FORM N-1A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |_|
Pre-Effective Amendment No. ___ |_|
Post-Effective Amendment No. 68 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 68 |X|
(Check appropriate box or boxes.)
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TOUCHSTONE STRATEGIC TRUST FILE NOS. 811-03651 AND 002-80859
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(Exact Name of Registrant as Specified in Charter)
303 Broadway, Suite 1100, Cincinnati, Ohio 45202
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (513) 878-4066
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Jill T. McGruder
303 Broadway, Suite 1100
Cincinnati, Ohio 45202
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(Name and Address of Agent for Service)
With Copy To:
John M. Ford
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
Jay S. Fitton, Esquire
Secretary
303 Broadway, Suite 900
Cincinnati, OH 45202
Approximate Date of Proposed Public Offering:
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It is proposed that this filing will become effective:
|X| immediately upon filing pursuant to paragraph (b) |_| on ______________ pursuant to paragraph (b) |_| 60 days after filing pursuant to paragraph (a) (1) |_| on (date) pursuant to paragraph (a) (1) |_| 75 days after filing pursuant to paragraph (a) (2) |_| on (date) pursuant to paragraph (a) (2) of Rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective date for a previously filed post-effective amendment.
AUGUST 1, 2008
PROSPECTUS
TOUCHSTONE STRATEGIC TRUST
Touchstone Diversified Small Cap Growth Fund
Touchstone Growth Opportunities Fund
Touchstone Large Cap Core Equity Fund
Touchstone Large Cap Growth Fund
Touchstone Large Cap Value Fund
Touchstone Mid Cap Growth Fund
The Securities and Exchange Commission has not approved the Funds' shares as an investment or determined whether this Prospectus is accurate or complete. Anyone who tells you otherwise is committing a crime.
Multiple Classes of Shares are offered in this Prospectus.
PROSPECTUS AUGUST 1, 2008
TOUCHSTONE INVESTMENTS
TOUCHSTONE DIVERSIFIED SMALL CAP GROWTH FUND
TOUCHSTONE GROWTH OPPORTUNITIES FUND
TOUCHSTONE LARGE CAP CORE EQUITY FUND
TOUCHSTONE LARGE CAP GROWTH FUND
TOUCHSTONE LARGE CAP VALUE FUND
TOUCHSTONE MID CAP GROWTH FUND
Each Fund is a series of Touchstone Strategic Trust (the "Trust"), a group of equity mutual funds. The Trust is part of the Touchstone(R) Funds that also includes Touchstone Funds Group Trust, a group of equity and bond mutual funds, 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, Touchstone Variable Series Trust, a group of variable series funds and Touchstone Institutional Funds Trust (formerly Constellation Institutional Portfolios), a group of institutional equity mutual funds. Each Touchstone Fund has a different investment goal and risk level. For further information about the Touchstone Funds, contact Touchstone Securities, Inc. ("Touchstone") at 1.800.543.0407.
The Funds are managed by Touchstone Advisors, Inc. ("Touchstone Advisors" or the "Advisor"). Touchstone Advisors selects a sub-advisor(s) (each a "Sub-Advisor," collectively the "Sub-Advisors") to manage each Fund's investments on a daily basis.
Investment Strategies and Risks
The Funds' Management
Choosing a Class of Shares
Distribution Arrangements
Investing With Touchstone
Distributions and Taxes
Financial Highlights
THE FUND'S INVESTMENT GOAL
The Diversified Small Cap Growth Fund seeks long-term growth of capital.
ITS PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest at least 80% of its assets in the common stocks of small cap companies. Shareholders will be provided with at least 60 days' prior notice of any change in this policy. A small cap company has a market capitalization of less than $2.5 billion. The Fund may invest in securities in the technology sector.
The Fund will generally hold approximately 80 - 120 stocks.
The Fund will invest in securities that the Sub-Advisor believes will capitalize on inefficiencies that exist in the small cap growth market by focusing on:
o Companies that are experiencing improving long-term or cyclical fundamental trends;
o High quality, well-managed companies; and
o Companies with competitive business models
The Sub-Advisor employs a four-step investment process:
1. Proprietary Quantitative Selection Criteria - The small cap growth stock universe is analyzed through a quantitative model and stocks are given rankings along four dimensions: fundamental, risk, valuation and technical. This reduces the universe to a bullpen of approximately 300 stocks.
2. Fundamental Research - Bottom-up fundamental research is conducted on the resulting bullpen of stocks along several dimensions, such as earnings drivers (those factors that ultimately determine a company's ability to grow its earnings), business model (the strategy used in managing the business), and operating margins (the earnings a company produces before allocating interest expenses, taxes, depreciation, etc.).
3. Team Review - A portfolio manager recommends stocks after performing the fundamental research. Each portfolio manager specializes in one or more economic sectors, and is responsible for making recommendations within that sector. The entire investment team reviews this recommendation, determining whether to add it to the Fund along with the corresponding position weight, if applicable.
4. Portfolio Construction - The portfolio is constructed subject to guidelines and constraints. A risk overlay is added to ensure optimal positioning with respect to macroeconomic trends. Positions are consistently monitored and an annual intensive review is conducted to determine if drivers of growth are still present in each security.
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment in the Fund, and the Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the Sub-Advisor's investment approach does not accurately identify attractive investments
o If the companies the Fund invests in do not grow as rapidly or increase in value as expected
o Because securities of small cap companies may be more thinly traded and may have more frequent and larger price changes than securities of large cap companies
o Because the Fund may invest in the technology sector which at times may be subject to greater market fluctuation than other sectors
o Because growth oriented funds may underperform when value investing is in favor
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation ("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.
PERFORMANCE NOTE
The bar chart and performance table below illustrate some indication of the risks of investing in the Diversified Small Cap Growth Fund. This bar chart shows changes in performance (before taxes) of the Fund's Class A shares during each full calendar year of operations. The bar chart does not reflect any sales charges, which would reduce your return. The returns for Class C shares offered by the Fund will be lower than the Class A returns shown in the bar chart since Class C shares have higher 12b-1 distribution fees. The returns for Class Y shares of the Fund, offered in a separate prospectus, will differ from the Class A returns shown below, depending on the expenses of that class. The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
DIVERSIFIED SMALL CAP GROWTH FUND - CLASS A TOTAL RETURNS
2007
16.84%
Best Quarter: 2nd Quarter 2007 +9.45 Worst Quarter: 4th Quarter 2007 -1.59 |
The year-to-date return for the Fund's Class A shares as of June 30, 2008 is -13.02%.
This table compares the Fund's average annual total returns (before and after taxes) for the period ended December 31, 2007, to those of the Russell 2000 Growth Index. After-tax returns are calculated using the highest individual federal income tax rate and do not reflect the impact of state and local taxes. Your after-tax returns may differ from those shown. The returns do not apply to shares held in an IRA, 401(k) or other tax-deferred account. The after-tax returns shown in the table are for Class A shares only. The after-tax returns for Class C shares offered by the Fund will differ from the Class A after-tax returns.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 2007
SINCE CLASS
1 YEAR STARTED(1)
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DIVERSIFIED SMALL CAP GROWTH FUND-CLASS A
Return Before Taxes 10.13% 15.66%
Return After Taxes on Distributions 7.00% 13.16%
Return After Taxes on Distributions and Sale of Fund Shares 7.01% 12.06%
Russell 2000 Growth Index(2) 7.05% 11.89%
DIVERSIFIED SMALL CAP GROWTH FUND-CLASS C
Return Before Taxes 15.97% 20.07%
Russell 2000 Growth Index(2) 7.05% 11.89%
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(1) Class A shares began operations on September 6, 2006 and Class C shares began operations on August 1, 2007. The Class C shares performance was calculated using the historical performance of Class A shares for the period from September 6, 2006 through July 31, 2007. Performance for this period has been restated to reflect the impact of Class C shares fees and expenses.
(2) The Russell 2000 Growth Index measures the performance of those Russell 2000 Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Indices reflect no deductions for fees, expenses or taxes. You cannot invest directly in an index.
WHAT IS AN INDEX?
An index measures the market price of a specific group of securities in a particular market of securities in a market sector. You cannot invest directly in an index. An index does not have an investment advisor and does not pay any commissions, expenses or taxes. If an index had expenses, its performance would be lower.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold Class A and Class C shares of the Fund:
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS C
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Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.75%(1) None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or the amount redeemed, whichever is less) None(2) 1.00%(3)
Wire Redemption Fee Up to $15 Up to $15
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ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
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Management Fees 1.05% 1.05%
Distribution (12b-1) Fees 0.25% 1.00%
Other Expenses 0.74% 0.74%
Administration Fees 0.20% 0.20%
Other Fees 0.54% 0.54%
Total Annual Fund Operating Expenses 2.04% 2.79%
Less Fee Waiver and/or Expense Reimbursement(4) 0.64% 0.64%
Net Expenses(5) 1.40% 2.15%
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(1) You may pay a reduced sales charge on very large purchases. (See "Reduced Class A Sales Charge" in this Prospectus.)
(2) Purchases of $1 million or more do not pay a front-end sales charge, but may pay a contingent deferred sales charge ("CDSC") of 1.00% if shares are redeemed within 1 year of their purchase and compensation was paid to an unaffiliated broker-dealer.
(3) The 1.00% CDSC is not applicable if shares are held for 1 year or longer and may be waived under other circumstances described in this Prospectus.
(4) Touchstone Advisors and the Trust have entered into an Expense Limitation Agreement whereby Touchstone Advisors has contractually agreed to waive a portion of its advisory fee and/or reimburse certain Fund expenses in order to limit "Net Expenses" to no more than 1.40% for Class A shares and 2.15% for Class C shares. These expense limitations will remain in effect until at least July 31, 2009. Pursuant to its agreement with the Trust, Touchstone Advisors has no ability to recoup any previously waived fees or reimbursed expenses from the Fund. For purposes of these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is excluded from Touchstone Advisors' waiver obligations.
(5) "Net Expenses" for Class C shares shown above will differ from the "Net Expenses" reflected in the Fund's Annual Report for the fiscal year ended March 31, 2008. The actual "Net Expenses" for the Fund's Class C shares for the fiscal year ended March 31, 2008 were 0.84%.
EXAMPLE. This example is intended to help you compare the cost of investing in the Diversified Small Cap Growth Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem 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:
ASSUMING NO
ASSUMING REDEMPTION AT END OF PERIOD REDEMPTION
CLASS A CLASS C CLASS C
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1 Year $709 $318 $218
3 Years $1,120 $805 $805
5 Years $1,554 $1,418 $1,418
10 Years $2,760 $3,072 $3,072
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THE FUND'S INVESTMENT GOAL
The Growth Opportunities Fund seeks long-term growth of capital.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily in stocks of domestic growth companies that the Sub-Advisor believes have a demonstrated record of achievement with excellent prospects for earnings growth over a 1 to 3 year period. In choosing securities, the Sub-Advisor looks for companies that it believes are reasonably priced with high foreseen earnings potential, which may include companies in the technology sector. The Fund may invest in companies of various sizes.
The Fund will invest in companies that the Sub-Advisor believes have shown above-average and consistent long-term growth in earnings and have excellent prospects for future growth.
The Fund is non-diversified and may invest a significant percentage of its assets in the securities of a single company. The Fund may invest more than 25% of its assets in a particular market sector or industry.
The Sub-Advisor expects to hold investments in the Fund for an average of 12 to 24 months. However, changes in the Sub-Advisor's outlook and market conditions may significantly affect the amount of time the Fund holds a security. The Fund's portfolio turnover may vary greatly from year to year and during a particular year. The Sub-Advisor generally will sell a security if one or more of the following occurs:
(1) the predetermined price target objective is exceeded;
(2) there is an alteration to the original investment case;
(3) valuation relative to the stock's peer group is no longer attractive; or
(4) better risk/reward opportunities may be found in other stocks.
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment in the Fund, and the Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the market continually values the stocks in the Fund's portfolio lower than the Sub-Advisor believes they should be valued
o If the companies that the Fund invests in do not grow as rapidly or increase in value as expected
o If the Sub-Advisor's investment approach does not accurately identify attractive investments
o Because the Fund may invest in the technology sector which at times may be subject to greater market fluctuation than other sectors
o Because a non-diversified fund may hold a significant percentage of its assets in the securities of one company, it may be more sensitive to market changes than a diversified fund
o Because a fund that concentrates its investments in a particular market sector or industry may be more sensitive to adverse changes within that sector or industry than a fund that does not concentrate its investments
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 Because securities of small and mid cap companies may be more thinly traded and may have more frequent and larger price changes than securities of large cap companies
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency.
As with any mutual fund, there is no guarantee that the Fund will achieve its goal.
You can find more information about the Fund's investments and risks under the "Investment Strategies and Risks" section of this Prospectus.
THE FUND'S PERFORMANCE
The bar chart and performance table below illustrate some indication of the risks of investing in the Growth Opportunities Fund. This bar chart shows changes in performance (before taxes) of the Fund's Class A shares for each of the last 10 calendar years. The bar chart does not reflect any sales charges, which would reduce your return. The returns for other classes of shares offered by the Fund will be lower than the Class A returns shown in the bar chart since the other classes have higher 12b-1 distribution fees. The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
In July 2006 the Fund replaced its previous sub-advisor with Westfield Capital Management Company, LP. The performance shown below prior to July 2006 represents the performance of the previous sub-advisor.
GROWTH OPPORTUNITIES FUND - CLASS A TOTAL RETURNS
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
39.06% 68.25% -2.56% -28.47% -35.76% 39.74% 8.52% 9.07% 0.10% 17.15%
Best Quarter:
4th Quarter 1999 +47.98%
Worst Quarter:
3rd Quarter 2001 -26.71%
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The year-to-date return for the Fund's Class A shares as of June 30, 2008 is -2.12%.
This table compares the Fund's average annual total returns (before and after taxes) for the period ended December 31, 2007, to those of the Russell 3000 Growth Index. After-tax returns are calculated using the highest individual federal income tax rate and do not reflect the impact of state and local taxes. Your after-tax returns may differ from those shown. The returns do not apply to shares held in an IRA, 401(k) or other tax-deferred account. The after-tax returns shown in the table are for Class A shares only. The after-tax returns for other classes of shares offered by the Fund will differ from the Class A after-tax returns.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 2007
1 YEAR 5 YEARS 10 YEARS
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GROWTH OPPORTUNITIES FUND-CLASS A
Return Before Taxes 10.39% 12.82% 6.72%
Return After Taxes on Distributions 10.39% 12.82% 6.24%
Return After Taxes on Distributions and Sale of Fund Shares 6.76% 11.24% 5.68%
Russell 3000 Growth Index(1) 11.40% 12.42% 3.83%
GROWTH OPPORTUNITIES FUND-CLASS C(2)
Return Before Taxes 17.39% 13.91% 6.66%
Russell 3000 Growth Index(1) 11.40% 12.42% 3.83%
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SINCE CLASS
1 YEAR 5 YEARS STARTED(3)
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GROWTH OPPORTUNITIES FUND-CLASS B
Return Before Taxes 13.67% 13.61% -0.07%
Russell 3000 Growth Index(1) 11.40% 12.42% 2.25%
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(1) The Russell 3000 Growth Index measures the performance of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. The Indices reflect no deductions for fees, expenses or taxes. You cannot invest directly in an index.
(2) Class C shares began operations on August 2, 1999 and Class A shares began operations on September 30, 1995. The Class C shares performance was calculated using the historical performance of the Class A shares for the period from September 30, 1995 through August 1, 1999. Performance for this period has been restated to reflect the impact of Class C shares fees and expenses.
(3) Class B shares began operations on May 1, 2001.
WHAT IS AN INDEX?
An index measures the market price of a specific group of securities in a particular market of securities in a market sector. You cannot invest directly in an index. An index does not have an investment advisor and does not pay any commissions, expenses or taxes. If an index had expenses, its performance would be lower.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold Class A, Class B and Class C shares of the Fund:
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
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Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.75%(1) None None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or the amount redeemed, whichever is less) None(2) 5.00%(3) 1.00%(4)
Wire Redemption Fee Up to $15 Up to $15 Up to $15
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ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
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Management Fees 1.00% 1.00% 1.00%
Distribution (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses 0.66% 1.07% 0.71%
Administration Fees 0.20% 0.20% 0.20%
Other Expenses 0.46% 0.87% 0.51%
Total Annual Fund Operating Expenses 1.91% 3.07% 2.71%
Less Fee Waiver and/or Expense Reimbursement(5) 0.36% 0.77% 0.41%
Net Expenses 1.55% 2.30% 2.30%
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(1) You may pay a reduced sales charge on very large purchases. (See "Reduced Class A Sales Charge" in this Prospectus.)
(2) Purchases of $1 million or more do not pay a front-end sales charge, but may pay a contingent deferred sales charge ("CDSC") of 1.00% if shares are redeemed within 1 year of their purchase and compensation was paid to an unaffiliated broker-dealer.
(3) You will pay a 5.00% CDSC if shares are redeemed within 1 year of their purchase. The CDSC will be incrementally reduced over time. After the 6th year, there is no CDSC. The CDSC may be waived under certain circumstances described in this Prospectus.
(4) The 1.00% CDSC is not applicable if shares are held for 1 year or longer and may be waived under other circumstances described in this Prospectus.
(5) Touchstone Advisors and the Trust have entered into an Expense Limitation Agreement whereby Touchstone Advisors has contractually agreed to waive a portion of its advisory fee and/or reimburse certain Fund expenses in order to limit "Net Expenses" to no more than 1.55% for Class A shares and 2.30% for Class B and Class C shares. These expense limitations will remain in effect until at least July 31, 2009. Pursuant to its agreement with the Trust, Touchstone Advisors has no ability to recoup any previously waived fees or reimbursed expenses from the Fund. For purposes of these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is excluded from Touchstone Advisors' waiver obligations.
EXAMPLE. This example is intended to help you compare the cost of investing in the Growth Opportunities Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem 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). The example also reflects changes in the 10 year operating expenses of Class B shares since Class B shares convert to Class A shares after 8 years. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
ASSUMING NO
ASSUMING REDEMPTION AT END OF PERIOD REDEMPTION
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CLASS A CLASS B CLASS C CLASS B CLASS C
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1 Year $724 $633 $333 $233 $233
3 Years $1,108 $1,076 $803 $876 $803
5 Years $1,516 $1,644 $1,398 $1,544 $1,398
10 Years $2,652 $3,057 $3,012 $3,057 $3,012
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THE FUND'S INVESTMENT GOALS
The Large Cap Core Equity Fund seeks long-term capital appreciation as its primary goal and income as its secondary goal.
ITS PRINCIPAL INVESTMENT STRATEGIES
The Fund invests primarily (at least 80% of its total assets) in common stocks of large cap companies. Shareholders will be provided with at least 60 days' prior notice of any change in this policy. A large cap company has a market capitalization of more than $10 billion. The Fund's portfolio will generally consist of 40 to 60 stocks. The Fund's investments may include companies in the technology sector.
The Sub-Advisor selects stocks that it believes are attractively valued with active catalysts in place. The Sub-Advisor uses a database of 4,000 stocks from which to choose the companies that will be selected for the Fund's portfolio. A specific process is followed to assist the Sub-Advisor in its selections:
o The 4,000 stocks are reduced to 1,000 by screening for the stocks in the Russell 1000 Index.
o The 1,000 stocks are reduced by screening for the largest market capitalizations (over $10 billion).
o A model is applied to select stocks that the Sub-Advisor believes are priced at a discount to their true value.
o The Sub-Advisor then searches for those companies that have unrecognized earnings potential versus their competitors. Restructuring announcements, changes in regulations and spot news can be indicators of improved earnings potential.
Stocks are considered for sale if the Sub-Advisor believes they are overpriced, or if a significant industry or company development forces a re-evaluation of expected earnings. Stocks will be sold if the relative price to intrinsic value reaches 50% or more above the Russell 1000 Index, if a structural event permanently lowers the company's expected earnings, or if the integrity of accounting is in doubt. The portfolio is rebalanced periodically, or as needed, due to changes in the Russell 1000 Index or the Fund's other portfolio securities.
The Sub-Advisor's selection process is expected to cause the Fund's portfolio to have some of the following characteristics:
o Attractive relative value
o Unrecognized earnings potential
o Above-average market capitalization
o Seasoned management
o Dominant industry position
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment in the Fund, and the Fund could also return less than other investments:
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 stock selection model does not accurately identify stocks that are priced at a discount to their true value
o If the market continually values the stocks in the Fund's portfolio lower than the Sub-Advisor believes they should be valued
o Because the Fund may invest in the technology sector which at times may be subject to greater market fluctuation than other sectors
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency.
As with any mutual fund, there is no guarantee that the Fund will achieve its goals.
You can find out more information about the Fund's investments and risks under the "Investment Strategies and Risks" section of this Prospectus.
THE FUND'S PERFORMANCE
The bar chart and performance table below illustrate some indication of the risks of investing in the Large Cap Core Equity Fund. This bar chart shows changes in performance (before taxes) of the Fund's Class A shares during each full calendar year of operations. The bar chart does not reflect any sales charges, which would reduce your return. The returns for Class C shares offered by the Fund will be lower than the Class A returns shown in the bar chart since Class C shares have higher 12b-1 distribution fees. The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
LARGE CAP CORE EQUITY FUND - CLASS A TOTAL RETURNS
2001 2002 2003 2004 2005 2006 2007
-8.95% -21.66% 30.86% 8.36% 3.27% 17.12% 4.58%
Best Quarter:
2nd Quarter 2003 +18.81%
Worst Quarter:
3rd Quarter 2002 -20.19%
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The year-to-date return for the Fund's Class A shares as of June 30, 2008 is -11.46%.
This table compares the Fund's average annual total returns (before and after taxes) for the period ended December 31, 2007, to those of the Russell 1000 Index. After-tax returns are calculated using the highest individual federal income tax rate and do not reflect the impact of state and local taxes. Your after-tax returns may differ from those shown. The returns do not apply to shares held in an IRA, 401(k) or other tax-deferred account. The after-tax returns shown in the table are for Class A shares only. The after-tax returns for Class C shares offered by the Fund will differ from the Class A after-tax returns.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 2007
SINCE CLASS
1 YEAR 5 YEARS STARTED(1)
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LARGE CAP CORE EQUITY FUND-CLASS A
Return Before Taxes -1.47% 11.06% 2.25%
Return After Taxes on Distributions -2.09% 10.81% 2.00%
Return After Taxes on Distributions and Sale of Fund Shares(2) -0.19% 9.64% 1.84%
Russell 1000 Index(3) 5.77% 13.43% 2.15%
LARGE CAP CORE EQUITY FUND-CLASS C
Return Before Taxes 3.80% 11.57% 2.36%
Russell 1000 Index(3) 5.77% 13.43% 2.23%
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(1) Class A shares began operations on May 1, 2000 and Class C shares began operations on May 16, 2000.
(2) When the "Return After Taxes on Distributions and Sale of Fund Shares" is greater than the "Return Before Taxes," it is because of realized losses. If a capital loss occurs upon the redemption of the Fund's shares, the capital loss is recorded as a tax benefit, which increases the return and translates into an assumed tax deduction that benefits the shareholder.
(3) The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Indices reflect no deductions for fees, expenses or taxes. You cannot invest directly in an index.
WHAT IS AN INDEX?
An index measures the market price of a specific group of securities in a particular market of securities in a market sector. You cannot invest directly in an index. An index does not have an investment advisor and does not pay any commissions, expenses or taxes. If an index had expenses, its performance would be lower.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold Class A and Class C shares of the Fund:
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS C
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Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.75%(1) None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or the amount redeemed, whichever is less) None(2) 1.00%(3)
Wire Redemption Fee Up to $15 Up to $15
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ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS C
-------------------------------------------------------------------------------------------------------------------
Management Fees 0.65% 0.65%
Distribution (12b-1) Fees 0.25% 1.00%
Other Expenses 0.34% 0.72%
Administration Fees 0.20% 0.20%
Other Expenses 0.14% 0.52%
Total Annual Fund Operating Expenses 1.24% 2.37%
Less Fee Waiver and/or Expense Reimbursement(4) 0.09% 0.47%
Net Expenses 1.15% 1.90%
-------------------------------------------------------------------------------------------------------------------
|
(1) You may pay a reduced sales charge on very large purchases. (See "Reduced Class A Sales Charge" in this Prospectus.)
(2) Purchases of $1 million or more do not pay a front-end sales charge, but may pay a contingent deferred sales charge ("CDSC") of 1.00% if shares are redeemed within 1 year of their purchase and compensation was paid to an unaffiliated broker-dealer.
(3) The 1.00% CDSC is not applicable if shares are held for 1 year or longer and may be waived under other circumstances described in this Prospectus.
(4) Touchstone Advisors and the Trust have entered into an Expense Limitation Agreement whereby Touchstone Advisors has contractually agreed to waive a portion of its advisory fee and/or reimburse certain Fund expenses in order to limit "Net Expenses" to no more than 1.15% for Class A shares and 1.90% for Class C shares. These expense limitations will remain in effect until at least July 31, 2009. Pursuant to its agreement with the Trust, Touchstone Advisors has no ability to recoup any previously waived fees or reimbursed expenses from the Fund. For purposes of these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is excluded from Touchstone Advisors' waiver obligations.
EXAMPLE. This example is intended to help you compare the cost of investing in the Large Cap Core Equity Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem 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:
ASSUMING NO
ASSUMING REDEMPTION AT END OF PERIOD REDEMPTION
CLASS A CLASS C CLASS C
------------------------------------------------------------------------------------------------
1 Year $685 $293 $193
3 Years $937 $695 $695
5 Years $1,209 $1,223 $1,223
10 Years $1,981 $2,670 $2,670
------------------------------------------------------------------------------------------------
|
The Fund's Investment Goal
The Large Cap Growth Fund seeks long-term growth of capital.
ITS PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest at least 80% of its assets in
common stocks of large cap companies. Shareholders will be provided with at
least 60 days' prior notice of any change in this policy. A large cap company
has a market capitalization of more than $10 billion.
The Fund is non-diversified and may invest a significant percentage of its assets in the securities of one issuer. The Fund may invest up to 10% of its total assets in the securities of one company and 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 Sub-Advisor seeks to identify and select inefficiently priced securities with strong appreciation potential by employing a proprietary investment process. The Sub-Advisor's proprietary investment process is a disciplined quantitative, objective, "bottom-up," process and contains the following three steps. In the first step of the investment process, the Sub-Advisor calculates and analyzes a "reward/risk ratio" for each potential investment. The reward/risk ratio is designed to identify stocks with above average potential returns and adjusted for risk. In the second step of the investment process, the Sub-Advisor applies two or more sets of fundamental criteria to identify attractive stocks among those with favorable reward/risk ratios. 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 a combination of the applicable criteria are further considered in the third and final step of the investment process, which addresses the construction of the portfolio. Stocks are selected and weighted according to a disciplined methodology designed to maximize potential return and minimize potential risk.
Every quarter the Sub-Advisor evaluates the fundamental criteria used in the second step of the investment process. The criteria included in this step and the relative weightings of each fundamental criterion are adjusted as necessary. This allows the Sub-Advisor to monitor which criteria appear to be in favor in the financial markets. If a security held by the fund does not meet the requirements of each step of the Sub-Advisor's investment process, then the Sub-Advisor will evaluate the security and, if necessary, replace it.
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment in the Fund, and the Fund could also return less than other investments:
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 stock screening process and risk/reward analysis is not accurate
o If the companies that the Fund invests in 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.
THE FUND'S PERFORMANCE
The bar chart and performance table below illustrate some indication of the risks of investing in the Large Cap Growth Fund. This bar chart shows changes in performance (before taxes) of the Fund's Class A shares for each of the last 10 calendar years. The bar chart does not reflect any sales charges, which would reduce your return. The returns for Class B and Class C shares offered by the Fund will be lower than the Class A returns shown in the bar chart since the other classes have higher 12b-1 distribution fees. The returns for Class Y shares of the Fund, offered in a separate prospectus, will differ from the Class A returns shown below, depending on the expenses of that class. The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
LARGE CAP GROWTH FUND - CLASS A TOTAL RETURNS*
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
41.17% 63.03% -7.66% -23.47% -26.70% 35.60% 17.12% 16.37% -3.91% 26.42%
Best Quarter:
4th Quarter 1999 +40.00%
Worst Quarter:
1st Quarter 2001 -27.98%
|
The year-to-date return for the Fund's Class A shares as of June 30, 2008 is -5.85%.
* Effective October 6, 2003, substantially all of the assets of the Navellier Millennium Large Cap Growth Portfolio and the Navellier Performance Large Cap Growth Portfolio (the "Navellier Portfolios") were transferred into the Touchstone Large Cap Growth Fund for which shareholders of the Navellier Portfolios 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 with Navellier Management, Inc. Thereafter, Navellier & Associates, Inc. assumed the sub-advisory duties of its sister company, Navellier Management, Inc.
This table compares the Fund's average annual total returns (before and after taxes) for the period ended December 31, 2007, to those of the Russell 1000 Growth Index. After-tax returns are calculated using the highest individual federal income tax rate and do not reflect the impact of state and local taxes. Your after-tax returns may differ from those shown. The returns do not apply to shares held in an IRA, 401(k) or other tax-deferred account. The after-tax returns shown in the table are for Class A shares only. The after-tax returns for other classes of shares offered by the Fund will differ from the Class A after-tax returns.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 2007
1 YEAR 5 YEARS 10 YEARS
-------------------------------------------------------------------------------------------------------------------
LARGE CAP GROWTH FUND CLASS A
Return Before Taxes 19.16% 16.18% 9.69%
Return After Taxes on Distributions 19.16% 16.18% 9.68%
Return After Taxes on Distributions and Sale of Fund Shares 12.45% 14.28% 8.65%
Russell 1000 Growth Index(1) 11.81% 12.10% 3.83%
LARGE CAP GROWTH FUND CLASS C(2)
Return Before Taxes 26.24% 16.84% 9.60%
Russell 1000 Growth Index(1) 11.81% 12.10% 3.83%
-------------------------------------------------------------------------------------------------------------------
|
SINCE CLASS
1 YEAR STARTED(3)
-------------------------------------------------------------------------------------------------------------------
LARGE CAP GROWTH FUND CLASS B
Return Before Taxes 22.32% 13.55%
Russell 1000 Growth Index(1) 11.81% 9.19%
-------------------------------------------------------------------------------------------------------------------
|
(1) The Russell 1000 Growth Index is an unmanaged index that measures the performance of those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Indices reflect no deductions for fees, expenses or taxes. You cannot invest directly in an index.
(2) Class C shares began operations on October 4, 2003 and Class A shares began operations on December 19, 1997. The Class C shares performance was calculated using the historical performance of the Class A shares for the period from December 19, 1997 through October 3, 2003. Performance for this period has been restated to reflect the impact of Class C shares fees and expenses.
(3) Class B shares began operations on October 4, 2003.
WHAT IS AN INDEX?
An index measures the market price of a specific group of securities in a particular market of securities in a market sector. You cannot invest directly in an index. An index does not have an investment advisor and does not pay any commissions, expenses or taxes. If an index had expenses, its performance would be lower.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold Class A, Class B and Class C shares of the Fund:
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.75%(1) None None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or the amount redeemed, whichever is less) None(2) 5.00%(3) 1.00%(4)
Wire Redemption Fee Up to $15 Up to $15 Up to $15
-------------------------------------------------------------------------------------------------------------------
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ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------------------------------------------
Management Fees 0.71% 0.71% 0.71%
Distribution (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses 0.37% 0.47% 0.38%
Administration Fees 0.20% 0.20% 0.20%
Other Expenses 0.17% 0.27% 0.18%
Total Annual Fund Operating Expenses 1.33% 2.18% 2.09%
Less Fee Waiver and/or Expense Reimbursement(5) 0.08% 0.18% 0.09%
Net Expenses 1.25% 2.00% 2.00%
--------------------------------------------------------------------------------------------------------------------
|
(1) You may pay a reduced sales charge on very large purchases. (See "Reduced Class A Sales Charge" in this Prospectus.)
(2) Purchases of $1 million or more do not pay a front-end sales charge, but may pay a contingent deferred sales charge ("CDSC") of 1.00% if shares are redeemed within 1 year of their purchase and compensation was paid to an unaffiliated broker-dealer.
(3) You will pay a 5.00% CDSC if shares are redeemed within 1 year of their purchase. The CDSC will be incrementally reduced over time. After the 6th year, there is no CDSC. The CDSC may be waived under certain circumstances described in this Prospectus.
(4) The 1.00% CDSC is not applicable if shares are held for 1 year or longer and may be waived under other circumstances described in this Prospectus.
