISTRIBUTOR................................................22
SECURITIES TRANSACTIONS........................................23
CODE OF ETHICS.................................................24
PORTFOLIO TURNOVER.............................................24
CALCULATION OF SHARE PRICE.....................................25
CHOOSING A SHARE CLASS.........................................25
EXCHANGES AND REDEMPTIONS......................................27
TAXES..........................................................28
HISTORICAL PERFORMANCE INFORMATION.............................31
PRINCIPAL SECURITY HOLDERS.....................................35
CUSTODIAN......................................................35
AUDITORS.......................................................35
TRANSFER, ACCOUNTING AND ADMINISTRATIVE AGENT..................36
FINANCIAL STATEMENTS...........................................36
APPENDIX.......................................................37
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Pursuant to an Agreement and Plan of Reorganization dated June 30, 2003, the Large Cap Growth Fund series of the Trust was reorganized by acquiring the Navellier Millennium Large Cap Growth Portfolio and the Navellier Performance Large Cap Growth Portfolio. The investment goal and fundamental restrictions of the Touchstone Large Cap Growth Fund did not change, but certain investment strategies changed as a result of the reorganization. The financial data and performance in this Statement of Additional Information with respect to the Large Cap Growth Fund are carried forward from the Navellier Performance Large Cap Growth Portfolio.
Shares of the Fund have equal voting rights and liquidation rights. The 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 the Fund represents an equal proportionate interest in the assets and liabilities belonging to the Fund with each other share of the 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 the Fund into a greater or lesser number of shares of the Fund so long as the proportionate beneficial interest in the assets belonging to the Fund and the rights of shares of any other Fund are in no way affected. In case of any liquidation of the 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 the Fund. Expenses attributable to the Fund are borne by the Fund. Any general expenses of the Trust not readily identifiable as belonging to the 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, Class B, Class C and Class I shares of the Fund represent an interest in the same assets of the Fund, have the same rights and are identical in all material respects except that (i) each class of shares may bear different (or no) distribution fees; (ii) each class of shares is subject to different (or no) 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 the 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. 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.
The Fund has its own investment goal, strategies and related risks. There can be no assurance that the Fund's investment goal will be met. The investment goal and practices of the 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 the 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 Fund are fundamental and can only be changed by vote of a majority of the Fund's outstanding shares.
A more detailed discussion of some of the terms used and investment policies described in the Prospectus (see "Investment Strategies and Risks") appears below:
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.
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.
The Fund Sub-Advisor will monitor the liquidity of Rule 144A securities in the 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).
The Fund may not invest more than 15% of its net assets in securities that are illiquid or otherwise not readily marketable. If a security becomes illiquid after purchase by the Fund, the Fund will normally sell the security unless it would not be in the best interests of shareholders to do so.
The 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 Fund's limit on illiquid securities. The Board of Trustees of the Trust, with advice and information from the 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 the 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, the Fund's illiquidity could increase and the Fund could be adversely affected.
The 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 that meet the criteria for liquidity established by the Trustees,
including Section 4(2) commercial paper, as determined by the Fund 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.
The Fund will not 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.
CURRENCY EXCHANGE RATES. The 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 generally are 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. ADRs and 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 Fund. 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.
FIXED-INCOME AND OTHER DEBT SECURITIES
Fixed-income and other debt instrument securities include all bonds, debentures and U.S. Government securities. The market value of fixed-income obligations of the Fund will be affected by general changes in interest rates that will result in increases or decreases in the value of the obligations held by the Fund. The market value of the obligations held by the 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, the Fund's yield will tend to be somewhat higher than prevailing market rates and, in periods of rising interest rates, the Fund's yield will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to the 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 the 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 Services, Inc. ("Moody's") and Fitch Ratings ("Fitch") are relative and subjective and are not absolute standards of quality. Although these ratings are initial criteria for selection of portfolio investments, the 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 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.
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 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 securities and unrated securities of comparable quality generally are unsecured and frequently are subordinated to the prior payment of senior indebtedness.
Subsequent to its purchase by the 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.
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, unconditionally 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. The Fund will not invest more than 15% of its net assets in time deposits maturing in more than seven days.
BORROWING AND LENDING
BORROWING. The Fund may borrow money from banks (including its 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 its assets to secure such borrowings. The 1940 Act requires the Fund to maintain asset coverage of at least 300% for all such borrowings, and should such asset coverage at any time fall below 300%, the Fund would be required to reduce its borrowings within three days to the extent necessary to meet the requirements of the 1940 Act. To reduce its borrowings, the Fund 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 Fund may have less net investment income during periods when its borrowings are substantial. The interest paid by the Fund on borrowings may be more or less than the yield on the securities purchased with borrowed funds, depending on prevailing market conditions.
The 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 Fund intends to borrow money only as a temporary measure for extraordinary or emergency purposes. This operating policy is not fundamental and may be changed by the Board without shareholder approval.
LENDING. By lending its securities, the 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. The 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 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
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed advantageous at a particular time, the 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. The 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 the 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 the 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.
To assure that the Fund's use of when-issued and delayed-delivery 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.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which the 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, the Fund could experience both delays in liquidating the underlying security and losses. To minimize these possibilities, the 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 Fund 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 Fund's Custodian at the Federal Reserve Bank. At the time the 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.
TEMPORARY INVESTMENTS. For temporary defensive purposes during periods when the Fund's 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, the 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.
The 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.
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, the 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 the 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 the Fund to eliminate the obligation from its portfolio, but the Fund Sub-Advisor will consider such an event in its determination of whether the Fund should continue to hold the obligation. A description of the ratings used herein and in the Fund's Prospectus is set forth in the Appendix to this Statement of Additional Information.
THE FUNDAMENTAL LIMITATIONS APPLICABLE TO THE FUND ARE:
1. Borrowing Money. The Fund 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. 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 or in connection with investments in other investment companies.
3. Loans. The Fund may not make loans to other persons except that the 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 Fund may not purchase or sell real estate except that the 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 Fund will not purchase or sell physical commodities except that the 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 Fund 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 Fund 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.
The following investment limitations for the Fund are not fundamental and may be changed without shareholder approval:
1. Senior Securities. The following activities will not be considered
to be issuing senior securities with respect to the Fund:
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 the Fund's assets to
secure its borrowings.
4. A pledge of the 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.
2. 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 non-diversified
portfolio of common stocks of large cap companies. A large cap company
has a market capitalization of more than $10 billion. Shareholders will
be provided with at least 60 days' prior notice of any change in this
policy. 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.
With respect to the percentages adopted by the Trust as maximum limitations on the Fund's 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.
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Interested Trustees1:
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Name Position Term of Principal Occupation(s) During Past 5 Years Other
Address Held with Office Number Directorships
Age Trust And of Funds Held4
Length Overseen
of Time in the
Served2 Touchstone
Family3
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Jill T. McGruder Trustee and Until Senior Vice President of The Western and 32 Director of
Touchstone President retirement Southern Life Insurance Company. President LaRosa's (a
Advisors, Inc at age 75 and a director of IFS Financial Services, restaurant chain).
221 East Fourth Street or until Inc. (a holding company). She is a
Cincinnati, OH she director of Capital Analysts Incorporated
Age: 49 resigns or (an investment advisor and broker-dealer),
is removed Integrated Fund Services, Inc. (the Trust's
administrator and transfer agent) and IFS
Trustee Fund Distributors, Inc. (a broker-dealer),
since 1999 Touchstone Advisors, Inc. (the Trust's
investment advisor) and Touchstone
Securities, Inc. (the Trust's
distributor). She is also President and a
director of IFS Agency Services, Inc. (an
insurance agency), W&S Financial Group
Distributors, Inc. and IFS Systems, Inc.
She is Senior Vice President and a director
of Fort Washington Brokerage Services, Inc.
(a broker-dealer). She is President of
Touchstone Tax-Free Trust, Touchstone
Investment Trust, Touchstone Variable
Series Trust and Touchstone Strategic
Trust. She was President of Touchstone
Advisors, Inc and Touchstone Securities,
Inc. until 2004.
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-13-
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John F. Barrett Trustee Until Chairman of the Board, President and Chief 32 Director of The
Trustee retirement Executive Officer of The Western and Andersons (an
Chairman of the Board, at age 75 Southern Life Insurance Company, Western- agribusiness and
or until Southern Life Assurance Company and Western retailing
Director and Vice he resigns & Southern Financial Group, Inc.; Director company);
The Western and or is and Chairman of Columbus Life Insurance Convergys
Southern Life removed Company; Fort Washington Investment Corporation (a
Insurance Company Advisors, Inc., Integrity Life Insurance provider of
400 Broadway Trustee Company and National Integrity Life integrated
Southern Life since 2002 Insurance Company; Director of Eagle Realty billing solutions
Insurance Group, Inc., Eagle Realty Investments, and
Company; Director Inc.; Integrated Fund Services, Inc. and customer/employee
Cincinnati, OH IFS Holdings, Inc.; Director, Chairman and care services)
Company and Western- CEO of WestAd, Inc.; President and Trustee and Fifth Third
Eagle Realty Group, of Western & Southern Foundation. Bancorp.
Age: 55
----------------------- ------------- ------------ --------------------------------------------- ------------ -------------------
Independent
Trustees:
----------------------- ------------- ------------ --------------------------------------------- ------------ -------------------
----------------------- ------------- ------------ --------------------------------------------- ------------ -------------------
J. Leland Brewster II Trustee Until Retired Senior Partner of Frost Brown Todd 32 Director of
5155 Ivyfarm Road retirement LLC (a law firm). Consolidated
Cincinnati, OH in 2005 or Health Services,
Age: 76 until he Inc.
resigns or
is
removed
Trustee
since 2000
----------------------- ------------- ------------ --------------------------------------------- ------------ -------------------
------------------------ ------------ ------------ --------------------------------------------- ------------ -------------------
William O. Coleman Trustee Until Retired Vice President of The Procter & 32 Director of
c/o Touchstone retirement Gamble Company. A Trustee of The Procter & LCA-Vision (a
Advisors, Inc. at age 75 Gamble Profit Sharing Plan and The Procter laser vision
221 East Fourth Street or until & Gamble Employee Stock Ownership Plan correction
Cincinnati, OH he resigns until 2000. company) and
Age: 75 or is Millennium
removed Bancorp.
Trustee
since 1999
------------------------ ------------ ------------ --------------------------------------------- ------------ -------------------
------------------------ ------------ ------------ --------------------------------------------- ------------ -------------------
Phillip R. Cox Trustee Until President and Chief Executive Officer of 32 Director of the
105 East Fourth Street retirement Cox Financial Corp. (a financial services Federal Reserve
Cincinnati, OH at age 75 company). Bank of
Age: 56 or until Cleveland;
he resigns Broadwing, Inc.
or is (a communications
removed company); and
Cinergy
Trustee Corporation (a
since 1999 utility company).
------------------------ ------------ ------------ --------------------------------------------- ------------ -------------------
------------------------ ------------ ------------ --------------------------------------------- ------------ -------------------
H. Jerome Lerner Trustee Until Principal of HJL Enterprises (a privately 32 None
2828 Highland Avenue retirement held investment company); Chairman of Crane
Cincinnati, OH at age 75 Connectors (a manufacturer of electronic
Age: 65 or until connectors).
he resigns
or is
removed
Trustee
since 1989
------------------------ ------------ ------------ --------------------------------------------- ------------ -------------------
------------------------ ------------ ------------ --------------------------------------------- ------------ -------------------
Robert E. Trustee Until Retired Partner of KPMG LLP (a certified 32 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,
Cincinnati, OH or until Bethesda Hospital
Age: 69 he resigns and Tri-Health,
or is Inc.
removed
Trustee
since 1999
-14-
|
------------------------ ------------ ------------ --------------------------------------------- ------------ -------------------
------------------------ ------------ ------------ --------------------------------------------- ------------ -------------------
John P. Zanotti Trustee Until CEO and Chairman of Avaton, Inc. (a 32 None
c/o Touchstone retirement wireless entertainment company). President
Advisors, Inc. at age 75 of Cincinnati Biomedical (a consulting
221 East Fourth Street or until company) and a Director of QMed (a health
Cincinnati, OH he resigns care management company). CEO and Chairman
Age: 56 or is of Astrum Digital Information (an
removed information monitoring company) from 2000
until 2001; President of Great American
Trustee Life Insurance Company from 1999 until
since 2002 2000; A Director of Chiquita Brands
International, Inc. until 2000; Senior
Executive of American Financial Group, Inc.
(a financial services company) from 1996
until 1999.
------------------------ ------------ ------------ --------------------------------------------- ------------ -------------------
1 Ms. McGruder, as a director of Touchstone Advisors, Inc., the Trust's investment advisor, and Touchstone Securities, Inc., the
Trust's distributor and an officer of affiliates of the advisor and 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., Chairman of Fort Washington Investment Advisors, Inc., a Trust sub-advisor and an officer of other affiliates
of the advisor and distributor 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 or she
sooner resigns or is removed.
3 The Touchstone Family of Funds consists of seven series of the Trust, five series of Touchstone Tax-Free Trust, five series of
Touchstone Investment Trust and fifteen 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:
--------------------- ------------- -------------- ------------------------------------- --------------- ----------------
--------------------- ------------- -------------- ------------------------------------- --------------- ----------------
Name Position Term of Principal Occupation(s) During Past Number of Other
Address Held with Office and 5 Years Funds Overseen Directorships
Age Trust1 Length of in the Held
Time Served Touchstone
Family2
--------------------- ------------- -------------- ------------------------------------- --------------- ----------------
--------------------- ------------- -------------- ------------------------------------- --------------- ----------------
Jill T. McGruder President Until See biography above 32 Director of
Touchstone and Trustee resignation, LaRosa's (a
Advisors, Inc. removal or restaurant
221 E. Fourth Street disqualification chain).
Cincinnati, OH
Age: 49 President
since
2004
President
from
2000-2002
--------------------- ------------- -------------- ------------------------------------- --------------- ----------------
--------------------- ------------- -------------- ------------------------------------- --------------- ----------------
Brian E. Hirsch Vice Until Vice President-Compliance of IFS 32 None
Touchstone President and resignation, Financial Services, Inc., Director
Advisors, Inc. Chief removal or of Compliance of Fort Washington
221 E. Fourth Street Compliance disqualification Brokerage Services, Inc.; Chief
Cincinnati, OH Officer Compliance Officer of Puglisi & Co.
Age: 47 Vice from May 2001 until August 2002;
President Vice President - Compliance of
since 2003 Palisade Capital Management from
June 1997 until January 2000.
--------------------- ------------- -------------- ------------------------------------- --------------- ----------------
--------------------- ------------- -------------- ------------------------------------- --------------- ----------------
James R. Grifo Vice Until President of Touchstone Securities, 32 None
Touchstone President resignation, Inc. and Touchstone Advisors, Inc.
Securities, Inc. removal or Managing Director, Deutsche Asset
221 E. Fourth Street disqualification Management until 2003.
Cincinnati, OH
Age: 53 Vice
President
since 2004
-15-
|
--------------------- ------------- -------------- ------------------------------------- --------------- ----------------
--------------------- ------------- -------------- ------------------------------------- --------------- ----------------
William A. Dent Vice Until Senior Vice President of Touchstone 32 None
Touchstone President resignation, Advisors, Inc.; Marketing Director
Advisors, Inc. removal or of Promontory Interfinancial
221 E. Fourth Street disqualification Network from 2002-2003; Senior Vice
Cincinnati, OH President of McDonald Investments
Age: 41 Vice from 1998 - 2001; Managing Director
President of Key Asset Management from
since 2004 1991-1998.
--------------------- ------------- -------------- ------------------------------------- --------------- ----------------
--------------------- ------------- -------------- ------------------------------------- --------------- ----------------
Terrie A. Wiedenheft Controller Until Senior Vice President, Chief 32 None
Touchstone and resignation, Financial Officer and Treasurer of
Advisors, Inc. Treasurer removal or Integrated Fund Services, Inc., IFS
221 E. Fourth Street disqualification Fund Distributors, Inc. and Fort
Cincinnati, OH Washington Brokerage Services, Inc.
Age: 43 Controller She is Chief Financial Officer of
since 2000 IFS Financial Services, Inc.,
Touchstone Advisors, Inc. and
Treasurer Touchstone Securities, Inc. and
since 2003 Assistant Treasurer of Fort
Washington Investment Advisors, Inc.
--------------------- ------------- -------------- ------------------------------------- --------------- ----------------
--------------------- ------------- -------------- ------------------------------------- --------------- ----------------
Tina H. Bloom Secretary Until Vice President - Managing Attorney 32 None
Integrated Fund resignation, of Integrated Fund Services, Inc.
Services, Inc. removal or and IFS Fund Distributors, Inc.
221 E. Fourth Street disqualification
Cincinnati, OH
Age: 36 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 Family of Funds consists of seven series of the Trust, five
series of Touchstone Tax-Free Trust, five series of Touchstone Investment Trust
and fifteen 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 Family of Funds as of December 31, 2003:
AGGREGATE DOLLAR
DOLLAR RANGE OF RANGE OF EQUITY
EQUITY SECURITIES IN SECURITIES IN
TRUST THE TOUCHSTONE
FAMILY1
John F. Barrett $10,001 - $50,000 $10,001 - $50,000
J. Leland Brewster II $50,001 - $100,000 $50,001 - $100,000
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
Robert E. Stautberg $50,001 - $100,000 $50,001 - $100,000
John P. Zanotti $10,001 - $50,000 $10,001 - $50,000
|
1 The Touchstone Family of Funds consists of seven series of the Trust, five series of Touchstone Tax-Free Trust, five series of Touchstone Investment Trust and fifteen 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 Family of Funds during the fiscal year ended March 31, 2004.
Compensation from Aggregate Compensation from
the Trust the Touchstone Family1,2
Name ---------------- ------------------------
John F. Barrett $ 0 $ 0
J. Leland Brewster II $6,925 $28,300
William O. Coleman $7,175 $29,300
Philip R. Cox $7,675 $31,300
H. Jerome Lerner $7,675 $31,300
Jill T. McGruder $ 0 $ 0
Robert E. Stautberg $7,675 $31,300
John P. Zanotti $6,925 $28,300
|
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, 2004 is as follows: J. Leland Brewster II - $4,799, Robert E. Stautberg - $5,000 and John P. Zanotti - $5,485.
2 The Touchstone Family of Funds consist of seven series of the Trust, five series of Touchstone Tax-Free Trust, five series of Touchstone Investment Trust and fifteen variable annuity series of Touchstone Variable Series Trust.
Effective January 1, 2004, each Independent Trustee receives a quarterly retainer of $4,000 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, 2004, the Audit Committee held four meetings.
VALUATION COMMITTEE. Messrs. Coleman, Cox and Zanotti 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, 2004, the Valuation Committee held four meetings.
NOMINATING COMMITTEE. Messrs. Brewster, Coleman, Cox, Stautberg and Zanotti 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, 2004, 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 Fund's investment manager. The Advisor is a wholly-owned subsidiary of IFS Financial Services, Inc., which is a wholly-owned subsidiary of The Western and Southern Life Insurance Company. The Western and Southern Life Insurance Company is a wholly-owned subsidiary of Western & Southern Financial Group, Inc., which is a wholly-owned subsidiary of Western - Southern Mutual Holding 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 the Fund sub-advisor, reviews and evaluates the performance of the sub-advisor and determines whether or not a Fund sub-advisor should be replaced. The Advisor furnishes at its own expense all facilities and personnel necessary in connection with providing these services. The Fund pays the Advisor a fee computed and accrued daily and paid monthly at an annual rate of 0.75% on the first $200 million of average daily net assets; 0.70% on the next $300 million of average daily net assets and 0.50% on average daily net assets over $500 million.
Set forth below are the advisory fees incurred by the Fund during its last three fiscal years and the three month period ended March 31, 2004. The Advisor and Navellier contractually agreed to waive fees and reimburse certain expenses, as set forth in the footnote below:
3 Months Fiscal Year Ended Ended 12-31 12-31- 12-31- 3-31-04(1) 2003(1) 2002(2) 2001(2) ---------- ------- ------- ------- |
Large Cap Growth Fund $131,585 $ 220,563 $135,879 $222,132
(1) Pursuant to a written contract between the Advisor and the Trust, the
Advisor waived fees and/or reimbursed the Fund $45,340 for the fiscal
period ended March 31, 2004 and $86,843 for the fiscal year ended December
31, 2003 in order to reduce the operating expenses of the Fund.
(2) Pursuant to a written contract between Navellier and the Large Cap Growth
Fund, Navellier paid $113,766 and $131,647 of the Fund's operating expenses
for the fiscal years ended December 31, 2002 and 2001, respectively.
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, 2.25% for Class B shares, 2.25% for Class C shares and 1.05% for Class I shares. These expense limitations will remain in effect until at least October 6, 2005 for all classes (except Class I shares) and will remain in effect until at least March 31, 2006 for Class I shares.
The Fund shall pay the expenses of its 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 Fund; (iv) brokers' commissions, and issue and transfer taxes chargeable to
the Fund in connection with securities transactions to which the 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 Fund 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 Fund's 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 the 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 Fund, 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 Fund and
its 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 Fund. The Board compared the advisory fees and
total expense ratios for the Fund with the industry median advisory fees and
expense ratios in its investment category and found the advisory fees paid by
the Fund were reasonable and appropriate under all facts and circumstances. The
Board noted the Fund's performance results and that it reviews on a quarterly
basis detailed information about the Fund's performance results, portfolio
composition and investment strategies. The Board also considered the effect of
the 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 the Fund as necessary to reduce its 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 Fund. 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-Advisor and its timeliness in
responding to performance issues. In evaluating the quality of services provided
by the Advisor, the Board took into account its familiarity with the Advisor's
senior management through Board meetings, conversations and reports during the
preceding year. The Board took into account the Advisor's willingness to
consider and implement organizational and operational changes designed to
improve investment results. It noted the Advisor's efforts to strengthen
operations by hiring additional qualified and experienced members to its senior
management team. The Board also considered the Advisor's role in coordinating
the activities of the Fund's other service providers, including its efforts to
consolidate service providers and reduce costs to the Fund. The Board also
considered the strategic planning process implemented by the Advisor and the
results gained from this process. No single factor was considered to be
determinative in the Board's decision to approve the Advisory Agreement. Rather,
the Trustees concluded that, in light of weighing and balancing all factors, the
continuation of the Advisory Agreement for the Fund was in the best interests of
shareholders.
The Independent Trustees met separately with their independent counsel to discuss their fiduciary responsibilities in general and also with respect to the approval of investment advisory agreement. In their discussion and review of the advisory agreement, the Independent Trustees discussed the amount of advisory fees, the services to be provided by the Advisor, the personnel and experience of the Advisor and the oversight role of the Advisor. Based on this review, the Independent Trustees also concluded that the proposed investment advisory fee for the Fund is fair and reasonable and that the advisory agreement is in the best interests of the Fund and its shareholders.