(5) Touchstone Advisors and the Trust have entered into an Expense Limitation Agreement whereby Touchstone Advisors has contractually agreed to waive a portion of its advisory fee and/or reimburse certain Fund expenses in order to limit "Net Expenses" to no more than 1.25% for Class A shares and 2.00% for Class B and Class C shares. These expense limitations will remain in effect until at least July 31, 2009. Pursuant to its agreement with the Trust, Touchstone Advisors has no ability to recoup any previously waived fees or reimbursed expenses from the Fund. For purposes of these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is excluded from Touchstone Advisors' waiver obligations.
EXAMPLE. This example is intended to help you compare the cost of investing in the Large Cap Growth Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem 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). The example also reflects changes in the 10 year operating expenses of Class B shares since Class B shares convert to Class A shares after 8 years. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
ASSUMING NO
ASSUMING REDEMPTION AT END OF PERIOD REDEMPTION
CLASS A CLASS B CLASS C CLASS B CLASS C
----------------------------------------------------------------------------------------------------------------
1 Year $695 $603 $303 $203 $203
3 Years $965 $865 $646 $665 $646
5 Years $1,255 $1,253 $1,115 $1,153 $1,115
10 Years $2,078 $2,283 $2,414 $2,283 $2,414
----------------------------------------------------------------------------------------------------------------
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THE FUND'S INVESTMENT GOAL
The Large Cap Value Fund seeks long-term growth of capital and income.
ITS PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest at least 80% of its assets in common stocks of large cap companies. Shareholders will be provided with at least 60 days' prior notice of any change in this policy. A large cap company has a market capitalization in excess of the median company in the Russell 1000 Value Index ($4.3 billion as of June 30, 2008). The Fund will invest in common stocks of U.S. and foreign large cap companies.
The Fund is non-diversified and may invest a significant percentage of its assets in the securities of one issuer. The Fund may invest up to 10% of its total assets in the securities of one company and up to 25% of its total assets in the securities of one industry. The Fund will generally hold approximately 40 stocks.
The Fund will invest in stocks that the Sub-Advisor believes have below-average valuations in light of their improving business fundamentals. The Fund may invest in foreign equity securities principally traded on non-U.S. exchanges as well as those traded in the U.S. in the form of American Depositary Receipts ("ADRs"). The Sub-Advisor may use derivative instruments, such as futures and options contracts, for hedging purposes. The Fund's investments may include companies in the technology sector. Any income generated from the Fund will come from dividend-paying common stocks.
The Sub-Advisor employs a "value" approach to stock selection, looking for stocks of companies with below-average valuations whose business fundamentals are expected to improve. In determining a company's valuation, the Sub-Advisor considers factors such as price-to-cash flow, price-to-earnings and price-to-book ratios. The Sub-Advisor seeks to identify the key drivers of a company's fundamental results and catalysts for change that may point to improving fundamentals in the future, such as new management or new or improved products. The Sub-Advisor generally sells a security when it reaches a target price, or when it concludes that a company's business fundamentals are weakening.
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment in the Fund, and the Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the stocks in the Fund's portfolio are not undervalued as expected
o Because 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 Sub-Advisor's stock selection process does not identify attractive investments
o Because investments in foreign securities may have more frequent and larger price changes than U.S. securities and may lose value due to changes in currency exchange rates and other factors
o Because the use of futures and options for hedging purposes may result in a loss if changes in their value do not correspond accurately to changes in the value of the Fund's holdings
o Because the Fund may invest in the technology sector which at times may be subject to greater market fluctuation than other sectors
o Because value oriented funds may underperform when growth investing is in favor
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.
PERFORMANCE NOTE
The bar chart and performance table below illustrate some indication of the risks of investing in the Large Cap Value Fund. This bar chart shows changes in performance (before taxes) of the Fund's Class A shares during each full calendar year of operations. The bar chart does not reflect any sales charges, which would reduce your return. The returns for Class C shares offered by the Fund will be lower than the Class A returns shown in the bar chart since Class C shares have higher 12b-1 distribution fees. The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
LARGE CAP VALUE FUND - CLASS A TOTAL RETURNS
2007
-27.01%
Best Quarter:
2nd Quarter 2007 +7.35
Worst Quarter:
4th Quarter 2007 -20.34
The year-to-date return for the Fund's Class A shares as of June 30, 2008 is -27.96%.
This table compares the Fund's average annual total returns (before and after taxes) for the period ended December 31, 2007, to those of the Russell 1000 Value Index. After-tax returns are calculated using the highest individual federal income tax rate and do not reflect the impact of state and local taxes. Your after-tax returns may differ from those shown. The returns do not apply to shares held in an IRA, 401(k) or other tax-deferred account. The after-tax returns shown in the table are for Class A shares only. The after-tax returns for Class C shares offered by the Fund will differ from the Class A after-tax returns.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 2007
SINCE FUND
1 YEAR STARTED(1)
----------------------------------------------------------------------------------------------
LARGE CAP VALUE FUND-CLASS A
Return Before Taxes -31.18% -12.08%
Return After Taxes on Distributions -32.80% -13.60%
Return After Taxes on Distributions and Sale of Fund Shares(2) -19.86% -10.85%
Russell 1000 Value Index(3) -0.17% 8.59%
LARGE CAP VALUE FUND-CLASS C
Return Before Taxes -27.57% -9.85%
Russell 1000 Value Index(3) -0.17% 8.59%
----------------------------------------------------------------------------------------------
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(1) The Fund began operations on March 6, 2006.
(2) When the "Return After Taxes on Distributions and Sale of Fund Shares" is greater than the "Return Before Taxes," it is because of realized losses. If a capital loss occurs upon the redemption of the Fund's shares, the capital loss is recorded as a tax benefit, which increases the return and translates into an assumed tax deduction that benefits the shareholder.
(3) The Russell 1000 Value Index measures the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Indices reflect no deductions for fees, expenses or taxes. You cannot invest directly in an index.
WHAT IS AN INDEX?
An index measures the market price of a specific group of securities in a particular market of securities in a market sector. You cannot invest directly in an index. An index does not have an investment advisor and does not pay any commissions, expenses or taxes. If an index had expenses, its performance would be lower.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold Class A and Class C shares of the Fund:
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS C
-------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.75%(1) None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or the amount redeemed, whichever is less) None(2) 1.00%(3)
Wire Redemption Fee Up to $15 Up to $15
-------------------------------------------------------------------------------------------------------------------
|
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
-------------------------------------------------------------------------------------------------------------------
Management Fees 0.75% 0.75%
Distribution (12b-1) Fees 0.25% 1.00%
Other Expenses 0.49% 0.61%
Administration Fees 0.20% 0.20%
Other Expenses 0.29% 0.41%
Acquired Fund Fees and Expenses (AFFE)(4) 0.02% 0.02%
Total Annual Fund Operating Expenses 1.51% 2.38%
Less Fee Waiver and/or Expense Reimbursement(5) 0.14% 0.26%
Net Expenses(6) 1.37% 2.12%
-------------------------------------------------------------------------------------------------------------------
|
(1) You may pay a reduced sales charge on very large purchases. (See "Reduced Class A Sales Charge" in this Prospectus.)
(2) Purchases of $1 million or more do not pay a front-end sales charge, but may pay a contingent deferred sales charge ("CDSC") of 1.00% if shares are redeemed within 1 year of their purchase and compensation was paid to an unaffiliated broker-dealer.
(3) The 1.00% CDSC is not applicable if shares are held for 1 year or longer and may be waived under other circumstances described in this Prospectus.
(4) Acquired Fund Fees and Expenses are not fees or expenses incurred by the Fund directly but are expenses of the investment companies in which the Fund invests. You incur these fees and expenses indirectly through the valuation of the Fund's investment in those investment companies. Acquired Fund Fees and Expenses will vary with changes in the expenses of the underlying funds (which may include changes in their fee waiver agreements, if any) as well as the degree to which the Fund invests in underlying funds, and may be higher or lower than the amount shown above.
(5) Touchstone Advisors and the Trust have entered into an Expense Limitation Agreement whereby Touchstone Advisors has contractually agreed to waive a portion of its advisory fee and/or reimburse certain Fund expenses in order to limit "Net Expenses"(excluding AFFE) to no more than 1.35% for Class A shares and 2.10% for Class C shares. These expense limitations will remain in effect until at least July 31, 2009. Pursuant to its agreement with the Trust, Touchstone Advisors has no ability to recoup any previously waived fees or reimbursed expenses from the Fund. For purposes of these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is excluded from Touchstone Advisors' waiver obligations.
(6) The net expenses excluding AFFE for Class A and Class C shares are 1.35% and 2.10%, respectively.
EXAMPLE. This example is intended to help you compare the cost of investing in the Large Cap Value Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem 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:
Assuming No
Assuming Redemption at End of Period Redemption
CLASS A CLASS C CLASS C
------------------------------------------------------------------------------------------------------------
1 Year $706 $315 $215
3 Years $1,012 $718 $718
5 Years $1,339 $1,247 $1,247
10 Years $2,262 $2,696 $2,696
------------------------------------------------------------------------------------------------------------
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THE FUND'S INVESTMENT GOALS
The Mid Cap Growth Fund seeks to increase the value of Fund shares as a primary goal and to earn income as a secondary goal.
ITS PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest at least 80% of its assets in common stocks of mid cap companies. Shareholders will be provided with at least 60 days' prior notice of any change in this policy. A mid cap company has a market capitalization between $1.5 billion and $12 billion. The Fund may also invest in companies in the technology sector.
The Fund is sub-advised by two Sub-Advisors that use different style methodologies when evaluating which stocks to buy or sell in their portfolio. Westfield Capital Management Company, LP ("Westfield") uses a growth approach and TCW Investment Management Company ("TCW") uses a value approach. Westfield may invest in companies that have earnings it believes may grow faster than the U.S. economy in general due to new products, management initiatives or personnel changes at the company or economic shocks such as high inflation or sudden increases or decreases in interest rates. TCW may invest in companies that it believes are undervalued, including companies with unrecognized asset values or undervalued growth, and companies undergoing a turnaround. Both Sub-Advisors evaluate companies by using fundamental analysis of the company's financial statements, interviews with management, analysis of the company's operations and product development and consideration of the company's industry category.
Westfield will sell a security if the predetermined sell price is achieved, if it concludes that the original case for investment is no longer valid, if a security becomes larger than a predetermined percentage of the Fund's portfolio or if more attractive alternative investments are available. TCW will sell a security if it is believed to be fairly valued, if the Fund's holding in a security becomes larger than a predetermined percentage of the Fund's portfolio or if the goals for a security cannot be achieved according to its evaluation process.
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment in the Fund, and the Fund could also return less than other investments:
o If the stock market as a whole goes down
o Because securities of mid cap companies may be more thinly traded and may have more frequent and larger price changes than securities of large cap companies
o 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 If the methodologies used by the Sub-Advisors to select stocks do not identify attractive investments
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 goals.
You can find more information about the Fund's investments and risks under the "Investment Strategies and Risks" section of this Prospectus.
THE FUND'S PERFORMANCE
The bar chart and performance table below illustrate some indication of the risks of investing in the Mid Cap Growth Fund. This bar chart shows changes in performance (before taxes) of the Fund's Class A shares for each of the last 10 calendar years. The bar chart does not reflect any sales charges, which would reduce your return. The returns for other classes of shares offered by the Fund will be lower than the Class A returns shown in the bar chart since the other classes have higher 12b-1 distribution fees. The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
MID CAP GROWTH FUND - CLASS A TOTAL RETURNS
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
2.65% 45.85% 25.92% 7.06% -23.51% 43.35% 10.58% 10.74% 14.26% 12.09%
Best Quarter:
4th Quarter 1999 +26.84%
Worst Quarter:
3rd Quarter 2002 -21.03%
|
The year-to-date return for the Fund's Class A shares as of June 30, 2008 is -1.77%.
This table compares the Fund's average annual total returns (before and after taxes) for the period ended December 31, 2007, to those of the Russell Midcap Growth Index. After-tax returns are calculated using the highest individual federal income tax rate and do not reflect the impact of state and local taxes. Your after-tax returns may differ from those shown. The returns do not apply to shares held in an IRA, 401(k) or other tax-deferred account. The after-tax returns shown in the table are for Class A shares only. The after-tax returns for other classes of shares offered by the Fund will differ from the Class A after-tax returns.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 2007
-------------------------------------------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
MID CAP GROWTH FUND CLASS A
-------------------------------------------------------------------------------------------------------------------
Return Before Taxes 5.64% 16.21% 12.59%
Return After Taxes on Distributions 3.55% 14.89% 10.59%
Return After Taxes on Distributions and Sale of Fund Shares(1) 5.69% 13.97% 10.13%
Russell Midcap Growth Index(2) 11.43% 17.90% 7.59%
MID CAP GROWTH FUND CLASS C(3)
Return Before Taxes 11.22% 17.28% 12.45%
Russell Midcap Growth Index(2) 11.43% 17.90% 7.59%
-------------------------------------------------------------------------------------------------------------------
MID CAP GROWTH FUND CLASS B 1 YEAR 5 YEARS SINCE CLASS STARTED(4)
-------------------------------------------------------------------------------------------------------------------
Return Before Taxes 7.35% 17.19% 9.22%
Russell Midcap Growth Index(2) 11.43% 17.90% 6.38%
-------------------------------------------------------------------------------------------------------------------
|
(1) When the "Return After Taxes on Distributions and Sale of Fund Shares" is greater than the "Return Before Taxes," it is because of realized losses. If a capital loss occurs upon the redemption of the Fund's shares, the capital loss is recorded as a tax benefit, which increases the return and translates into an assumed tax deduction that benefits the shareholder.
(2) The Russell Midcap Growth Index measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The Index reflects no deductions for fees, expenses or taxes. You cannot invest directly in an index.
(3) The Class C performance was calculated using the historical performance of the Class C predecessor fund that began operations on October 3, 1994.
(4) Class B shares began operations on May 1, 2001.
WHAT IS AN INDEX?
An index measures the market price of a specific group of securities in a particular market of securities in a market sector. You cannot invest directly in an index. An index does not have an investment advisor and does not pay any commissions, expenses or taxes. If an index had expenses, its performance would be lower.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold Class A, Class B and Class C shares of the Fund:
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
-------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.75%(1) None None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or the amount redeemed, whichever is less) None(2) 5.00%(3) 1.00%(4)
Wire Redemption Fee Up to $15 Up to $15 Up to $15
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ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
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Management Fees 0.80% 0.80% 0.80%
Distribution (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses 0.42% 0.48% 0.44%
Administration Fees 0.20% 0.20% 0.20%
Other Expenses 0.22% 0.28% 0.24%
Total Annual Fund Operating Expenses 1.47% 2.28% 2.24%
Less Fee Waiver and/or Expense Reimbursement (5) 0.00% 0.03% 0.00%
Net Expenses 1.47% 2.25% 2.24%
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(1) You may pay a reduced sales charge on very large purchases. (See "Reduced Class A Sales Charge" in this Prospectus.)
(2) Purchases of $1 million or more do not pay a front-end sales charge, but may pay a contingent deferred sales charge ("CDSC") of 1.00% if shares are redeemed within 1 year of their purchase and compensation was paid to an unaffiliated broker-dealer.
(3) You will pay a 5.00% CDSC if shares are redeemed within 1 year of their purchase. The CDSC will be incrementally reduced over time. After the 6th year, there is no CDSC. The CDSC may be waived under certain circumstances described in this Prospectus.
(4) The 1.00% CDSC is not applicable if shares are held for 1 year or longer and may be waived under other circumstances described in this Prospectus.
(5) Touchstone Advisors and the Trust have entered into an Expense Limitation Agreement whereby Touchstone Advisors has contractually agreed to waive a portion of its advisory fee and/or reimburse certain Fund expenses in order to limit "Net Expenses" to no more than 1.50% for Class A shares and 2.25% for Class B and Class C shares. These expense limitations will remain in effect until at least July 31, 2009. Pursuant to its agreement with the Trust, Touchstone Advisors has no ability to recoup any previously waived fees or reimbursed expenses from the Fund. For purposes of these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is excluded from Touchstone Advisors' waiver obligations.
EXAMPLE. This example is intended to help you compare the cost of investing in the Mid Cap Growth Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem 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). The example also reflects changes in the 10 year operating expenses of Class B shares since Class B shares convert to Class A shares after 8 years. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
ASSUMING NO
ASSUMING REDEMPTION AT END OF PERIOD REDEMPTION
CLASS A CLASS B CLASS C CLASS B CLASS C
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1 Year $716 $628 $327 $228 $227
3 Years $1,013 $909 $700 $709 $700
5 Years $1,332 $1,317 $1,200 $1,217 $1,200
10 Years $2,231 $2,410 $2,575 $2,410 $2,575
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CAN A FUND DEPART FROM ITS NORMAL INVESTMENT STRATEGIES?
Each Fund may depart from its investment strategies by taking temporary defensive positions in response to adverse market, economic, political or other conditions, including conditions when a Sub-Advisor is unable to identify attractive investment opportunities. A Fund's temporary investments may include debt securities, money market instruments, other short-term securities or cash equivalents. During these times, a Fund may not achieve its investment goals.
DO THE FUNDS ENGAGE IN ACTIVE TRADING OF SECURITIES?
Each Fund (except the Large Cap Core Equity Fund) may engage in active trading to achieve its investment goals. This may cause a Fund to realize higher capital gains, which would be passed on to you. Higher capital gains could increase your tax liability. Frequent trading also increases transaction costs, which would lower a Fund's performance.
CAN A FUND CHANGE ITS INVESTMENT GOALS WITHOUT SHAREHOLDER APPROVAL?
Each Fund may change its investment goals by a vote of the Board of Trustees without shareholder approval. You would be notified at least 30 days before any change takes effect.
DO THE FUNDS HAVE OTHER INVESTMENT STRATEGIES, IN ADDITION TO THEIR PRINCIPAL
INVESTMENT STRATEGIES?
DIVERSIFIED SMALL CAP GROWTH FUND. The Fund may also invest in:
o Initial public offerings
o Securities of foreign companies
o American depositary receipts ("ADRs"), American depositary shares ("ADSs") and other depositary receipts
o Securities of companies in emerging market countries
o Cash equivalents
o Other investment companies
GROWTH OPPORTUNITIES FUND. The Fund may also invest in:
o Securities of foreign companies (up to 10% of total assets)
o ADRs, ADSs and any foreign issuers that are publicly traded on exchanges or over-the-counter in the United States (up to 15% of total assets)
o Initial public offerings (up to 10% of total assets)
o Other investment companies (up to 10% of total assets)
LARGE CAP GROWTH FUND. The Fund may also invest in:
o ADRs (up to 15% of total assets)
o Investment grade debt securities, cash or cash equivalents
o Other investment companies
MID CAP GROWTH FUND. The Fund may also invest in:
o Securities of large cap and small cap companies
o Securities of foreign companies (up to 20% of total assets)
o ADRs, ADSs and other depositary receipts (up to 20% of total assets)
o Securities of companies in emerging market countries (up to 10% of total assets)
o Securities designed to replicate an index, an industry or a sector of the economy
o Cash equivalents
o Initial public offerings
o Other investment companies
LARGE CAP VALUE FUND. The Fund may also invest in:
o Initial public offerings
o Other investment companies
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS
FOREIGN COMPANIES are companies that meet all of the following criteria:
o They are organized under the laws of a foreign country
o They maintain their principal place of business in a foreign country
o The principal trading market for their securities is located in a foreign country
o They derive at least 50% of their revenues or profits from operations in foreign countries
o They have at least 50% of their assets located in foreign countries
ADRS, ADSS AND OTHER DEPOSITARY RECEIPTS. ADRs and ADSs are securities that represent an ownership interest in a foreign security. They are generally issued by a U.S. bank to U.S. buyers as a substitute for direct ownership of a foreign security and are traded on U.S. exchanges. ADRs may be available through "sponsored" or "unsponsored" facilities. A sponsored facility is established jointly by the issuer of the security underlying the receipt and a depositary, whereas an unsponsored facility may be established by a depositary without participation by the issuer of the underlying security. The depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights with respect to the deposited security. A Fund may invest in both sponsored and unsponsored ADRs.
"LARGE CAP", "MID CAP" AND "SMALL CAP" COMPANIES. Generally, companies are categorized as follows:
o A large cap company has a market capitalization of more than $10 billion.*
o A mid cap company has a market capitalization of between $1.5 billion and $10 billion. **
o A small cap company has a market capitalization of less than $1.5 billion.***
* The Large Cap Value Fund defines a large cap company as a company with a market capitalization in excess of the median company in the Russell 1000 Value Index.
** The Mid Cap Growth Fund and the Growth Opportunities Fund define a mid cap company as a company with a market capitalization of between $1.5 billion and $12 billion.
*** The Diversified Small Cap Growth Fund defines a small cap company as a company with a market capitalization of less than $2.5 billion.
If a security that is within the market capitalization range for a Fund at the time of purchase later falls outside the range, which is most likely to happen because of market growth, the Fund may continue to hold the security if, in the Sub-Advisor's judgment, the security remains otherwise consistent with the Fund's investment goal and strategies. However, this change could affect the Fund's flexibility in making new investments.
UNDERVALUED STOCKS. A stock is considered undervalued if the Sub-Advisor believes it should be trading at a higher price than it is at the time of purchase. Factors considered may include:
o Price relative to earnings
o Price relative to cash flow
o Price relative to financial strength
EMERGING MARKET COUNTRIES are countries other than Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. When a Fund invests in securities of a company in an emerging market country, it invests in securities issued by a company that meet one or more of the following criteria:
o It is organized under the laws of an emerging market country.
o It maintains its principal place of business in an emerging market country.
o The principal trading market for its securities is located in an emerging market country.
o It derives at least 50% of its revenues or profits from operations within emerging market countries.
o It has at least 50% of its assets located in emerging market countries.
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. or, if unrated, determined by the Advisor or Sub-Advisor to be of comparable credit quality.
FUTURES CONTRACTS AND OPTIONS (DERIVATIVES). Derivative instruments such as futures contracts and options may be used to hedge against adverse changes in the market value of securities held by or to be bought for the Fund, as a substitute for purchasing or selling securities, or to lock in undervalued stock unrealized appreciation. Futures contracts provide for the future sale by one party and purchase by another party of a specified amount of a specific security at a specified future time and at a specified price. An option gives the purchaser the right, in exchange for a premium, to assume a position in a security or futures contract at a specified exercise price during the term of the option.
OTHER INVESTMENT COMPANIES. The Funds may invest in securities issued by other investment companies. This may include money market funds, index funds, iShares(R), SPDRs and similar securities of other issuers. Touchstone Advisors has received an exemptive order from the Securities and Exchange Commission ("SEC") that permits the Funds to invest their uninvested cash or cash collateral in one or more affiliated money market funds. Each Fund may invest up to 25% of its total assets in affiliated money market funds, subject to that Fund's investment limitations and certain other conditions pursuant to the exemptive order.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS?
MARKET RISK (ALL FUNDS). Investments in common stocks are 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 four broad market capitalization categories - large cap, mid cap, small cap and micro 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 smaller cap companies, investors may migrate to the stocks of smaller 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 CORE EQUITY FUND, LARGE CAP GROWTH FUND AND LARGE CAP VALUE FUND). 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 MID CAP COMPANIES (MID CAP GROWTH FUND). Mid cap stock risk is the risk that stocks of mid-sized companies may be subject to more abrupt or erratic market movements than stocks of larger, more established companies. Mid-sized companies may have limited product lines or financial resources, and may be dependent upon a particular niche of the market.
o SMALL CAP COMPANIES (DIVERSIFIED SMALL CAP GROWTH FUND). Small cap stock risk is the risk that stocks of smaller companies may be subject to more abrupt or erratic market movements than stocks of larger, more established companies. Small companies may have limited product lines or financial resources, or may be dependent upon a small or inexperienced management group. In addition, small cap stocks typically are traded in lower volume, and their issuers typically are subject to greater degrees of changes in their earnings and prospects.
o TECHNOLOGY SECURITIES (ALL FUNDS). 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 (GROWTH OPPORTUNITIES FUND, LARGE CAP GROWTH FUND AND LARGE CAP VALUE FUND). 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 invested in a single company, the Fund may be more sensitive to any single economic, business, political or regulatory occurrence than a diversified fund.
SECTOR AND INDUSTRY RISK (GROWTH OPPORTUNITIES FUND, LARGE CAP GROWTH FUND AND LARGE CAP VALUE FUND). The performance of a fund that may invest up to 25% of its assets in a particular sector or industry may be closely tied to the performance of companies in a limited number of sectors or industries. Companies in a single sector often share common characteristics, are faced with the same obstacles, issues and regulatory burdens and their securities may react similarly to adverse market conditions. The price movements of investments in a particular sector or industry may be more volatile than the price movements of more broadly diversified investments.
INVESTMENT STYLE RISK (ALL FUNDS). Different investment styles tend to shift in and out of favor depending upon market and economic conditions as well as investor sentiment. A Fund may outperform or underperform other funds that employ a different investment style. Examples of different investment styles include growth and value investing. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company's growth of earnings potential. Also, since growth companies usually invest a high portion of earnings in their business, growth stocks may lack the dividends of some value stocks that can cushion stock prices in a falling market. Growth oriented funds may underperform when value investing is in favor. Value stocks are those that are undervalued in comparison to their peers due to adverse business developments or other factors. Value investing carries the risk that the market will not recognize a security's inherent value for a long time, or that a stock judged to be undervalued may actually be appropriately priced or overvalued. Value oriented funds may underperform when growth investing is in favor.
FOREIGN RISK (LARGE CAP VALUE FUND). Investing in foreign securities poses unique risks such as fluctuation in currency exchange rates, market illiquidity, price volatility, high trading costs, difficulties in settlement, regulations on stock exchanges, limits on foreign ownership, less stringent accounting, reporting and disclosure requirements, and other considerations. Diplomatic, political or economic developments, including nationalization or appropriation, could affect investments in foreign securities. In the past, equity and debt instruments of foreign markets have had more frequent and larger price changes than those of U.S. markets.
o ADRS. While ADRs are traded on U.S. securities exchanges, the depository of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights with respect to the deposited security.
FUTURES AND OPTIONS (DERIVATIVES) (LARGE CAP VALUE FUND). The use of derivative instruments involves risks different from, or greater than, the risks of investing directly in securities and more traditional investments. Derivative products are highly specialized investments that require investment techniques and risk analyses different than those associated with stocks. The use of derivatives requires an understanding not only of the underlying instruments, but the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Loss may result, for example, from adverse market movements, a lack of correlation between changes in the value of these derivative instruments and the Fund's assets being hedged, the potential illiquidity of the markets for derivative instruments, lack of availability due to new and developing markets, the risk that the counterparty to an over-the-counter ("OTC") contract will fail to perform its obligations, or the risks arising from margin requirements and factors associated with such transactions.
WHAT ARE SOME OF THE OTHER RISKS OF INVESTING IN THE FUNDS?
FOREIGN RISK (DIVERSIFIED SMALL CAP GROWTH FUND, GROWTH OPPORTUNITIES FUND AND MID CAP GROWTH FUND). Investing in foreign securities poses unique risks such as fluctuation in currency exchange rates, market illiquidity, price volatility, high trading costs, difficulties in settlement, regulations on stock exchanges, limits on foreign ownership, less stringent accounting, reporting and disclosure requirements, and other considerations. Diplomatic, political or economic developments, including nationalization or appropriation, could affect investments in foreign securities. In the past, equity and debt instruments of foreign markets have had more frequent and larger price changes than those of U.S. markets.
o EMERGING MARKET COUNTRIES (DIVERSIFIED SMALL CAP GROWTH FUND AND MID CAP GROWTH FUND). Investments in a country that is still relatively underdeveloped involves exposure to economic structures that are generally less diverse and mature than in the U.S. and to political and legal systems that may be less stable. In the past, markets of developing countries have had more frequent and larger price changes than those of developed countries. Economic or political changes may cause larger price changes in these securities than in other foreign securities.
DEBT SECURITY RISK (LARGE CAP GROWTH FUND). Debt securities are subject to the risk that their market value 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.
Debt securities are subject to credit risk. Credit risk is the possibility that an issuer will fail to make timely payments of interest or principal, when due. Securities rated in the lowest investment grade category have some risky characteristics and changes in economic conditions are more likely to cause issuers of these securities to be unable to make payments.
INITIAL PUBLIC OFFERING ("IPO") RISK (DIVERSIFIED SMALL CAP GROWTH FUND, GROWTH OPPORTUNITIES FUND, MID CAP GROWTH FUND AND LARGE CAP VALUE FUND). IPO risk is the risk that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk and liquidity risk (i.e., the potential that the Fund may be unable to dispose of the IPO shares promptly or at a reasonable price). When a Fund's asset base is small, a significant portion of its performance could be attributable to investments in IPOs, because such investments would have a magnified impact on the Fund. As the Fund's assets grow, the effect of investments in IPOs on the Fund's performance probably will decline, which could reduce performance.
LENDING OF PORTFOLIO SECURITIES (ALL FUNDS). The Funds may lend their portfolio securities to brokers, dealers and financial institutions under guidelines adopted by the Board of Trustees, including a requirement that the Fund must receive collateral equal to no less than 100% of the market value of the securities loaned. The risk in lending portfolio securities, as with other extensions of credit, consists of possible loss of rights in the collateral should the borrower fail financially. In determining whether to lend securities, a Fund's sub-advisor will consider all relevant facts and circumstances, including the creditworthiness of the borrower. Lending portfolio securities results in additional income to a fund that is used to offset certain fund operating expenses, which, in turn, may serve to reduce the amount that would otherwise be payable by the Advisor to the Fund under the Advisor's contractual expense limitation arrangement (see "Contractual Fee Waiver Agreement").
WHERE CAN I FIND INFORMATION ABOUT THE FUNDS' PORTFOLIO HOLDINGS DISCLOSURE POLICIES?
A description of the Funds' policies and procedures for disclosing portfolio securities to any person is available in the Statement of Additional Information ("SAI").
INVESTMENT ADVISOR
TOUCHSTONE ADVISORS, INC. ("TOUCHSTONE ADVISORS" OR THE "ADVISOR") 303 BROADWAY, SUITE 1100, CINCINNATI, OH 45202
Touchstone Advisors has been a registered investment advisor since 1994. As of June 30, 2008, Touchstone Advisors had approximately $7.5 billion in assets under management. As the Funds' advisor, Touchstone Advisors continuously reviews, supervises and administers the Funds' investment programs and also ensures compliance with the Funds' investment policies and guidelines.
Touchstone Advisors is responsible for selecting each Fund's sub-advisor(s), subject to approval 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 a 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 each sub-advisor's performance through various analyses and through in-person, telephone and written consultations with the Sub-Advisor. Touchstone Advisors discusses its expectations for performance with each sub-advisor. Touchstone Advisors provides evaluations and recommendations to the Board of Trustees, including whether or not a sub-advisor's contract should be renewed, modified or terminated.
The SEC has granted an exemptive order that permits the Trust or Touchstone Advisors, under certain conditions, to select or change unaffiliated sub-advisors, enter into new sub-advisory agreements or amend existing sub-advisory agreements without first obtaining shareholder approval. The Funds must still obtain shareholder approval of any sub-advisory agreement with a sub-advisor affiliated with the Trust or Touchstone Advisors other than by reason of serving as a sub-advisor to one or more Touchstone Funds. Shareholders of a Fund will be notified of any changes in its sub-advisor.
Two or more sub-advisors may manage a Fund, with each managing a portion of the Fund's assets. If a Fund has more than one sub-advisor, Touchstone Advisors allocates how much of a Fund's assets are managed by each sub-advisor. Touchstone Advisors may change these allocations from time to time, often based upon the results of its evaluations of the sub-advisory arrangements.
Touchstone Advisors is also responsible for running all of the operations of each Fund, except those that are subcontracted to the Sub-Advisor, custodian, transfer agent, accounting agent, sub-administrative agent or other parties. For its services, Touchstone Advisors is entitled to receive a base investment advisory fee from each Fund at an annualized rate, based on the average daily net assets of the Fund. Touchstone Advisors pays sub-advisory fees to each sub-advisor from its advisory fee. The fee paid by each Fund to Touchstone Advisors during the Fund's most recent fiscal year, based on the average daily net assets of the Fund at an annualized rate, is shown in the table below:
Name of Fund Annual Fee Rate Diversified Small Cap Growth Fund 1.05% Growth Opportunities Fund 1.00% Large Cap Core Equity Fund 0.65% Large Cap Growth Fund 0.71% Large Cap Value Fund 0.75% Mid Cap Growth Fund 0.80% -------------------------------------------------------------------------------- |
Contractual Fee Waiver Agreement
Touchstone Advisors has contractually agreed to waive fees and reimburse expenses in order to limit the Funds' "Net Expenses" in the aggregate from exceeding the levels set forth below. However, for purposes of these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is excluded from Touchstone Advisors' waiver obligations. Fee waivers and/or expense reimbursements are calculated and applied monthly, based on each Fund's average net assets during such month. These fee waivers and expense reimbursements will remain in effect until July 31, 2009.
CONTRACTUAL
LIMIT ON
NAME OF FUND "NET EXPENSES"
Diversified Small Cap Growth Fund Class A 1.40%
Diversified Small Cap Growth Fund Class C 2.15%
Growth Opportunities Fund Class A 1.55%
Growth Opportunities Fund Class B 2.30%
Growth Opportunities Fund Class C 2.30%
Large Cap Core Equity Fund Class A 1.15%
Large Cap Core Equity Fund Class C 1.90%
Large Cap Growth Fund Class A 1.25%
Large Cap Growth Fund Class B 2.00%
Large Cap Growth Fund Class C 2.00%
Large Cap Value Fund Class A 1.35%
Large Cap Value Fund Class C 2.10%
Mid Cap Growth Fund Class A 1.50%
Mid Cap Growth Fund Class B 2.25%
Mid Cap Growth Fund Class C 2.25%
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SUB-ADVISORS
The Sub-Advisors make the daily decisions regarding buying and selling specific securities for the Funds. Each Sub-Advisor manages the investments held by the Fund it serves according to the applicable investment goals and strategies.
SUB-ADVISOR TO THE DIVERSIFIED SMALL CAP GROWTH FUND
FORT WASHINGTON INVESTMENT ADVISORS, INC. ("FWIA") THE HUNTINGTON CENTER, 41 SOUTH HIGH STREET, SUITE 2495 COLUMBUS, OHIO 43215
FWIA has been a registered investment advisor since 1990 and has managed the Fund since its inception. The Fund is managed by the Growth Team of FWIA, which consists of four members. The Growth Team makes the investment decisions for the Fund, and is primarily responsible for the day-to-day management of the Fund's portfolio. The four members of the Growth Team are listed below.
Richard R. Jandrain III, Managing Director - Growth Equity. Mr. Jandrain joined FWIA in 2004 as Managing Director, Vice President and Senior Portfolio Manager. He was Chief Equity Strategist, Chief Investment Officer of Equities with Banc One Investment Advisors Corporation from 1992 to 2004.
Daniel J. Kapusta, Senior Portfolio Manager. Mr. Kapusta joined FWIA in 2004 as Vice President and Senior Portfolio Manager. He was Growth Team Leader, Portfolio Manager and Senior Equity Research Analyst with Banc One Investment Advisors Corporation from 1992 to 2004.
David K. Robinson, CFA, Senior Portfolio Manager. Mr. Robinson joined FWIA in 2004 as Vice President and Senior Portfolio Manager. He was Portfolio Manager, Senior Equity Research Analyst with Banc One Investment Advisors Corporation from 1994 to 2004.
Bihag Patel, CFA, Senior Portfolio Manager. Mr. Patel joined FWIA in 2004 as Vice President and Senior Portfolio Manager. He was Portfolio Manager, Senior Equity Analyst with Banc One Investment Advisors Corporation from 1998 to 2004.
FWIA is an affiliate of Touchstone Advisors. Therefore, Touchstone Advisors may have a conflict of interest when making decisions to keep FWIA as the Fund's Sub-Advisor. The Board of Trustees reviews Touchstone Advisors' decisions, with respect to the retention of FWIA, to reduce the possibility of a conflict of interest situation.
HISTORICAL PERFORMANCE OF FWIA'S DIVERSIFIED SMALL CAP GROWTH STYLE PRIVATE ACCOUNT
FWIA has been managing small cap growth stocks since 2005, and has done considerable modeling in this style. It began managing one account using this strategy on January 1, 2005. This account and the Diversified Small Cap Growth Fund have substantially similar investment objectives, policies and strategies. The information for the account is provided to show the past performance of FWIA in managing the account, as measured against a specified market index. The performance of the account managed by FWIA does not represent the historical performance of the Diversified Small Cap Growth Fund and should not be considered indicative of future performance of the Fund. Results may differ because of, among other things, differences in brokerage commissions, account expenses, including management fees, the size of positions taken in relation to account size and diversification of securities, timing of purchases and sales, and availability of cash for new investments. In addition, the managed account is not subject to certain investment limitations or other restrictions imposed by the Investment Company Act of 1940, as amended, and the Internal Revenue Code which, if applicable, may have adversely affected the performance results of the managed account. The results for different periods may vary.
FWIA provided the information used in making the performance calculations. The account's rate of return includes realized and unrealized gains plus income, including accrued income. Returns from cash and cash equivalents in the account are included in the performance calculations, and the cash and cash equivalents are included in the total assets on which the performance is calculated. The account is valued at least quarterly, and periodic returns are geometrically linked. The performance is shown both gross and net of the sales load of 5.75%, which is the maximum sales load for the Class A shares of the Diversified Small Cap Growth Fund, and expenses of 1.40%, which are the expenses for the fiscal year ended March 31, 2008 of the Class A shares of the Diversified Small Cap Growth Fund. Results include the reinvestment of dividends and capital gains.
This method of calculating performance of the select accounts differs from the SEC's standardized methodology to calculate performance and results in a total return different from that derived from the standardized methodology.
DIVERSIFIED DIVERSIFIED
SMALL CAP GROWTH SMALL CAP GROWTH
STYLE-ACCOUNT(1) STYLE-ACCOUNT(1)
(INCLUDING ESTIMATED (EXCLUDING ESTIMATED RUSSELL 2000
EXPENSES AND SALES LOAD) EXPENSES AND SALES LOAD) GROWTH INDEX(2)
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12-month period ended
March 31, 2008 -12.99% -6.37% -8.94%
Since inception of account
January 1, 2005 through
March 31, 2008 2.95% 6.34% 3.03%
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(1) On January 1, 2005, FWIA began managing this style with one account totaling $50.27 million. As of March 31, 2008, the account totaled approximately $165.52 million.
(2) The Russell 2000 Growth Index is a widely recognized, unmanaged index of common stock prices. The Index reflects the total return of securities comprising the Index, including changes in market price as well as accrued income, which is presumed to be reinvested. Performance figures for the Index do not reflect the deduction of transaction costs or expenses, including management fees. You cannot invest directly in an index.
SUB-ADVISOR TO THE GROWTH OPPORTUNITIES FUND
WESTFIELD CAPITAL MANAGEMENT COMPANY, LP ("WESTFIELD") ONE FINANCIAL CENTER, BOSTON, MA 02111
Westfield has been a registered investment advisor since 1989 and has managed the Fund since July 2006. The Fund is managed by the Westfield Investment Committee, which consists of the five members listed below and Westfield's other security analysts. Industry sectors are divided among the committee members. The five primary managers are listed below.
William A. Muggia is the lead portfolio manager of the Fund and is the President, Chief Executive Officer, Chief Investment Officer and Partner of Westfield. Mr. Muggia has worked at Westfield since 1994. Arthur J. Bauernfeind is the Chairman and has worked at Westfield since 1990. Ethan J. Meyers, Partner, has worked at Westfield since 1999. Scott R. Emerman, Partner, has worked at Westfield since 2002. Matthew W. Strobeck, Partner, has worked at Westfield since 2003. Mr. Bauernfeind, Mr. Meyers, Mr. Emerman and Mr. Strobeck assist Mr. Muggia with investment decision supervision and overall portfolio flow monitoring. Mr. Muggia, Mr. Bauernfeind, Mr. Meyers and Mr. Emerman have managed the Fund since July 2006. Mr. Strobeck has managed the Fund since August 2008.
SUB-ADVISOR TO THE LARGE CAP CORE EQUITY FUND
TODD INVESTMENT ADVISORS, INC. ("TODD")
101 SOUTH FIFTH STREET, SUITE 3160, LOUISVILLE, KY 40202
Todd has been registered as an investment advisor since 1967 and has managed the Fund since its inception. Curtiss M. Scott, Jr., CFA, has primary responsibility for the daily management of the Fund. Mr. Scott joined Todd in 1996 and is the President and Chief Executive Officer. Mr. Scott is supported by Robert P. Bordogna, Bosworth M. Todd and John J. White, CFA. Robert Bordogna is the Chairman of Todd and was the President and Chief Executive Officer from 1980 to 2005. Bosworth M. Todd founded Todd in 1967 and is the Chairman Emeritus. John J. White is a Portfolio Manager and joined Todd in 2002. Mr. White worked as a Director of Equity Research and Investment Strategy at Wachovia Securities from 1994 until 2002. Messrs. Scott, Bordogna and Todd have managed the Fund since its inception. Mr. White has managed the Fund since 2002.
Todd is an affiliate of Touchstone Advisors. Therefore, Touchstone Advisors may have a conflict of interest when making decisions to keep Todd as the Fund's Sub-Advisor. The Board of Trustees reviews Touchstone Advisors' decisions, with respect to the retention of Todd, to reduce the possibility of a conflict of interest situation.
SUB-ADVISOR TO THE LARGE CAP GROWTH FUND
NAVELLIER & ASSOCIATES, INC. ("NAVELLIER")
ONE EAST LIBERTY, THIRD FLOOR, RENO, NV 89501
Navellier has been a registered investment advisor since 1987 and has managed the Fund since 2004. Its sister company, that is now dissolved, Navellier Management, Inc. managed the Fund from its inception until 2004. Shawn C. Price is the primary manager and Louis G. Navellier is the secondary manager of the Fund and both have managed the Fund since its inception. Mr. Price has been a Portfolio Manager for Navellier since 1991 and Mr. Navellier has been the Chief Executive Officer of Navellier since 1987.
SUB-ADVISOR TO THE LARGE CAP VALUE FUND
JS ASSET MANAGEMENT, LLC ("JSAM")
ONE TOWER BRIDGE, 100 FRONT STREET, SUITE 501
WEST CONSHOHOCKEN, PA 19428
JSAM has been a registered investment advisor since 2005 and has managed the Fund since its inception. John Schneider, President and Chief Investment Officer of JSAM, is the primary manager of the Fund and has managed the Fund since its inception. Mr. Schneider founded JSAM in February 2005. From 1999 until 2005 he was a Senior Portfolio Manager and Managing Director of PIMCO Equity Advisors.
PRIOR PERFORMANCE OF JOHN SCHNEIDER
Prior to joining JSAM, Mr. Schneider was the portfolio manager of the PIMCO Value Fund (the "PIMCO Value Fund"), which has been renamed since his departure and is currently called the Allianz OCC Value Fund. As portfolio manager of the PIMCO Value Fund, Mr. Schneider was solely responsible for the daily management of the PIMCO Value Fund and had full discretionary authority over the selection of investments for the PIMCO Value Fund. In managing the PIMCO Value Fund, Mr. Schneider used a "value" style of investing by selecting stocks of companies with below average valuations whose business fundamentals are expected to improve. This is the same "value" style of investing that Mr. Schneider uses in managing the Fund. The PIMCO Value Fund has substantially similar investment objectives, policies and principal strategies as the Fund.
RETURNS OF THE PIMCO VALUE FUND. The average annual returns of the PIMCO Value Fund during Mr. Schneider's tenure as portfolio manager, compared with the performance of the Russell 1000 Value Index is set forth below. The returns show the effect of the applicable sales charge for Class A shares. Historical performance is not indicative of future performance. The PIMCO Value Fund is a separate fund and its historical performance is not indicative of the potential performance of the Fund. Share prices and investment returns will fluctuate reflecting market conditions, as well as changes in company-specific fundamentals of portfolio securities. This performance does not include the performance of 3 private accounts managed by Mr. Schneider, but the exclusion of these accounts does not render the performance misleading.
PIMCO VALUE FUND
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED JANUARY 31, 2005
SINCE
1 YEAR 3 YEARS 4 YEARS INCEPTION(1)
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PIMCO Value Fund - Class A (2,3,4) 1.48% 4.34% 7.27% 11.98%
PIMCO Value Fund - Class C (2,5) 6.55% 5.52% 7.97% 12.50%
Russell 1000 Value Index (6) 12.45% 8.20% 4.27% 5.17%
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(1) Mr. Schneider managed the PIMCO Value Fund from June 1, 2000 to February 11, 2005.
(2) Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses.
(3) The expense ratio of Class A shares of the PIMCO Value Fund during the fiscal years ended June 30, 2000, 2001, 2002, 2003, 2004 and 2005 is 1.11%, 1.10%, 1.10%, 1.10%, 1.11% and 1.11%, respectively.
(4) The average annual total return of Class A shares of the PIMCO Value Fund (without deducting the maximum sales charge) for 1 year, 3 years, 4 years and since inception (for the periods ended January 31, 2005) is 7.39%, 6.33%, 8.80% and 13.34%, respectively.
(5) The expense ratio of Class C shares of the PIMCO Value Fund during the fiscal years ended June 30, 2000, 2001, 2002, 2003, 2004 and 2005 is 1.86%, 1.85%, 1.85%, 1.85%, 1.86% and 1.86%, respectively.
(6) The Russell 1000 Value Index measures the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index. The Indexes reflect no deductions for fees, expenses or taxes.
SUB-ADVISORS TO THE MID CAP GROWTH FUND
The Mid Cap Growth Fund's assets are allocated between two Sub-Advisors, each using a different management style. TCW uses a value approach and Westfield uses a growth approach.
TCW INVESTMENT MANAGEMENT COMPANY ("TCW")
865 SOUTH FIGUEROA STREET, SUITE 1800, LOS ANGELES, CA 90017
TCW has been a registered investment advisor since 1987 and has managed the portion of the Fund's assets allocated to TCW since May 2001. Susan I. Suvall and John A. Gibbons have primary responsibility for the daily management of the Fund. Susan I. Suvall has managed the Fund since May 2001. John A. Gibbons has managed the Fund since April 1, 2008. Ms. Suvall is a Managing Director of TCW and has been with the firm since 1985. Mr. Gibbons is a Managing Director of TCW and has been with the firm since 2000.
WESTFIELD CAPITAL MANAGEMENT COMPANY, LP ("WESTFIELD") ONE FINANCIAL CENTER, BOSTON, MA 02111
Westfield has been a registered investment advisor since 1989 and has managed the portion of the Fund's assets allocated to Westfield since the Fund's inception. The Fund is managed by Westfield's Investment Committee, which consists of the five members listed below and Westfield's other security analysts. Industry sectors are divided among the committee members. The five primary managers are listed below.
William A. Muggia is the lead portfolio manager and is the President, Chief Executive Officer, Chief Investment Officer and Partner of Westfield. Mr. Muggia has worked at Westfield since 1994 and has managed the Fund since 1999. Arthur J. Bauernfeind, Chairman, has worked at Westfield since 1990 and has managed the Fund since its inception. Ethan J. Meyers, Partner, has worked at Westfield since 1999 and has managed the Fund since 1999. Scott R. Emerman, Partner, has worked at Westfield since 2002 and has managed the Fund since 2002. Matthew W. Strobeck, Partner, has worked at Westfield since 2003 and has managed the Fund since August 2008. Mr. Bauernfeind, Mr. Meyers, Mr. Emerman and Mr. Strobeck assist Mr. Muggia with investment decision supervision and overall portfolio flow monitoring.
SUB-ADVISORY FEES
The fee paid by Touchstone Advisors to each Sub-Advisor during the Fund's most recent fiscal year, based on the average daily net assets of the Fund at an annualized rate, is shown in the table below:
Name of Fund Annual Fee Rate
Diversified Small Cap Growth Fund - FWIA* 0.50%
Growth Opportunities Fund - Westfield 0.60%
Large Cap Core Equity Fund - Todd 0.33%
Large Cap Growth Fund - Navellier 0.40%
Large Cap Value Fund - JSAM 0.40%
Mid Cap Growth Fund
TCW 0.50%
Westfield 0.50%
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* The Board of Trustees approved a change to the Fund's sub-advisory fee schedule, effective August 15, 2007. Under the previous schedule Touchstone Advisors paid FWIA a fee of 0.65% of the Fund's average daily net assets. Under the new schedule Touchstone Advisors pays FWIA a fee of 0.50% of the Fund's average daily net assets.
The SAI provides additional information about each portfolio manager's compensation structure, other managed accounts and ownership of securities in their managed Fund(s). A discussion of the basis for the Board of Trustees' approval of the Funds' advisory and sub-advisory agreements is in the Trust's March 31, 2008 Annual Report.
Share Class Offerings. Each Fund currently offers the following classes of shares. The Funds' Class Y shares are offered in a separate prospectus. For information about the Class Y shares or to obtain a copy of the prospectus, call Touchstone Securities, Inc. ("Touchstone") at 1.800.543.0407 or call your financial advisor.
CLASS A CLASS B CLASS C CLASS Y
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Diversified Small Cap Growth Fund X X X
Growth Opportunities Fund X X X
Large Cap Core Equity Fund X X
Large Cap Growth Fund X X X X
Large Cap Value Fund X X
Mid Cap Growth Fund X X X
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Each class of shares has different sales charges and distribution fees. The amount of sales charges and distribution fees you pay will depend on which class of shares you decide to purchase.
CLASS A SHARES
The offering price of Class A shares of each Fund is equal to its net asset value ("NAV") plus a front-end sales charge that you pay when you buy your shares. The front-end sales charge is generally deducted from the amount of your investment. Class A shares are subject to a 12b-1 fee.
CLASS A SALES CHARGE. The following table shows the amount of front-end sales charge you will pay on purchases of Class A shares. The amount of front-end sales charge is shown as a percentage of (1) offering price and (2) the net amount invested after the charge has been subtracted. Note that the front-end sales charge gets lower as your investment amount gets larger.
SALES SALES CHARGE
CHARGE AS % OF
AS % OF NET AMOUNT
AMOUNT OF YOUR INVESTMENT OFFERING PRICE INVESTED
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Under $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.95% 3.04%
$500,000 but less than $1 million 2.25% 2.30%
$1 million or more 0.00% 0.00%
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WAIVER OF CLASS A SALES CHARGE. There is no front-end sales charge if you invest $1 million or more in Class A shares of a Fund. If you redeem shares that were part of the $1 million breakpoint purchase within one year, you may pay a contingent deferred sales charge ("CDSC") of 1% on the shares redeemed, if a commission was paid by Touchstone to a participating unaffiliated broker-dealer. There is no front-end sales charge on exchanges between Funds or dividends reinvested in a Fund. In addition, there is no front-end sales charge on the following purchases:
o Purchases by registered representatives or other employees (and their immediate family members*) of broker-dealers, banks, or other financial institutions having agreements with Touchstone.
o Purchases in accounts as to which a broker-dealer or other financial intermediary charges an asset management fee economically comparable to a sales charge, provided the broker-dealer or other financial intermediary has an agreement with Touchstone.
o Purchases by a trust department of any financial institution in its capacity as trustee to any trust.
o Purchases through processing organizations described in this Prospectus.
o Purchases by an employee benefit plan having more than 25 eligible employees or a minimum of $250,000 invested in the Touchstone Funds.
o Purchases by an employee benefit plan that is provided administrative services by a third party administrator that has entered into a special service arrangement with Touchstone.
o Purchases by shareholders who owned shares of Touchstone Funds Group Trust as of November 17, 2006 who are purchasing additional shares for their account or opening new accounts in any Touchstone Fund. If you are purchasing shares through a financial intermediary, you must notify the intermediary at the time of purchase that a purchase qualifies for a sales load waiver and you may be required to provide copies of account statements verifying your qualification.
o Reinvestment of redemption proceeds from Class A or Class B shares of any Touchstone Fund if the reinvestment occurs within 90 days of redemption.
* Immediate family members are defined as the spouse, parents, siblings, domestic partner, natural or adopted children, mother-in-law, father-in-law, brother-in-law and sister-in-law of a registered representative or employee. The term "employee" is deemed to include current and retired employees.
Sales charge waivers must be qualified in advance by Touchstone by marking the appropriate section on the investment application and completing the "Eligibility for Exemption from Sales Charge" form. You can obtain the application and form by calling Touchstone at 1.800.543.0407 or by visiting the touchstoneinvestments.com website. Purchases at NAV may be made for investment only, and the shares may not be resold except through redemption by or on behalf of the Fund. At the option of the Fund, the front-end sales charge may be included on future purchases.
REDUCED CLASS A SALES CHARGE. You may also purchase Class A shares of a Fund at the reduced sales charges shown in the table above through the Rights of Accumulation Program or by signing a Letter of Intent. The following purchasers ("Qualified Purchasers") may qualify for a reduced sales charge under the Rights of Accumulation Program or Letter of Intent:
o an individual, an individual's spouse, an individual's children under the age of 21; or
o a trustee or other fiduciary purchasing shares for a single fiduciary account although more than one beneficiary is involved; or
o employees of a common employer, provided that economies of scale are realized through remittances from a single source and quarterly confirmation of such purchases are provided; or
o an organized group, provided that the purchases are made through a central administrator, a single dealer or other means which result in economy of sales effort or expense.
The following accounts ("Qualified Accounts") held in Class A shares of any Touchstone Fund sold with a front-end sales charge may be grouped together to qualify for the reduced sales charge under the Rights of Accumulation Program or Letter of Intent:
o Individual accounts
o Joint tenant with rights of survivorship accounts
o Uniform gift to minor accounts ("UGTMA")
o Trust accounts
o Estate accounts
o Guardian/Conservator accounts
o IRA accounts, including Traditional, Roth, SEP and SIMPLE
o Coverdell Education Savings Accounts
RIGHTS OF ACCUMULATION PROGRAM. Under the Rights of Accumulation Program, you may qualify for a reduced sales charge by aggregating all of your investments held in a Qualified Account. You or your dealer must notify Touchstone at the time of purchase that a purchase qualifies for a reduced sales charge under the Rights of Accumulation Program and must provide either a list of account numbers or copies of account statements verifying your qualification. If your shares are held directly in a Touchstone Fund or through a dealer, you may combine the historical cost or current NAV (whichever is higher) of your existing Class A shares of any Touchstone Fund sold with a front-end sales charge with the amount of your current purchase in order to take advantage of the reduced sales charge. Historical cost is the price you actually paid for the shares you own, plus your reinvested dividends and capital gains. If you are using historical cost to qualify for a reduced sales charge, you should retain any records to substantiate your historical costs since the Fund, its transfer agent or your broker-dealer may not maintain this information.
If your shares are held through financial intermediaries and/or in a retirement account (such as a 401(k) or employee benefit plan), you may combine the current NAV of your existing Class A shares of any Touchstone Fund sold with a front-end sales charge with the amount of your current purchase in order to take advantage of the reduced sales charge. You or your financial intermediary must notify Touchstone at the time of purchase that a purchase qualifies for a reduced sales charge under the Rights of Accumulation Program and must provide copies of account statements dated within three months of your current purchase verifying your qualification.
Upon receipt of the above referenced supporting documentation, Touchstone will calculate the combined value of all of the Qualified Purchaser's Qualified Accounts to determine if the current purchase is eligible for a reduced sales charge. Purchases made for nominee or street name accounts (securities held in the name of a dealer or another nominee such as a bank trust department instead of the customer) may not be aggregated with purchases for other accounts and may not be aggregated with other nominee or street name accounts unless otherwise qualified as described above.
LETTER OF INTENT. If you plan to invest at least $50,000 (excluding any reinvestment of dividends and capital gains distributions) during the next 13 months in Class A shares of any Touchstone Fund sold with a front-end sales charge, you may qualify for a reduced sales charge by completing the Letter of Intent section of your account application. A Letter of Intent indicates your intent to purchase at least $50,000 in Class A shares of any Touchstone Fund sold with a front-end sales charge over the next 13 months in exchange for a reduced sales charge indicated on the above chart. The minimum initial investment under a Letter of Intent is $10,000. You are not obligated to purchase additional shares if you complete a Letter of Intent. However, if you do not buy enough shares to qualify for the projected level of sales charge by the end of the 13-month period (or when you sell your shares, if earlier), your sales charge will be recalculated to reflect your actual purchase level. During the term of the Letter of Intent, shares representing 5% of your intended purchase will be held in escrow. If you do not purchase enough shares during the 13-month period to qualify for the projected reduced sales charge, the additional sales charge will be deducted from your escrow account. If you have purchased Class A shares of any Touchstone Fund sold with a front-end sales charge within 90 days prior to signing a Letter of Intent, they may be included as part of your intended purchase. You must provide either a list of account numbers or copies of account statements verifying your purchases within the past 90 days.
OTHER INFORMATION. Information about sales charges and breakpoints is also available in a clear and prominent format on the touchstoneinvestments.com website. You can access this information by selecting "Sales Charges and Breakpoints" under the "Pricing and Performance" link. For more information about qualifying for a reduced or waived sales charge, contact your financial advisor or contact Touchstone at 1.800.543.0407.
CLASS B SHARES
BECAUSE IN MOST CASES IT IS MORE ADVANTAGEOUS TO PURCHASE CLASS A SHARES FOR AMOUNTS OF $250,000 OR MORE, A REQUEST TO PURCHASE CLASS B SHARES FOR $250,000 OR MORE WILL BE CONSIDERED AS A PURCHASE REQUEST FOR CLASS A SHARES OR DECLINED.
Class B shares of the Funds are sold at NAV without an initial sales charge so that the full amount of your purchase payment may be immediately invested in the Funds. Class B shares are subject to a 12b-1 fee. A CDSC will be charged if you redeem Class B shares within 6 years after you purchased them. The amount of the CDSC will depend on how long you have held your shares, as set forth in the following table:
CDSC AS A % OF
AMOUNT SUBJECT
YEAR SINCE PURCHASE PAYMENT MADE TO CHARGE
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First 5.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 1.00%
Seventh and thereafter* None
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*Class B shares will automatically convert to Class A shares after they have been held for approximately 8 years.
CONVERSION TO CLASS A SHARES. Class B shares will convert automatically to Class A shares after 8 years from your initial purchase. The conversion will occur in the month following your 8-year anniversary. The conversion is based on the relative NAVs of the shares of the two classes on the conversion date and no sales charge will be imposed. Class B shares you have acquired through automatic reinvestment of dividends or capital gains will be converted in proportion to the total number of Class B shares you have purchased and own. Since the Rule 12b-1 distribution fees for Class A shares are lower than for Class B shares, converting to Class A shares will lower your expenses.
CLASS C SHARES
BECAUSE IN MOST CASES IT IS MORE ADVANTAGEOUS TO PURCHASE CLASS A SHARES FOR AMOUNTS OF $1 MILLION OR MORE, A REQUEST TO PURCHASE CLASS C SHARES FOR $1 MILLION OR MORE WILL BE CONSIDERED AS A PURCHASE REQUEST FOR CLASS A SHARES OR DECLINED. Class C shares of the Funds are sold at NAV without an initial sales charge so that the full amount of your purchase payment may be immediately invested in the Funds. A CDSC of 1.00% will be charged on Class C shares redeemed within 1 year after you purchased them. Class C shares are subject to a 12b-1 fee.
12B-1 DISTRIBUTION PLANS
Each Fund has adopted a distribution plan under Rule 12b-1 of the Investment Company Act of 1940, as amended, for each class of shares it offers that are subject to 12b-1 distribution fees. The plans allow each Fund to pay distribution and other fees for the sale and distribution of its shares and for services provided to shareholders. Under the Class A plan, the Funds pay an annual fee of up to 0.25% of average daily net assets that are attributable to Class A shares. Under the Class B and Class C plans, the Funds pay an annual fee of up to 1.00% of average daily net assets attributable to Class B or Class C shares (of which up to 0.75% is a distribution fee and up to 0.25% is an account maintenance fee). Because these fees are paid out of a Fund's assets on an ongoing basis, they will increase the cost of your investment and over time may cost you more than paying other types of sales charges.
DEALER COMPENSATION
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 a Fund or other Touchstone Funds. 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. Touchstone Advisors, at its expense, may also provide additional compensation to certain affiliated and unaffiliated dealers, financial intermediaries or service providers for distribution, administrative and/or shareholder servicing activities. Touchstone Advisors may also reimburse Touchstone for making these payments.
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.
PURCHASING YOUR SHARES
Please read this Prospectus carefully and then determine how much you want to
invest. You may purchase shares of the Funds directly from Touchstone, through
your financial advisor or through a processing organization. In any event, you
must complete an investment application. You can obtain an investment
application from Touchstone, your financial advisor, or by visiting our website
at touchstoneinvestments.com. Check below to find the minimum investment
requirements and ways to purchase shares in the Funds.
For more information about how to purchase shares, call Touchstone at 1.800.543.0407.
- INVESTOR ALERT: Each Touchstone Fund reserves the right to restrict or reject any purchase request, including exchanges from other Touchstone Funds, that it regards as disruptive to efficient portfolio management. For example, a purchase request could be rejected because of the timing of the investment or because of a history of excessive trading by the investor. (See "Market Timing Policy" in this Prospectus.)
MINIMUM INVESTMENT REQUIREMENTS
INITIAL ADDITIONAL
INVESTMENT INVESTMENT
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Regular Account $ 2,500 $ 50
Retirement Plan Account or Custodial Account under
the Uniform Gifts/Transfers to Minors Act ("UGTMA") $ 1,000 $ 50
Investments through the Automatic Investment Plan $ 100 $ 50
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- INVESTOR ALERT: Touchstone may change these initial and additional investment minimums at any time.
OPENING AN ACCOUNT
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING AN ACCOUNT
Federal law requires all financial institutions to obtain, verify and record
information that identifies each person who opens an account. What this means
for you: When you open an account, we will ask for your name, residential
address, date of birth, government identification number and other information
that will allow us to identify you. We may also ask to see your driver's license
or other identifying documents. If we do not receive these required pieces of
information, there may be a delay in processing your investment request, which
could subject your investment to market risk. If we are unable to immediately
verify your identity, the Fund may restrict further investment until your
identity is verified. However, if we are unable to verify your identity, the
Fund reserves the right to close your account without notice and return your
investment to you at the price determined at the end of business (usually 4:00
p.m. eastern time ("ET")) on the day that your account is closed. If we close
your account because we are unable to verify your identity, your investment will
be subject to market fluctuation, which could result in a loss of a portion of
your principal investment.
INVESTING IN THE FUNDS
BY MAIL OR THROUGH YOUR FINANCIAL ADVISOR
o Please make your check (drawn on a U.S. bank and payable in U.S. dollars) payable to the Touchstone Funds. We do not accept third party checks for initial investments.
o Send your check with the completed investment application by regular mail to Touchstone, P.O. Box 5354, Cincinnati, Ohio 45201-5354, or by overnight mail to Touchstone, c/o JPMorgan Chase Bank, N.A., 303 Broadway, Suite 900, Cincinnati, Ohio 45202-4203.
o Your application will be processed subject to your check clearing. If your check is returned for insufficient funds or uncollected funds, you may be charged a fee and you will be responsible for any resulting loss to the Fund.
o You may also open an account through your financial advisor.
BY EXCHANGE
o You may exchange shares of the Funds for shares of the same class of another Touchstone Fund (subject to the applicable sales charge, if any). You may also exchange Class A or Class C shares of the Funds for Class A shares of any Touchstone money market fund, except the Institutional Money Market Fund.
o You do not have to pay any exchange fee for your exchange.
o Shares otherwise subject to a CDSC will not be charged a CDSC in an exchange. However, when you redeem the shares acquired through the exchange, the shares you redeem may be subject to a CDSC, depending on when you originally purchased the exchanged shares. For purposes of computing the CDSC, the length of time you have owned your shares will be measured from the date of original purchase and will not be affected by any exchange.
o If you exchange Class C shares for Class A shares of any Touchstone money market fund, the amount of time you hold shares of the money market fund will not be added to the holding period of your original shares for the purpose of calculating the CDSC, if you later redeem the exchanged shares. However, if you exchange back into your original Class C shares, the prior holding period of your Class C shares will be added to your current holding period of Class C shares in calculating the CDSC.
o If you purchased Class A shares for $1 million or more at NAV and compensation was paid to an unaffiliated broker-dealer and you exchange all or a portion of the shares into any Touchstone money market fund within 12 months of the original purchase, the amount of time you hold shares of the money market fund will not be added to the holding period of your original shares for the purpose of calculating the CDSC, if you later redeem the exchanged shares. However if you exchange back into Class A shares, the prior holding period of your Class A shares will be added to your current holding period of Class A shares in calculating the CDSC.
o You should carefully review the disclosure provided in the Prospectus relating to the exchanged-for shares before making an exchange of your Fund shares.