The Fund's 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 the 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-ADVISOR. The Advisor has retained Navellier & Associates, Inc. (the "Sub-Advisor" or "Navellier") to serve as the discretionary portfolio manager of the Fund. The Sub-Advisor selects the portfolio securities for investment by the Fund, purchases and sells securities of the 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 0.45% of the Fund's average daily net assets. The Sub-Advisor is wholly-owned by Louis G. Navellier. The services provided by the Sub-Advisor are paid for wholly by the Advisor. The compensation of any officer, director or employee of the Sub-Advisor who is rendering services to the Fund is paid by the Sub-Advisor.
The employment of the 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 the 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 sub-advisory agreement for the Fund, the Board considered the Fund's performance and noted that it reviews on a quarterly basis detailed information about the Fund's performance results, portfolio composition and investment strategies. The Board considered the Sub-Advisor's level of knowledge and investment style. It noted the Advisor's expertise and resources in selecting the Sub-Advisor and monitoring its performance, investment style and risk adjusted performance. The Board was mindful of the Advisor's focus on Sub-Advisor performance and its ways of addressing underperformance. The Board also considered the Sub-Advisor's level of compliance. It noted that the Advisor's compliance monitoring processes includes quarterly reviews of compliance reports and annual compliance visits to the Sub-Advisor and that compliance issues are reported to the Board. In determining to approve the continuation of the Sub-Advisory Agreement, the Board did not identify any information that was a controlling factor, rather after considering all factors, the Board determined that the continuation of the Sub-Advisory Agreement is in the best interests of the Fund's shareholders.
The Independent Trustees met separately with their independent counsel to discuss their fiduciary responsibilities in general and also with respect to the approval of the sub-advisory agreement. In their discussion and review of the sub-advisory agreement, the Independent Trustees discussed the services to be provided by the Sub-Advisor, the personnel and experience of the Sub-Advisor and the oversight role of the Advisor. Based on this review, the Independent Trustees also concluded that the proposed sub-advisory agreement is in the best interests of the Fund and its shareholders.
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 the Fund's outstanding voting securities, by the Advisor, or by the Sub-Advisor. The Sub- Advisory Agreement will automatically terminate in the event of its assignment, as defined by the 1940 Act and the rules thereunder.
The SEC has granted an exemptive order that permits the Trust or the Advisor, under certain circumstances, to select or change non-affiliated Sub-Advisors, enter into new sub-advisory agreements or amend existing sub-advisory agreements without first obtaining shareholder approval. Shareholders of the Fund will be notified of any changes in its Fund Sub-Advisor.
PROXY VOTING PROCEDURES
The Fund has adopted the Sub-Advisor's policies and procedures for voting proxies relating to portfolio securities held by the Fund, including procedures used when a vote presents a conflict between the interests of the Fund's shareholders and those of the Sub-Advisor or its affiliates. Information about how the Fund voted proxies related to its portfolio securities during the year ended June 30, 2004 is available without charge, upon request, by calling toll-free 1-800-543-0407 and on the SEC website at http://www.sec.gov. Listed below is a summary of the Sub-Advisor's proxy voting procedures:
Navellier's proxy voting policies and procedures are designed to ensure that proxies are voted in an appropriate manner. In the absence of specific voting guidelines from the Fund, Navellier will vote proxies in a manner that is in the best interests of the Fund, which may result in different voting results for proxies for the same issuer. Navellier shall consider only those factors that relate to the Fund's investment or dictated by the Fund's written instructions, including how its vote will economically impact and affect the value of the Fund's investment (keeping in mind that, after conducting an appropriate cost-benefit analysis, not voting at all on a presented proposal may be in the best interest of the Fund). Navellier has adopted specific voting policies for voting proxies with respect to routine issues, such as board of directors, reclassification of common stock and independent auditors. Navellier has adopted specific voting policies for voting non-routine issues, such as mergers and anti-greenmail provisions. The following are examples of Navellier's policies on specific matters involving routine and non-routine issues:
o Navellier will generally vote for the election of directors (where no
corporate governance issues are implicated).
o Navellier will generally vote for proposals that maintain or increase the
rights of shareholders.
o Navellier will generally vote for management proposals for merger or
reorganization if the transaction appears to offer fair value.
If the proxy includes a routine item that implicates corporate governance changes, a non-routine item where no specific policy applies or a conflict of interest where no specific policy applies, Navellier may engage ISS to determine how the proxies should be voted. If an actual or potential conflict is found to exist, written notification of the conflict will be given to the Fund describing Navellier's vote recommendation or requesting the Fund to vote the proxy directly. If the Fund has not responded before the response deadline, Navellier may engage a non-interested party to independently review Navellier's vote recommendation if the vote is in favor of Navellier's interest, cast its vote as recommended if the vote is against Navellier's interest or abstain from voting if Navellier determines this to be in the best interest of the Fund.
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 Fund. 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 Fund are offered to the public on a continuous basis.
Touchstone currently allows concessions to dealers who sell shares of the Fund. Touchstone receives that portion of the sales charge that is not reallowed to the dealers who sell shares of the Fund. Touchstone retains the entire sales charge on all direct initial investments in the Fund and on all investments in accounts with no designated dealer of record.
Prior to October 6, 2003, shares of the Fund were distributed by Navellier Securities Corp. During the fiscal years ended December 31, 2002 and 2001, the Fund did not pay any underwriting commissions to Navellier Securities Corp. During the period October 6, 2003 until December 31, 2003, the aggregate underwriting commissions on sales of the Fund's shares were $86,868, of which Touchstone paid $72,079 to unaffiliated broker-dealers in the selling network, earned $2,246 as a broker-dealer in the selling network and retained $12,543 in underwriting commissions.
Touchstone retains the contingent deferred sales charge on redemptions of shares of the Fund that are subject to a contingent deferred sales charge. For the fiscal period ended March 31, 2004, Touchstone collected $5,930 of contingent deferred sales charges on redemptions of Class B and Class C shares of the Fund. For the period October 6, 2003 to December 31, 2003, Touchstone collected $2,396 of contingent deferred sales charges on redemptions of Class B and Class C shares of the Fund.
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 Fund may compensate dealers, including Touchstone and its affiliates, based on the average balance of all accounts in the Fund for which the dealer is designated as the party responsible for the account.
Decisions to buy and sell securities for the Fund and the placing of the Fund's securities transactions and negotiation of commission rates where applicable are made by the Sub-Advisor 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 the 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.
During the fiscal period ended March 31, 2004 (10-1-03 to 3-31-04), the Fund paid $94,172 in brokerage commissions.
The 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, 2004 (10-1-03 to 3-31-04), the Fund directed $33,558,933 of its brokerage transactions to brokers for research services and paid $56,849 in related commissions.
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 Fund 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 Fund and the Sub-Advisor, it is not possible to place a dollar value on it. Research services furnished by brokers through whom the 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 the Fund.
The Fund has no obligation to deal with any broker or dealer in the execution of securities transactions. However, the Fund 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. The 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 Fund does 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 Fund with other brokers. In order to reduce total operating expenses, the Fund may apply a portion of its brokerage commission dollars to offset custody expenses through a Commission Share Program offered by Brown Brothers Harriman & Co., the Trust's Custodian.
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-Advisor may consider sales of shares of the Trust as a factor in the selection of broker-dealers to execute portfolio transactions. The Fund Sub-Advisor 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 the Fund as well as for one or more of the Sub-Advisor's other clients. Investment decisions for the 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 the Fund is concerned. However, it is believed that the ability of the Fund to participate in volume transactions will produce better executions for the Fund.
The Trust, the Advisor, the Sub-Advisor 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 and may permit personnel to invest in securities that may be purchased by the Fund. The Code of Ethics adopted by each of the Trust, the Advisor, the Sub-Advisor and Touchstone is on public file with, and is available from, the SEC.
The 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 the 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. The 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") of shares of the Fund is 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 the Fund's portfolio securities that its NAV might be materially affected. Securities held by the 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 the 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 Fund's share price, see "Pricing of Fund Shares" in the Prospectus.
The Fund offers four classes of shares: Class A, Class B, Class C and Class I shares. Each class represents an interest in the same portfolio of investments and has the same rights, but differs primarily in sales charges 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 C shares over the term of the investment. As an alternative, Class C shares are sold without an initial sales charge so the entire purchase price is immediately invested in the Fund. Any investment return on these investments may be partially or wholly offset by the higher annual expenses. However, because the Fund's future returns cannot be predicted, there can be no assurance that this would be the case. If you participate in an asset allocation program offered by a selected financial advisor and your initial investment in the Fund is $10,000 or more, you may find Class I shares attractive since Class I shares are sold without a sales charge or 12b-1 distribution fee. However, you must pay your financial advisor an annual fee and meet the financial advisor's minimum investment requirements in order to participate in the asset allocation program.
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 financial advisors throughout the country that may provide 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 diligently with your chosen financial advisor.
Finally, you should consider the effect of the 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 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 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, 12b-1 fees and conversion features for 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 year, 1.00% Class B Shares automatically
which decreases incrementally and is convert to Class A shares
0 after 6 years after approximately 8 years
C 1.00% CDSC during the 1st year 1.00% None
I None None None
---------------------------------------------------------------------------------------------------------------
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CLASS A SHARES. Class A shares are sold at NAV plus an initial sales charge. In some cases, reduced or waived initial sales charges for the purchase of Class A shares may be available. The touchstoneinvestments.com website contains further information about how to qualify for reduced or waived sales charges. 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 0.25% of the Fund's average daily net assets allocable to Class A shares.
CLASS B SHARES. Class B shares 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. 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.
CLASS I SHARES. Class I shares are sold at NAV, without an initial sales charge and are not subject to a 12b-1 fee or CDSC, but are subject to higher initial investment requirements than other classes of shares of the Fund. Class I shares are only offered through certain broker-dealers or financial institutions that have distribution agreements with Touchstone. These agreements are generally limited to discretionary managed, asset allocation, or wrap products offered by broker-dealers and financial institutions and may be subject to fees by the participating broker-dealer or financial institution. Class I shares may be exchanged for Class I shares of any other Touchstone Fund.
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 the Funds and their shareholders from the harmful effect of frequent exchanges.
The Touchstone 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.
REDEMPTION IN KIND. 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 Fund is committed to pay redemptions in cash, rather than in kind, to any shareholder of record of the Fund who redeems during any ninety day period, the lesser of $250,000 or 1% of the Fund's NAV at the beginning of such period.
To qualify as a regulated investment company, the 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, the 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.
The 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, 2004, the Fund had the following capital loss carryforwards for federal income tax purposes:
Large Cap Growth Fund* $ 1,492,562 March 31, 2008
$ 17,152,661 March 31, 2009
$ 14,651,841 March 31, 2010
$ 19,675,611 March 31, 2011
$ 3,322,314 March 31, 2012
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*A portion of these capital loss carryforwards may be limited under tax regulations.
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 the 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 that have invested in the Fund. Pursuant to such election, the amount of foreign taxes paid will be included in the income of the 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 the Fund's shares 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 the Fund, or upon receipt of a distribution in complete liquidation of the 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 the 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 the Fund from sources within foreign countries may be subject to withholding and other taxes imposed by such countries.
BACKUP WITHHOLDING. The Fund may be required to withhold U.S. federal income tax on all taxable distributions and sales 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 the 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 the 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 the Fund.
UNCASHED DISTRIBUTION CHECKS. If you have chosen to receive your distributions in cash and the U.S. Postal Service cannot deliver your checks or if your checks remain uncashed for 90 days, your dividends may be reinvested in your account at the them current NAV and any future distributions will automatically be reinvested. No interest will accrue on amounts represented by uncashed distribution checks.