THROUGH RETIREMENT PLANS
You may invest in the Funds through various retirement plans. These include individual retirement plans and employer sponsored retirement plans.
INDIVIDUAL RETIREMENT PLANS
o Traditional Individual Retirement Accounts ("IRAs")
o Savings Incentive Match Plan for Employees ("SIMPLE IRAs")
o Spousal IRAs
o Roth Individual Retirement Accounts ("Roth IRAs")
o Coverdell Education Savings Accounts ("Education IRAs")
o Simplified Employee Pension Plans ("SEP IRAs")
EMPLOYER SPONSORED RETIREMENT PLANS
o Defined benefit plans
o Defined contribution plans (including 401(k) plans, profit sharing plans and money purchase plans)
o 457 plans
<-- SPECIAL TAX CONSIDERATION
To determine which type of retirement plan is appropriate for you, please contact your tax advisor.
For further information about any of the plans, agreements, applications and annual fees, contact Touchstone at 1.800.543.0407 or contact your financial advisor.
THROUGH PROCESSING ORGANIZATIONS
You may also purchase shares of the Funds through a "processing organization," (e.g., a mutual fund supermarket) which is a broker-dealer, bank or other financial institution that purchases shares for its customers. Some of the Touchstone Funds have authorized certain processing organizations ("Authorized Processing Organizations") to receive purchase and sales orders on their behalf. Before investing in the Funds through a processing organization, you should read any materials provided by the processing organization together with this Prospectus. You should also ask the processing organization if they are authorized by Touchstone to receive purchase and sales orders on their behalf. If the processing organization is not authorized, then there could be a delay as to when the purchase or sales order is received for processing. When shares are purchased this way, there may be various differences. An Authorized Processing Organization may:
o Charge a fee for its services
o Act as the shareholder of record of the shares
o Set different minimum initial and additional investment requirements
o Impose other charges and restrictions
o Designate intermediaries to accept purchase and sales orders on the Funds' behalf
o Touchstone considers a purchase or sales order as received when an authorized processing organization, or its authorized designee, receives the order in proper form. These orders will be priced based on the Fund's NAV (or offering price, if applicable) next computed after such order is received in proper form. A purchase or sales order transmitted through an entity that is not an Authorized Processing Organization may affect the effective date of your transaction.
o Shares held through a processing organization may be transferred into your name following procedures established by your processing organization and Touchstone. Certain processing organizations may receive compensation from the Funds, Touchstone, Touchstone Advisors or their affiliates.
o It is the responsibility of the processing organization to transmit properly completed orders so that they will be received by Touchstone in a timely manner.
PRICING OF PURCHASES
We price direct purchases in the Funds based upon the next determined public offering price (NAV plus any applicable sales charge) after your order is received. Direct purchase orders received by Touchstone, or an Authorized Processing Organization, by the close of the regular session of trading on the New York Stock Exchange ("NYSE"), generally 4:00 p.m. ET, are processed at that day's public offering price. Direct purchase orders received by Touchstone, or an Authorized Processing Organization, after the close of the regular session of trading on the NYSE, generally 4:00 p.m. ET, are processed at the public offering price next determined on the following business day. It is the responsibility of Touchstone's Authorized Processing Organization to transmit orders that will be received by Touchstone in proper form and in a timely manner.
ADDING TO YOUR ACCOUNT
BY CHECK
o Complete the investment form provided at the bottom of a recent account statement.
o Make your check (drawn on a U.S. bank and payable in U.S. dollars) payable to the Touchstone Funds.
o Write your account number on the check.
o Either: (1) Mail the check with the investment form to Touchstone; or (2) Mail the check directly to your financial advisor at the address printed on your account statement. Your financial advisor is responsible for forwarding payment promptly to Touchstone.
o If your check is returned for insufficient funds or uncollected funds, you may be charged a fee and you will be responsible for any resulting loss to the Fund.
BY WIRE
o Contact Touchstone or your financial advisor for further instructions.
o Contact your bank and ask it to wire federal funds to Touchstone. Specify your name and account number when remitting the funds.
o Banks may charge a fee for handling wire transfers.
o Purchases in the Funds will be processed at that day's NAV (or public offering price, if applicable) if Touchstone receives a properly executed wire by the close of the regular session of trading on the NYSE, generally 4:00 p.m. ET, on a day when the NYSE is open for regular trading.
BY EXCHANGE
o You may add to your account by exchanging shares from an unaffiliated mutual fund or from another Touchstone Fund.
o For information about how to exchange shares among the Touchstone Funds, see "Opening an Account - By exchange" in this Prospectus.
PURCHASES WITH SECURITIES
o Shares may be purchased by tendering payment in-kind in the form of marketable securities, including but not limited to, shares of common stock, provided the acquisition of such securities is consistent with the applicable Fund's investment goals and is otherwise acceptable to Touchstone Advisors.
AUTOMATIC INVESTMENT OPTIONS
The various ways that you can automatically invest in the Funds are outlined below. Touchstone does not charge any fees for these services. For further details about these services, call Touchstone at 1.800.543.0407.
AUTOMATIC INVESTMENT PLAN. You can pre-authorize monthly investments in a Fund of $50 or more to be processed electronically from a checking or savings account. You will need to complete the appropriate section in the investment application to do this. Amounts that are automatically invested in a Fund will not be available for redemption until three business days after the automatic investment.
REINVESTMENT/CROSS REINVESTMENT. Dividends and capital gains can be automatically reinvested in the Fund that pays them or in another Touchstone Fund within the same class of shares without a fee or sales charge. Dividends and capital gains will be reinvested in the Fund that pays them, unless you indicate otherwise on your investment application. You may also choose to have your dividends or capital gains paid to you in cash. If you elect to receive dividends and distributions in cash and the payment (1) is returned and marked as "undeliverable" or (2) is not cashed for six months, your cash election will be changed automatically and future dividends will be reinvested in the Fund at the per share net asset value determined as of the date of payment. In addition, any undeliverable checks or checks that are not cashed for six months will be cancelled and then reinvested in the Fund at the per share NAV determined as of the date of cancellation.
DIRECT DEPOSIT PURCHASE PLAN. You may automatically invest Social Security checks, private payroll checks, pension pay outs or any other pre-authorized government or private recurring payments in our Funds.
DOLLAR COST AVERAGING. Our dollar cost averaging program allows you to diversify your investments by investing the same amount on a regular basis. You can set up periodic automatic exchanges of at least $50 from one Touchstone Fund to any other. The applicable sales charge, if any, will be assessed.
SELLING YOUR SHARES
You may sell some or all of your shares on any day that the Fund calculates its NAV. If your request is received by Touchstone, or an Authorized Processing Organization, in proper form by the close of regular trading on the NYSE (normally 4:00 p.m. ET), you will receive a price based on that day's NAV for the shares you sell. Otherwise, the price you receive will be based on the NAV that is next calculated.
BY TELEPHONE
o You can sell or exchange your shares over the telephone, unless you have specifically declined this option. If you do not wish to have this ability, you must mark the appropriate section of the investment application. You may only sell shares over the telephone if the amount is less than $100,000.
o To sell your Fund shares by telephone, call Touchstone at 1.800.543.0407.
o Shares held in IRA accounts and qualified retirement plans cannot be sold by telephone.
o If we receive your sale request by the close of the regular session of trading on the NYSE, generally 4:00 p.m. ET, on a day when the NYSE is open for regular trading, the sale of your shares will be processed at the next determined NAV on that day. Otherwise it will occur on the next business day.
o Interruptions in telephone service could prevent you from selling your shares by telephone when you want to. When you have difficulty making telephone sales, you should mail to Touchstone (or send by overnight delivery), a written request for the sale of your shares.
o In order to protect your investment assets, Touchstone will only follow instructions received by telephone that it reasonably believes to be genuine. However, there is no guarantee that the instructions relied upon will always be genuine and Touchstone will not be liable, in those cases. Touchstone has certain procedures to confirm that telephone instructions are genuine. If it does not follow such procedures in a particular case, it may be liable for any losses due to unauthorized or fraudulent instructions. Some of these procedures may include:
o Requiring personal identification
o Making checks payable only to the owner(s) of the account shown on Touchstone's records
o Mailing checks only to the account address shown on Touchstone's records
o Directing wires only to the bank account shown on Touchstone's records
o Providing written confirmation for transactions requested by telephone
o Digitally recording instructions received by telephone
BY MAIL
o Write to Touchstone.
o Indicate the number of shares or dollar amount to be sold.
o Include your name and account number.
o Sign your request exactly as your name appears on your investment application.
o You may be required to have your signature guaranteed (See "Signature Guarantees" in this Prospectus for more information).
BY WIRE
o Complete the appropriate information on the investment application.
o You may be charged a fee by the Fund or the Fund's Authorized Processing Organization for wiring redemption proceeds. You may also be charged a fee by your bank.
o Redemption proceeds will only be wired to a commercial bank or brokerage firm in the United States.
o Your redemption proceeds may be deposited without a charge directly into your bank account through an Automated Clearing House ("ACH") transaction. Contact Touchstone for more information.
THROUGH A SYSTEMATIC WITHDRAWAL PLAN
o You may elect to receive, or send to a third party, withdrawals of $50 or more if your account value is at least $5,000.
o Withdrawals can be made monthly, quarterly, semiannually or annually.
o There is no special fee for this service.
o There is no minimum amount required for retirement plans.
<-- SPECIAL TAX CONSIDERATION
Systematic withdrawals may result in the sale of your shares at a loss or may result in taxable investment gains.
THROUGH YOUR FINANCIAL ADVISOR OR PROCESSING ORGANIZATION
o You may also sell shares by contacting your financial advisor or processing organization, which may charge you a fee for this service. Shares held in street name must be sold through your financial advisor or, if applicable, the processing organization.
o Your financial advisor or processing organization is responsible for making sure that sale requests are transmitted to Touchstone in proper form and in a timely manner.
<-- SPECIAL TAX CONSIDERATION
Selling your shares may cause you to incur a taxable gain or loss.
- INVESTOR ALERT: Unless otherwise specified, proceeds will be sent to the record owner at the address shown on Touchstone's records.
CONTINGENT DEFERRED SALES CHARGE ("CDSC")
If you purchase $1 million or more Class A shares at NAV, a CDSC of 1.00% may be charged on redemptions made within 1 year of your purchase. If you redeem Class B shares within 1 year of your purchase, a CDSC of 5.00% will be charged. This charge will be incrementally reduced and after the 6th year there is no CDSC. If you redeem Class C shares within 1 year of your purchase, a CDSC of 1.00% will be charged.
The CDSC will not apply to redemptions of shares you received through reinvested dividends or capital gains distributions and may be waived under certain circumstances described below. The CDSC will be assessed on the lesser of your shares' NAV at the time of redemption or the time of purchase. The CDSC is paid to Touchstone to reimburse expenses incurred in providing distribution-related services to the Funds.
No CDSC is applied if:
o The redemption is due to the death or post-purchase disability of a shareholder
o The redemption is from a systematic withdrawal plan and represents no more than 10% of your annual account value
o The redemption is a benefit payment made from a qualified retirement plan, unless the redemption is due to termination of the plan or transfer of the plan to another financial institution
o The redemption is for a mandatory withdrawal from a traditional IRA account after age 70 (1)/2
When we determine whether a CDSC is payable on a redemption, we assume that:
o The redemption is made first from amounts not subject to a CDSC; then
o From the earliest purchase payment(s) that remain invested in the Fund
The above mentioned CDSC waivers do not apply to redemptions made within one year for purchases of $1 million or more in Class A shares of the Touchstone Funds where a commission was paid by Touchstone to a participating unaffiliated broker-dealer.
The SAI contains further details about the CDSC and the conditions for waiving the CDSC.
SIGNATURE GUARANTEES
Some circumstances require that your request to sell shares be made in writing accompanied by an original Medallion Signature Guarantee. A Medallion Signature Guarantee helps protect you against fraud. You can obtain one from most banks or securities dealers, but not from a notary public. Some circumstances that may require an original Medallion Signature Guarantee include:
o Proceeds from the sale of shares of $100,000 or more
o Proceeds to be paid when information on your investment application has been changed within the last 30 days (including a change in your name or your address, or the name or address of a payee)
o Proceeds are being sent to an address other than the address of record
o Proceeds or shares are being sent/transferred from unlike registrations, such as from a joint account to an individual's account
o Sending proceeds via wire or ACH when bank instructions have been added or changed within 30 days of your redemption request
o Proceeds or shares are being sent/transferred between accounts with different account registrations
MARKET TIMING POLICY
Market timing or excessive trading in accounts that you own or control may disrupt portfolio investment strategies, may increase brokerage and administrative costs, and may negatively impact investment returns for all shareholders, including long-term shareholders who do not generate these costs. The Funds will take reasonable steps to discourage excessive short-term trading and will not knowingly accommodate frequent purchases and redemptions of Fund shares by shareholders. The Board of Trustees has adopted the following policies and procedures with respect to market timing of the Funds by shareholders. The Funds will monitor selected trades on a daily basis in an effort to deter excessive short-term trading. If a Fund has reason to believe that a shareholder has engaged in excessive short-term trading, the Fund may ask the shareholder to stop such activities or restrict or refuse to process purchases or exchanges in the shareholder's accounts. While a Fund cannot assure the prevention of all excessive trading and market timing, by making these judgments the Fund believes it is acting in a manner that is in the best interests of its shareholders. However, because the Funds cannot prevent all market timing, shareholders may be subject to the risks described above.
Generally, a shareholder may be considered a market timer if he or she has (i)
requested an exchange or redemption out of any of the Touchstone Funds within 2
weeks of an earlier purchase or exchange request out of any Touchstone Fund, or
(ii) made more than 2 "round-trip" exchanges within a rolling 90 day period. A
"round-trip" exchange occurs when a shareholder exchanges from one Touchstone
Fund to another Touchstone Fund and back to the original Touchstone Fund. If a
shareholder exceeds these limits, the Funds may restrict or suspend that
shareholder's exchange privileges and subsequent exchange requests during the
suspension will not be processed. The Funds may also restrict or refuse to
process purchases by the shareholder. These policies and procedures generally do
not apply to purchases and redemptions of Money Market Funds (except in the case
of an exchange request into a Touchstone non-money market fund), exchanges
between Money Market Funds and systematic purchases and redemptions.
Financial intermediaries (such as investment advisors and broker-dealers) often
establish omnibus accounts in the Funds for their customers through which
transactions are placed. In accordance with Rule 22c-2 under the Investment
Company Act of 1940, the Funds have entered into information sharing agreements
with certain financial intermediaries. Under these agreements, a financial
intermediary is obligated to: (1) enforce during the term of the agreement, the
Funds' market-timing policy; (2) furnish the Funds, upon their request, with
information regarding customer trading activities in shares of the Funds; and
(3) enforce the Funds' market-timing policy with respect to customers identified
by the Funds as having engaged in market timing. When information regarding
transactions in the Funds' shares is requested by a Fund and such information is
in the possession of a person that is itself a financial intermediary to a
financial intermediary (an "indirect intermediary"), any financial intermediary
with whom the Funds have an information sharing agreement is obligated to obtain
transaction information from the indirect intermediary or, if directed by the
Funds, to restrict or prohibit the indirect intermediary from purchasing shares
of the Funds on behalf of other persons.
The Funds apply these policies and procedures uniformly to all shareholders believed to be engaged in market timing or excessive trading. The Funds have no arrangements to permit any investor to trade frequently in shares of the Funds, nor will they enter into any such arrangements in the future.
HOUSEHOLDING POLICY
The Funds will send one copy of prospectuses and shareholder reports to households containing multiple shareholders with the same last name. This process, known as "householding," reduces costs and provides a convenience to shareholders. If you share the same last name and address with another shareholder and you prefer to receive separate prospectuses and shareholder reports, call Touchstone at 1.800.543.0407 and we will begin separate mailings to you within 30 days of your request. If you or others in your household invest in the Funds through a broker or other financial institution, you may receive separate prospectuses and shareholder reports, regardless of whether or not you have consented to householding on your investment application.
RECEIVING SALE PROCEEDS
Touchstone will forward the proceeds of your sale to you (or to your financial advisor or processing organization) within 7 days (normally within 3 business days) after receipt of a proper request.
PROCEEDS SENT TO FINANCIAL ADVISORS OR PROCESSING ORGANIZATIONS. Proceeds that are sent to your financial advisor or processing organization will not usually be reinvested for you unless you provide specific instructions to do so. Therefore, the financial advisor or processing organization may benefit from the use of your money.
FUND SHARES PURCHASED BY CHECK. We may delay mailing your redemption proceeds for shares you recently purchased by check until your check clears, which may take up to 15 days. If you need your money sooner, you should purchase shares by bank wire.
REINSTATEMENT PRIVILEGE. You may, within 90 days of redemption, reinvest all or part of your sale proceeds by sending a written request and a check to Touchstone. If the redemption proceeds were from the sale of your Class A or Class B shares, you can reinvest into Class A shares of any Touchstone Fund at NAV. Reinvestment will be at the NAV next calculated after Touchstone receives your request. If the proceeds were from the sale of your Class C shares, you can reinvest those proceeds into Class C shares of any Touchstone Fund. If you paid a CDSC on the reinstated amount, that CDSC will be reimbursed to you upon reinvestment.
<-- SPECIAL TAX CONSIDERATION
You should contact your tax advisor if you use the Reinstatement Privilege.
LOW ACCOUNT BALANCES. If your balance falls below the minimum amount required for your account, based on actual amounts you have invested (as opposed to a reduction from market changes), your account may be subject to an annual account maintenance fee or Touchstone may sell your shares and send the proceeds to you. This involuntary sale does not apply to retirement accounts or custodian accounts under the Uniform Gifts/Transfers to Minors Act ("UGTMA"). Touchstone will notify you if your shares are about to be sold and you will have 30 days to increase your account balance to the minimum amount.
DELAY OF PAYMENT. It is possible that the payment of your sale proceeds could be postponed or your right to sell your shares could be suspended during certain circumstances. These circumstances can occur:
o When the NYSE is closed on days other than customary weekends and holidays
o When trading on the NYSE is restricted
o When an emergency situation causes a Sub-Advisor to not be reasonably able to dispose of certain securities or to fairly determine the value of a Fund's net assets
o During any other time when the SEC, by order, permits
REDEMPTION IN KIND. Under unusual circumstances, when the Board of Trustees deems it appropriate, a Fund may make payment for shares redeemed in portfolio securities of the Fund taken at current value. Shareholders may incur transaction and brokerage costs when they sell these portfolio securities.
PRICING OF FUND SHARES
Each Fund's share price (also called "NAV") and offering price (NAV plus a sales
charge, if applicable) is determined as of the close of trading (normally 4:00
p.m. ET) every day the NYSE is open. Each Fund calculates its NAV per share,
generally using market prices, by dividing the total value of its net assets by
the number of shares outstanding. Shares are purchased or sold at the next
offering price determined after your purchase or sale order is received in
proper form by Touchstone or an Authorized Processing Organization.
The Funds' equity 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). The Funds may use pricing services to determine market value for investments. 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.
Any foreign securities held by a Fund will be priced as follows:
o All assets and liabilities initially expressed in foreign currency values will be converted into U.S. dollar values.
o Securities mainly traded on a non-U.S. exchange are generally valued according to the preceding closing values on that exchange. However, if an event that may change the value of a security occurs after the time that the closing value on the non-U.S. exchange was determined, the security may be priced based on fair value. This may cause the value of the security on the books of the Fund to be significantly different from the closing value on the non-U.S. exchange and may affect the calculation of the NAV.
o Because portfolio securities that are primarily listed on a non-U.S. exchange may trade on weekends or other days when a Fund does not price its shares, a Fund's NAV may change on days when shareholders will not be able to buy or sell shares.
Securities held by a Fund that do not have readily available market quotations, or securities for which the available market quotation is not reliable, are priced at their fair value using procedures approved by the Board of Trustees. The Funds may use fair value pricing under the following circumstances, among others:
o If the value of a security has been materially affected by events occurring before the Fund's pricing time but after the close of the primary markets on which the security is traded.
o If a security, such as a small cap or micro cap security, is so thinly traded that reliable market quotations are unavailable due to infrequent trading.
o If the exchange on which a portfolio security is principally traded closes early or if trading in a particular portfolio security was halted during the day and did not resume prior to the Fund's NAV calculation.
The use of fair value pricing has the effect of valuing a security based upon the price a Fund might reasonably expect to receive if it sold that security but does not guarantee that the security can be sold at the fair value price. With respect to any portion of a Fund's assets that is invested in other mutual funds, that portion of the Fund's NAV is calculated based on the NAV of that mutual fund. The prospectus for the other mutual fund explains the circumstances and effects of fair value pricing for that fund.
<-- SPECIAL TAX CONSIDERATION
You should consult your tax advisor to address your own tax situation.
Each Fund intends to distribute to its shareholders substantially all of its income and capital gains. Each Fund's dividends are distributed and paid annually. Distributions of any capital gains earned by a Fund will be made at least annually. If you own shares on a Fund's record date, you will be entitled to receive the distribution.
You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Funds in writing prior to the date of distribution. Your election will be effective for dividends and distributions paid after we receive your written notice. To cancel your election, simply send written notice to Touchstone, P.O. Box 5354, Cincinnati, Ohio 45201-5354, or by overnight mail to Touchstone, c/o JPMorgan Chase Bank, N.A., 303 Broadway, Suite 900, Cincinnati, Ohio 45202-4203, or call Touchstone at 1.800.543.0407.
TAX INFORMATION
DISTRIBUTIONS. The Funds may make distributions of dividends that may be taxed at different rates depending on the length of time a Fund holds its assets. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. If so, they are taxable whether or not you reinvest such dividends in additional shares of the Fund or choose to receive cash.
ORDINARY INCOME. Income distributions are generally taxable at ordinary income tax rates except to the extent they are designated as qualified dividend income. Dividends that are qualified dividend income are eligible for the reduced maximum rate to individuals of 15% (0% for individuals in lower tax brackets) to the extent that a Fund receives qualified dividend income. 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.
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%.
<-- SPECIAL TAX CONSIDERATION
For federal income tax purposes, an exchange of shares is treated as a sale of the shares and a purchase of the shares you receive in exchange. Therefore, you may incur a taxable gain or loss in connection with the exchange.
BACKUP WITHHOLDING. A Fund may be required to withhold U.S. federal income tax on all taxable distributions and sales 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 Funds during the prior taxable year.
The financial highlights tables are intended to help you understand each Fund's financial performance for the past 5 years, or if shorter, the period of each Fund's operation. Some of this information reflects financial information 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 a Fund, assuming reinvestment of all dividends and distributions. The financial highlights for each Fund for the fiscal periods ended March 31, 2004 through 2008 were audited by Ernst & Young LLP, an independent registered public accounting firm. The report of Ernst & Young LLP, along with each Fund's financial statements and related notes, appears in the 2008 Annual Report for the Funds. The financial highlights for the Large Cap Growth Fund for the fiscal period ended December 31, 2003 were audited by another independent registered public accounting firm. You can obtain the Annual Report, which contains more performance information, at no charge by calling 1.800.543.0407. The Annual Report has been incorporated by reference into the SAI.
DIVERSIFIED SMALL CAP GROWTH FUND--CLASS A
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2008 2007 (A)
--------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 11.64 $ 10.00
--------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.50 (0.07)
Net realized and unrealized gains (losses) on investments (1.15) 1.71
--------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.65) 1.64
--------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (1.19) --
--------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 9.80 $ 11.64
==========================================================================================================================
Total return(B) (7.28%) 16.40%(C)
==========================================================================================================================
Net assets at end of period (000's) $ 22,955 $ 5,846
==========================================================================================================================
Ratio of net expenses to average net assets 1.40% 1.40%(D)
Ratio of net investment income (loss) to average net assets 0.33% (1.15%)(D)
Portfolio turnover rate 99% 86%(D)
|
(A) Represents the period from commencement of operations (September 6, 2006)
through March 31, 2007.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
DIVERSIFIED SMALL CAP GROWTH FUND--CLASS C
PERIOD
ENDED
MARCH 31,
2008 (A)
--------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 12.44
--------------------------------------------------------------------------------------------------------------
Loss from investment operations:
Net investment loss (0.22)
Net realized and unrealized losses on investments (1.28)
--------------------------------------------------------------------------------------------------------------
Total from investment operations (1.50)
--------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (1.19)
--------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 9.75
==============================================================================================================
Total return(B) (13.66%)(C)
==============================================================================================================
Net assets at end of period (000's) $ 4,228
==============================================================================================================
Ratio of net expenses to average net assets 0.84%(D)
Ratio of net investment loss to average net assets (17.70%)(D)
Portfolio turnover rate 99%
|
(A) Represents the period from commencement of operations (August 1, 2007)
through March 31, 2008.
(B) Total return shown excludes the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
GROWTH OPPORTUNITIES FUND--CLASS A
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------
2008 2007 2006 2005 2004
----------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 20.75 $ 21.57 $ 17.92 $ 18.06 $ 12.70
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.24) (0.35) (0.21) (0.24) (0.21)
Net realized and unrealized gains (losses)
on investments 1.17 (0.47) 3.86 0.10 5.57
----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.93 (0.82) 3.65 (0.14) 5.36
----------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 21.68 $ 20.75 $ 21.57 $ 17.92 $ 18.06
==================================================================================================================================
Total return(A) 4.48% (3.80%) 20.37% (0.78%) 42.20%
==================================================================================================================================
Net assets at end of year (000's) $ 26,349 $ 35,723 $ 98,004 $ 81,313 $ 117,605
==================================================================================================================================
Ratio of net expenses to average net assets 1.55% 1.79% 1.64% 1.68% 1.60%
Ratio of net investment loss to average net assets (0.89%) (1.12%) (1.09%) (1.14%) (1.23%)
Portfolio turnover rate 82% 161% 80% 35% 47%
|
(A) Total returns shown exclude the effect of applicable sales loads.
GROWTH OPPORTUNITIES FUND--CLASS B
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------
2008 2007 2006 2005 2004
---------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 19.38 $ 20.39 $ 16.97 $ 17.31 $ 12.13
---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.36) (0.51) (0.46) (0.43) (0.38)
Net realized and unrealized gains (losses) on
investments 1.16 (0.50) 3.88 0.09 5.56
---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.80 (1.01) 3.42 (0.34) 5.18
---------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 20.18 $ 19.38 $ 20.39 $ 16.97 $ 17.31
=================================================================================================================================
Total return(A) 4.13% (4.95%) 20.15% (1.96%) 42.70%
=================================================================================================================================
Net assets at end of year (000's) $ 1,974 $ 2,288 $ 3,230 $ 3,064 $ 3,608
=================================================================================================================================
Ratio of net expenses to average net assets 2.30% 2.97% 2.97% 2.95% 2.84%
Ratio of net investment loss to average net assets (1.59%) (2.24%) (2.39%) (2.38%) (2.45%)
Portfolio turnover rate 82% 161% 80% 35% 47%
|
(A) Total returns shown exclude the effect of applicable sales loads.
GROWTH OPPORTUNITIES FUND--CLASS C
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------
2008 2007 2006 2005 2004
--------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 19.63 $ 20.60 $ 17.11 $ 17.39 $ 12.17
--------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.35) (0.54) (0.40) (0.40) (0.37)
Net realized and unrealized gains (losses) on
investments 1.14 (0.43) 3.89 0.12 5.59
--------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.79 (0.97) 3.49 (0.28) 5.22
--------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 20.42 $ 19.63 $ 20.60 $ 17.11 $ 17.39
================================================================================================================================
Total return(A) 4.02% (4.71%) 20.40% (1.61%) 42.89%
================================================================================================================================
Net assets at end of year (000's) $ 11,115 $ 11,957 $ 22,412 $ 21,789 $ 28,470
================================================================================================================================
Ratio of net expenses to average net assets 2.30% 2.71% 2.57% 2.61% 2.60%
Ratio of net investment loss to average net assets (1.60%) (2.00%) (2.01%) (2.04%) (2.21%)
Portfolio turnover rate 82% 161% 80% 35% 47%
|
(A) Total returns shown exclude the effect of applicable sales loads.
LARGE CAP CORE EQUITY FUND--CLASS A
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------
2008 2007 2006 2005 2004
------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 11.36 $ 10.49 $ 9.48 $ 9.10 $ 6.71
------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.10 0.11 0.06 0.11 0.07
Net realized and unrealized gains (losses) on
investments (0.62) 0.91 0.96 0.38 2.37
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.52) 1.02 1.02 0.49 2.44
------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.10) (0.15) (0.01) (0.11) (0.05)
Distributions from net realized gains (0.38) -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.48) (0.15) (0.01) (0.11) (0.05)
------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 10.36 $ 11.36 $ 10.49 $ 9.48 $ 9.10
==============================================================================================================================
Total return(A) (5.03%) 9.83% 10.74% 5.32% 36.41%
==============================================================================================================================
Net assets at end of year (000's) $ 84,611 $ 95,175 $ 25,693 $ 9,328 $ 8,783
==============================================================================================================================
Ratio of net expenses to average net assets 1.15% 1.15% 1.00% 1.00% 0.97%(B)
Ratio of net investment income to average net
assets 0.89% 0.97% 1.03% 1.18% 0.85%(B)
Portfolio turnover rate 52% 54% 6% 7% 10%
|
(A) Total returns shown exclude the effect of applicable sales loads. (B) Absent voluntary expense reimbursements, the ratio of net expenses to average net assets would have been 1.00% and the ratio of net investment income to average net assets would have been 0.82%.
LARGE CAP CORE EQUITY FUND--CLASS C
YEAR ENDED MARCH 31,
----------------------------------------------------------------------------
2008 2007 2006 2005 2004
------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 11.29 $ 10.39 $ 9.46 $ 9.08 $ 6.72
------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.01 (0.02) 0.03 0.04 0.01
Net realized and unrealized gains (losses) on
investments (0.61) 0.96 0.91 0.37 2.37
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.60) 0.94 0.94 0.41 2.38
------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.02) (0.04) (0.01) (0.03) (0.02)
Distributions from net realized gains (0.38) -- -- -- --
------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.40) (0.04) (0.01) (0.03) (0.02)
------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 10.29 $ 11.29 $ 10.39 $ 9.46 $ 9.08
==============================================================================================================================
Total return(A) (5.72%) 9.09% 9.91% 4.52% 35.38%
==============================================================================================================================
Net assets at end of year (000's) $ 2,913 $ 4,231 $ 1,399 $ 1,675 $ 2,260
==============================================================================================================================
Ratio of net expenses to average net assets 1.90% 1.90% 1.75% 1.75% 1.72%(B)
Ratio of net investment income (loss) to average
net assets 0.13% (0.26%) 0.26% 0.41% 0.13%(B)
Portfolio turnover rate 52% 54% 6% 7% 10%
|
(A) Total returns shown exclude the effect of applicable sales loads. (B) Absent voluntary expense reimbursements, the ratio of net expenses to average net assets would have been 1.75% and the ratio of net investment income to average net assets would have been 0.10%.
LARGE CAP GROWTH FUND--CLASS A
THREE
MONTHS YEAR
YEAR ENDED MARCH 31, ENDED ENDED
------------------------------------------------------- MARCH 31, DEC. 31,
2008 2007 2006 2005 2004(A) 2003
----------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 22.06 $ 23.26 $ 19.84 $ 17.31 $ 16.53 $ 12.19
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.02 (0.04) (0.02) (0.02) (0.03) (0.07)
Net realized and unrealized gains
(losses) on investments 2.37 (1.16) 3.44 2.55 0.81 4.41
----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.39 (1.20) 3.42 2.53 0.78 4.34
----------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 24.45 $ 22.06 $ 23.26 $ 19.84 $ 17.31 $ 16.53
==================================================================================================================================
Total return(B) 10.83% (5.16%) 17.24% 14.62% 4.72%(C) 35.60%
==================================================================================================================================
Net assets at end of period (000's) $ 719,488 $ 656,582 $ 838,120 $ 274,121 $ 69,860 $ 62,187
==================================================================================================================================
Ratio of net expenses to average net assets 1.25% 1.16% 1.17% 1.26% 1.30%(D) 1.39%
Ratio of net investment income (loss)
to average net assets 0.06% (0.16%) (0.13%) (0.23%) (0.78%)(D) (0.93%)
Portfolio turnover 72% 115% 104% 127% 60%(D) 60%
|
(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.
LARGE CAP GROWTH FUND--CLASS B
THREE
MONTHS PERIOD
YEAR ENDED MARCH 31, ENDED ENDED
---------------------------------------------------- MARCH 31, DECEMBER 31,
2008 2007 2006 2005 2004(A) 2003(B)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 21.46 $ 22.83 $ 19.60 $ 17.24 $ 16.50 $ 15.45
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.15) (0.21) (0.15) (0.12) (0.03) (0.06)
Net realized and unrealized gains
(losses) on investments 2.37 (1.16) 3.38 2.48 0.77 1.11
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.22 (1.37) 3.23 2.36 0.74 1.05
-----------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 23.68 $ 21.46 $ 22.83 $ 19.60 $ 17.24 $ 16.50
=============================================================================================================================
Total return(C) 10.34% (6.00%) 16.48% 13.69% 4.48%(D) 6.80%(D)
=============================================================================================================================
Net assets at end of period (000's) $ 29,829 $ 26,669 $ 27,781 $ 10,579 $ 1,897 $ 1,003
=============================================================================================================================
Ratio of net expenses to average net assets 2.00% 2.02% 2.08% 2.25% 2.25%(E) 2.22%(E)
Ratio of net investment loss to average
net assets (0.65%) (0.98%) (1.02%) (1.23%) (1.71%)(E) (1.80%)(E)
Portfolio turnover rate 72% 115% 104% 127% 60%(E) 60%
|
(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.
(D) Not annualized.
(E) Annualized.
LARGE CAP GROWTH FUND--CLASS C
THREE
MONTHS PERIOD
YEAR ENDED MARCH 31, ENDED ENDED
------------------------------------------------ MARCH 31, DECEMBER 31,
2008 2007 2006 2005 2004(A) 2003(B)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 21.52 $ 22.88 $ 19.62 $ 17.24 $ 16.50 $ 15.45
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.14) (0.20) (0.11) (0.08) (0.04) (0.05)
Net realized and unrealized gains
(losses) on investments 2.36 (1.16) 3.37 2.46 0.78 1.10
-----------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.22 (1.36) 3.26 2.38 0.74 1.05
-----------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 23.74 $ 21.52 $ 22.88 $ 19.62 $ 17.24 $ 16.50
=============================================================================================================================
Total return(C) 10.32% (5.94%) 16.62% 13.81% 4.48%(D) 6.80%(D)
=============================================================================================================================
Net assets at end of period (000's) $ 236,582 $ 190,261 $ 188,810 $ 48,446 $ 4,310 $ 2,465
=============================================================================================================================
Ratio of net expenses to average net assets 2.00% 1.95% 1.98% 2.03% 2.25%(E) 2.21%(E)
Ratio of net investment loss to average
net assets (0.66%) (0.92%) (0.93%) (0.97%) (1.70%)(E) (1.78%)(E)
Portfolio turnover rate 72% 115% 104% 127% 60%(E) 60%
|
(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.
(D) Not annualized.
(E) Annualized.
LARGE CAP VALUE FUND--CLASS A
YEAR ENDED PERIOD
MARCH 31, ENDED
---------------------------- MARCH 31,
2008 2007 2006(A)
----------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 11.15 $ 10.19 $ 10.00
----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.10 0.04 0.01
Net realized and unrealized gains (losses) on investments (4.15) 1.19 0.18
----------------------------------------------------------------------------------------------------------
Total from investment operations (4.05) 1.23 0.19
----------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.09) (0.04) --
Distributions from net realized gains (0.60) (0.23) --
----------------------------------------------------------------------------------------------------------
Total distributions (0.69) (0.27) --
----------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 6.41 $ 11.15 $ 10.19
==========================================================================================================
Total return(B) (37.31%) 12.12% 1.90%(C)
==========================================================================================================
Net assets at end of period (000's) $ 23,609 $ 29,609 $ 11,684
==========================================================================================================
Ratio of net expenses to average net assets 1.35% 1.35% 1.30%(D)
Ratio of net investment income to average net assets 1.06% 0.55% 1.34%(D)
Portfolio turnover rate 75% 57% 68%(D)
|
(A) Represents the period from commencement of operations (March 6, 2006)
through March 31, 2006.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
LARGE CAP VALUE FUND--CLASS C
YEAR ENDED PERIOD
MARCH 31, ENDED
---------------------------- MARCH 31,
2008 2007 2006(A)
----------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 11.09 $ 10.18 $ 10.00
----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.03 (0.01) 0.00(B)
Net realized and unrealized gains (losses) on investments (4.14) 1.17 0.18
----------------------------------------------------------------------------------------------------------
Total from investment operations (4.11) 1.16 0.18
----------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.00)(B) (0.01) --
Distributions from net realized gains (0.60) (0.24) --
----------------------------------------------------------------------------------------------------------
Total distributions (0.60) (0.25) --
----------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 6.38 $ 11.09 $ 10.18
==========================================================================================================
Total return(C) (37.89%) 11.37% 1.80%(D)
==========================================================================================================
Net assets at end of period (000's) $ 9,639 $ 15,220 $ 561
==========================================================================================================
Ratio of net expenses to average net assets 2.10% 2.10% 1.89%(E)
Ratio of net investment income (loss) to average net assets 0.30% (0.27%) 0.25%(E)
Portfolio turnover rate 75% 57% 68%(E)
|
(A) Represents the period from commencement of operations (March 6, 2006)
through March 31, 2006.
(B) Amount rounds to less than $0.01 per share.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Not annualized.
(E) Annualized.
MID CAP GROWTH FUND--CLASS A
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------
2008 2007 2006 2005 2004
-------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 24.17 $ 24.02 $ 21.42 $ 21.73 $ 13.89
-------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.12) (0.14) (0.12) (0.16) (0.13)
Net realized and unrealized gains on investments 0.01 2.20 4.70 1.03 7.97
-------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.11) 2.06 4.58 0.87 7.84
-------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (2.90) (1.91) (1.98) (1.18) --
-------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 21.16 $ 24.17 $ 24.02 $ 21.42 $ 21.73
===============================================================================================================================
Total return(A) (1.53%) 8.84% 22.21% 4.13% 56.44%
===============================================================================================================================
Net assets at end of year (000's) $ 649,891 $ 713,666 $ 639,501 $ 574,855 $ 458,524
===============================================================================================================================
Ratio of net expenses to average net assets 1.47% 1.50% 1.50% 1.50% 1.49%(B)
Ratio of net investment loss to average net assets (0.53%) (0.66%) (0.57%) (0.84%) (0.93%)(B)
Portfolio turnover 64% 58% 69% 85% 79%
|
(A) Total returns shown exclude the effect of applicable sales loads. (B) Absent voluntary expense reimbursements, the ratio of net expenses to average net assets would have been 1.50% and the ratio of net investment loss to average net assets would have been (0.94%).
MID CAP GROWTH FUND--CLASS B
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------
2008 2007 2006 2005 2004
------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 21.25 $ 21.49 $ 19.50 $ 20.03 $ 12.53
------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.28) (0.30) (0.26) (0.29) (0.25)
Net realized and unrealized gains on investments 0.06 1.97 4.23 0.94 7.75
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.22) 1.67 3.97 0.65 7.50
------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (2.90) (1.91) (1.98) (1.18) --
------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 18.13 $ 21.25 $ 21.49 $ 19.50 $ 20.03
==============================================================================================================================
Total return(A) (2.29%) 8.04% 21.24% 3.37% 59.86%
==============================================================================================================================
Net assets at end of year (000's) $ 61,977 $ 74,935 $ 79,552 $ 71,879 $ 64,918
==============================================================================================================================
Ratio of net expenses to average net assets 2.25% 2.25% 2.25% 2.25% 2.24%(B)
Ratio of net investment loss to average net assets (1.31%) (1.42%) (1.32%) (1.60%) (1.68%)(B)
Portfolio turnover rate 64% 58% 69% 85% 79%
|
(A) Total returns shown exclude the effect of applicable sales loads. (B) Absent voluntary expense reimbursements, the ratio of net expenses to average net assets would have been 2.25% and the ratio of net investment loss to average net assets would have been (1.69%).
MID CAP GROWTH FUND--CLASS C
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------
2008 2007 2006 2005 2004
------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 21.27 $ 21.51 $ 19.51 $ 20.04 $ 12.55
------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.27) (0.28) (0.25) (0.30) (0.23)
Net realized and unrealized gains on investments 0.05 1.95 4.23 0.95 7.72
------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.22) 1.67 3.98 0.65 7.49
------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (2.90) (1.91) (1.98) (1.18) --
------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 18.15 $ 21.27 $ 21.51 $ 19.51 $ 20.04
==============================================================================================================================
Total return(A) (2.28%) 8.04% 21.28% 3.36% 59.68%
==============================================================================================================================
Net assets at end of year (000's) $ 302,422 $ 345,997 $ 327,867 $ 284,966 $ 252,021
==============================================================================================================================
Ratio of net expenses to average net assets 2.24% 2.25% 2.25% 2.25% 2.24%(B)
Ratio of net investment loss to average net assets (1.30%) (1.41%) (1.32%) (1.60%) (1.68%)(B)
Portfolio turnover 64% 58% 69% 85% 79%
|
(A) Total returns shown exclude the effect of applicable sales loads. (B) Absent voluntary expense reimbursements, the ratio of net expenses to average net assets would have been 2.25% and the ratio of net investment loss to average net assets would have been (1.69%).
TOUCHSTONE INVESTMENTS
DISTRIBUTOR
Touchstone Securities, Inc.*
303 Broadway, Suite 1100
Cincinnati, OH 45202-4203
1.800.638.8194
www.touchstoneinvestments.com
INVESTMENT ADVISOR
Touchstone Advisors, Inc.*
303 Broadway, Suite 1100
Cincinnati, OH 45202-4203
TRANSFER AGENT
JPMorgan Chase Bank, N.A.
303 Broadway, Suite 900
Cincinnati, OH 45202-4203
SHAREHOLDER SERVICE
1.800.543.0407
*A Member of Western & Southern Financial Group(R)
The following are federal trademark registrations and applications owned by IFS
Financial Services, Inc., a member of Western & Southern Financial Group(R):
Touchstone, Touchstone Funds, Touchstone Investments, Touchstone Family of Funds
and Touchstone Select.
For investors who want more information about the Funds, the following documents are available free upon request:
STATEMENT OF ADDITIONAL INFORMATION ("SAI"): The SAI provides more detailed information about the Funds and is legally a part of this Prospectus.
ANNUAL/SEMIANNUAL REPORTS ("FINANCIAL REPORTS"): The Funds' Financial Reports provide additional information about the Funds' investments. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected a Fund's performance during its last fiscal year.
You can get free copies of the SAI, the Financial Reports, other information and answers to your questions about the Funds by contacting your financial advisor, or the Funds at:
Touchstone Investments
P.O. Box 5354
Cincinnati, OH 45201-5354
1.800.543.0407
The SAI and Financial Reports are also available on the Touchstone Investments website at http://www.touchstoneinvestments.com
Information about the Funds (including the SAI) can be reviewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, D.C. You can receive information about the operation of the Public Reference Room by calling the SEC at 1.202.551.8090.
Reports and other information about the Funds are available on the EDGAR database of 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 Section of the SEC, Washington, D.C. 20549-0102 or by sending an e-mail request to: publicinfo@sec.gov.
Investment Company Act file no. 811-3651
AUGUST 1, 2008
PROSPECTUS
TOUCHSTONE STRATEGIC TRUST
Touchstone Micro Cap Growth Fund
The Securities and Exchange Commission has not approved the Fund's shares as an investment or determined whether this Prospectus is accurate or complete. Anyone who tells you otherwise is committing a crime.
Multiple Classes of Shares are offered in this Prospectus.
PROSPECTUS AUGUST 1, 2008
TOUCHSTONE INVESTMENTS
TOUCHSTONE MICRO CAP GROWTH FUND
THE Fund is a series of Touchstone Strategic Trust (the "Trust"), a group of equity mutual funds. The Trust is part of the Touchstone(R) Funds that also includes Touchstone Funds Group Trust, a group of equity and bond mutual funds, 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, Touchstone Variable Series Trust, a group of variable series funds and Touchstone Institutional Funds Trust (formerly Constellation Institutional Portfolios), a group of institutional equity mutual funds. Each Touchstone Fund has a different investment goal and risk level. For further information about the Touchstone Funds, contact Touchstone Securities, Inc. ("Touchstone") at 1.800.543.0407.
The Fund is managed by Touchstone Advisors, Inc. ("Touchstone Advisors" or the "Advisor"). Touchstone Advisors has selected Bjurman, Barry & Associates (the "Sub-Advisor" or "Bjurman") to manage the Fund's investments on a daily basis.
TABLE OF CONTENTS
Investment Strategies and Risks
The Fund's Management
Choosing a Class of Shares
Distribution Arrangements
Investing With Touchstone
Distributions and Taxes
Financial Highlights
THE FUND'S INVESTMENT GOAL
The Micro Cap Growth Fund seeks long-term growth of capital.
ITS PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest at least 80% of its assets in the common stocks of U.S. companies whose total market capitalization at the time of investment is generally between $30 million and $500 million, referred to as micro cap companies, and which, in the opinion of the Sub-Advisor, have superior earnings growth characteristics. Shareholders will be provided with at least 60 days' prior notice of any change in this policy. The Fund's investments may include companies in the technology sector.
The Sub-Advisor's unique equity selection process seeks to identify fast growing companies that are undervalued. The Sub-Advisor screens the universe of companies, using five quantitative factors:
1) earnings growth
2) earnings strength - those companies that are expected to have the greatest increase in next year's earnings
3) earnings revision
4) price/earnings to growth ratio and
5) cash flow to price
The Sub-Advisor then focuses on what it believes are the most promising industries and seeks to identify profitable companies with capable management teams, above average reinvestment rates, strong industry positions and productive research and development efforts.
Stocks are ranked according to the above criteria to identify approximately 100 to 190 micro cap companies that the Sub-Advisor believes offer the best growth prospects and are selling at attractive prices. The highest ranking stocks in the most promising industries are then subjected to additional fundamental and technical research. Generally, the Sub-Advisor attempts to identify profitable micro cap companies with capable management teams, above average reinvestment rates, strong industry positions and productive research and development efforts. To ensure a well diversified portfolio, commitments to any one issue or industry are generally limited to 5% and 15%, respectively, of the Fund's total assets. The Sub-Advisor reviews investment alternatives and implements portfolio changes as attractive investment opportunities become available. The closing prices of portfolio issues are reviewed daily. Any position that has declined 15% from its cost or from its recent high is re-examined as a potential sale candidate. Additionally, securities of companies which in the Sub-Advisor's opinion are overvalued or have lost earnings momentum, or are in industries no longer expected to perform well, are continually evaluated for sale.
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment in the Fund, and the Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the Sub-Advisor's selection process does not accurately identify attractive investments
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 companies that the Fund invests in do not grow as rapidly or increase in value as expected
o Because securities of micro cap companies may be more thinly traded and may have more frequent and larger price changes than securities of larger companies
o Because the Fund may invest in the technology sector, which at times may be subject to greater market fluctuation than other sectors
o Because growth oriented funds may underperform when value investing is in favor
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency.
As with any mutual fund, there is no guarantee that the Fund will achieve its goal.
You can find more information about the Fund's investments and risks under the "Investment Strategies and Risks" section of this Prospectus.
THE FUND'S PERFORMANCE
The bar chart and performance table below illustrate some indication of the risks of investing in the Micro Cap Growth Fund. This bar chart shows changes in performance (before taxes) of the Fund's Class A shares during each full calendar year of operations. The bar chart does not reflect any sales charges, which would reduce your return. The returns for Class C shares offered by the Fund will be lower than the Class A returns shown in the bar chart since Class C shares have higher 12b-1 distribution fees. The returns for Class Y shares of the Fund, offered in a separate prospectus, will differ from the Class A returns shown below, depending on the expenses of that class. The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
MICRO CAP GROWTH FUND - CLASS A TOTAL RETURN
2005 2006 2007
3.24% 3.80% 3.26%
Best Quarter:
1st Quarter 2006 +11.48%
Worst Quarter:
2nd Quarter 2006 -10.96%
|
The year-to-date return of the Fund's Class A shares as of June 30, 2008 is -19.18%.
This table compares the Fund's average annual total returns (before and after taxes) for the period ended December 31, 2007, to those of the Russell Microcap Index. After-tax returns are calculated using the highest individual federal income tax rate and do not reflect the impact of state and local taxes. Your after-tax returns may differ from those shown. The returns do not apply to shares held in an IRA, 401(k) or other tax-deferred account. The after-tax returns shown in the table are for Class A shares only. The after-tax returns for other classes of shares offered by the Fund will differ from the Class A after-tax returns.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 2007
SINCE FUND
1 YEAR STARTED(1)
--------------------------------------------------------------------------------------------------
MICRO CAP GROWTH FUND-CLASS A
Return Before Taxes -2.70% 5.88%
Return After Taxes on Distributions -2.70% 5.88%
Return After Taxes on Distributions and Sale of Fund Shares(2) -1.75% 5.05%
Russell Microcap Index(3) -8.00% 6.45%
MICRO CAP GROWTH FUND-CLASS C
Return Before Taxes 2.43% 6.87%
Russell Microcap Index(3) -8.00% 6.45%
--------------------------------------------------------------------------------------------------
|
(1) The Fund began operations on June 22, 2004.
(2) When the "Return After Taxes on Distributions and Sale of Fund Shares" is greater than the "Return Before Taxes," it is because of realized losses. If a capital loss occurs upon the redemption of the Fund's shares, the capital loss is recorded as a tax benefit, which increases the return and translates into an assumed tax deduction that benefits the shareholder.
(3) The Russell Microcap Index measures the performance of the microcap segment, representing less than 3% of the U.S. equity market. The Russell Microcap Index includes the securities of the smallest 1,000 companies in the small-cap Russell 2000 Index plus the next 1,000 smallest companies. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Indices reflect no deductions for fees, expenses or taxes. You cannot invest directly in an index.
WHAT IS AN INDEX?
An index measures the market price of a specific group of securities in a
particular market of securities in a market sector. You cannot invest directly in an index. An index does not have an investment advisor and does not pay any commissions, expenses or taxes. If an index had expenses, its performance would be lower.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold Class A and Class C shares of the Fund:
SHAREHOLDER FEES
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS C
--------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.75%(1) None
Maximum Deferred Sales Charge
(as a percentage of original purchase price
or the amount redeemed, whichever is less) None(2) 1.00%(3)
Wire Redemption Fee Up to $15 Up to $15
|
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
--------------------------------------------------------------------------------
Management Fees 1.25% 1.25%
Distribution (12b-1) Fees 0.25% 1.00%
Other Expenses 0.61% 0.63%
Administration Fees 0.20% 0.20%
Other Expenses 0.41% 0.43%
Total Annual Fund Operating Expenses 2.11% 2.88%
Less Fee Waiver and/or Expense Reimbursement(4) 0.53% 0.55%
Net Expenses(5) 1.58% 2.33%
--------------------------------------------------------------------------------
|
(1) You may pay a reduced sales charge on very large purchases. (See "Reduced Class A Sales Charge" in this Prospectus.)
(2) Purchases of $1 million or more do not pay a front-end sales charge, but may pay a contingent deferred sales charge ("CDSC") of 1.00% if shares are redeemed within 1 year of their purchase and compensation was paid to an unaffiliated broker-dealer.
(3) The 1.00% CDSC is not applicable if shares are held for 1 year or longer and may be waived under other circumstances described in this Prospectus.
(4) Touchstone Advisors and the Trust have entered into an Expense Limitation Agreement whereby Touchstone Advisors has contractually agreed to waive a portion of its advisory fee and/or reimburse certain Fund expenses in order to limit "Net Expenses" to no more than 1.58% for Class A shares and 2.33% for Class C shares. These expense limitations will remain in effect until at least March 31, 2009. Pursuant to its agreement with the Trust, Touchstone Advisors has no ability to recoup any previously waived fees or reimbursed expenses from the Fund. For purposes of these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is excluded from Touchstone Advisors' waiver obligations.
(5) "Net Expenses" shown above reflect a change in the Fund's operating expenses and will differ from the "Net Expenses" reflected in the Fund's Annual Report for the fiscal year ended March 31, 2008. The actual "Net Expenses" for the Fund's Class A shares and Class C shares for the fiscal year ended March 31, 2008 were 1.85% and 2.60 %, respectively.
EXAMPLE. This example is intended to help you compare the cost of investing in the Micro Cap Growth Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem 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. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
Assuming No
Assuming Redemption at End of Period Redemption
CLASS A CLASS C CLASS C
-----------------------------------------------------------------------------------------------------
1 Year $ 777 $ 391 $291
3 Years $1,198 $ 892 $892
5 Years $1,644 $1,518 $1,518
10 Years $2,876 $3,204 $3,204
|
CAN THE FUND DEPART FROM ITS NORMAL INVESTMENT STRATEGIES?
The Fund may depart from its investment strategies by taking temporary defensive positions in response to adverse market, economic, political or other conditions, including conditions when the Sub-Advisor is unable to identify attractive investment opportunities. The Fund's temporary investments may include debt securities, money market instruments, other short-term securities or cash equivalents. During these times, the Fund may not achieve its investment goals.
DOES THE FUND ENGAGE IN ACTIVE TRADING OF SECURITIES?
The Fund may engage in active trading to achieve its investment goals. This may cause the Fund to realize higher capital gains, which would be passed on to you. Higher capital gains could increase your tax liability. Frequent trading also increases transaction costs, which would lower the Fund's performance.
CAN THE FUND CHANGE ITS INVESTMENT GOALS WITHOUT SHAREHOLDER APPROVAL?
The Fund may change its investment goals by a vote of the Board of Trustees without shareholder approval. You would be notified at least 30 days before any change takes effect.
DOES THE FUND HAVE OTHER INVESTMENT STRATEGIES, IN ADDITION TO ITS PRINCIPAL
INVESTMENT STRATEGY?
The Fund may also invest in:
o Initial public offerings
o Securities of foreign companies
o American depositary receipts ("ADRs"), American depositary shares ("ADSs") and other depositary receipts
o Securities of companies in emerging market countries
o Cash equivalents
o Other investment companies
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS
FOREIGN COMPANIES are companies that meet all of the following criteria:
o They are organized under the laws of a foreign country
o They maintain their principal place of business in a foreign country
o The principal trading market for their securities is located in a foreign country
o They derive at least 50% of their revenues or profits from operations in foreign countries
o They have at least 50% of their assets located in foreign countries
ADRS, ADSS AND OTHER DEPOSITARY RECEIPTS. ADRs and ADSs are securities that represent an ownership interest in a foreign security. They are generally issued by a U.S. bank to U.S. buyers as a substitute for direct ownership of a foreign security and are traded on U.S. exchanges. ADRs may be available through "sponsored" or "unsponsored" facilities. A sponsored facility is established jointly by the issuer of the security underlying the receipt and a depositary, whereas an unsponsored facility may be established by a depositary without participation by the issuer of the underlying security. The depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights with respect to the deposited security. The Fund may invest in both sponsored and unsponsored ADRs.
MARKET CAPITALIZATION. If a security that is within the market capitalization range for the Fund at the time of purchase later falls outside the range, which is most likely to happen because of market growth, the Fund may continue to hold the security if, in the Sub-Advisor's judgment, the security remains otherwise consistent with the Fund's investment goal and strategies. However, this change could affect the Fund's flexibility in making new investments.
UNDERVALUED STOCKS. A stock is considered undervalued if the Sub-Advisor believes it should be trading at a higher price than it is at the time of purchase. Factors considered may include:
o Price relative to earnings
o Price relative to cash flow
o Price relative to financial strength
EMERGING MARKET COUNTRIES are countries other than Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. When the Fund invests in securities of a company in an emerging market country, it invests in securities issued by a company that meet one or more of the following criteria:
o It is organized under the laws of an emerging market country.
o It maintains its principal place of business in an emerging market country.
o The principal trading market for its securities is located in an emerging market country.
o It derives at least 50% of its revenues or profits from operations within emerging market countries.
o It has at least 50% of its assets located in emerging market countries.
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. or, if unrated, determined by the Advisor or Sub-Advisor to be of comparable credit quality.
OTHER INVESTMENT COMPANIES. The Fund may invest in securities issued by other investment companies. This may include money market funds, index funds, iShares(R), SPDRs and similar securities of other issuers. Touchstone Advisors has received an exemptive order from the Securities and Exchange Commission ("SEC") that permits the Fund to invest its uninvested cash or cash collateral in one or more affiliated money market funds. The Fund may invest up to 25% of its total assets in affiliated money market funds, subject to the Fund's investment limitations and certain other conditions pursuant to the exemptive order.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
MARKET RISK. Investments in common stocks are 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 four broad market capitalization categories - large cap, mid cap, small cap and micro 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 smaller cap companies, investors may migrate to the stocks of smaller 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 MICRO CAP COMPANIES. Micro cap companies may not be well-known to the investing public, may not have significant institutional ownership and may have cyclical, static or only moderate growth prospects. Micro cap companies may have greater risk and volatility than large companies and may lack the management depth of larger, mature issuers. Micro cap companies may have relatively small revenues and limited product lines, markets, or financial resources, and their securities may trade less frequently and in more limited volume than those of larger, more mature companies. In addition, micro cap companies may be developing or marketing new products or services for which markets are not yet established and may never become established. As a result, the prices of their securities may fluctuate more than those of larger issuers.
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.
INVESTMENT STYLE RISK. Different investment styles tend to shift in and out of favor depending upon market and economic conditions as well as investor sentiment. A Fund may outperform or underperform other funds that employ a different investment style. Examples of different investment styles include growth and value investing. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company's growth of earnings potential. Also, since growth companies usually invest a high portion of earnings in their business, growth stocks may lack the dividends of some value stocks that can cushion stock prices in a falling market. Growth oriented funds may underperform when value investing is in favor. Value stocks are those that are undervalued in comparison to their peers due to adverse business developments or other factors. Value investing carries the risk that the market will not recognize a security's inherent value for a long time, or that a stock judged to be undervalued may actually be appropriately priced or overvalued. Value oriented funds may underperform when growth investing is in favor.
WHAT ARE SOME OF THE OTHER RISKS OF INVESTING IN THE FUND?
FOREIGN RISK. Investing in foreign securities poses unique risks such as fluctuation in currency exchange rates, market illiquidity, price volatility, high trading costs, difficulties in settlement, regulations on stock exchanges, limits on foreign ownership, less stringent accounting, reporting and disclosure requirements, and other considerations. Diplomatic, political or economic developments, including nationalization or appropriation, could affect investments in foreign securities. In the past, equity and debt instruments of foreign markets have had more frequent and larger price changes than those of U.S. markets.
o EMERGING MARKET COUNTRIES. Investments in a country that is still relatively underdeveloped involves exposure to economic structures that are generally less diverse and mature than in the U.S. and to political and legal systems that may be less stable. In the past, markets of developing countries have had more frequent and larger price changes than those of developed countries. Economic or political changes may cause larger price changes in these securities than in other foreign securities.
INITIAL PUBLIC OFFERING ("IPO") RISK. IPO risk is the risk that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk and liquidity risk (i.e., the potential that the Fund may be unable to dispose of the IPO shares promptly or at a reasonable price). When the Fund's asset base is small, a significant portion of its performance could be attributable to investments in IPOs, because such investments would have a magnified impact on the Fund. As the Fund's assets grow, the effect of investments in IPOs on the Fund's performance probably will decline, which could reduce performance.
LENDING OF PORTFOLIO SECURITIES. The Fund may lend its portfolio securities to brokers, dealers and financial institutions under guidelines adopted by the Board of Trustees, including a requirement that the Fund must receive collateral equal to no less than 100% of the market value of the securities loaned. The risk in lending portfolio securities, as with other extensions of credit, consists of possible loss of rights in the collateral should the borrower fail financially. In determining whether to lend securities, the Fund's sub-advisor will consider all relevant facts and circumstances, including the creditworthiness of the borrower. Lending portfolio securities results in additional income to a fund that is used to offset certain fund operating expenses, which, in turn, may serve to reduce the amount that would otherwise be payable by the Advisor to the Fund under the Advisor's contractual expense limitation arrangement (see "Contractual Fee Waiver Agreement").
WHERE CAN I FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS DISCLOSURE POLICIES?
A description of the Fund's policies and procedures for disclosing portfolio securities to any person is available in the Statement of Additional Information ("SAI").
INVESTMENT ADVISOR
TOUCHSTONE ADVISORS, INC. ("TOUCHSTONE ADVISORS" OR THE "ADVISOR") 303 BROADWAY, SUITE 1100, CINCINNATI, OH 45202
Touchstone Advisors has been a registered investment advisor since 1994. As of June 30, 2008, Touchstone Advisors had approximately $7.5 billion in assets under management. As the Fund's advisor, Touchstone Advisors continuously reviews, supervises and administers the Fund's investment programs and also ensures compliance with the Fund's investment policies and guidelines.
Touchstone Advisors is responsible for selecting the Fund's sub-advisor, subject to approval 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 a 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 Sub-Advisor's performance 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 evaluations and recommendations to the Board of Trustees, including whether or not a sub-advisor's contract should be renewed, modified or terminated.
The SEC has granted an exemptive order that permits the Trust or Touchstone Advisors, under certain conditions, to select or change unaffiliated sub-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.
Two or more sub-advisors may manage a Fund, with each managing a portion of the Fund's assets. If a Fund has more than one sub-advisor, Touchstone Advisors allocates how much of a Fund's assets are managed by each sub-advisor. Touchstone Advisors may change these allocations from time to time, often based upon the results of its evaluations of the sub-advisory arrangements.
Touchstone Advisors is also responsible for running all of the operations of the Fund, except those that are subcontracted to the Sub-Advisor, custodian, transfer agent, accounting agent, sub-administrative agent or other parties. For its services, Touchstone Advisors is entitled to receive a base investment advisory fee from the Fund at an annualized rate, based on the average daily net assets of the Fund. Touchstone Advisors pays sub-advisory fees to the Sub-Advisor from its advisory fee. The fee paid by the Fund to Touchstone Advisors during the Fund's most recent fiscal year, based on the average daily net assets of the Fund at an annualized rate, was 1.25%.
Contractual Fee Waiver Agreement
Touchstone Advisors has contractually agreed to waive fees and reimburse expenses in order to limit the Fund's "Net Expenses" in the aggregate from exceeding 1.58% for Class A shares and 2.33% for Class C shares. However, for purposes of these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is excluded from Touchstone Advisors' waiver obligations. Fee waivers and/or expense reimbursements are calculated and applied monthly, based on the Fund's average net assets during such month. These fee waivers and expense reimbursements will remain in effect until March 31, 2009.
SUB-ADVISOR
The Sub-Advisor makes the daily decisions regarding buying and selling specific securities for the Fund. The Sub-Advisor manages the investments held by the Fund it serves according to the applicable investment goals and strategies.
BJURMAN, BARRY & ASSOCIATES ("BJURMAN")
2049 CENTURY PARK EAST, SUITE 2505, LOS ANGELES, CA 90067
Bjurman has been registered as an investment advisor since 1970. O. Thomas Barry III, CFA, CIC and Stephen W. Shipman, CFA, have joint and primary responsibility for managing the Fund. Mr. Barry is the Chief Investment Officer and Senior Executive Vice President of Bjurman and has worked at Bjurman since 1978. Mr. Shipman is the Director of Research and Executive Vice President and has worked at Bjurman since 1993. Bjurman and its portfolio managers have managed the Fund since its inception.
SUB-ADVISORY FEES
The fee paid by Touchstone Advisors to the Sub-Advisor during the Fund's most recent fiscal year, based on the average daily net assets of the Fund at an annualized rate, was 0.55%.*
* The Board of Trustees approved a change to the Fund's sub-advisory fee schedule, effective November 16, 2007. Under the previous schedule Touchstone Advisors paid Bjurman a fee of 0.85% of the Fund's average daily net assets. Under the new schedule Touchstone Advisors pays Bjurman a fee of 0.55% of the Fund's average daily net assets.
The SAI provides additional information about each portfolio manager's compensation structure, other managed accounts and ownership of securities in the Fund. A discussion of the basis for the Board of Trustees' approval of the Fund's advisory and sub-advisory agreements is in the Trust's March 31, 2008 Annual Report.
Share Class Offerings. The Fund currently offers Class A, Class C and Class Y shares. The Fund's Class Y shares are offered in a separate prospectus. For information about the Class Y shares or to obtain a copy of the prospectus, call Touchstone Securities, Inc. ("Touchstone") at 1.800.543.0407 or call your financial advisor.
Each class of shares has different sales charges and distribution fees. The amount of sales charges and distribution fees you pay will depend on which class of shares you decide to purchase.