From time to time, the Fund 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)
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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 the 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 Fund for the periods ended March 31, 2004 are as follows:
LARGE CAP GROWTH FUND (CLASS A)
1 Year 30.74% 5 Years -0.23% Since inception (12-19-97) 8.16% LARGE CAP GROWTH FUND (CLASS B) Since inception (10-6-03) 6.59% LARGE CAP GROWTH FUND (CLASS C) Since inception (10-6-03) 10.59% |
The 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 Fund as calculated in this manner for each of the fiscal periods since inception are as follows:
Large Cap Growth Fund
Period Ended Class A Class B Class C
------------ ------------------------------------------------------
December 31, 1997 2.56%(1)
December 31, 1998 41.17%
December 31, 1999 63.03%
December 31, 2000 -7.66%
December 31, 2001 -23.47%
December 31, 2002 -26.70%
December 31, 2003 35.60% 6.80%(1) 6.80%(1)
March 31, 2004 38.70% 11.59% 11.59%
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(1) Class A shares began their public offering on December 19, 1997. Class B and Class C shares began their public offering on October 6, 2003.
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 compounded rates of return for the Fund (excluding sales charges) for the periods ended March 31, 2004 are as follows:
Large Cap Growth Fund (Class A) ------------------------------- 1 Year 38.70% 3 Years 3.42% 5 Years 0.96% Since inception (12-19-97) 9.18% Large Cap Growth Fund (Class B) ------------------------------- Since inception (10-6-03) 11.59% Large Cap Growth Fund (Class C) ------------------------------- Since inception (10-6-03) 11.59% |
A nonstandardized quotation of total return will always be accompanied by the Fund's average annual total return as described above.
The Fund 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=ATVD
Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return (after taxes on distributions).
n = number of years.
ATVD = ending value of a hypothetical $1,000 payment made
at the beginning of 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.
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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 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 returns of the Fund after taxes on distributions for the periods ended March 31, 2004 are as follows:
Large Cap Growth Fund (Class A) ------------------------------- 1 Year 30.74% 5 Years -0.25% Since inception (12-19-97) 8.14% Large Cap Growth Fund (Class B) ------------------------------- Since inception (10-6-03) 6.59% Large Cap Growth Fund (Class C) ------------------------------- Since inception (10-6-03) 10.59% |
The Fund 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=ATVDR
Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return (after taxes on distributions
and redemption).
n = number of years.
ATVDR = ending value of a hypothetical $1,000 payment made at the
beginning of 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.
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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 returns of the Fund after taxes on distributions and redemptions for the periods ended March 31, 2004 are as follows:
Large Cap Growth Fund (Class A) ------------------------------- 1 Year 19.98% 5 Years -0.20% Since inception (12-19-97) 7.12% Large Cap Growth Fund (Class B) ------------------------------- Since inception (10-6-03) 4.28% Large Cap Growth Fund (Class C) ------------------------------- Since inception (10-6-03) 6.88% |
From time to time, the Fund may advertise its 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 the 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 each class of shares of the Fund.
To help investors better evaluate how an investment in the Fund might satisfy their investment objective, advertisements regarding the 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 Fund 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, the Fund may also use comparative performance information of relevant indices, including The Russell 1000 Growth Index. The Russell 1000 Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
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 the 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 Fund to calculate its performance. In addition, there can be no assurance that the Fund will continue this performance as compared to such other averages.
As of _______, the following shareholders had over 5% of the outstanding shares of the Fund (or class):
[insert table]
As of _____, 2004, 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 the Fund (or class thereof).
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, the Fund pays Integrated a fee based on its asset size plus out-of-pocket expenses. The Fund also pay the costs of outside pricing services. Set forth below are the accounting service fees paid by the Fund during the stated fiscal periods:
1-01-04- 1-01-03- 1-01-02- 1-01-01-
3-31-04 12-31-03 12-31-02 12-31-01
------- -------- -------- --------
Large Cap Growth Fund $ 9,128* $23,724 $ --- $ ---
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*From period January 1, 2004 to March 31, 2004.
ADMINISTRATIVE AGENT. Integrated also provides administrative services to the Fund. 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 Fund, 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 the Fund based on its average daily net assets, plus out-of-pocket expenses.
Prior to October 6, 2003, Navellier provided administrative services to the Fund. In addition, Navellier had an agreement with FBR National Bank & Trust to perform some or all administrative services and these services were paid by Navellier out of its administrative service fee. Effective October 6, 2003, Integrated provides administrative services to the Fund. Set forth below are the administrative fees paid by the Fund during the stated fiscal periods:
1-01-04- 1-1-03- 1-1-02- 1-1-01- 3-31-04 12-31-03 12-31-02 12-31-01 --------- -------- -------- -------- $9,649 $39,924 $40,440 $66,111 |
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.
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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.
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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
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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.
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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."
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(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, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 49 is incorporated by reference.
Amendment dated April 14, 2004 to Restated Agreement and Declaration of Trust, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 54 is incorporated by reference.
(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., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 54 is incorporated by reference.
(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, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 49 is incorporated by reference.
(v) Subadvisory Agreement between Touchstone Advisors, Inc. and Fort Washington Investment Advisors, Inc. for the Value Plus Fund, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 49 is incorporated by reference.
(vi) Form of Subadvisory Agreement between Touchstone Advisors, Inc. and Navellier & Associates, Inc. for the Large Cap Growth Fund, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 54 is incorporated by reference.
(vii) Subadvisory Agreement between Touchstone Advisors, Inc. and Todd Investment Advisors, Inc. for the Enhanced 30 Fund, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 49 is incorporated by reference.
(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.
(ix) 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.
(x) Subadvisory Agreement between Touchstone Advisors, Inc. and Bjurman, Barry & Associates for the Micro Cap Growth Fund, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 54 is 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 Underwriter's Dealer Agreement is filed herewith.
(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., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 49 is incorporated by reference.
(ii) Securities Lending Agreement, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 49 is incorporated by reference.
(h) OTHER MATERIAL CONTRACTS
(i) Accounting Services Agreement dated December 31, 2002 with Integrated Fund Services, Inc., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 49 is incorporated by reference.
(ii) Transfer Agency Agreement dated December 31, 2002 with Integrated Fund Services, Inc., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 49 is incorporated by reference.
(iii) Administration Agreement dated December 31, 2002 with Integrated Fund Services, Inc., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 49 is incorporated by reference.
(iv) Allocation Agreement for Allocation of Fidelty Bond Proceeds, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 50 is incorporated by reference.
(v) Amended Expense Limitation Agreement with Touchstone Advisors, Inc., which was filed as an Exhibit to Registrant's Post- Effective Amendment No. 50 is incorporated by reference.
(vi) Sponsor Agreement with Touchstone Advisors, Inc., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 43 is incorporated by reference.
(vii) Amendment No. 1 to Sponsor Agreement, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 45 is incorporated by reference.
(viii) Amendment No. 2 to Sponsor Agreement, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 49 is incorporated by reference.
(ix) Amendments 3 and 4 to Sponsor Agreement with Touchstone Advisors, Inc., which were filed as Exhibits to Registrant's Post-Effective Amendment No. 50 are incorporated by reference.
(x) Amendments 5, 6, and 7 to Sponsor Agreement with Touchstone Advisors, Inc., which were filed as an Exhibit to Registrant's Post-Effective Amendment No. 54 is incorporated by reference.
(xi) Recordkeeping Agreement which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 51 is incorporated by reference.
(xii) Integrated Fund Services Anti-Money Laundering Compliance Program Service Agreement Addendum which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 51 is incorporated by reference.
(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
Consent 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. 51 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. is filed herewith.
(v) Code of Ethics for Westfield Capital Management, Inc., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 54 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., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 54 is incorporated by reference.
(viii) Code of Ethics for The TCW Group, Inc., which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 54 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.
(x) 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.
(xi) Code of Ethics for Navellier & Associates, which was filed as an Exhibit to Registrant's Post-Effective Amendment No. 54 is 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 Advisors, Inc.(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. (the "Advisor") is a registered investment adviser which provides investment advisory services to the Funds. The Advisor 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 the Advisor. Unless otherwise noted, the address of the corporations listed below is 221 East Fourth Street, Cincinnati, Ohio 45202.
(1) Jill T. McGruder, Chief Executive Officer and Director of the Advisor.
(a) A Director of Capital Analysts Incorporated, 3 Radnor Corporate Center, Radnor, PA, an investment adviser and broker-dealer, IFS Fund Distributors, Inc., a broker- dealer, Integrated Fund Services, Inc., a transfer agent and Touchstone Securities, Inc., a broker-dealer.
(b) President, Chief Executive Officer and a Director of IFS Financial Services, Inc., a holding company.
(c) President and a Director of IFS Agency Services, Inc., an insurance agency, W&S Financial Group Distributors, Inc., an insurance agency, IFS Systems, Inc., an information systems provider, 400 Broadway, Cincinnati, Ohio.
(d) Senior Vice President of The Western & Southern Life Insurance Company, 400 Broadway, Cincinnati, Ohio, an insurance company.
(e) Senior Vice President and Director of Fort Washington Brokerage Services, Inc., 400 Broadway, Cincinnati, Ohio, a broker-dealer.
(f) President and Trustee of Touchstone Strategic Trust, Touchstone Investment Trust, Touchstone Tax-Free Trust and Touchstone Variable Series Trust.
(g) President of Touchstone Advisors, Inc. and Touchstone Securities, Inc. until February 2004.
(2) James R. Grifo, President of the Advisor
(a) President of Touchstone Securities, Inc.
(b) Managing Director, Deutsche Asset Management, 885 Third Avenue, New York, NY until 2003
(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, Secretary and a Director of the Advisor
(a) Director of Touchstone Securities, Inc., IFS Agency Services, Inc., W&S Financial Group Distributors, Inc. IFS Systems, Inc., Integrated Fund Services, Inc., IFS Holdings, Inc., Capital Analysts Incorporated, Integrity Life Insurance Company, 515 West Market Street, Louisville, KY 40202, National Integrity Life Insurance Company, 515 West Market Street, Louisville, KY 40202 and WestAd Inc., 400 Broadway, Cincinnati, OH 45202
(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.
(d) Senior Vice President and Director of Fort Washington Brokerage Services, Inc., a broker-dealer
(e) Senior Vice President and Secretary of Columbus Life
Insurance Company, 400 East Fourth Street, Cincinnati,
OH 45202
(f) Secretary and a Director of Eagle Realty Group, LLC, 421 East Fourth Street, Cincinnati, OH 45202 and IFS Financial Services, Inc.
(g) Assistant Secretary and a Director of Eagle Realty
Investments, Inc., 421 East Fourth Street, Cincinnati,
OH 45202
(5) Richard K. Taulbee, Vice President of the Advisor
(a) Vice President of IFS Financial Services, Inc., IFS Agency Services, Inc., W&S Financial Group Distributors, Inc., Touchstone Securities, Inc., Capital Analysts Incorporated, Eagle Realty Investments, Inc., Fort Washington Brokerage Services, Inc., IFS Fund Distributors, Inc., IFS Systems, Inc. and WestAd Inc.
(b) Assistant Treasurer of Fort Washington Investment Advisors, Inc.
(6) 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., W&S Financial Group Distributors, Inc., IFS Systems, Inc., Touchstone Securities, Inc., Columbus Life Insurance Company, Eagle Realty Group, LLC, Eagle Realty Investments, Inc., Integrity Life Insurance Company, National Integrity Life Insurance Company and WestAd Inc.
(b) Treasurer of Fort Washington Brokerage Services, Inc.
(7) Terrie A. Wiedenheft - Chief Financial Officer of the Advisor
(a) Senior Vice President, Chief Financial Officer and Treasurer of Integrated Fund Services, Inc., Fort Washington Brokerage Services, Inc. and IFS Fund Distributors, Inc.