CLASS A SHARES
The offering price of Class A shares of the Fund is equal to its net asset value ("NAV") plus a front-end sales charge that you pay when you buy your shares. The front-end sales charge is generally deducted from the amount of your investment. Class A shares are subject to a 12b-1 fee.
CLASS A SALES CHARGE. The following table shows the amount of front-end sales charge you will pay on purchases of Class A shares. The amount of front-end sales charge is shown as a percentage of (1) offering price and (2) the net amount invested after the charge has been subtracted. Note that the front-end sales charge gets lower as your investment amount gets larger.
SALES SALES CHARGE
CHARGE AS % OF
AS % OF NET AMOUNT
AMOUNT OF YOUR INVESTMENT OFFERING PRICE INVESTED
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Under $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.95% 3.04%
$500,000 but less than $1 million 2.25% 2.30%
$1 million or more 0.00% 0.00%
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WAIVER OF CLASS A SALES CHARGE. There is no front-end sales charge if you invest $1 million or more in Class A shares of the Fund. If you redeem shares that were part of the $1 million breakpoint purchase within one year, you may pay a contingent deferred sales charge ("CDSC") of 1% on the shares redeemed, if a commission was paid by Touchstone to a participating unaffiliated broker-dealer. There is no front-end sales charge on exchanges between Funds or dividends reinvested in a Fund. In addition, there is no front-end sales charge on the following purchases:
o Purchases by registered representatives or other employees (and their immediate family members*) of broker-dealers, banks, or other financial institutions having agreements with Touchstone.
o Purchases in accounts as to which a broker-dealer or other financial intermediary charges an asset management fee economically comparable to a sales charge, provided the broker-dealer or other financial intermediary has an agreement with Touchstone.
o Purchases by a trust department of any financial institution in its capacity as trustee to any trust.
o Purchases through processing organizations described in this Prospectus.
o Purchases by an employee benefit plan having more than 25 eligible employees or a minimum of $250,000 invested in the Touchstone Funds.
o Purchases by an employee benefit plan that is provided administrative services by a third party administrator that has entered into a special service arrangement with Touchstone.
o Purchases by shareholders who owned shares of Touchstone Funds Group Trust as of November 17, 2006 who are purchasing additional shares for their account or opening new accounts in any Touchstone Fund. If you are purchasing shares through a financial intermediary, you must notify the intermediary at the time of purchase that a purchase qualifies for a sales load waiver and you may be required to provide copies of account statements verifying your qualification.
o Reinvestment of redemption proceeds from Class A or Class B shares of any Touchstone Fund if the reinvestment occurs within 90 days of redemption.
* Immediate family members are defined as the spouse, parents, siblings, domestic partner, natural or adopted children, mother-in-law, father-in-law, brother-in-law and sister-in-law of a registered representative or employee. The term "employee" is deemed to include current and retired employees.
Sales charge waivers must be qualified in advance by Touchstone by marking the appropriate section on the investment application and completing the "Eligibility for Exemption from Sales Charge" form. You can obtain the application and form by calling Touchstone at 1.800.543.0407 or by visiting the touchstoneinvestments.com website. Purchases at NAV may be made for investment only, and the shares may not be resold except through redemption by or on behalf of the Fund. At the option of the Fund, the front-end sales charge may be included on future purchases.
REDUCED CLASS A SALES CHARGE. You may also purchase Class A shares of the Fund at the reduced sales charges shown in the table above through the Rights of Accumulation Program or by signing a Letter of Intent. The following purchasers ("Qualified Purchasers") may qualify for a reduced sales charge under the Rights of Accumulation Program or Letter of Intent:
o an individual, an individual's spouse, an individual's children under the age of 21; or
o a trustee or other fiduciary purchasing shares for a single fiduciary account although more than one beneficiary is involved; or
o employees of a common employer, provided that economies of scale are realized through remittances from a single source and quarterly confirmation of such purchases are provided; or
o an organized group, provided that the purchases are made through a central administrator, a single dealer or other means which result in economy of sales effort or expense.
The following accounts ("Qualified Accounts") held in Class A shares of any Touchstone Fund sold with a front-end sales charge may be grouped together to qualify for the reduced sales charge under the Rights of Accumulation Program or Letter of Intent:
o Individual accounts
o Joint tenant with rights of survivorship accounts
o Uniform gift to minor accounts ("UGTMA")
o Trust accounts
o Estate accounts
o Guardian/Conservator accounts
o IRA accounts, including Traditional, Roth, SEP and SIMPLE
o Coverdell Education Savings Accounts
RIGHTS OF ACCUMULATION PROGRAM. Under the Rights of Accumulation Program, you may qualify for a reduced sales charge by aggregating all of your investments held in a Qualified Account. You or your dealer must notify Touchstone at the time of purchase that a purchase qualifies for a reduced sales charge under the Rights of Accumulation Program and must provide either a list of account numbers or copies of account statements verifying your qualification. If your shares are held directly in a Touchstone Fund or through a dealer, you may combine the historical cost or current NAV (whichever is higher) of your existing Class A shares of any Touchstone Fund sold with a front-end sales charge with the amount of your current purchase in order to take advantage of the reduced sales charge. Historical cost is the price you actually paid for the shares you own, plus your reinvested dividends and capital gains. If you are using historical cost to qualify for a reduced sales charge, you should retain any records to substantiate your historical costs since the Fund, its transfer agent or your broker-dealer may not maintain this information.
If your shares are held through financial intermediaries and/or in a retirement account (such as a 401(k) or employee benefit plan), you may combine the current NAV of your existing Class A shares of any Touchstone Fund sold with a front-end sales charge with the amount of your current purchase in order to take advantage of the reduced sales charge. You or your financial intermediary must notify Touchstone at the time of purchase that a purchase qualifies for a reduced sales charge under the Rights of Accumulation Program and must provide copies of account statements dated within three months of your current purchase verifying your qualification.
Upon receipt of the above referenced supporting documentation, Touchstone will calculate the combined value of all of the Qualified Purchaser's Qualified Accounts to determine if the current purchase is eligible for a reduced sales charge. Purchases made for nominee or street name accounts (securities held in the name of a dealer or another nominee such as a bank trust department instead of the customer) may not be aggregated with purchases for other accounts and may not be aggregated with other nominee or street name accounts unless otherwise qualified as described above.
LETTER OF INTENT. If you plan to invest at least $50,000 (excluding any reinvestment of dividends and capital gains distributions) during the next 13 months in Class A shares of any Touchstone Fund sold with a front-end sales charge, you may qualify for a reduced sales charge by completing the Letter of Intent section of your account application. A Letter of Intent indicates your intent to purchase at least $50,000 in Class A shares of any Touchstone Fund sold with a front-end sales charge over the next 13 months in exchange for a reduced sales charge indicated on the above chart. The minimum initial investment under a Letter of Intent is $10,000. You are not obligated to purchase additional shares if you complete a Letter of Intent. However, if you do not buy enough shares to qualify for the projected level of sales charge by the end of the 13-month period (or when you sell your shares, if earlier), your sales charge will be recalculated to reflect your actual purchase level.
During the term of the Letter of Intent, shares representing 5% of your intended purchase will be held in escrow. If you do not purchase enough shares during the 13-month period to qualify for the projected reduced sales charge, the additional sales charge will be deducted from your escrow account. If you have purchased Class A shares of any Touchstone Fund sold with a front-end sales charge within 90 days prior to signing a Letter of Intent, they may be included as part of your intended purchase. You must provide either a list of account numbers or copies of account statements verifying your purchases within the past 90 days.
OTHER INFORMATION. Information about sales charges and breakpoints is also available in a clear and prominent format on the touchstoneinvestments.com website. You can access this information by selecting "Sales Charges and Breakpoints" under the "Pricing and Performance" link. For more information about qualifying for a reduced or waived sales charge, contact your financial advisor or contact Touchstone at 1.800.543.0407.
CLASS C SHARES
BECAUSE IN MOST CASES IT IS MORE ADVANTAGEOUS TO PURCHASE CLASS A SHARES FOR AMOUNTS OF $1 MILLION OR MORE, A REQUEST TO PURCHASE CLASS C SHARES FOR $1 MILLION OR MORE WILL BE CONSIDERED AS A PURCHASE REQUEST FOR CLASS A SHARES OR DECLINED. Class C shares of the Fund are sold at NAV without an initial sales charge so that the full amount of your purchase payment may be immediately invested in the Fund. A CDSC of 1.00% will be charged on Class C shares redeemed within 1 year after you purchased them. Class C shares are subject to a 12b-1 fee.
12B-1 DISTRIBUTION PLANS
The Fund has adopted a distribution plan under Rule 12b-1 of the Investment Company Act of 1940, as amended, for each class of shares it offers that are subject to 12b-1 distribution fees. The plans allow the Fund to pay distribution and other fees for the sale and distribution of its shares and for services provided to shareholders. Under the Class A plan, the Fund pays an annual fee of up to 0.25% of average daily net assets that are attributable to Class A shares. Under the Class C plan, the Fund pays an annual fee of up to 1.00% of average daily net assets attributable to Class C shares (of which up to 0.75% is a distribution fee and up to 0.25% is an account maintenance fee). Because these fees are paid out of the Fund's assets on an ongoing basis, they will increase the cost of your investment and over time may cost you more than paying other types of sales charges.
DEALER COMPENSATION
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 a Fund or other Touchstone Funds. 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. Touchstone Advisors, at its expense, may also provide additional compensation to certain affiliated and unaffiliated dealers, financial intermediaries or service providers for distribution, administrative and/or shareholder servicing activities. Touchstone Advisors may also reimburse Touchstone for making these payments.
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.
PURCHASING YOUR SHARES
Please read this Prospectus carefully and then determine how much you want to invest. You may purchase shares of the Fund directly from Touchstone, through your financial advisor or through a processing organization. In any event, you must complete an investment application. You can obtain an investment application from Touchstone, your financial advisor, or by visiting our website at touchstoneinvestments.com. Check below to find the minimum investment requirements and ways to purchase shares in the Fund.
For more information about how to purchase shares, call Touchstone at 1.800.543.0407.
- INVESTOR ALERT: Each Touchstone Fund reserves the right to restrict or reject any purchase request, including exchanges from other Touchstone Funds, that it regards as disruptive to efficient portfolio management. For example, a purchase request could be rejected because of the timing of the investment or because of a history of excessive trading by the investor. (See "Market Timing Policy" in this Prospectus.)
MINIMUM INVESTMENT REQUIREMENTS
INITIAL ADDITIONAL
INVESTMENT INVESTMENT
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Regular Account $2,500 $50
Retirement Plan Account or Custodial Account under
the Uniform Gifts/Transfers to Minors Act ("UGTMA") $1,000 $50
Investments through the Automatic Investment Plan $ 100 $50
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- INVESTOR ALERT: Touchstone may change these initial and additional investment minimums at any time.
OPENING AN ACCOUNT
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING AN ACCOUNT
Federal law requires all financial institutions to obtain, verify and record
information that identifies each person who opens an account. What this means
for you: When you open an account, we will ask for your name, residential
address, date of birth, government identification number and other information
that will allow us to identify you. We may also ask to see your driver's license
or other identifying documents. If we do not receive these required pieces of
information, there may be a delay in processing your investment request, which
could subject your investment to market risk. If we are unable to immediately
verify your identity, the Fund may restrict further investment until your
identity is verified. However, if we are unable to verify your identity, the
Fund reserves the right to close your account without notice and return your
investment to you at the price determined at the end of business (usually 4:00
p.m. eastern time ("ET")) on the day that your account is closed. If we close
your account because we are unable to verify your identity, your investment will
be subject to market fluctuation, which could result in a loss of a portion of
your principal investment.
INVESTING IN THE FUND
BY MAIL OR THROUGH YOUR FINANCIAL ADVISOR
o Please make your check (drawn on a U.S. bank and payable in U.S. dollars) payable to the Touchstone Funds. We do not accept third party checks for initial investments.
o Send your check with the completed investment application by regular mail to Touchstone, P.O. Box 5354, Cincinnati, Ohio 45201-5354, or by overnight mail to Touchstone, c/o JPMorgan Chase Bank, N.A., 303 Broadway, Suite 900, Cincinnati, Ohio 45202-4203.
o Your application will be processed subject to your check clearing. If your check is returned for insufficient funds or uncollected funds, you may be charged a fee and you will be responsible for any resulting loss to the Fund.
o You may also open an account through your financial advisor.
BY EXCHANGE
o You may exchange shares of the Fund for shares of the same class of another Touchstone Fund (subject to the applicable sales charge, if any). You may also exchange Class A or Class C shares of the Fund for Class A shares of any Touchstone money market fund, except the Institutional Money Market Fund.
o You do not have to pay any exchange fee for your exchange.
o Shares otherwise subject to a CDSC will not be charged a CDSC in an exchange. However, when you redeem the shares acquired through the exchange, the shares you redeem may be subject to a CDSC, depending on when you originally purchased the exchanged shares. For purposes of computing the CDSC, the length of time you have owned your shares will be measured from the date of original purchase and will not be affected by any exchange.
o If you exchange Class C shares for Class A shares of any Touchstone money market fund, the amount of time you hold shares of the money market fund will not be added to the holding period of your original shares for the purpose of calculating the CDSC, if you later redeem the exchanged shares. However, if you exchange back into your original Class C shares, the prior holding period of your Class C shares will be added to your current holding period of Class C shares in calculating the CDSC.
o If you purchased Class A shares for $1 million or more at NAV and compensation was paid to an unaffiliated broker-dealer and you exchange all or a portion of the shares into any Touchstone money market fund within 12 months of the original purchase, the amount of time you hold shares of the money market fund will not be added to the holding period of your original shares for the purpose of calculating the CDSC, if you later redeem the exchanged shares. However if you exchange back into Class A shares, the prior holding period of your Class A shares will be added to your current holding period of Class A shares in calculating the CDSC.
o You should carefully review the disclosure provided in the Prospectus relating to the exchanged-for shares before making an exchange of your Fund shares.
THROUGH RETIREMENT PLANS
You may invest in the Fund through various retirement plans. These include individual retirement plans and employer sponsored retirement plans.
INDIVIDUAL RETIREMENT PLANS
o Traditional Individual Retirement Accounts ("IRAs")
o Savings Incentive Match Plan for Employees ("SIMPLE IRAs")
o Spousal IRAs
o Roth Individual Retirement Accounts ("Roth IRAs")
o Coverdell Education Savings Accounts ("Education IRAs")
o Simplified Employee Pension Plans ("SEP IRAs")
EMPLOYER SPONSORED RETIREMENT PLANS
o Defined benefit plans
o Defined contribution plans (including 401(k) plans, profit sharing plans and money purchase plans)
o 457 plans
<-- SPECIAL TAX CONSIDERATION
To determine which type of retirement plan is appropriate for you, please contact your tax advisor.
For further information about any of the plans, agreements, applications and annual fees, contact Touchstone at 1.800.543.0407 or contact your financial advisor.
THROUGH PROCESSING ORGANIZATIONS
You may also purchase shares of the Fund through a "processing organization," (e.g., a mutual fund supermarket) which is a broker-dealer, bank or other financial institution that purchases shares for its customers. Some of the Touchstone Funds have authorized certain processing organizations ("Authorized Processing Organizations") to receive purchase and sales orders on their behalf. Before investing in the Fund through a processing organization, you should read any materials provided by the processing organization together with this Prospectus. You should also ask the processing organization if they are authorized by Touchstone to receive purchase and sales orders on their behalf. If the processing organization is not authorized, then there could be a delay as to when the purchase or sales order is received for processing. When shares are purchased this way, there may be various differences. An Authorized Processing Organization may:
o Charge a fee for its services
o Act as the shareholder of record of the shares
o Set different minimum initial and additional investment requirements
o Impose other charges and restrictions
o Designate intermediaries to accept purchase and sales orders on the Fund's behalf
o Touchstone considers a purchase or sales order as received when an authorized processing organization, or its authorized designee, receives the order in proper form. These orders will be priced based on the Fund's NAV (or offering price, if applicable) next computed after such order is received in proper form. A purchase or sales order transmitted through an entity that is not an Authorized Processing Organization may affect the effective date of your transaction.
o Shares held through a processing organization may be transferred into your name following procedures established by your processing organization and Touchstone. Certain processing organizations may receive compensation from the Fund, Touchstone, Touchstone Advisors or their affiliates.
o It is the responsibility of the processing organization to transmit properly completed orders so that they will be received by Touchstone in a timely manner.
PRICING OF PURCHASES
We price direct purchases in the Fund based upon the next determined public offering price (NAV plus any applicable sales charge) after your order is received. Direct purchase orders received by Touchstone, or an Authorized Processing Organization, by the close of the regular session of trading on the New York Stock Exchange ("NYSE"), generally 4:00 p.m. ET, are processed at that day's public offering price. Direct purchase orders received by Touchstone, or an Authorized Processing Organization, after the close of the regular session of trading on the NYSE, generally 4:00 p.m. ET, are processed at the public offering price next determined on the following business day. It is the responsibility of Touchstone's Authorized Processing Organization to transmit orders that will be received by Touchstone in proper form and in a timely manner.
ADDING TO YOUR ACCOUNT
BY CHECK
o Complete the investment form provided at the bottom of a recent account statement.
o Make your check (drawn on a U.S. bank and payable in U.S. dollars) payable to the Touchstone Funds.
o Write your account number on the check.
o Either: (1) Mail the check with the investment form to Touchstone; or (2) Mail the check directly to your financial advisor at the address printed on your account statement. Your financial advisor is responsible for forwarding payment promptly to Touchstone.
o If your check is returned for insufficient funds or uncollected funds, you may be charged a fee and you will be responsible for any resulting loss to the Fund.
BY WIRE
o Contact Touchstone or your financial advisor for further instructions.
o Contact your bank and ask it to wire federal funds to Touchstone. Specify your name and account number when remitting the funds.
o Banks may charge a fee for handling wire transfers.
o Purchases in the Fund will be processed at that day's NAV (or public offering price, if applicable) if Touchstone receives a properly executed wire by the close of the regular session of trading on the NYSE, generally 4:00 p.m. ET, on a day when the NYSE is open for regular trading.
BY EXCHANGE
o You may add to your account by exchanging shares from an unaffiliated mutual fund or from another Touchstone Fund.
o For information about how to exchange shares among the Touchstone Funds, see "Opening an Account - By exchange" in this Prospectus.
PURCHASES WITH SECURITIES
o Shares may be purchased by tendering payment in-kind in the form of marketable securities, including but not limited to, shares of common stock, provided the acquisition of such securities is consistent with the applicable Fund's investment goals and is otherwise acceptable to Touchstone Advisors.
AUTOMATIC INVESTMENT OPTIONS
The various ways that you can automatically invest in the Fund are outlined below. Touchstone does not charge any fees for these services. For further details about these services, call Touchstone at 1.800.543.0407.
AUTOMATIC INVESTMENT PLAN. You can pre-authorize monthly investments in the Fund of $50 or more to be processed electronically from a checking or savings account. You will need to complete the appropriate section in the investment application to do this. Amounts that are automatically invested in the Fund will not be available for redemption until three business days after the automatic investment.
REINVESTMENT/CROSS REINVESTMENT. Dividends and capital gains can be automatically reinvested in the Fund that pays them or in another Touchstone Fund within the same class of shares without a fee or sales charge. Dividends and capital gains will be reinvested in the Fund that pays them, unless you indicate otherwise on your investment application. You may also choose to have your dividends or capital gains paid to you in cash. If you elect to receive dividends and distributions in cash and the payment (1) is returned and marked as "undeliverable" or (2) is not cashed for six months, your cash election will be changed automatically and future dividends will be reinvested in the Fund at the per share net asset value determined as of the date of payment. In addition, any undeliverable checks or checks that are not cashed for six months will be cancelled and then reinvested in the Fund at the per share NAV determined as of the date of cancellation.
DIRECT DEPOSIT PURCHASE PLAN. You may automatically invest Social Security checks, private payroll checks, pension pay outs or any other pre-authorized government or private recurring payments in the Fund.
DOLLAR COST AVERAGING. Our dollar cost averaging program allows you to diversify your investments by investing the same amount on a regular basis. You can set up periodic automatic exchanges of at least $50 from one Touchstone Fund to any other. The applicable sales charge, if any, will be assessed.
SELLING YOUR SHARES
You may sell some or all of your shares on any day that the Fund calculates its NAV. If your request is received by Touchstone, or an Authorized Processing Organization, in proper form by the close of regular trading on the NYSE (normally 4:00 p.m. ET), you will receive a price based on that day's NAV for the shares you sell. Otherwise, the price you receive will be based on the NAV that is next calculated.
BY TELEPHONE
o You can sell or exchange your shares over the telephone, unless you have specifically declined this option. If you do not wish to have this ability, you must mark the appropriate section of the investment application. You may only sell shares over the telephone if the amount is less than $100,000.
o To sell your Fund shares by telephone, call Touchstone at 1.800.543.0407.
o Shares held in IRA accounts and qualified retirement plans cannot be sold by telephone.
o If we receive your sale request by the close of the regular session of trading on the NYSE, generally 4:00 p.m. ET, on a day when the NYSE is open for regular trading, the sale of your shares will be processed at the next determined NAV on that day. Otherwise it will occur on the next business day.
o Interruptions in telephone service could prevent you from selling your shares by telephone when you want to. When you have difficulty making telephone sales, you should mail to Touchstone (or send by overnight delivery), a written request for the sale of your shares.
o In order to protect your investment assets, Touchstone will only follow instructions received by telephone that it reasonably believes to be genuine. However, there is no guarantee that the instructions relied upon will always be genuine and Touchstone will not be liable, in those cases. Touchstone has certain procedures to confirm that telephone instructions are genuine. If it does not follow such procedures in a particular case, it may be liable for any losses due to unauthorized or fraudulent instructions. Some of these procedures may include:
o Requiring personal identification
o Making checks payable only to the owner(s) of the account shown on Touchstone's records
o Mailing checks only to the account address shown on Touchstone's records
o Directing wires only to the bank account shown on Touchstone's records
o Providing written confirmation for transactions requested by telephone
o Digitally recording instructions received by telephone
BY MAIL
o Write to Touchstone.
o Indicate the number of shares or dollar amount to be sold.
o Include your name and account number.
o Sign your request exactly as your name appears on your investment application.
o You may be required to have your signature guaranteed (See "Signature Guarantees" in this Prospectus for more information).
BY WIRE
o Complete the appropriate information on the investment application.
o You may be charged a fee by the Fund or the Fund's Authorized Processing Organization for wiring redemption proceeds. You may also be charged a fee by your bank.
o Redemption proceeds will only be wired to a commercial bank or brokerage firm in the United States.
o Your redemption proceeds may be deposited without a charge directly into your bank account through an Automated Clearing House ("ACH") transaction. Contact Touchstone for more information.
THROUGH A SYSTEMATIC WITHDRAWAL PLAN
o You may elect to receive, or send to a third party, withdrawals of $50 or more if your account value is at least $5,000.
o Withdrawals can be made monthly, quarterly, semiannually or annually.
o There is no special fee for this service.
o There is no minimum amount required for retirement plans.
<-- SPECIAL TAX CONSIDERATION
Systematic withdrawals may result in the sale of your shares at a loss or may result in taxable investment gains.
THROUGH YOUR FINANCIAL ADVISOR OR PROCESSING ORGANIZATION
o You may also sell shares by contacting your financial advisor or processing organization, which may charge you a fee for this service. Shares held in street name must be sold through your financial advisor or, if applicable, the processing organization.
o Your financial advisor or processing organization is responsible for making sure that sale requests are transmitted to Touchstone in proper form and in a timely manner.
<-- SPECIAL TAX CONSIDERATION
Selling your shares may cause you to incur a taxable gain or loss.
- INVESTOR ALERT: Unless otherwise specified, proceeds will be sent to the record owner at the address shown on Touchstone's records.
CONTINGENT DEFERRED SALES CHARGE ("CDSC")
If you purchase $1 million or more Class A shares at NAV, a CDSC of 1.00% may be charged on redemptions made within 1 year of your purchase. If you redeem Class C shares within 1 year of your purchase, a CDSC of 1.00% will be charged.
The CDSC will not apply to redemptions of shares you received through reinvested dividends or capital gains distributions and may be waived under certain circumstances described below. The CDSC will be assessed on the lesser of your shares' NAV at the time of redemption or the time of purchase. The CDSC is paid to Touchstone to reimburse expenses incurred in providing distribution-related services to the Fund.
No CDSC is applied if:
o The redemption is due to the death or post-purchase disability of a shareholder
o The redemption is from a systematic withdrawal plan and represents no more than 10% of your annual account value
o The redemption is a benefit payment made from a qualified retirement plan, unless the redemption is due to termination of the plan or transfer of the plan to another financial institution
o The redemption is for a mandatory withdrawal from a traditional IRA account after age 70 (1)/2
When we determine whether a CDSC is payable on a redemption, we assume that:
o The redemption is made first from amounts not subject to a CDSC; then
o From the earliest purchase payment(s) that remain invested in the Fund
The above mentioned CDSC waivers do not apply to redemptions made within one year for purchases of $1 million or more in Class A shares of the Touchstone Funds where a commission was paid by Touchstone to a participating unaffiliated broker-dealer.
The SAI contains further details about the CDSC and the conditions for waiving the CDSC.
SIGNATURE GUARANTEES
Some circumstances require that your request to sell shares be made in writing accompanied by an original Medallion Signature Guarantee. A Medallion Signature Guarantee helps protect you against fraud. You can obtain one from most banks or securities dealers, but not from a notary public. Some circumstances that may require an original Medallion Signature Guarantee include:
o Proceeds from the sale of shares of $100,000 or more
o Proceeds to be paid when information on your investment application has been changed within the last 30 days (including a change in your name or your address, or the name or address of a payee)
o Proceeds are being sent to an address other than the address of record
o Proceeds or shares are being sent/transferred from unlike registrations, such as from a joint account to an individual's account
o Sending proceeds via wire or ACH when bank instructions have been added or changed within 30 days of your redemption request
o Proceeds or shares are being sent/transferred between accounts with different account registrations
MARKET TIMING POLICY
Market timing or excessive trading in accounts that you own or control may disrupt portfolio investment strategies, may increase brokerage and administrative costs, and may negatively impact investment returns for all shareholders, including long-term shareholders who do not generate these costs. The Fund will take reasonable steps to discourage excessive short-term trading and will not knowingly accommodate frequent purchases and redemptions of Fund shares by shareholders. The Board of Trustees has adopted the following policies and procedures with respect to market timing of the Fund by shareholders. The Fund will monitor selected trades on a daily basis in an effort to deter excessive short-term trading. If the Fund has reason to believe that a shareholder has engaged in excessive short-term trading, the Fund may ask the shareholder to stop such activities or restrict or refuse to process purchases or exchanges in the shareholder's accounts. While the Fund cannot assure the prevention of all excessive trading and market timing, by making these judgments the Fund believes it is acting in a manner that is in the best interests of its shareholders. However, because the Fund cannot prevent all market timing, shareholders may be subject to the risks described above.
Generally, a shareholder may be considered a market timer if he or she has (i)
requested an exchange or redemption out of any of the Touchstone Funds within 2
weeks of an earlier purchase or exchange request out of any Touchstone Fund, or
(ii) made more than 2 "round-trip" exchanges within a rolling 90 day period. A
"round-trip" exchange occurs when a shareholder exchanges from one Touchstone
Fund to another Touchstone Fund and back to the original Touchstone Fund. If a
shareholder exceeds these limits, the Fund may restrict or suspend that
shareholder's exchange privileges and subsequent exchange requests during the
suspension will not be processed. The Fund may also restrict or refuse to
process purchases by the shareholder. These policies and procedures generally do
not apply to purchases and redemptions of Money Market Funds (except in the case
of an exchange request into a Touchstone non-money market fund), exchanges
between Money Market Funds and systematic purchases and redemptions.
Financial intermediaries (such as investment advisors and broker-dealers) often establish omnibus accounts in the Fund for their customers through which transactions are placed. In accordance with Rule 22c-2 under the Investment Company Act of 1940, the Fund has entered into information sharing agreements with certain financial intermediaries. Under these agreements, a financial intermediary is obligated to: (1) enforce during the term of the agreement, the Fund's market-timing policy; (2) furnish the Fund, upon its request, with information regarding customer trading activities in shares of the Fund; and (3) enforce the Fund's market-timing policy with respect to customers identified by the Fund as having engaged in market timing. When information regarding transactions in the Fund's shares is requested by a Fund and such information is in the possession of a person that is itself a financial intermediary to a financial intermediary (an "indirect intermediary"), any financial intermediary with whom the Fund has an information sharing agreement is obligated to obtain transaction information from the indirect intermediary or, if directed by the Fund, to restrict or prohibit the indirect intermediary from purchasing shares of the Fund on behalf of other persons.
The Fund applies these policies and procedures uniformly to all shareholders believed to be engaged in market timing or excessive trading. The Fund has no arrangements to permit any investor to trade frequently in shares of the Fund, nor will they enter into any such arrangements in the future.
HOUSEHOLDING POLICY
The Fund will send one copy of prospectuses and shareholder reports to households containing multiple shareholders with the same last name. This process, known as "householding," reduces costs and provides a convenience to shareholders. If you share the same last name and address with another shareholder and you prefer to receive separate prospectuses and shareholder reports, call Touchstone at 1.800.543.0407 and we will begin separate mailings to you within 30 days of your request. If you or others in your household invest in the Fund through a broker or other financial institution, you may receive separate prospectuses and shareholder reports, regardless of whether or not you have consented to householding on your investment application.
RECEIVING SALE PROCEEDS
Touchstone will forward the proceeds of your sale to you (or to your financial advisor or processing organization) within 7 days (normally within 3 business days) after receipt of a proper request.
PROCEEDS SENT TO FINANCIAL ADVISORS OR PROCESSING ORGANIZATIONS. Proceeds that are sent to your financial advisor or processing organization will not usually be reinvested for you unless you provide specific instructions to do so. Therefore, the financial advisor or processing organization may benefit from the use of your money.
FUND SHARES PURCHASED BY CHECK. We may delay mailing your redemption proceeds for shares you recently purchased by check until your check clears, which may take up to 15 days. If you need your money sooner, you should purchase shares by bank wire.
REINSTATEMENT PRIVILEGE. You may, within 90 days of redemption, reinvest all or part of your sale proceeds by sending a written request and a check to Touchstone. If the redemption proceeds were from the sale of your Class A shares, you can reinvest into Class A shares of any Touchstone Fund at NAV. Reinvestment will be at the NAV next calculated after Touchstone receives your request. If the proceeds were from the sale of your Class C shares, you can reinvest those proceeds into Class C shares of any Touchstone Fund. If you paid a CDSC on the reinstated amount, that CDSC will be reimbursed to you upon reinvestment.
<-- SPECIAL TAX CONSIDERATION
You should contact your tax advisor if you use the Reinstatement Privilege.
LOW ACCOUNT BALANCES. If your balance falls below the minimum amount required for your account, based on actual amounts you have invested (as opposed to a reduction from market changes), your account may be subject to an annual account maintenance fee or Touchstone may sell your shares and send the proceeds to you. This involuntary sale does not apply to retirement accounts or custodian accounts under the Uniform Gifts/Transfers to Minors Act ("UGTMA"). Touchstone will notify you if your shares are about to be sold and you will have 30 days to increase your account balance to the minimum amount.
DELAY OF PAYMENT. It is possible that the payment of your sale proceeds could be postponed or your right to sell your shares could be suspended during certain circumstances. These circumstances can occur:
o When the NYSE is closed on days other than customary weekends and holidays
o When trading on the NYSE is restricted
o When an emergency situation causes the Sub-Advisor to not be reasonably able to dispose of certain securities or to fairly determine the value of the Fund's net assets
o During any other time when the SEC, by order, permits
REDEMPTION IN KIND. Under unusual circumstances, when the Board of Trustees deems it appropriate, the Fund may make payment for shares redeemed in portfolio securities of the Fund taken at current value. Shareholders may incur transaction and brokerage costs when they sell these portfolio securities.
PRICING OF FUND SHARES
The Fund's share price (also called "NAV") and offering price (NAV plus a sales
charge, if applicable) is determined as of the close of trading (normally 4:00
p.m. ET) every day the NYSE is open. The Fund calculates its NAV per share,
generally using market prices, by dividing the total value of its net assets by
the number of shares outstanding. Shares are purchased or sold at the next
offering price determined after your purchase or sale order is received in
proper form by Touchstone or an Authorized Processing Organization.
The Fund's equity 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). The Fund may use pricing services to determine market value for investments. 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.
Although investing in foreign securities is not a principal investment strategy of the Fund, any foreign securities held by the Fund will be priced as follows:
o All assets and liabilities initially expressed in foreign currency values will be converted into U.S. dollar values.