(b) Chief Financial Officer of IFS Financial Services, Inc. and Touchstone Securities, Inc.
(c) Treasurer & Controller of Touchstone Investment Trust, Touchstone Tax-Free Trust, Touchstone Strategic Trust and Touchstone Variable Series Trust.
(d) Assistant Treasurer of Fort Washington Investment Advisors, Inc.
(8) James N. Clark - A Director of the Advisor
(a) A Director of The Western and Southern Life Insurance Company, Western-Southern Life Assurance Company, Western & Southern Financial Group, Inc., Columbus Life Insurance Company, Eagle Realty Group, LLC, Eagle Realty Investments, Inc., IFS Financial Services, Inc., IFS Agency Services, Inc., IFS Systems, Inc., Touchstone Securities, Inc. and W&S Financial Group Distributors, Inc.
(b) Director and Vice President of Capital Analysts Incorporated
(c) Director and Secretary of WestAd Inc.
(9) William A. Dent, Senior Vice President, Product Management and Marketing of the Advisor
(a) Marketing Director, Promontory Interfinancial Network, 1515 North Courthouse Road, Arlington, Virginia from 2002-2003.
(b) Senior Vice President, McDonald Investments, 800 Superior Avenue, Cleveland, OH from 1998-2001 and Managing Director of Key Asset Management, 800 Superior Avenue, Cleveland, OH, from 1991-1998.
B. FORT WASHINGTON INVESTMENT ADVISORS, INC.("Ft. Washington") is a registered investment adviser which provides sub-advisory services to the Value Plus 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 address of Ft. Washington is 420 East Fourth Street, Cincinnati, OH 45202.
The following list sets forth the business and other connections of the directors and executive officers of Ft. Washington.
(1) Maribeth S. Rahe, President and a Director of Ft. Washington
(a) Director of Todd Investment Advisors, Inc., 3160 National City Tower, Louisville, KY 40202
(b) President of United States Trust Company of New York until October 2003.
(2) Nicholas P. Sargen, Senior Vice President, Chief Investment Officer and a Director of Ft. Washington
(a) Director of Todd Investment Advisors, Inc.
(b) Managing Director, Global Marketing Strategies of JP Morgan Chase until April 2003
(3) John F. Barrett, Chairman and Director of Ft. Washington
(a) President and Chief Executive Officer of The Western and Southern Life Insurance Company, Western- Southern Life Assurance Company and Western & Southern Financial Group, Inc.
(b) Trustee of Touchstone Variable Series Trust, Touchstone Strategic Trust, Touchstone Investment Trust and Touchstone Tax-Free Trust
(c) A Director and Chairman of Columbus Life Insurance Company, Integrity Life Insurance Company and National Integrity Life Insurance Company
(d) A Director of Eagle Realty Group, LLC, Eagle Realty Investments, Inc., Integrated Fund Services, Inc. and IFS Holdings, Inc.
(e) Director, Chairman & CEO of WestAd, Inc.
(f) President and Trustee of Western & Southern Foundation
(4) James J. Vance, Vice President & 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 - Private Investment Counsel of Ft.
Washington
(8) Brendan M. White, Vice President and Senior Portfolio Manager of Ft. Washington
(9) John J. Goetz, Vice President and Senior Portfolio Manager of Ft. Washington
(10) Timothy J. Policinski, Vice President and Senior Portfolio Manager of Ft. Washington
(11) James A. Markley, Managing Director - Private Investment Counsel of Ft. Washington
(12) Roger M. Lanham - Vice President and Senior Portfolio Manager of Ft. Washington
(13) Augustine A. Long, Managing Director, Marketing of Ft.
Washington
(14) John J. O'Connor, Vice President/Research of Ft. Washington
(15) Thomas L. Finn, Vice President and Senior Portfolio Manager of Ft. Washington
(a) Vice President and Senior Portfolio Manager of Provident Financial Group, One East Fourth Street, Cincinnati, OH until May 2002.
(16) Donald J. Wuebbling - Secretary and Director of Ft.
Washington
see biography above
(17) Michele Hawkins, Chief Compliance Officer of Ft. Washington
(18) Stephen A. Baker, Vice President of Ft. Washington
(19) John J. Discepoli, Vice President of Ft. Washington
(20) Margaret C. Bell, Vice President -Sales and Client Services of Ft. Washington
(21) Robert L. Walker, a Director of Ft. Washington
(a) Director of Eagle Realty Group, LLC, Integrated Fund Services, Inc., Integrity Life Insurance Company and National Integrity Life Insurance Company
(22) Mark A. Frietch, Vice President of Ft. Washington
(23) Eric J. Walzer, Director - Investment Operations 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, Chief Operating Officer 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) William A. Muggia - Director, President and Chief
Investment Officer
|
(4) Timothy L. Vaill - Director
(5) Karen A. Digravio - Director, Chief Financial Officer, Chief Compliance 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) Maribeth S. Rahe - Director
(4) Curtiss M. Scott, Jr. - Partner, Senior Equity Portfolio Manager
(5) Gayle S. Dorsey - Partner, Private Client Services
(6) Margaret C. Bell - Partner, Director of Marketing
(7) Jennifer J. Doss, Partner, Secretary/Treasurer
(8) Margaret C. Bell, Partner, Director of Marketing
(9) John J. White, Partner, Director of Research
(10) John C. Feduchak, Director of Managed Account Programs
(11) Nicholas P. Sargen- Director
(12) Christopher A. Bennett- Regional Director of Managed Account Programs
G. BJURMAN, BARRY & ASSOCIATES ("BJURMAN") is a registered adviser providing sub-advisory services to the Small Cap Growth Fund and the Micro 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) G. Andrew Bjurman, President, Chief Executive Officer and Director
(2) O. Thomas Barry III, Senior Executive Vice President, Chief Investment Officer and Director
(3) Kathy K. Pommet - Chief Compliance Officer
H. 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) Robert A. Davidson, President
(2) Leonard M. Sorgini, Chief Financial Officer and Chief Compliance Officer
(3) Regan I. Royston, Director of Operations
(4) Jennifer M. Pawloski - Director of Research
(5) Kathleen J. Jordan - Director of Marketing
(6) Eileen M. Madden - Research Analyst
I. NAVELLIER & ASSOCIATES, Inc. ("Navellier") is a registered advisor providing sub-advisory services to the Large Cap Growth Fund. The address of Navellier is One East Liberty Street, Third Floor, Reno Nevada. The following are officers of Navellier.
(1) Louis G. Navellier, President
(2) Arjen P. Kuyper, Chief Operating Officer
(3) Alan K. Alpers, Vice President
(4) Keith M. Basso, Vice President
(5) James H. O'Leary, Vice President
(6) Paula M. Boyd, Vice President
(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 400 Broadway, Cincinnati, Ohio 45202.
POSITION POSITION
WITH WITH
(b) NAME UNDERWRITER REGISTRANT
----- ----------- ----------
James H. Grifo President Vice President
Jill T. McGruder Director Trustee/President
James N. Clark* Director None
Donald J. Wuebbling* Director None
Patricia J. Wilson Chief Compliance None
Officer
Richard K. Taulbee* Vice President None
James J. Vance* Vice President & None
Treasurer
Terrie A. Wiedenheft Chief Financial Controller/
Officer Treasurer
Robert F. Morand* Secretary 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 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 10th day of September, 2004.
TOUCHSTONE STRATEGIC TRUST
/s/ Jill T. McGruder By:--------------------------- Jill T. McGruder 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 10th day of September, 2004.
/s/ Jill T. McGruder Trustee & President ----------------------- JILL T. MCGRUDER /s/ Terrie A. Wiedenheft ----------------------- Controller & Treasurer TERRIE A. WIEDENHEFT |
By: /s/ Tina H. Bloom ----------------------- Tina H. Bloom *Attorney-in-Fact September 10, 2004 |
EXHIBIT INDEX
1. Form of Underwriter's Dealer Agreement
2. Consent of Independent Auditors
3. Amended Rule 18f-3 Plan
4. Code of Ethics for Fort Washington Investment Advisors, Inc.
Dealer #_______
TOUCHSTONE
INVESTMENTS
221 EAST FOURTH STREET, SUITE 300
CINCINNATI, OH 45202
800.638.8194
DEALER'S AGREEMENT
Touchstone Securities, Inc., as the exclusive distributor for the Touchstone Family of Mutual Funds (the "Funds") invites you, as a selected dealer, to participate as principal in the distribution of shares (the "Shares") of the mutual funds set forth on Schedule A to this Agreement. Distributor agrees to sell to you, subject to any limitations imposed by the Funds, Shares issued by the Funds and to promptly confirm each sale to you. All sales will be made according to the following terms:
1. All offerings of any of the Shares by you must be made at the public offering price or, if you so notify us, at net asset value, and shall be subject to the conditions of offering, set forth in the then current Prospectus of the Funds and to the terms and conditions herein set forth, and you agree to comply with all requirements applicable to you of all applicable laws, including federal and state securities laws, the rules and regulations of the Securities and Exchange Commission, and the Rules of Fair Practice of the National Association of Securities Dealers, Inc. (the "NASD"), including Section 24 of the Rules of Fair Practice of the NASD. You will not offer the Shares for sale in any state or other jurisdiction where they are not qualified for sale under the Blue Sky Laws and regulations of such state or jurisdiction, or where you are not qualified to act as a dealer. Upon application to Distributor, Distributor will inform you as to the states or other jurisdictions in which Distributor believes the Shares may legally be sold.
2. (a) Unless a purchase of Shares qualifies as a purchase at net asset value, you will receive a discount from the public offering price ("concession") on all Shares purchased by you from Distributor as indicated on Schedule A, as it may be amended by Distributor from time to time. You as Dealer hereby agree to waive payment of any and all 12b-1 fees ("fees") or other amounts payable until Distributor shall have received and collected the fees or other amounts payable to Distributor.
(b) In all transactions in open accounts in which you are designated as Dealer of Record, you will receive the concessions as set forth on Schedule A. You hereby authorize Distributor to act as your agent in connection with all transactions in open accounts in which you are designated as Dealer of Record. All designations as Dealer of Record, and all authorizations of Distributor to act as your Agent pursuant thereto, shall cease upon the termination of this Agreement or upon the investor's instructions to transfer his open account to another Dealer of Record. No dealer concessions will be allowed on purchases generating less than $1.00 in dealer concessions.
(c) As the exclusive Distributor of the Shares, Distributor reserves the privilege of revising the discounts specified on Schedule A at any time by written notice.
3. Concessions will be paid to you at the address of your principal office, as indicated below in your acceptance of this Agreement.
4. Distributor reserves the right to cancel this Agreement at any time without notice if any Shares shall be offered for sale by you at less than the then current net asset values determined by, or for, the Funds.
5. All orders are subject to acceptance or rejection by Distributor in its sole discretion. The Distributor reserves the right, in its discretion, without notice, to suspend sales or withdraw the offering of Shares entirely.
6. Payment shall be made to the Funds and shall be received by its Transfer
Agent within three (3) business days after the acceptance of your order or such
shorter time as may be required by law. With respect to all Shares ordered by
you for which payment has not been received, you hereby assign and pledge to
Distributor all of your right, title and interest in such Shares to secure
payment therefore. You appoint Distributor as your agent to execute and deliver
all documents necessary to effectuate any of the transactions described in this
paragraph. If such payment is not received within the required time period,
Distributor reserves the right, without notice, and at its option, forthwith (a)
to cancel the sale, (b) to sell the Shares ordered by you back to the Funds, or
(c) to assign your payment obligation, accompanied by all pledged Shares, to any
person. You agree that Distributor may hold you responsible for any loss,
including loss of profit, suffered by the Funds or its Transfer Agent, resulting
from your failure to make payment within the required time period.
7. No person is authorized to make any representations concerning Shares of the Funds except those contained in the current applicable Prospectus and Statement of Additional Information and in sales literature issued and furnished by Distributor supplemental to such Prospectus. Distributor will furnish additional copies of the current Prospectus and Statement of Additional Information and such sales literature and other releases and information issued by Distributor in reasonable quantities upon request.
8. Under this Agreement, you act as principal and are not employed by Distributor as broker, agent or employee. You are not authorized to act for Distributor nor to make any representation on its behalf; and in purchasing or selling Shares hereunder, you rely only upon the current Prospectus and Statement of Additional Information furnished to you by Distributor from time to time and upon such written representations as may hereafter be made by Distributor to you over its signature.
9. You appoint the transfer agent for the Funds as your agent to execute the purchase transactions of Shares in accordance with the terms and provisions of any account, program, plan or service established or used by your customers and to confirm each purchase to your customers on your behalf, and you guarantee the legal capacity of your customers purchasing such Shares and any co-owners of such Shares.
10. You will (a) maintain all records required by law relating to transactions in the Shares, and upon the request of Distributor, or the request of the Funds, promptly make such records available to Distributor or to the Funds as are requested, and (b) promptly notify Distributor if you experience any difficulty in maintaining the records required in the foregoing clause in an accurate and complete manner. In addition, you will establish appropriate procedures and reporting forms and schedules, approved by Distributor and by the Funds, to enable the parties hereto and the Funds to identify all accounts opened and maintained by your customers.
11. Distributor has adopted compliance standards, attached hereto as Schedule B, as to when Class A, Class B and Class C Shares of the Funds may appropriately be sold to particular investors. You agree that all persons associated with you will conform to such standards when selling Shares.
12. Each party hereto represents that it is presently, and, at all times during the term of this Agreement, will be, a member in good standing of the NASD and agrees to abide by all its Rules of Fair Practice including, but not limited to, the following provisions:
(a) You agree to follow any written guidelines or standards relating to the sale or distribution of the Shares as may be provided to you by the Distributor including the provisions outlined in exhibits B and C as well as to follow any applicable federal and/or state securities laws, rules or regulations affecting the sale or distribution of Shares of investment companies offering multiple classes of shares.
(b) You shall not withhold placing customers' orders for any Shares so as to profit yourself as a result of such withholding. You shall not purchase any Shares from Distributor other than for investment, except for the purpose of covering purchase orders already received.
(c) All conditional orders received by Distributor must be at a specified definite price.
(d) If any Shares purchased by you are repurchased by the Funds (or by Distributor for the account of the Funds) or are tendered for redemption within seven business days after confirmation of the original sale of such Shares (1) you agree to forthwith refund to Distributor the full concession allowed to you on the original sale, such refund to be paid by Distributor to the Funds, and (2) Distributor shall forthwith pay to the Funds that part of the discount retained by Distributor on the original sale. Notice will be given to you of any such repurchase or redemption within ten days of the date on which the repurchase or redemption request is made.
(e) Neither Distributor, as exclusive Distributor for the Funds, nor you as principal, shall purchase any Shares from a record holder at a price lower than the net asset value then quoted by, or for, the Funds. Nothing in this sub-paragraph shall prevent you from selling Shares for the account of a record holder to Distributor or the Funds at the net asset value currently quoted by, or for, the Funds and charging the investor a fair commission for handling the transaction.
(f) You warrant on behalf of yourself and your registered representatives and employees that any purchase of Shares at net asset value by the same pursuant to the terms of the Prospectus of the applicable Fund is for investment purposes only and not for purposes of resale. Shares so purchased may be resold only to the Fund which issued them.
13. You agree that you will indemnify, defend and protect the Distributor, the Funds, the Funds' transfer agent and the Funds' custodians and each trustee, director, officer, employee and agent of such persons (collectively, the "Fund Parties") and shall hold the Fund Parties harmless from and against any and all claims, demands actions, losses, damages, liabilities, costs, charges, reasonable counsel fees and expenses of any nature the Funds or they incur ("Losses") to the extent such Losses arise out of (i) the dissemination by you or any persons or entities affiliated with you of information regarding the Funds that is materially incorrect and that is not provided to you or approved by the Funds, or (ii) the willful misconduct or negligence by you or any persons or entities affiliated with you in the performance of, or failure to perform your obligations under this Agreement or (iii) any violation of law related to or resulting from your participation in this Agreement and the activities contemplated hereby; except to the extent such Losses result from the Distributor's willful misconduct or negligence.
Distributor shall indemnify you and each of your directors, officers, employees and agents and hold you and any such director, officer, employee and agent harmless from and against any and all Losses arising out of (i) any inaccuracy or omission in any prospectus, registration statement, annual report or proxy statement of the funds or any advertising or promotional material generated by the Fund (ii) any breach by Distributor of any representation contained in this Agreement, and (iii) any action taken or omitted to be taken pursuant to this Agreement, except to the extent such Losses result from your breach of this Agreement, or your willful misconduct, or negligence.
14. This Agreement will automatically terminate in the event of its assignment. Either party hereto may cancel this Agreement without penalty upon ten days' written notice. This Agreement may also be terminated as to any Fund at any time without penalty by the vote of a majority of the members of the Board of Trustees of the terminating Fund who are not "interested persons" (as such term is defined in the Investment Company Act of 1940) and who have no direct or indirect financial interest in the applicable Fund's Distribution Expense Plan pursuant to Rule 12b-1 under the Investment Company Act of 1940 or any agreement relating to such Plan, including this Agreement, or by a vote of a majority of the outstanding voting securities of the terminating fund on ten days' written notice.
15. All communications to Distributor should be sent to Touchstone Securities, Inc., 221 East Fourth Street, Cincinnati, Ohio 45202, or at such other address as Distributor may designate in writing. All communications to you should be sent to the address of your principal office, as indicated below in your acceptance of this Agreement, or at such other address as you designate in writing. Any notice to either party shall be duly given if mailed, telegraphed sent by facsimile transmission, or sent by express mail service.
16. This Agreement supersedes any other agreement with you relating to the offer and sale of the Shares, and relating to any other matter discussed herein.
17. This Agreement shall be binding (i) upon placing your first order with Distributor for the purchase of Shares, or (ii) upon receipt by Distributor in Cincinnati, Ohio of a counterpart of this Agreement duly accepted and signed by you, whichever shall occur first. This Agreement shall be construed in accordance with the laws of the State of Ohio.
18. You represent that you have adopted and implemented procedures to safeguard
customer information and records that are reasonably designed to: (1) insure the
security and confidentiality of your customer records and information; (2)
protect against any anticipated threats or hazards to the security or integrity
of customer records and information; (3) protect against unauthorized access to
or use of your customer records or information that could result in substantial
harm or inconvenience to any customer; (4) protect against unauthorized
disclosure of non-public personal information to unaffiliated third parties; and
(5) otherwise ensure your compliance with the Securities and Exchange
Commission's Regulation S-P. You agree to indemnify us against any and all
claims, liability, expense or loss in any way arising out of your failure to
adopt and implement these and such other privacy or confidentiality procedures
that may in the future be required by law or regulation.
19. You represent and warrant that you have in place and will maintain suitable and adequate know your customer policies and procedures and that you shall comply with all applicable laws and regulations regarding anti-money laundering activity and will provide such documentation to us upon our request.
20. By signing this Agreement, you certify that you have implemented procedures in accordance with the USA Patriot Act to verify the identity of any person seeking to open an account, that you maintain records of the information used to verify the person's identity, and you have taken steps to determine whether the person appears on any lists of known or suspected terrorists or terrorist organizations provided to investment companies by any government agency.
21. The undersigned, executing this Agreement on behalf of Dealer, hereby warrants and represents that he is duly authorized to so execute this Agreement on behalf of Dealer.
If the foregoing is in accordance with your understanding of our agreement, please sign and return all copies of this Agreement to the Distributor.
Accepted by Dealer Touchstone Securities, Inc. By:_______________________________ By:____________________________ Authorized Signature Authorized Signature ________________________________ ____________________________ Type or Print Name, Position Type or Print Name, Position _______________________________ ___________________________ Dealer Name Date _______________________________ Address _______________________________ City/State/Zip _______________________________ Phone _______________________________ Date |
SCHEDULE A
TOUCHSTONE FUNDS
BROKER-DEALER AGREEMENT EXHIBIT A- COMMISSION SCHEDULE
A SHARES - EQUITY FUNDS A SHARES - BOND FUNDS
-----------------------------------------------------------------------------------------------------------------------
TOTAL SALES DEALER TOTAL SALES DEALER
CHARGE1 CONCESSION CHARGE1 CONCESSION
Under $50,000 5.75% 5.00% Under $50,000 4.75% 4.00%
$50,000 but less than $100,000 4.50% 3.75% $50,000 but less than $100,000 4.50% 3.75%
$100,000 but less than $250,000 3.50% 2.75% $100,000 but less than $250,000 3.50% 2.75%
$250,000 but less than $500,000 2.95% 2.25% $250,000 but less than $500,000 2.95% 2.25%
$500,000 but less than $1,000,000 2.25% 1.75% $500,000 but less than $1,000,000 2.25% 1.75%
$1,000,000 or more NAV2 0.00% $1,000,000 or more NAV2 0.00%
--------------------------------------------------------------------------------------------------------------------------
1 Expressed as a percentage of the offering price.
2 There is no initial sales charge on any purchase of $1,000,000 or more, however, a 1% contingent deferred sales charge may be
assessed if redemption occurs within one year of purchase.
Class B Shares or Class C Shares may not be used in combination with Class A Shares to meet Right of Accumulation (ROA)
requirements.
12(b)-1 payment on A Shares/Equity and Bond Funds is 0.25% of its average daily net assets annually, (paid quarterly) beginning
immediately.
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B SHARES - EQUITY/BOND FUNDS3
Year Since Purchase Contingent Deferred
Payment Made Sales Charge
-------------------------------------------------------------------------------
First 5.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 1.00%
Seventh and thereafter4 None
-------------------------------------------------------------------------------
12(b)-1 Payment 0.25% annually (paid quarterly)
beginning in the 13th month
Dealer Concession 4.00%
-------------------------------------------------------------------------------
|
3Including Money Market Fund Class B Shares.
4Class B Shares will automatically convert to Class A Shares after eight years.
*Not all Touchstone Funds offer Class B Shares. Please see a performance fact sheet or visit www.touchstoneinvestments.com to distinguish which funds do and do not offer Class B shares.
Dealer Concession 1.00%
Contingent Deferred Sales Charge5 1.00%
12(b)-1 Payment 1.00 annually (paid quarterly)
beginning in the 13th month
-------------------------------------------------------------------------------
|
5 Assessed if redemption occurs within one year of purchase.
12(b)-1 Payment6 0.25% annually (paid quarterly)
beginning immediately
--------------------------------------------------------------------------------
6 Excludes Institutional share class.
|
QUARTERLY TRAIL PAYMENTS ARE RELEASED ONLY WHEN THE PAYMENT FOR THE FIRM EXCEEDS $50.00 IN ANY GIVEN QUARTER. UNPAID TRAILS DO NOT ACCUMULATE.