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.
Securities held by the Fund that do not have readily available market quotations, or securities for which the available market quotation is not reliable, are priced at their fair value using procedures approved by the Board of Trustees. The Fund may use fair value pricing under the following circumstances, among others:
o If the value of a security has been materially affected by events occurring before the Fund's pricing time but after the close of the primary markets on which the security is traded.
o If a security, such as a small cap or micro cap security, is so thinly traded that reliable market quotations are unavailable due to infrequent trading.
o If the exchange on which a portfolio security is principally traded closes early or if trading in a particular portfolio security was halted during the day and did not resume prior to the Fund's NAV calculation.
The use of fair value pricing has the effect of valuing a security based upon the price the Fund might reasonably expect to receive if it sold that security but does not guarantee that the security can be sold at the fair value price. With respect to any portion of the Fund's assets that is invested in other mutual funds, that portion of the Fund's NAV is calculated based on the NAV of that mutual fund. The prospectus for the other mutual fund explains the circumstances and effects of fair value pricing for that fund.
<-- SPECIAL TAX CONSIDERATION
You should consult 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. If you own shares on the Fund's record date, you will be entitled to receive the distribution.
You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of distribution. Your election will be effective for dividends and distributions paid after we receive your written notice. To cancel your election, simply send written notice to Touchstone, P.O. Box 5354, Cincinnati, Ohio 45201-5354, or by overnight mail to Touchstone, c/o JPMorgan Chase Bank, N.A., 303 Broadway, Suite 900, Cincinnati, Ohio 45202-4203, or call Touchstone at 1.800.543.0407.
TAX INFORMATION
DISTRIBUTIONS. The Fund may make distributions of dividends that may be taxed at different rates depending on the length of time the Fund holds its assets. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. If so, they are taxable whether or not you reinvest such dividends in additional shares of the Fund or choose to receive cash.
ORDINARY INCOME. Income distributions are generally taxable at ordinary income tax rates except to the extent they are designated as qualified dividend income. Dividends that are qualified dividend income are eligible for the reduced maximum rate to individuals of 15% (0% for individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income. 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.
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%.
<-- 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 and sales 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.
The financial highlights tables are intended to help you understand the Fund's
financial performance for the period of the Fund's operation. Some of this
information reflects financial information 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 financial highlights for the Fund were audited by Ernst &
Young LLP, an independent registered public accounting firm. The report of Ernst
& Young LLP, along with the Fund's financial statements and related notes,
appears in the 2008 Annual Report for the Fund. You can obtain the Annual
Report, which contains more performance information, at no charge by calling
1.800.543.0407. The Annual Report has been incorporated by reference into the
SAI.
MICRO CAP GROWTH FUND--CLASS A
PERIOD
YEAR ENDED MARCH 31, ENDED
-------------------------------------------- MARCH 31,
2008 2007 2006 2005(A)
--------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 12.98 $ 13.50 $ 11.07 $ 10.00
--------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.21) (0.20) (0.10) (0.06)
Net realized and unrealized gains (losses) on investments (2.55) (0.32) 2.53 1.13
--------------------------------------------------------------------------------------------------------------------------
Total from investment operations (2.76) (0.52) 2.43 1.07
--------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 10.22 $ 12.98 $ 13.50 $ 11.07
==========================================================================================================================
Total return(B) (21.26%) (3.85%) 21.95% 10.70%(C)
==========================================================================================================================
Net assets at end of period (000's) $ 21,755 $ 45,536 $ 61,915 $ 32,378
==========================================================================================================================
Ratio of net expenses to average net assets 1.85% 1.95% 1.95% 1.95%(D)
Ratio of net investment loss to average net assets (1.20%) (1.32%) (1.08%) (1.27%)(D)
Portfolio turnover rate 74% 91% 90% 101%(D)
|
(A) Represents the period from commencement of operations (June 22, 2004)
through March 31, 2005.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not Annualized.
(D) Annualized.
MICRO CAP GROWTH FUND--CLASS C
PERIOD
YEAR ENDED MARCH 31, ENDED
-------------------------------------------- MARCH 31,
2008 2007 2006 2005(A)
--------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 12.72 $ 13.33 $ 11.01 $ 10.00
--------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.31) (0.30) (0.17) (0.08)
Net realized and unrealized gains (losses) on investments (2.47) (0.31) 2.49 1.09
--------------------------------------------------------------------------------------------------------------------------
Total from investment operations (2.78) (0.61) 2.32 1.01
--------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 9.94 $ 12.72 $ 13.33 $ 11.01
==========================================================================================================================
Total return(B) (21.86%) (4.58%) 21.07% 10.10%(C)
==========================================================================================================================
Net assets at end of period (000's) $ 13,912 $ 26,062 $ 33,310 $ 16,224
==========================================================================================================================
Ratio of net expenses to average net assets 2.60% 2.70% 2.70% 2.70%(D)
Ratio of net investment loss to average net assets (1.96%) (2.07%) (1.84%) (2.07%)(D)
Portfolio turnover rate 74% 91% 90% 101%(D)
|
(A) Represents the period from commencement of operations (June 22, 2004)
through March 31, 2005.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not Annualized.
(D) Annualized.
TOUCHSTONE INVESTMENTS
DISTRIBUTOR
Touchstone Securities, Inc.*
303 Broadway, Suite 1100
Cincinnati, OH 45202-4203
1.800.638.8194
www.touchstoneinvestments.com
INVESTMENT ADVISOR
Touchstone Advisors, Inc.*
303 Broadway, Suite 1100
Cincinnati, OH 45202-4203
TRANSFER AGENT
JPMorgan Chase Bank, N.A.
303 Broadway, Suite 900
Cincinnati, OH 45202-4203
SHAREHOLDER SERVICE
1.800.543.0407
*A Member of Western & Southern Financial Group(R)
The following are federal trademark registrations and applications owned by IFS
Financial Services, Inc., a member of Western & Southern Financial Group(R):
Touchstone, Touchstone Funds, Touchstone Investments, Touchstone Family of Funds
and Touchstone Select.
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 ("FINANCIAL REPORTS"): The Fund's Financial 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 Financial Reports, other information and answers to your questions about the Fund by contacting your financial advisor, or the Fund at:
Touchstone Investments
P.O. Box 5354
Cincinnati, OH 45201-5354
1.800.543.0407
The SAI and Financial Reports are also available on the Touchstone Investments website at 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 1.202.551.8090.
Reports and other information about the Fund are available on the EDGAR database of 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 Section of the SEC, Washington, D.C. 20549-0102 or by sending an e-mail request to: publicinfo@sec.gov.
Investment Company Act file no. 811-3651
August 1, 2008
Prospectus
TOUCHSTONE STRATEGIC TRUST - CLASS Y SHARES
Touchstone Diversified Small Cap Growth Fund
Touchstone Large Cap Growth Fund
The Securities and Exchange Commission has not approved the Funds' shares as an investment or determined whether this Prospectus is accurate or complete. Anyone who tells you otherwise is committing a crime.
PROSPECTUS AUGUST 1, 2008
TOUCHSTONE INVESTMENTS
CLASS Y SHARES
TOUCHSTONE DIVERSIFIED SMALL CAP GROWTH FUND
TOUCHSTONE LARGE CAP GROWTH FUND
Each Fund is a series of Touchstone Strategic Trust (the "Trust"), a group of equity mutual funds. The Trust is part of the Touchstone(R) Funds that also includes Touchstone Funds Group Trust, a group of equity and bond mutual funds, 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, Touchstone Institutional Funds Trust (formerly Constellation Institutional Portfolios), a group of institutional equity 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 Securities, Inc. ("Touchstone") at 1.800.543.0407.
The Funds are managed by Touchstone Advisors, Inc. ("Touchstone Advisors" or the "Advisor"). Touchstone Advisors selects a sub-advisor(s) (each a "Sub-Advisor," collectively the "Sub-Advisors") to manage each Fund's investments on a daily basis.
TABLE OF CONTENTS
Page
Diversified Small Cap Growth Fund
Large Cap Growth Fund
Investment Strategies and Risks
The Funds' Management
Investing With Touchstone
Distributions and Taxes
Financial Highlights
THE FUND'S INVESTMENT GOAL
The Diversified Small Cap Growth Fund seeks long-term growth of capital.
ITS PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest at least 80% of its assets in the common stocks of small cap companies. Shareholders will be provided with at least 60 days' prior notice of any change in this policy. A small cap company has a market capitalization of less than $2.5 billion. The Fund may invest in securities in the technology sector.
The Fund will generally hold approximately 80 - 120 stocks.
The Fund will invest in securities that the Sub-Advisor believes will capitalize on inefficiencies that exist in the small cap growth market by focusing on:
o Companies that are experiencing improving long-term or cyclical fundamental trends;
o High quality, well-managed companies; and
o Companies with competitive business models
The Sub-Advisor employs a four-step investment process:
1. Proprietary Quantitative Selection Criteria - The small cap growth stock universe is analyzed through a quantitative model and stocks are given rankings along four dimensions: fundamental, risk, valuation and technical. This reduces the universe to a bullpen of approximately 300 stocks.
2. Fundamental Research - Bottom-up fundamental research is conducted on the resulting bullpen of stocks along several dimensions, such as earnings drivers (those factors that ultimately determine a company's ability to grow its earnings), business model (the strategy used in managing the business), and operating margins (the earnings a company produces before allocating interest expenses, taxes, depreciation, etc.).
3. Team Review - A portfolio manager recommends stocks after performing the fundamental research. Each portfolio manager specializes in one or more economic sectors, and is responsible for making recommendations within that sector. The entire investment team reviews this recommendation, determining whether to add it to the Fund along with the corresponding position weight, if applicable.
4. Portfolio Construction - The portfolio is constructed subject to guidelines and constraints. A risk overlay is added to ensure optimal positioning with respect to macroeconomic trends. Positions are consistently monitored and an annual intensive review is conducted to determine if drivers of growth are still present in each security.
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment in the Fund, and the Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the Sub-Advisor's investment approach does not accurately identify attractive investments
o If the companies the Fund invests in do not grow as rapidly or increase in value as expected
o Because securities of small cap companies may be more thinly traded and may have more frequent and larger price changes than securities of large cap companies
o Because the Fund may invest in the technology sector which at times may be subject to greater market fluctuation than other sectors
o Because growth oriented funds may underperform when value investing is in favor
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation ("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.
PERFORMANCE NOTE
The bar chart and performance table below illustrate some indication of the risks of investing in the Fund by showing its Class Y performance (before taxes) during each full calendar year of operations. The table compares the Fund's Class Y average annual total returns (before and after taxes) for the period ended December 31, 2007 to those of the Russell 2000 Growth Index. The returns for other classes of shares, offered by the Fund in a separate prospectus, will differ from the Class Y returns because the other classes have different expenses. After-tax returns are calculated using the highest individual federal income tax rate and do not reflect the impact of state and local taxes. Your after-tax returns may differ from those shown. The returns do not apply to shares held in an IRA, 401(k) or other tax-deferred account. The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
DIVERSIFIED SMALL CAP GROWTH FUND - CLASS Y TOTAL RETURN
2007
17.19%
Best Quarter:
2nd Quarter 2007 +9.43%
Worst Quarter:
4th Quarter 2007 -1.43%
The year-to-date return of the Fund's Class Y shares as of June 30, 2008 is -12.97%.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 2007
SINCE CLASS
1 YEAR STARTED(1)
DIVERSIFIED SMALL CAP GROWTH FUND - CLASS Y
-------------------------------------------------------------------------------------------------------------------
Return Before Taxes 17.19% 21.34%
Return After Taxes on Distributions 13.87% 18.72%
Return After Taxes on Distributions and Sale of Fund Shares 11.63% 16.86%
Russell 2000 Growth Index(2) 7.05% 11.89%
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(1) Class Y shares began operations on September 6, 2006.
(2) The Russell 2000 Growth Index measures the performance of those Russell 2000 Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Indices reflect no deductions for fees, expenses or taxes. You cannot invest directly in an index.
WHAT IS AN INDEX?
An index measures the market price of a specific group of securities in a particular market of securities in a market sector. You cannot invest directly in an index. An index does not have an investment advisor and does not pay any commissions, expenses or taxes. If an index had expenses, its performance would be lower.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold Class Y shares of the Fund:
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
--------------------------------------------------------------------------------
Management Fees 1.05%
Other Expenses 0.77%
Administration Fees 0.20%
Other Fees 0.57%
Total Annual Fund Operating Expenses 1.82%
Less Fee Waiver and/or Expense Reimbursement(1) 0.67%
Net Expenses 1.15%
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(1) Touchstone Advisors and the Trust have entered into an Expense Limitation Agreement whereby Touchstone Advisors has contractually agreed to waive a portion of its advisory fee and/or reimburse certain Fund expenses in order to limit "Net Expenses" to no more than 1.15%. This expense limitation will remain in effect until at least July 31, 2009. Pursuant to its agreement with the Trust, Touchstone Advisors has no ability to recoup any previously waived fees or reimbursed expenses from the Fund. For purposes of these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is excluded from Touchstone Advisors' waiver obligations.
EXAMPLE. This example is intended to help you compare the cost of investing in the Diversified Small Cap Growth Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem 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 $117 3 Years $507 5 Years $923 10 Years $2,082 -------------------------------------------------------------------------------- |
THE FUND'S INVESTMENT GOAL
The Large Cap Growth Fund seeks long-term growth of capital.
ITS PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest at least 80% of its assets in common stocks of large cap companies. Shareholders will be provided with at least 60 days' prior notice of any change in this policy. A large cap company has a market capitalization of more than $10 billion.
The Fund is non-diversified and may invest a significant percentage of its assets in the securities of one issuer. The Fund may invest up to 10% of its total assets in the securities of one company and 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 Sub-Advisor seeks to identify and select inefficiently priced securities with strong appreciation potential by employing a proprietary investment process. The Sub-Advisor's proprietary investment process is a disciplined quantitative, objective, "bottom-up," process and contains the following three steps. In the first step of the investment process, the Sub-Advisor calculates and analyzes a "reward/risk ratio" for each potential investment. The reward/risk ratio is designed to identify stocks with above average potential returns and adjusted for risk. In the second step of the investment process, the Sub-Advisor applies two or more sets of fundamental criteria to identify attractive stocks among those with favorable reward/risk ratios. 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 a combination of the applicable criteria are further considered in the third and final step of the investment process, which addresses the construction of the portfolio. Stocks are selected and weighted according to a disciplined methodology designed to maximize potential return and minimize potential risk.
Every quarter the Sub-Advisor evaluates the fundamental criteria used in the second step of the investment process. The criteria included in this step and the relative weightings of each fundamental criterion are adjusted as necessary. This allows the Sub-Advisor to monitor which criteria appear to be in favor in the financial markets. If a security held by the fund does not meet the requirements of each step of the Sub-Advisor's investment process, then the Sub-Advisor will evaluate the security and, if necessary, replace it.
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment in the Fund, and the Fund could also return less than other investments:
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 stock screening process and risk/reward analysis is not accurate
o If the companies that the Fund invests in 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.
THE FUND'S PERFORMANCE
The bar chart and performance table below illustrate some indication of the risks of investing in the Fund by showing its Class Y performance (before taxes) for each of the last 10 calendar years. The table compares the Fund's Class Y average annual total returns (before and after taxes) for the period ended December 31, 2007 to those of the Russell 1000 Growth Index. The returns for other classes of shares, offered by the Fund in a separate prospectus, will differ from the Class Y returns because the other classes have different expenses. After-tax returns are calculated using the highest individual federal income tax rate and do not reflect the impact of state and local taxes. Your after-tax returns may differ from those shown. The returns do not apply to shares held in an IRA, 401(k) or other tax-deferred account. The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
LARGE CAP GROWTH FUND - CLASS Y TOTAL RETURN*
1998 1999 2000 2001 2002 2003 2004 2005 2006 41.17% 63.03% -7.66% -23.47% -26.70% 35.60% 17.18% 16.57% -3.59% 2007 |
26.50%
Best Quarter: 4th Quarter 1999 40.00% Worst Quarter: 1st Quarter 2001 -27.98% |
* Class Y shares began operations on November 10, 2004. The Class Y shares performance from the period from December 19, 1997 through November 9, 2004 represents the historical performance of the Class A shares which began operations on December 19, 1997. Class A shares are offered in a separate prospectus.
The year-to-date return of the Fund's Class Y shares as of June 30, 2008 is -5.70%.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 2007
1 YEAR 5 YEARS 10 YEARS
LARGE CAP GROWTH FUND - CLASS Y(1)
---------------------------------------------------------------------------------------------------
Return Before Taxes 26.50% 17.70% 10.42%
Return After Taxes on Distributions 26.50% 17.70% 10.40%
Return After Taxes on Distributions and Sale of Fund Shares 17.23% 15.67% 9.32%
Russell 1000 Growth Index(2) 11.81% 12.10% 3.83%
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(1) Class Y shares began operations on November 10, 2004 and Class A shares, which are offered in a separate prospectus, began operations on December 19, 1997. The Class Y shares performance was calculated using the historical performance of the Class A shares for the period from December 19, 1997 through November 9, 2004. Performance for this period has been restated to reflect the impact of Class Y shares fees and expenses.
(2) The Russell 1000 Growth Index is an unmanaged index that measures the performance of those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Index measures the performance of the 1,000 largest companies in the Russell 3000 Index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Indices reflect no deductions for fees, expenses or taxes. You cannot invest directly in an index.
WHAT IS AN INDEX?
An index measures the market price of a specific group of securities in a particular market of securities in a market sector. You cannot invest directly in an index. An index does not have an investment advisor and does not pay any commissions, expenses or taxes. If an index had expenses, its performance would be lower.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold Class Y shares of the Fund:
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
--------------------------------------------------------------------------------
Management Fees 0.71%
--------------------------------------------------------------------------------
Other Expenses 0.33%
Administration Fees 0.20%
Other Fees 0.13%
Total Annual Fund Operating Expenses 1.04%
Less Fee Waiver and/or Expense Reimbursement(1) 0.05%
Net Expenses(2) 0.99%
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(1) Touchstone Advisors and the Trust have entered into an Expense Limitation Agreement whereby Touchstone Advisors has contractually agreed to waive a portion of its advisory fee and/or reimburse certain Fund expenses in order to limit "Net Expenses" to no more than 0.99%. This expense limitation will remain in effect until at least July 31, 2009. Pursuant to its agreement with the Trust, Touchstone Advisors has no ability to recoup any previously waived fees or reimbursed expenses from the Fund. For purposes of these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is excluded from Touchstone Advisors' waiver obligations.
(2) "Net Expenses" shown above reflect a change in the Fund's operating expenses and will differ from the "Net Expenses" reflected in the Fund's Annual Report for the fiscal year ended March 31, 2008. The actual "Net Expenses" for the Fund's Class Y shares for the fiscal year ended March 31, 2008 were 1.00%.
EXAMPLE. This example is intended to help you compare the cost of investing in the Large Cap Growth Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem 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 $101 3 Years $326 5 Years $569 -------------------------------------------------------------------------------- 10 Years $1,266 |
CAN A FUND DEPART FROM ITS NORMAL INVESTMENT STRATEGIES?
Each Fund may depart from its investment strategies by taking temporary defensive positions in response to adverse market, economic, political or other conditions, including conditions when the Sub-Advisor is unable to identify attractive investment opportunities. A Fund's temporary investments may include debt securities, money market instruments, repurchase agreements, commercial paper, U.S. Government securities or cash equivalents. During these times, a Fund may not achieve its investment goal.
DO THE FUNDS ENGAGE IN ACTIVE TRADING OF SECURITIES?
Each Fund may engage in active trading to achieve its investment goal. This may cause a Fund to realize higher capital gains, which would be passed on to you. Higher capital gains could increase your tax liability. Frequent trading also increases transaction costs, which would lower the Fund's performance.
CAN A FUND CHANGE ITS INVESTMENT GOAL WITHOUT SHAREHOLDER APPROVAL?
Each Fund may change its investment goal by a vote of the Board of Trustees without shareholder approval. You would be notified at least 30 days before any change takes effect.
DO THE FUNDS HAVE OTHER INVESTMENT STRATEGIES, IN ADDITION TO THEIR PRINCIPAL
INVESTMENT STRATEGIES?
DIVERSIFIED SMALL CAP GROWTH FUND . The Fund may also invest in:
o Initial public offerings
o Securities of foreign companies
o American depositary receipts ("ADRs"), American depositary shares ("ADSs") and other depositary receipts
o Securities of companies in emerging market countries
o Cash equivalents
o Other investment companies
LARGE CAP GROWTH FUND. The Fund may also invest in:
o ADRs (up to 15% of total assets)
o Investment grade debt securities, cash or cash equivalents
o Other investment companies
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS
FOREIGN COMPANIES are companies that meet all of the following criteria:
o They are organized under the laws of a foreign country
o They maintain their principal place of business in a foreign country
o The principal trading market for their securities is located in a foreign country
o They derive at least 50% of their revenues or profits from operations in foreign countries
o They have at least 50% of their assets located in foreign countries
ADRS, ADSS AND OTHER DEPOSITARY RECEIPTS. ADRs and ADSs are securities that represent an ownership interest in a foreign security. They are generally issued by a U.S. bank to U.S. buyers as a substitute for direct ownership of a foreign security and are traded on U.S. exchanges.
"LARGE CAP" AND "SMALL CAP" COMPANIES. Generally, companies are categorized as
follows:
o A large cap company has a market capitalization of more than $10
billion.
o A small cap company has a market capitalization of less than $1.5
billion.*
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*The definition of small cap company does not apply to the Diversified Small Cap Growth Fund. The Sub-Advisor of that Fund considers companies with a market capitalization of less than $2.5 billion to be small cap companies.
If a security that is within the market capitalization range for a Fund at the time of purchase later falls outside the range, which is most likely to happen because of market growth, the Fund may continue to hold the security if, in the Sub-Advisor's judgment, the security remains otherwise consistent with the Fund's investment goal and strategies. However, this change could affect the Fund's flexibility in making new investments.
UNDERVALUED STOCKS. A stock is considered undervalued if the Sub-Advisor believes it should be trading at a higher price than it is at the time of purchase. Factors considered may include:
o Price relative to earnings
o Price relative to cash flow
o Price relative to financial strength
EMERGING MARKET COUNTRIES are countries other than Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. When a Fund invests in securities of a company in an emerging market country, it invests in securities issued by a company that meet one or more of the following criteria:
o It is organized under the laws of an emerging market country
o It maintains its principal place of business in an emerging market country
o The principal trading market for its securities is located in an emerging market country
o It derives at least 50% of its revenues or profits from operations within emerging market countries
o It has at least 50% of its assets located in emerging market countries
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. or, if unrated, determined by the Advisor or Sub-Advisor to be of comparable credit quality.
OTHER INVESTMENT COMPANIES. The Funds may invest in securities issued by other investment companies. This may include money market funds, index funds, iShares(R), SPDRs and similar securities of other issuers. Touchstone Advisors has received an exemptive order from the Securities and Exchange Commission ("SEC") that permits the Funds to invest their uninvested cash or cash collateral in one or more affiliated money market funds. Each Fund may invest up to 25% of its total assets in affiliated money market funds, subject to that Fund's investment limitations and certain other conditions pursuant to the exemptive order.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUNDS?
MARKET RISK (ALL FUNDS). Investments in common stocks are 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 four broad market capitalization categories - large cap, mid cap, small cap and micro 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 smaller cap companies, investors may migrate to the stocks of smaller 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 GROWTH FUND). 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 SMALL CAP COMPANIES (DIVERSIFIED SMALL CAP GROWTH FUND). Small cap stock risk is the risk that stocks of smaller companies may be subject to more abrupt or erratic market movements than stocks of larger, more established companies. Small companies may have limited product lines or financial resources, or may be dependent upon a small or inexperienced management group. In addition, small cap stocks typically are traded in lower volume, and their issuers typically are subject to greater degrees of changes in their earnings and prospects.
o TECHNOLOGY SECURITIES (ALL FUNDS). 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 (LARGE CAP GROWTH FUND). 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 invested in a single company, the Fund may be more sensitive to any single economic, business, political or regulatory occurrence than a diversified fund.
SECTOR AND INDUSTRY RISK (LARGE CAP GROWTH FUND). The performance of a fund that may invest up to 25% of its assets in a particular sector or industry may be closely tied to the performance of companies in a limited number of sectors or industries. Companies in a single sector often share common characteristics, are faced with the same obstacles, issues and regulatory burdens and their securities may react similarly to adverse market conditions. The price movements of investments in a particular sector or industry may be more volatile than the price movements of more broadly diversified investments.
INVESTMENT STYLE RISK (ALL FUNDS). Different investment styles tend to shift in and out of favor depending upon market and economic conditions as well as investor sentiment. A Fund may outperform or underperform other funds that employ a different investment style. Examples of different investment styles include growth and value investing. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company's growth of earnings potential. Also, since growth companies usually invest a high portion of earnings in their business, growth stocks may lack the dividends of some value stocks that can cushion stock prices in a falling market. Growth oriented funds will typically underperform when value investing is in favor. Value stocks are those that are undervalued in comparison to their peers due to adverse business developments or other factors.
WHAT ARE SOME OF THE OTHER RISKS OF INVESTING IN THE FUNDS?
FOREIGN RISK (DIVERSIFIED SMALL CAP GROWTH FUND). 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 instruments of foreign markets have had more frequent and larger price changes than those of U.S. markets.
o EMERGING MARKET COUNTRIES (DIVERSIFIED SMALL CAP GROWTH FUND). Investments in a country that is still relatively underdeveloped involves exposure to economic structures that are generally less diverse and mature than in the U.S. and to political and legal systems that may be less stable. In the past, markets of developing countries have had more frequent and larger price changes than those of developed countries. Economic or political changes may cause larger price changes in these securities than in other foreign securities.
DEBT SECURITY RISK (LARGE CAP GROWTH FUND). Debt securities are subject to the risk that their market value 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.
Debt securities are subject to credit risk. Credit risk is the possibility that an issuer will fail to make timely payments of interest or principal, when due. Securities rated in the lowest investment grade category have some risky characteristics and changes in economic conditions are more likely to cause issuers of these securities to be unable to make payments.
INITIAL PUBLIC OFFERING ("IPO") RISK (DIVERSIFIED SMALL CAP GROWTH FUND). IPO risk is the risk that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk and liquidity risk (i.e., the potential that the Fund may be unable to dispose of the IPO shares promptly or at a reasonable price). When a Fund's asset base is small, a significant portion of its performance could be attributable to investments in IPOs, because such investments would have a magnified impact on the Fund. As the Fund's assets grow, the effect of investments in IPOs on the Fund's performance probably will decline, which could reduce performance.
LENDING OF PORTFOLIO SECURITIES (ALL FUNDS). The Funds may lend their portfolio securities to brokers, dealers and financial institutions under guidelines adopted by the Board of Trustees, including a requirement that the Fund must receive collateral equal to no less than 100% of the market value of the securities loaned. The risk in lending portfolio securities, as with other extensions of credit, consists of possible loss of rights in the collateral should the borrower fail financially. In determining whether to lend securities, a Fund's sub-advisor will consider all relevant facts and circumstances, including the creditworthiness of the borrower. Lending portfolio securities results in additional income to a fund that is used to offset certain fund operating expenses, which, in turn, may serve to reduce the amount that would otherwise be payable by the Advisor to the Fund under the Advisor's contractual expense limitation arrangement (see "Contractual Fee Waiver Agreement").
WHERE CAN I FIND INFORMATION ABOUT THE FUNDS' PORTFOLIO HOLDINGS DISCLOSURE POLICIES?
A description of the Funds' policies and procedures for disclosing portfolio securities to any person is available in the Statement of Additional Information ("SAI").
INVESTMENT ADVISOR
TOUCHSTONE ADVISORS, INC. ("TOUCHSTONE ADVISORS" OR THE "ADVISOR") 303 BROADWAY, SUITE 1100, CINCINNATI, OH 45202
Touchstone Advisors has been a registered investment advisor since 1994. As of June 30, 2008, Touchstone Advisors had approximately $7.5 billion in assets under management. As the Funds' advisor, Touchstone Advisors continuously reviews, supervises and administers the Funds' investment programs and also ensures compliance with the Funds' investment policies and guidelines.
Touchstone Advisors is responsible for selecting each Fund's sub-advisor(s), subject to approval 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 a 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 each sub-advisor's performance through various analyses and through in-person, telephone and written consultations with the Sub-Advisor. Touchstone Advisors discusses its expectations for performance with each sub-advisor. Touchstone Advisors provides evaluations and recommendations to the Board of Trustees, including whether or not a sub-advisor's contract should be renewed, modified or terminated.
The SEC has granted an exemptive order that permits the Trust or Touchstone Advisors, under certain conditions, to select or change unaffiliated sub-advisors, enter into new sub-advisory agreements or amend existing sub-advisory agreements without first obtaining shareholder approval. The Funds must still obtain shareholder approval of any sub-advisory agreement with a sub-advisor affiliated with the Trust or Touchstone Advisors other than by reason of serving as a sub-advisor to one or more Touchstone Funds. Shareholders of a Fund will be notified of any changes in its sub-advisor(s).
Two or more sub-advisors may manage a Fund, with each managing a portion of the Fund's assets. If a Fund has more than one sub-advisor, Touchstone Advisors allocates how much of a Fund's assets are managed by each sub-advisor. Touchstone Advisors may change these allocations from time to time, often based upon the results of its evaluations of the sub-advisory arrangements.
Touchstone Advisors is also responsible for running all of the operations of each Fund, except those that are subcontracted to the Sub-Advisor, custodian, transfer agent, accounting agent, sub-administrative agent or other parties. For its services, Touchstone Advisors is entitled to receive a base investment advisory fee from each Fund at an annualized rate, based on the average daily net assets of the Fund. Touchstone Advisors pays sub-advisory fees to each sub-advisor from it's advisory fee. The fee paid by each Fund to Touchstone Advisors during the Fund's most recent fiscal year, based on the average daily net assets of the Fund at an annualized rate, is shown in the table below:
Name of Fund Annual Fee Rate Diversified Small Cap Growth Fund 1.05% Large Cap Growth Fund 0.71% -------------------------------------------------------------------------------- |
Contractual Fee Waiver Agreement
Touchstone Advisors has contractually agreed to waive fees and reimburse expenses in order to limit the Funds' "Net Expenses" in the aggregate from exceeding the levels set forth below. However, for purposes of these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is excluded from Touchstone Advisors' waiver obligations. Fee waivers and/or expense reimbursements are calculated and applied monthly, based on each Fund's average net assets during such month. These fee waivers and expense reimbursements will remain in effect until July 31, 2009.
CONTRACTUAL
LIMIT ON
NAME OF FUND "NET EXPENSES"
Diversified Small Cap Growth Fund 1.15%
Large Cap Growth Fund 0.99%
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SUB-ADVISORS
The Sub-Advisors make the daily decisions regarding buying and selling specific securities for the Funds. Each Sub-Advisor manages the investments held by the Fund it serves according to the applicable investment goal and strategies.
SUB-ADVISOR TO THE DIVERSIFIED SMALL CAP GROWTH FUND
FORT WASHINGTON INVESTMENT ADVISORS, INC. ("FWIA") THE HUNTINGTON CENTER, 41 SOUTH HIGH STREET, SUITE 2495 COLUMBUS, OHIO 43215
FWIA has been a registered investment advisor since 1990 and has managed the Fund since its inception. The Fund is managed by the Growth Team of FWIA, which consists of four members. The Growth Team makes the investment decisions for the Fund, and is primarily responsible for the day-to-day management of the Fund's portfolio. The four members of the Growth Team are listed below.
Richard R. Jandrain III, Managing Director - Growth Equity. Mr. Jandrain joined FWIA in 2004 as Managing Director, Vice President and Senior Portfolio Manager. He was Chief Equity Strategist, Chief Investment Officer of Equities with Banc One Investment Advisors Corporation from 1992 to 2004.
Daniel J. Kapusta, Senior Portfolio Manager. Mr. Kapusta joined FWIA in 2004 as Vice President and Senior Portfolio Manager. He was Growth Team Leader, Portfolio Manager and Senior Equity Research Analyst with Banc One Investment Advisors Corporation from 1992 to 2004.
David K. Robinson, CFA, Senior Portfolio Manager. Mr. Robinson joined FWIA in 2004 as Vice President and Senior Portfolio Manager. He was Portfolio Manager, Senior Equity Research Analyst with Banc One Investment Advisors Corporation from 1994 to 2004.