STOCK FUNDS BOND FUNDS MONEY MARKET FUNDS ----------- ---------- ------------------ Small Cap Growth Fund High Yield Fund Money Market Fund Emerging Growth Fund Core Bond Fund U.S. Government Money Market Fund Growth Opportunities Fund Ohio Insured Tax-Free Fund Tax-Free Money Market Fund Large Cap Growth Fund Ohio Tax-Free Money Market Fund - R Enhanced 30 Fund California Tax-Free Money Market Fund Value Plus Fund Florida Tax-Free Money Fund Micro Cap Growth Fund |
Touchstone Funds are distributed by Touchstone Securities, Inc.* *A registered broker/dealer and member NASD and SIPC A Member of Western & Southern Financial Group(R)
EXHIBIT B
POLICIES AND PROCEDURES WITH
RESPECT TO SALES OF MULTIPLE CLASS FUND SHARES
The Touchstone Family of Mutual Funds (the "Funds") are available to the public
in three series:(1)shares subject to a front-end sales charge ("Class A shares")
(2)shares subject to a contingent deferred sales charge if the redemption occurs
within six years of the purchase date. The contingent deferred sales charge
decreases from a maximum of 5%, which is applicable if the redemption occurs
within the first year of the purchase date, to 0%, if the redemption occurs
after the sixth year from the purchase date ("Class B shares") and (3) shares
subject to a 1% contingent deferred sales charge if the redemption occurs
within one year of purchase ("Class C shares"). It is important for an investor
to choose not only the Fund that best suits his investment objectives, but
also to choose the sales financing method which best suits his particular
situation. To assist investors in these decisions, we are instituting the
following policies:
1. Any purchase order is subject to approval by a registered principal of the Dealer, who must approve the purchase order for either Class A shares, Class B shares or Class C shares in light of the relevant facts and circumstances, including:
(a) the specific purchase order dollar amount;
(b) the length of time the investor expects to hold the shares; and
(c) any other relevant circumstances, such as the availability of purchases under a Letter of Intent.
2. Any purchase order for $250,000 or more in Class B shares will usually be considered as a purchase request for Class A shares or declined because it is ordinarily more advantageous for an investor to purchase Class A shares.
3. Any purchase order for $1 million or more in Class C shares will usually be considered as a purchase request for Class A shares or declined because it is ordinarily more advantageous for an investor to purchase Class A shares.
There are instances when one financing method may be more appropriate than the other. For example, investors whose order would qualify for a significant discount from the maximum sales charge on Class A shares may determine that payment of such a reduced front-end sales charge is superior to payment of the higher ongoing distribution fees applicable to Class B and Class C shares. On the other hand, an investor whose order would not qualify for such a discount may wish to pay no front-end sales charge and have all of his funds invested in Class B or Class C shares. The investment return may partially or wholly offset the higher annual expenses; however, because the Fund's or Funds' future return(s) cannot be predicted, there can be no assurance that this would be the case. In addition, an investor that anticipates that he will redeem his shares within a short period of time, may, depending on the amount of purchase, choose to bear higher distribution fees associated with Class C shares. On the other hand, Class B shares may be more attractive than Class C shares if an investor has a longer term investment outlook and is interested in the conversion feature. Class B shares automatically convert to Class A shares after eight years.
In addition, an investor who intends to hold his shares for a significantly long time may wish to purchase Class A shares in order to avoid the higher ongoing distribution fees of Class B and Class C shares.
The appropriate principal must ensure that all employees of the Broker/Dealer receiving investor inquiries about the purchase of Fund shares advise an investor of the available financing methods offered by mutual funds, and the impact of choosing one method over another. It may be appropriate for the principal to discuss the purchase with an investor.
These policies are effective May 1, 2001 with respect to any order for the purchase of shares. Questions relating to these policies should be directed to Touchstone's appropriate senior management personnel.
EXHIBIT C
TOUCHSTONE SECURITIES, INC.
AS-OF PROCESSING POLICY
Touchstone Securities, Inc. will employ, through its Transfer Agent, As-Of policies that are consistent with those adopted by the Touchstone Family of Funds Board of Trustees. This policy shall be effective on May 1, 2001.
An "as-of" trade occurs whenever a current shareholder trade is processed at a previously issued public offering price. In order to not disadvantage existing shareholders from the possible losses to a fund (each portfolio treated separately) generated by such trades, the policy outlined below is to be followed.
1. No "as-of" trades will be accepted from a broker-dealer or service agents without prior receipt of signature guaranteed indemnification against any losses to the fund signed by the broker-dealer or service agent placing the trade. (See attached "Letter of Indemnity")
2. Broker-dealers and service agents will be billed for any loss of $50 or more resulting from a single transaction. Broker-dealers will not be able to use any prior gains to the fund generated by their "as-of" transactions to offset transaction losses. Invoices for losses are due and payable upon receipt.
3. Immediate payment is to be made to the fund by the responsible broker-dealer or service agent at anytime in which the impact of an As-Of trade results in a material loss to the fund or more than $.005 per share of the fund's net asset value.
4. The Fund's Transfer Agent shall reserve the right to refuse any request to process any As-Of transaction requested by a broker/dealer or service agent.
5. The Fund's Transfer Agent may at its discretion reduce commissions or 12b-1 payments due to a broker/dealer or service agent by an amount equal to losses invoiced to the broker/dealer or service agent for failure to pay invoices for losses caused by requested As-Of trades.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the references to our firm under the captions "Financial Highlights" in the Prospectus and "Auditors" and "Financial Statements" in the Statement of Additional Information, included in Post-Effective Amendment Number 56 to the Registration Statement (Form N-1A, No. 2-80859) of Touchstone Strategic Trust and to the use of our report dated May 11, 2004 on the March 31, 2004 financial statements of the Touchstone Strategic Trust, incorporated by reference therein.
/s/ Ernst & Young LLP
Cincinnati, Ohio
September 9, 2004
|
Amended May 4, 2004
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 four 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 four 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); (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); or (4) sold without a front-end sales load or distribution fee, but offered only through selected brokers and may be subject to fees by the participating broker and to higher initial investment requirements than other classes of shares (Class I 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 only create or issue some of the classes of shares described herein.
The four classes will each represent interests in the same portfolio of investments of such Fund. The four 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) there are no distribution fees for Class I shares; (iii) each class may bear different Class Expenses (as defined below); (iv) each class will vote separately as a class with respect to a Fund's Rule 12b-1 distribution plan (if adopted); (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 Class A shares of a Fund 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 of a Fund 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.
Investors purchasing Class I shares of a Fund will do so at net asset value without a front-end sales load or CDSC and without a distribution fee. Investors may only purchase Class I shares by enrolling in a program offered by certain broker-dealers or financial institutions that have distribution agreements with the Distributor. Investors purchasing Class I shares may be subject to fees by the participating broker-dealer or financial institution and to higher initial investment requirements than other classes of 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 I shares of a Fund will be exchangeable for Class I shares of the other Funds.
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 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.
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, but not Class I 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, Class S and Class I 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 four 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); (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); or (4) sold without a front-end sales load, contingent deferred sales charge or distribution fee, but offered only through selected brokers and may be subject to fees by the participating broker and to higher initial investment requirements than other classes of shares (Class I 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
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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.
METHODOLOGY, PROCEDURES AND INTERNAL
ACCOUNTING CONTROLS FOR MULTIPLE CLASS FUNDS
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.
Methodology, Procedures and Internal Accounting Controls
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.
Methodology, Procedures and Internal Accounting Controls
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.
Methodology, Procedures and Internal Accounting Controls
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) (I)
--- --- --- --- --- ---
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) (I)
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
STATEMENT OF ASSETS AND LIABILITIES
- Assets and liabilities will be disclosed in accordance with standard
reporting format.
- The following will be disclosed for each class:
NET ASSETS FOR FUNDS:
Class A Shares
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.
---- ----
Class B Shares
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.
---- ----
Class C Shares
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.
---- ----
Class I Shares
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:
Retail Shares
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Institutional Shares
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Class I Shares
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Class B Shares
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
Class S Shares
Paid-in capital
Undistributed net investment income
Undistributed realized gain (loss) on
investments - net
STATEMENT OF OPERATIONS
- Standard reporting format, except that class specific expenses will be disclosed for each class.
STATEMENT OF CHANGES IN NET ASSETS
- Show components by each class of shares and in total as follows:
Current Year
-----------------------------------------------------------------------------------------------------------------------------------
Total Class A Class B Class C Retail Institutional Class S Class I
------ ------- ------- -------- ------ ------------- --------- -------
Prior Year
-----------------------------------------------------------------------------------------------------------------------------------
Total Class A Class B Class C Retail Institutional Class S Class I
------ ------- ------- -------- ------ ------------- -------- -------
SELECTED SHARE DATA AND RATIOS
- Show components by each class as follows:
Current Year
-------------------------------------------------------------------------------------------------------------------------------
Total Class A Class B Class C Retail Institutional Class S Class I
------ ------- ------- -------- ------ ------------- -------- -------
Prior Year
---------------------------------------------------------------------------------------------------------------------------------
Total Class A Class B Class C Retail Institutional Class S Class I
------ ------- ------- -------- ------ ------------- -------- -------
|
NOTES TO FINANCIAL STATEMENTS
- 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.
CODE OF ETHICS
FORT WASHINGTON INVESTMENT ADVISORS, INC.
Fort Washington Investment Advisors, Inc. (the "Advisor") has adopted this Code of Ethics effective as of April 1, 2004, in accordance with the provisions of Rule 17j-1 under the Investment Company Act of 1940, as amended (the "1940 Act").
Rule 17j-1 under the 1940 Act generally prohibits deceitful, fraudulent or manipulative practices with respect to purchases or sales of securities held or to be acquired by investment companies. While this Code is designed to prevent violations of Rule 17j-1, it is possible to comply with the terms of this Code and nevertheless violate the general prohibitions set forth in Rule 17j-1. Those persons subject to this Code should, therefore, bear these general prohibitions in mind at all times.
Directors, officers and other Access Persons (as defined in this Code) have a duty at all times to place the interests of the investment companies and other clients for which the Advisor acts as investment manager or advisor ahead of their own interests.
All personal securities transactions of these individuals must be conducted in compliance with this Code and in a manner that avoids any actual or potential conflict of interest or any abuse of the individual's position of trust and responsibility to the Advisor and its clients.
All activities of these individuals also must be conducted in accordance with the fundamental standard that they may not take any inappropriate advantage of their positions with the Advisor.
1. PROHIBITED PURCHASES AND SALES WHEN A CLIENT TRADE IS PENDING
a. PROHIBITION
If an Access Person knows that the Advisor, on behalf of any Client, has placed a "buy" or "sell" order in a Covered Security on a particular day, the Access Person may not purchase or sell, directly or indirectly, the Covered Security or a Related Security on the same day if:
o the Access Person has any direct or indirect beneficial
ownership in the Covered Security or a Related Security or
o the Access Person will acquire any direct or indirect
beneficial ownership in the Covered Security or a Related
Security by reason of the purchase.
b. EXEMPTED TRANSACTIONS
This prohibition does not apply to:
o purchases or sales involving 500 or fewer shares of a
Covered Security that is included in the Standard & Poor's
500 based on individual and aggregate transactions
occurring within a 5 day period
o purchases or sales effected in any account or security tied
to and index (QQQ, SPIDR, etc.) or exchange traded funds,
("ETF's)over which the Access Person has no direct or indirect
influence or control
o purchases or sales that are non-volitional on the part of the
Access Person
o purchases that are part of an automatic dividend reinvestment
plan
o sales that are part of an automatic withdrawal plan
o purchases effected upon the exercise of rights issued by
an issuer pro rata to all holders of a class of its
securities to the extent the rights were acquired from the
issuer
o sales of rights issued by an issuer pro rata to all holders
of a class of its securities to the extent the rights were
acquired from the issuer or
o purchases or sales that the Compliance Officer approves in
writing before the purchase or sale
c. APPROVAL BY THE COMPLIANCE OFFICER
To obtain approval for a specific transaction, an Access Person should contact the Compliance Officer. The Access Person must disclose to the Compliance Officer all factors potentially relevant to a conflict of interest analysis that the Access Person is aware of, including the existence of any substantial economic relationship between his or her transaction and the Client's transaction.
Generally the Compliance Officer will approve a transaction only if:
o the transaction is only remotely potentially harmful to
the Client because it would be very unlikely to affect a
highly institutional market
o the transaction is clearly not economically related to the
securities to be purchased or sold by the Advisor on behalf
of the Client or
o the transaction is unlikely to result in any of the abuses
described in Rule 17j-1.
2. CONFIDENTIALITY
An Access Person may not reveal to any other person (except in the normal course of his or her duties on behalf of the Advisor) any information about securities transactions of a Client or securities under consideration for purchase or sale by a Client.
1. RESTRICTIONS ON SERVING ON BOARDS OF DIRECTORS
An Advisory Person may not serve on the board of directors of a publicly traded company without prior approval from the Chief Executive Officer of their business unit.
2. RESTRICTIONS INVOLVING GIFTS
An Advisory Person may not accept in any calendar year gifts with a value of more than $100 from any person that does business with the Advisor, directly or on behalf of any Client.
This prohibition shall not apply to:
o an occasional breakfast, lunch, dinner or reception, ticket to
a sporting event or the theater, or comparable entertainment
that is not so frequent, so costly nor so extensive as to
raise any question of impropriety
o a breakfast, lunch, dinner, reception or cocktail party in
conjunction with a bona fide business meeting or
o a gift approved in writing by the Compliance Officer because
the character or value of the gift would not raise any
question of impropriety
Note: Advisory Persons includes Investment Persons.
1. Prohibited Purchases and Sales Within 3 Trading Days of a Client Trade
a. Prohibition
If the Advisor, on behalf of a Client, has executed a trade in a Covered Security, an Advisory Person may not purchase or sell, directly or indirectly, the Covered Security or a Related Security within 3 trading days before or after that Client's trade if:
o the Advisory Person has any direct or indirect beneficial ownership in the Covered Security or a Related Security or will acquire any direct or indirect beneficial ownership in the Covered Security or a Related Security by reason of the purchase.
b. Exempted Transactions
This prohibition does not apply to:
o purchases or sales involving 500 or fewer shares of a
Covered Security that is included in the Standard & Poor's
500 based on individual and aggregate transactions
o purchases or sales effected in any account or security tied
to an index(QQQ, SPDR, etc.) or exchange traded funds
("ETF"s)over which the Investment Person has no direct or
indirect influence or control
o purchases or sales that are non-volitional on the part of
the Investment Person
o purchases that are part of an automatic dividend
reinvestment plan
o sales that are part of an automatic withdrawal plan
o purchases effected upon the exercise of rights issued by
an issuer pro rata to all holders of a class of its
securities to the extent the rights were acquired from the
issuer
o sales of rights issued by an issuer pro rata to all holders
of a class of its securities to the extent the rights were
acquired from the issuer or
o purchases or sales that the Compliance Officer approves in
writing before the purchase or sale
c. Approval by the Compliance Officer
With the exception of those transactions exempted above, all other transactions must be approved prior to execution by the Compliance Officer. The Compliance Officer will maintain a written record of all such requests for approval. To obtain approval for a specific transaction, an Advisory Person should contact the Compliance Officer. The Advisory Person must disclose to the Compliance Officer all factors potentially relevant to a conflict of interest analysis that the Advisory Person is aware of, including the existence of any substantial economic relationship between his or her transaction and the Client's transaction.
Generally the Compliance Officer will approve a transaction only if:
o the transaction is only remotely potentially harmful to the
Client because it would be very unlikely to affect a highly
institutional market
o the transaction is clearly not economically related to the
securities to be purchased or sold by the Advisor on behalf of
the Client or
o the transaction is unlikely to result in any of the abuses
described in Rule 17j-1.
2. HOLDING PERIOD
All Advisory Persons are subject to a holding period of not less than 60 days prior to disposing of a position.
3. PROHIBITED TRANSACTIONS
No Advisory Person may enter into an uncovered short sale, write an uncovered option, or purchase or sell, directly or indirectly, for his or her own account in which he or she may have a beneficial interest, any security that is subject to a firm-wide restriction.
1. Duplicate Confirmations and Statements
Each Access Person must arrange for duplicate copies of broker trade confirmations and periodic statements of his or her brokerage accounts to be sent directly to the Compliance Officer.
2. Holdings Reports
a. What Information Must Be Included in a Holdings Reports?
Each Access Person must submit written and signed reports containing information about each Covered Security in which the Access Person had any direct or indirect beneficial ownership ("Holdings Reports").
Each Holdings Report must include the following information:
o title of each Covered Security in which the Access Person had
any direct or indirect beneficial ownership
o number of shares and/or principal amount of each Covered
Security in which the Access Person had any direct or indirect
beneficial ownership
o name of any broker, dealer or bank with whom the Access
Person maintained an account in which any securities were
held for the direct or indirect benefit of the Access
Person and
o date the Holdings Report is submitted by the Access Person
If an Access Person is not required to report any information on a Holdings Report, the Access Person must submit a written and signed statement to that effect to the Compliance Officer by the date on which the Holdings Report is due.
b. When Must an Access Person Submit an Initial Holdings Report?
Each Access Person must submit to the Compliance Officer an Initial Holdings Report no later than 10 days after he or she becomes an Access Person. The information included in the Initial Holdings Report must reflect the Access Person's holdings as of the date he or she became an Access Person.
c. When Must an Access Person Submit Annual Holdings Reports?
Each Access Person must submit to the Compliance Officer an Annual Holdings Report no later than January 30 of each year. The information included in the Annual Holdings Report must reflect the Access Person's holdings as of the immediately preceding December 31.
d. Are There Any Exceptions to These Reporting Requirements?
An Access Person does not have to include in his or her Holdings Reports information about the following securities or accounts:
o direct obligations of the government of the United States
o bankers' acceptances
o bank certificates of deposit
o commercial paper
o high quality short-term debt instruments including repurchase
agreements
o shares issued by open-end Funds
o securities held in any account over which the Access Person
has no direct or indirect influence or control and
o transactions effected for any account over which the Access
Person has no direct or indirect influence or control
2. Quarterly Transaction Reports
a. What Information Must Be Included in a Quarterly Transaction Report?
Each Access Person must submit a report ("Quarterly Transaction Report") containing information about:
o every transaction in a Covered Security during the quarter
and in which the Access Person had any direct or indirect
beneficial ownership and
o every account established by the Access Person in which
any securities were held during the quarter for the direct
or indirect benefit of the Access Person.
A Quarterly Transaction Report must include the following information:
o date of each transaction in a Covered Security
o title of the Covered Security
o interest rate and maturity date of the Covered Security, if
applicable
o number of shares and/or principal amount of the Covered
Security
o nature of the transaction
o price of the Covered Security at which the transaction was
effected
o name of the broker, dealer or bank with or through which
the transaction was effected
o name of the broker, dealer or bank with whom the Access
Person established any new account
o date the account was established and
o date the Quarterly Transaction Report is submitted by the
Access Person
If an Access Person is not required to report any information on a Quarterly Transaction Report, the Access Person must submit a written and signed statement to that effect to the Compliance Officer no later than 10 days after the end of the calendar quarter.
b. When Must an Access Person Submit a Quarterly Transaction Report?
A Quarterly Transaction Report must be submitted to the Compliance Officer no later than 10 days after the end of each calendar quarter.
c. Are There Any Exceptions To These Requirements?
Exceptions for Certain Securities and Accounts
An Access Person does not have to report transactions involving the following securities or accounts:
o direct obligations of the government of the United States
o bankers' acceptances
o bank certificates of deposit
o commercial paper
o high quality short-term debt instruments including repurchase
agreements
o shares issued by open-end Funds not managed by Advisory personnel
o securities held in any account over which the Access Person has
no direct or indirect influence or control and
o transactions effected for any account over which the Access
Person has no direct or indirect influence or control
If an Access Person does not make a Quarterly Transaction Report because of this exception, the Access Person must submit a written and signed statement to that effect to the Compliance Officer no later than 10 days after the end of the calendar quarter.
Exceptions Based On Duplicate Confirmations
In addition, an Access Person does not have to make a Quarterly Transaction Report for a calendar quarter if:
o the report would duplicate information contained in broker trade
confirmations or account statements received by the Compliance
Officer no later than 10 days after the end of the calendar
quarter and
o all of the required information is contained in the broker trade
confirmations or account statements.
If broker trade confirmations do not contain all of the required information, the Access Person must include the missing information in a Quarterly Transaction Report.
If an Access Person does not make a Quarterly Transaction Report because of this exception, the Access Person must submit a written and signed statement to that effect to the Compliance Officer no later than 10 days after the end of the calendar quarter.
In reviewing transactions, the Compliance Officer will take into account the various exceptions included in this Code. Before making a determination that an Access Person has violated this Code, the Compliance Officer will give the Access Person an opportunity to supply additional information about the transaction in question.
The Board of Directors of the Advisor may from time to time adopt interpretations of this Code as it deems appropriate.
o any director of the Advisor
o any officer of the Advisor
o any general partner of the Advisor or
o any Advisory Person (as defined below) of the Advisor
"Advisory Person" means
o any employee of the Advisor (or of any company in a control
relationship to the Advisor) who, in connection with his or her
regular functions or duties, makes, participates in or obtains
information regarding the purchase or sale of Covered Securities
by a Client
o any employee of the Advisor (or of any company in a control
relationship to the Advisor) whose functions relate to the making
of any recommendations with respect to purchases or sales of
Covered Securities by a Client or
o any natural person in a control relationship with the Advisor who
obtains information regarding recommendations made to a Client
with regard to the purchase or sale of Covered Securities by a
Client
"Beneficial Ownership" is interpreted in the same manner as it would be under Rule 16a-1(a)(2) promulgated under the Securities Exchange Act of 1934.
"Client" means any person or entity, including an investment company, for which the Advisor serves as investment manager or advisor.
"Compliance Officer " means any person designated by the Advisor to administer this Code or to review reports required by this Code.
"Control" has the same meaning as in Section 2(a)(9) of the 1940 Act.
"Covered Security" means a security as defined in Section 2(a)(36) of the 1940 Act (in effect, all securities), except that it does not include:
o direct obligations of the government of the United States
o bankers' acceptances
o bank certificates of deposit
o commercial paper
o high quality short-term debt instruments, including repurchase
agreements and
o shares issued by open-end Funds except those managed by Advisory
personnel
"Fund" means an investment company registered under the 1940 Act.
"Initial Public Offering" means an offering of securities registered under the Securities Act of 1933 (the "1933 Act"), the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934.
"Investment Person" means
o any employee of the Advisor (or of any company in a control
relationship to the Advisor) who, in connection with his or her
regular functions of duties, makes or participates in making
recommendations regarding the purchase or sale of securities by a
Client or
o any natural person who controls the Advisor and who obtains
information concerning recommendations made to a Client regarding
the purchase or sale of securities by a Client
"Limited Offering" means an offering that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6), or pursuant to Rule 504, Rule 505, or Rule 506 under the Securities Act of 1933.
"Purchase or sale of Covered Securities" includes, among other things, the writing of an option to purchase or sell Covered Securities.
"Related Security" means:
o a security issued by the same issuer that issued the Covered
Security
o a security issued by an issuer under common control with the
issuer that issued the Covered Security or
o a security that gives the holder any contractual right with
respect to the Covered Security, including options, warrants or
other convertible securities