Bihag Patel, CFA, Senior Portfolio Manager. Mr. Patel joined FWIA in 2004 as Vice President and Senior Portfolio Manager. He was Portfolio Manager, Senior Equity Analyst with Banc One Investment Advisors Corporation from 1998 to 2004.
FWIA is an affiliate of Touchstone Advisors. Therefore, Touchstone Advisors may have a conflict of interest when making decisions to keep FWIA as the Fund's Sub-Advisor. The Board of Trustees reviews Touchstone Advisors' decisions, with respect to the retention of FWIA, to reduce the possibility of a conflict of interest situation.
HISTORICAL PERFORMANCE OF FWIA'S DIVERSIFIED SMALL CAP GROWTH STYLE PRIVATE ACCOUNT
FWIA has been managing small cap growth stocks since 2005, and has done considerable modeling in this style. It began managing one account using this strategy on January 1, 2005. This account and the Diversified Small Cap Growth Fund have substantially similar investment objectives, policies and strategies. The information for the account is provided to show the past performance of FWIA in managing the account, as measured against a specified market index. The performance of the account managed by FWIA does not represent the historical performance of the Diversified Small Cap Growth Fund and should not be considered indicative of future performance of the Fund. Results may differ because of, among other things, differences in brokerage commissions, account expenses, including management fees, the size of positions taken in relation to account size and diversification of securities, timing of purchases and sales, and availability of cash for new investments. In addition, the managed account is not subject to certain investment limitations or other restrictions imposed by the Investment Company Act of 1940, as amended, and the Internal Revenue Code which, if applicable, may have adversely affected the performance results of the managed account. The results for different periods may vary.
FWIA provided the information used in making the performance calculations. The account's rate of return includes realized and unrealized gains plus income, including accrued income. Returns from cash and cash equivalents in the account are included in the performance calculations, and the cash and cash equivalents are included in the total assets on which the performance is calculated. The account is valued at least quarterly, and periodic returns are geometrically linked. The performance is shown both gross and net of the expenses of 1.15%, which are the expenses for the Class Y shares of the Diversified Small Cap Growth Fund for the fiscal year ended March 31, 2008. Results include the reinvestment of dividends and capital gains.
This method of calculating performance of the select accounts differs from the SEC's standardized methodology to calculate performance and results in a total return different from that derived from the standardized methodology.
DIVERSIFIED DIVERSIFIED
SMALL CAP GROWTH SMALL CAP GROWTH
STYLE-ACCOUNT(1) STYLE-ACCOUNT(1)
(INCLUDING ESTIMATED (EXCLUDING ESTIMATED RUSSELL 2000
EXPENSES) EXPENSES) GROWTH INDEX(2)
------------------------------------------------------------------------------------------------
12-month period ended
March 31, 2008 -7.45% -6.37% -8.94%
Since inception of account
January 1, 2005 through
March 31, 2008 5.11% 6.34% 3.03%
------------------------------------------------------------------------------------------------
|
(1) On January 1, 2005, FWIA began managing this style with one account totaling $50.27 million. As of March 31, 2008, the account totaled approximately $165.52 million.
(2) The Russell 2000 Growth Index is a widely recognized, unmanaged index of common stock prices. The Index reflects the total return of securities comprising the Index, including changes in market price as well as accrued income, which is presumed to be reinvested. Performance figures for the Index do not reflect the deduction of transaction costs or expenses, including management fees. You cannot invest directly in an index.
SUB-ADVISOR TO THE LARGE CAP GROWTH FUND
NAVELLIER & ASSOCIATES, INC. ("NAVELLIER")
ONE EAST LIBERTY, THIRD FLOOR, RENO, NV 89501
Navellier has been a registered investment advisor since 1987 and has managed the Fund since 2004. Its sister company, that is now dissolved, Navellier Management, Inc. managed the Fund from its inception until 2004. Shawn C. Price is the primary manager and Louis G. Navellier is the secondary manager of the Fund and both have managed the Fund since its inception. Mr. Price has been a Portfolio Manager for Navellier since 1991 and Mr. Navellier has been the Chief Executive Officer of Navellier since 1987.
SUB-ADVISORY FEES
The fee paid by Touchstone Advisors to each sub-advisor during the Fund's most recent fiscal year, based on the average daily net assets of the Fund at an annualized rate, is shown in the table below:
Name of Fund Annual Fee Rate Diversified Small Cap Growth Fund - FWIA* 0.50% Large Cap Growth Fund - Navellier 0.40% -------------------------------------------------------------------------------- |
* The Board of Trustees approved a change to the Fund's sub-advisory fee schedule effective August 15, 2007. Under the previous schedule, Touchstone Advisors paid FWIA a fee of 0.65% of the Fund's average daily net assets. Under the new schedule, Touchstone Advisors pays FWIA a fee of 0.50% of the Fund's average daily net assets.
The SAI provides additional information about each portfolio manager's compensation, other managed accounts and ownership of securities in their managed Fund(s). A discussion of the basis for the Board of Trustees' approval of the Funds' advisory and sub-advisory agreements is in the Trust's March 31, 2008 Annual Report.
SHARE CLASS OFFERINGS. Each Fund currently offers the following classes of shares. The Funds' Class A, Class B and Class C shares are offered in a separate prospectus. For information about the Class A shares, Class B shares and Class C shares, or to obtain a copy of the prospectus, call Touchstone Securities, Inc. ("Touchstone") at 1.800.543.0407 or call your financial adviser.
CLASS A CLASS B CLASS C CLASS Y
-------------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Fund X X X
Large Cap Growth Fund X X X X
-------------------------------------------------------------------------------------------------------------------
|
DEALER COMPENSATION. 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 a Fund or other Touchstone Funds. 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. Touchstone Advisors, at its expense, may also provide additional compensation to certain affiliated and unaffiliated dealers, financial intermediaries or service providers for distribution, administrative and/or shareholder servicing activities. Touchstone Advisors may also reimburse Touchstone for making these payments.
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.
PURCHASING YOUR SHARES
Please read this Prospectus carefully and then determine how much you want to invest. You may purchase shares of the Fund directly from Touchstone or through your financial institution. If you purchase directly from Touchstone, you must complete an investment application. You can obtain an investment application from Touchstone, your financial institution, or by visiting our website at touchstoneinvestments.com.
MINIMUM INVESTMENT REQUIREMENTS. The minimum initial investment in Class Y shares of the Funds is $250,000. There is no minimum for additional purchases of Class Y shares. Touchstone may change the initial investment minimum or impose an additional investment minimum at any time.
For more information about how to purchase shares, call Touchstone at 1.800.543.0407.
- INVESTOR ALERT: Touchstone reserves the right to restrict or reject any purchase request that it regards as disruptive to efficient portfolio management. For example, a purchase request could be rejected because of the timing of the investment or because of a history of excessive trading by the investor. (See "Market Timing Policy" in this Prospectus.)
OPENING AN ACCOUNT
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING AN ACCOUNT
Federal law requires all financial institutions to obtain, verify and record
information that identifies each person who opens an account. What this means
for you: When you open an account, we will ask for your name, residential
address, date of birth, government identification number and other information
that will allow us to identify you. We may also ask to see your driver's license
or other identifying documents. If we do not receive these required pieces of
information, there may be a delay in processing your investment request, which
could subject your investment to market risk. If we are unable to immediately
verify your identity, the Fund may restrict further investment until your
identity is verified. However, if we are unable to verify your identity, the
Fund reserves the right to close your account without notice and return your
investment to you at the price determined at the end of business (usually 4:00
p.m. eastern time ("ET")) on the day your account is closed. If we close your
account because we are unable to verify your identity, your investment will be
subject to market fluctuation, which could result in a loss of a portion of your
principal investment.
INVESTING IN THE FUNDS
THROUGH TOUCHSTONE - BY MAIL
o Please make your check (drawn on a U.S. bank and payable in U.S. dollars) payable to the Touchstone Funds. We do not accept third party checks for initial investments.
o Send your check with the completed investment application by regular mail to Touchstone, P.O. Box 5354, Cincinnati, Ohio 45201-5354, or by overnight mail to Touchstone, c/o JPMorgan Chase Bank, N.A., 303 Broadway, Suite 900, Cincinnati, Ohio 45202-4203.
o Your application will be processed subject to your check clearing. If your check is returned for insufficient funds or uncollected funds, you may be charged a fee and you will be responsible for any resulting loss to the Funds.
THROUGH YOUR FINANCIAL INSTITUTION
o You may invest in Class Y shares by establishing an account through financial institutions that have appropriate selling agreements with Touchstone.
o Your financial institution will act as the shareholder of record of your Class Y shares.
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 Funds' behalf.
o Your financial institution may receive compensation from the Funds, Touchstone, Touchstone Advisors or their affiliates.
o Before investing in the Funds through your financial institution, you should read any materials provided by your financial institution together with this Prospectus.
o For more information about how to purchase shares, call Touchstone at 1.800.543.0407 or call your financial institution.
THROUGH A PROCESSING ORGANIZATION
You may also purchase shares of the Funds through a "processing organization," (e.g., a mutual fund supermarket) which is a broker-dealer, bank or other financial institution that purchases shares for its customers. Some of the Touchstone Funds have authorized certain processing organizations ("Authorized Processing Organizations") to receive purchase and sales orders on their behalf. Before investing in a Fund through a processing organization, you should read any materials provided by the processing organization together with this Prospectus. You should also ask the processing organization if they are authorized by Touchstone to receive purchase and sales orders on their behalf. If the processing organization is not authorized, then there could be a delay as to when the purchase or sales order is received for processing. When shares are purchased this way, there may be various differences. An Authorized Processing Organization may:
o Charge a fee for its services
o Act as the shareholder of record of the shares
o Set different minimum initial and additional investment requirements
o Impose other charges and restrictions
o Designate intermediaries to accept purchase and sales orders on the Funds' behalf
Shares held through a processing organization may be transferred into your name following procedures established by your processing organization and Touchstone. Certain processing organizations may receive compensation from the Funds, Touchstone, Touchstone Advisors or their affiliates.
It is the responsibility of the processing organization to transmit properly completed orders so that they will be received by Touchstone in a timely manner.
PROCESSING PURCHASE ORDERS
Touchstone considers a purchase 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 net asset value ("NAV") next computed after such order is received in proper form. A purchase or sales order transmitted through an entity that is not an Authorized Processing Organization may affect the effective date of your transaction.
Purchase orders received by Touchstone, or its authorized agent, by the close of the regular session of trading on the New York Stock Exchange ("NYSE"), generally 4:00 p.m. ET, are processed at that day's NAV.Purchase orders received by Touchstone, or its authorized agent, 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.
ADDING TO YOUR ACCOUNT
BY CHECK
o Complete the investment form provided at the bottom of a recent account statement.
o Make your check (drawn on a U.S. bank and payable in U.S. dollars) payable to the Touchstone Funds.
o Write your account number on the check.
o Either: (1) Mail the check with the investment form to Touchstone; or (2) Mail the check directly to your financial institution at the address printed on your account statement. Your financial institution is responsible for forwarding payment promptly to Touchstone.
o If your check is returned for insufficient funds or uncollected funds, you may be charged a fee and you will be responsible for any resulting loss to the Fund.
BY WIRE
o Contact Touchstone or your financial institution for further instructions.
o Contact your bank and ask it to wire federal funds to Touchstone. Specify your name and account number when remitting the funds.
o Your bank may charge a fee for handling wire transfers.
o Purchases in the Funds will be processed at that day's NAV if Touchstone receives a properly executed wire by the close of the regular session of trading on the NYSE, generally 4:00 p.m. ET, on a day when the NYSE is open for regular trading.
PURCHASES WITH SECURITIES
o 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 Touchstone Advisors.
AUTOMATIC INVESTMENT OPTIONS
The various ways you can automatically invest in the Funds are outlined below. Touchstone does not charge any fees for these services. For further details about these services, call Touchstone at 1.800.543.0407.
REINVESTMENT/CROSS REINVESTMENT. Dividends and capital gains can be automatically reinvested in Class Y shares of the Fund without a fee. Dividends and capital gains will be reinvested in the Fund, unless you indicate otherwise on your investment application. You may also choose to have your dividends or capital gains paid to you in cash. If you elect to receive dividends and distributions in cash and the payment (1) is returned and marked as "undeliverable" or (2) is not cashed for six months, your cash election will be changed automatically and future dividends will be reinvested in the Fund at the per share net asset value determined as of the date of payment. In addition, any undeliverable checks or checks that are not cashed for six months will be cancelled and then reinvested in the Fund at the per share NAV determined as of the date of cancellation.
DIRECT DEPOSIT PURCHASE PLAN. You may automatically invest Social Security checks, private payroll checks, pension pay outs or any other pre-authorized government or private recurring payments in the Funds.
SELLING YOUR SHARES
You may sell some or all of your shares through Touchstone or through your financial institution on any day that the Funds calculate their NAV. If your request is received by Touchstone, or an Authorized Processing Organization, in proper form by the close of regular trading on the NYSE (normally 4:00 p.m. ET), you will receive a price based on that day's NAV for the shares you sell. Otherwise, the price you receive will be based on the NAV that is next calculated.
THROUGH TOUCHSTONE - BY TELEPHONE
o You can sell your shares over the telephone, unless you have specifically declined this option. If you do not wish to have this ability, you must mark the appropriate section of the investment application. You may only sell shares over the telephone if the amount is less than $100,000.
o To sell your Fund shares by telephone, call Touchstone at 1.800.543.0407.
o If we receive your sale request by the close of the regular session of trading on the NYSE, generally 4:00 p.m. ET, on a day when the NYSE is open for regular trading, the sale of your shares will be processed at the next determined NAV on that day. Otherwise it will occur on the next business day.
o Interruptions in telephone service could prevent you from selling your shares by telephone when you want to. When you have difficulty making telephone sales, you should mail to Touchstone (or send by overnight delivery), a written request for the sale of your shares.
o In order to protect your investment assets, Touchstone will only follow instructions received by telephone that are communicated by authorized persons. However, there is no guarantee that the instructions relied upon will always be genuine and Touchstone will not be liable, in those cases. Touchstone has certain procedures to confirm that telephone instructions are genuine. If it does not follow such procedures in a particular case, it may be liable for any losses due to unauthorized or fraudulent instructions. Some of these procedures may include:
o Requiring personal identification
o Making checks payable only to the owner(s) of the account shown on Touchstone's records
o Mailing checks only to the account address shown on Touchstone's records
o Directing wires only to the bank account shown on Touchstone's records
o Providing written confirmation for transactions requested by telephone
o Digitally recording instructions received by telephone
THROUGH TOUCHSTONE - BY MAIL
o Write to Touchstone.
o Indicate the number of shares or dollar amount to be sold.
o Include your name and account number.
o Sign your request exactly as your name appears on your investment application.
o You may be required to have your signature guaranteed (See "Signature Guarantees" in this Prospectus for more information).
THROUGH TOUCHSTONE - BY WIRE
o Complete the appropriate information on the investment application.
o You may also be charged a fee by your bank.
o Redemption proceeds will only be wired to a commercial bank or brokerage firm in the United States.
o Your redemption proceeds may be deposited without a charge directly into your bank account through an Automated Clearing House ("ACH") transaction. Contact Touchstone for more information.
THROUGH TOUCHSTONE - SYSTEMATIC WITHDRAWAL PLAN
o You may elect to receive, or send to a third party, withdrawals of $50 or more if your account value is at least $5,000.
o Withdrawals can be made monthly, quarterly, semiannually or annually.
o There is no special fee for this service.
<-- SPECIAL TAX CONSIDERATION
Systematic withdrawals may result in the sale of your shares at a loss or may result in taxable investment gains.
THROUGH YOUR FINANCIAL INSTITUTION OR PROCESSING ORGANIZATION
o You may also sell shares by contacting your financial institution or processing organization, which may charge you a fee for this service. Shares held in street name must be sold through your financial institution or, if applicable, the processing organization.
o Your financial institution or processing organization 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.
<-- SPECIAL TAX CONSIDERATION
Selling your shares may cause you to incur a taxable gain or loss.
- INVESTOR ALERT: Unless otherwise specified, proceeds will be sent to the record owner at the address shown on Touchstone's records.
SIGNATURE GUARANTEES
Some circumstances require that your request to sell shares be made in writing accompanied by an original Medallion Signature Guarantee. A Medallion Signature Guarantee helps protect you against fraud. You can obtain one from most banks or securities dealers, but not from a notary public. Some circumstances that may require an original Medallion Signature Guarantee include:
o Proceeds from the sale of shares of $100,000 or more
o Proceeds to be paid when information on your investment application has been changed within the last 30 days (including a change in your name or your address, or the name or address of a payee)
o Proceeds are being sent to an address other than the address of record
o Proceeds or shares are being sent/transferred from unlike registrations, such as from a joint account to an individual's account
o Sending proceeds via wire or ACH when bank instructions have been added or changed within 30 days of your redemption request
o Proceeds or shares are being sent/transferred between accounts with different account registrations
RECEIVING SALE PROCEEDS
Touchstone will forward the proceeds of your sale to you or your financial institution within 7 days (normally within 3 business days) after receipt of a proper request. Proceeds that are sent to your financial institution will not usually be reinvested for you unless you provide specific instructions to do so. Therefore, the financial institution may benefit from the use of your money.
FUND SHARES PURCHASED BY CHECK. We may delay paying your redemption proceeds for shares you recently purchased by check until your check clears, which may take up to 15 days. If you need your money sooner, you should purchase shares by bank wire.
DELAY OF PAYMENT. It is possible that the payment of your sale proceeds could be postponed or your right to sell your shares could be suspended during certain circumstances. These circumstances can occur:
o When the NYSE is closed on days other than customary weekends and holidays
o When trading on the NYSE is restricted
o When an emergency situation causes a Sub-Advisor to not be reasonably able to dispose of certain securities or to fairly determine the value of the Fund's net assets
o During any other time when the SEC, by order, permits
LOW ACCOUNT BALANCES. If your balance falls below the minimum amount required for your account, based on actual amounts you have invested (as opposed to a reduction from market changes), your account may be subject to an annual account maintenance fee or Touchstone may sell your shares and send the proceeds to you. Touchstone will notify you if your shares are about to be sold and you will have 30 days to increase your account balance to the minimum amount.
REDEMPTION IN KIND. Under unusual circumstances, when the Board of Trustees deems it appropriate, a Fund may make payment for shares redeemed in portfolio securities of the Fund taken at current value. Shareholders may incur transaction and brokerage costs when they sell these portfolio securities.
MARKET TIMING POLICY
Market timing or excessive trading in accounts that you own or control may disrupt portfolio investment strategies, may increase brokerage and administrative costs, and may negatively impact investment returns for all shareholders, including long-term shareholders who do not generate these costs. The Funds will take reasonable steps to discourage excessive short-term trading and will not knowingly accommodate frequent purchases and redemptions of Fund shares by shareholders. The Board of Trustees has adopted the following policies and procedures with respect to market timing of the Funds by shareholders. The Funds will monitor selected trades on a daily basis in an effort to deter excessive short-term trading. If a Fund has reason to believe that a shareholder has engaged in excessive short-term trading, the Fund may ask the shareholder to stop such activities or restrict or refuse to process purchases or exchanges in the shareholder's accounts. While a Fund cannot assure the prevention of all excessive trading and market timing, by making these judgments the Fund believes it is acting in a manner that is in the best interests of its shareholders. However, because the Funds cannot prevent all market timing, shareholders may be subject to the risks described above.
Generally, a shareholder may be considered a market timer if he or she has (i)
requested an exchange or redemption out of any of the Touchstone Funds within 2
weeks of an earlier purchase or exchange request out of any Touchstone Fund, or
(ii) made more than 2 "round-trip" exchanges within a rolling 90 day period. A
"round-trip" exchange occurs when a shareholder exchanges from one Touchstone
Fund to another Touchstone Fund and back to the original Touchstone Fund. If a
shareholder exceeds these limits, the Funds may restrict or suspend that
shareholder's exchange privileges and subsequent exchange requests during the
suspension will not be processed. The Funds may also restrict or refuse to
process purchases by the shareholder. These policies and procedures generally do
not apply to purchases and redemptions of Money Market Funds (except in the case
of an exchange request into a Touchstone non-money market fund), exchanges
between Money Market Funds and systematic purchases and redemptions.
Financial intermediaries (such as investment advisors and broker-dealers) often
establish omnibus accounts in the Funds for their customers through which
transactions are placed. In accordance with Rule 22c-2 under the Investment
Company Act of 1940, the Funds have entered into information sharing agreements
with certain financial intermediaries. Under these agreements, a financial
intermediary is obligated to: (1) enforce during the term of the agreement, the
Funds' market-timing policy; (2) furnish the Funds, upon their request, with
information regarding customer trading activities in shares of the Funds; and
(3) enforce the Funds' market-timing policy with respect to customers identified
by the Funds as having engaged in market timing. When information regarding
transactions in the Funds' shares is requested by a Fund and such information is
in the possession of a person that is itself a financial intermediary to a
financial intermediary (an "indirect intermediary"), any financial intermediary
with whom the Funds have an information sharing agreement is obligated to obtain
transaction information from the indirect intermediary or, if directed by the
Funds, to restrict or prohibit the indirect intermediary from purchasing shares
of the Funds on behalf of other persons.
The Funds apply these policies and procedures uniformly to all shareholders believed to be engaged in market timing or excessive trading. The Funds have no arrangements to permit any investor to trade frequently in shares of the Funds, nor will they enter into any such arrangements in the future.
HOUSEHOLDING POLICY
The Funds will send one copy of prospectuses and shareholder reports to households containing multiple shareholders with the same last name. This process, known as "householding," reduces costs and provides a convenience to shareholders. If you share the same last name and address with another shareholder and you prefer to receive separate prospectuses and shareholder reports, call Touchstone at 1.800.543.0407 and we will begin separate mailings to you within 30 days of your request. If you or others in your household invest in the Funds through a broker or other financial institution, you may receive separate prospectuses and shareholder reports, regardless of whether or not you have consented to householding on your investment application.
PRICING OF FUND SHARES
Each Fund's share price (also called "NAV") is determined as of the close of trading (normally 4:00 p.m. ET) every day the NYSE is open. Each Fund calculates its NAV per share, generally using market prices, by dividing the total value of its net assets by the number of shares outstanding. Shares are purchased or sold at the next share price determined after your purchase or sale order is received in proper form by Touchstone or an Authorized Processing Organization.
The Funds' equity 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). The Funds may use pricing services to determine market value for investments. 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.
Although investing in foreign securities is not a principal investment strategy of the Funds, any foreign securities held by a Fund will be priced as follows:
o All assets and liabilities initially expressed in foreign currency values will be converted into U.S. dollar values.
o Securities mainly traded on a non-U.S. exchange are generally valued according to the preceding closing values on that exchange. However, if an event that may change the value of a security occurs after the time that the closing value on the non-U.S. exchange was determined, the security may be priced based on fair value. This may cause the value of the security on the books of the Fund to be significantly different from the closing value on the non-U.S. exchange and may affect the calculation of the NAV.
o Because portfolio securities that are primarily listed on a non-U.S. exchange may trade on weekends or other days when a Fund does not price its shares, a Fund's NAV may change on days when shareholders will not be able to buy or sell shares.
Securities held by a Fund that do not have readily available market quotations, or securities for which the available market quotation is not reliable, are priced at their fair value using procedures approved by the Board of Trustees. The Funds may use fair value pricing under the following circumstances, among others:
o If the value of a security has been materially affected by events occurring before the Fund's pricing time but after the close of the primary markets on which the security is traded.
o If a security, such as a small cap or micro cap security, is so thinly traded that reliable market quotations are unavailable due to infrequent training.
o If the exchange on which a portfolio security is principally traded closes early or if trading in a particular portfolio security was halted during the day and did not resume prior to the Fund's NAV calculation.
The use of fair value pricing has the effect of valuing a security based upon the price a Fund might reasonably expect to receive if it sold that security but does not guarantee that the security can be sold at the fair value price. With respect to any portion of a Fund's assets that is invested in other mutual funds, that portion of the Fund's NAV is calculated based on the NAV of that mutual fund. The prospectus for the other mutual fund explains the circumstances and effects of fair value pricing for that fund.
<-- SPECIAL TAX CONSIDERATION
You should consult your tax advisor to address your own tax situation.
Each Fund intends to distribute to its shareholders substantially all of its income and capital gains. Each Fund's dividends are distributed and paid annually. Distributions of any capital gains earned by a Fund will be made at least annually. If you own shares on a Fund's record date, you will be entitled to receive the distribution.
You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Funds in writing prior to the date of distribution. Your election will be effective for dividends and distributions paid after we receive your written notice. To cancel your election, simply send written notice to Touchstone, P.O. Box 5354, Cincinnati, Ohio 45201-5354, or by overnight mail to Touchstone, c/o JPMorgan Chase Bank, N.A., 303 Broadway, Suite 900, Cincinnati, Ohio 45202-4203, or call Touchstone at 1.800.543.0407.
TAX INFORMATION
DISTRIBUTIONS. The Funds may make distributions of dividends that may be taxed at different rates depending on the length of time a Fund holds its assets. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. If so, they are taxable whether or not you reinvest such dividends in additional shares of the Fund or choose to receive cash.
ORDINARY INCOME. Income distributions are generally taxable at ordinary income tax rates except to the extent they are designated as qualified dividend income. Dividends that are qualified dividend income are eligible for the reduced maximum rate to individuals of 15% (0% for individuals in lower tax brackets) to the extent that a Fund receives qualified dividend income. 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.
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%.
BACKUP WITHHOLDING. A Fund may be required to withhold U.S. federal income tax on all taxable distributions and sales 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 Funds during the prior taxable year.
The financial highlights tables are intended to help you understand each Fund's financial performance for the past 5 years, or if shorter, the period of each Fund's operation. Some of the information reflects financial information 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 a Fund, assuming reinvestment of all dividends and distributions. The financial highlights for each Fund were audited by Ernst & Young LLP, an independent registered public accounting firm. The report of Ernst & Young LLP, along with each Fund's financial statements and related notes, appears in the 2008 Annual Report for the Funds. You can obtain the Annual Report, which contains more performance information, at no charge by calling 1.800.543.0407. The Annual Report has been incorporated by reference into the SAI.
DIVERSIFIED SMALL CAP GROWTH FUND--CLASS Y
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2008 2007 (A)
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Net asset value at beginning of period $ 11.66 $ 10.00
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Income (loss) from investment operations:
Net investment income (loss) 0.04 (0.05)
Net realized and unrealized gains (losses) on investments (0.67) 1.71
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Total from investment operations (0.63) 1.66
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Distributions from net realized gains (1.19) --
------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 9.84 $ 11.66
------------------------------------------------------------------------------------------------------------------------
Total return (7.09%) 16.60%(B)
========================================================================================================================
Net assets at end of period (000's) $ 14,509 $ 6,128
========================================================================================================================
Ratio of net expenses to average net assets 1.15% 1.15%(C)
Ratio of net investment loss to average net assets (0.52%) (0.90%)(C)
Portfolio turnover rate 99% 86%(C)
|
(A) Represents the period from commencement of operations (September 6, 2006)
through March 31, 2007.
(B) Not annualized.
(C) Annualized.
LARGE CAP GROWTH FUND--CLASS Y
PERIOD
YEAR ENDED MARCH 31, ENDED
--------------------------------------- MARCH 31,
2008 2007 2006 2005(A)
--------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 22.19 $ 23.33 $ 19.86 $ 18.34
--------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.05 0.06 0.03 0.01
Net realized and unrealized gains (losses) on investments 2.40 (1.20) 3.44 1.51
--------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.45 (1.14) 3.47 1.52
--------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 24.64 $ 22.19 $ 23.33 $ 19.86
====================================================================================================================
Total return 11.04% (4.89%) 17.47% 8.29%(B)
====================================================================================================================
Net assets at end of period (000's) $ 31,679 $ 40,044 $ 66,655 $ 43,279
====================================================================================================================
Ratio of net expenses to average net assets 1.00% 0.90% 0.93% 1.01%(C)
Ratio of net investment income to average net assets 0.21% 0.13% 0.12% 0.21%(C)
Portfolio turnover rate 72% 115% 104% 127%
|
(A) Represents the period from commencement of operations (November 10, 2004)
through March 31, 2005.
(B) Not annualized.
(C) Annualized.
TOUCHSTONE INVESTMENTS
DISTRIBUTOR
Touchstone Securities, Inc.*
303 Broadway, Suite 1100
Cincinnati, OH 45202-4203
1.800.638.8194
www.touchstoneinvestments.com
INVESTMENT ADVISOR
Touchstone Advisors, Inc.*
303 Broadway, Suite 1100
Cincinnati, OH 45202-4203
TRANSFER AGENT
JPMorgan Chase Bank, N.A.
303 Broadway, Suite 900
Cincinnati, OH 45202-4203
SHAREHOLDER SERVICE
1.800.543.0407
*A Member of Western & Southern Financial Group(R)
The following are federal trademark registrations and applications owned by IFS
Financial Services, Inc., a member of Western & Southern Financial Group(R):
Touchstone, Touchstone Funds, Touchstone Investments, Touchstone Family of Funds
and Touchstone Select.
For investors who want more information about the Funds, the following documents are available free upon request:
STATEMENT OF ADDITIONAL INFORMATION ("SAI"): The SAI provides more detailed information about the Funds and is legally a part of this Prospectus.
ANNUAL/SEMIANNUAL REPORTS ("FINANCIAL REPORTS"): The Funds' Financial Reports provide additional information about the Funds' investments. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected a Fund's performance during its last fiscal year.
You can get free copies of the SAI, the Financial Reports, other information and answers to your questions about the Funds by contacting your financial advisor, or the Funds at:
Touchstone Investments
P.O. Box 5354
Cincinnati, OH 45201-5354
1.800.543.0407
The SAI and Financial Reports are also available on the Touchstone Investments website at http://www.touchstoneinvestments.com
Information about the Funds (including the SAI) can be reviewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, D.C. You can receive information about the operation of the Public Reference Room by calling the SEC at 1.202.551.8090.
Reports and other information about the Funds are available on the EDGAR database of 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 Section of the SEC, Washington, D.C. 20549-0102 or by sending an e-mail request to: publicinfo@sec.gov.
Investment Company Act file no. 811-3651
August 1, 2008
Prospectus
TOUCHSTONE STRATEGIC TRUST - CLASS Y SHARES
Touchstone Micro Cap Growth Fund
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.
PROSPECTUS AUGUST 1, 2008
TOUCHSTONE INVESTMENTS
CLASS Y SHARES
TOUCHSTONE MICRO CAP GROWTH FUND
THE Fund is a series of Touchstone Strategic Trust (the "Trust"), a group of equity mutual funds. The Trust is part of the Touchstone(R) Funds that also includes Touchstone Funds Group Trust, a group of equity and bond mutual funds, 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, Touchstone Institutional Funds Trust (formerly Constellation Institutional Portfolios), a group of institutional equity 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 Securities, Inc. ("Touchstone") at 1.800.543.0407.
The Fund is managed by Touchstone Advisors, Inc. ("Touchstone Advisors" or the "Advisor"). Touchstone Advisors has selected Bjurman, Barry & Associates (the "Sub-Advisor" or "Bjurman") to manage the Fund's investments on a daily basis.
TABLE OF CONTENTS
Page
Micro Cap Growth Fund
Investment Strategies and Risks
The Fund's Management
Investing With Touchstone
Distributions and Taxes
Financial Highlights
THE FUND'S INVESTMENT GOAL
The Micro Cap Growth Fund seeks long-term growth of capital.
ITS PRINCIPAL INVESTMENT STRATEGIES
Under normal circumstances, the Fund will invest at least 80% of its assets in the common stocks of U.S. companies whose total market capitalization at the time of investment is generally between $30 million and $500 million, referred to as micro cap companies, and which, in the opinion of the Sub-Advisor, have superior earnings growth characteristics. Shareholders will be provided with at least 60 days' prior notice of any change in this policy. The Fund's investments may include securities in the technology sector.
The Sub-Advisor's unique equity selection process seeks to identify fast growing companies that are undervalued. The Sub-Advisor screens the universe of companies, using five quantitative factors:
1) earnings growth
2) earnings strength - those companies that are expected to have the greatest increase in next year's earnings
3) earnings revision
4) price/earnings to growth ratio and
5) cash flow to price
The Sub-Advisor then focuses on what it believes are the most promising industries and seeks to identify profitable companies with capable management teams, above average reinvestment rates, strong industry positions and productive research and development efforts.
Stocks are ranked according to the above criteria to identify approximately 100 to 190 micro cap companies that the Sub-Advisor believes offer the best growth prospects and are selling at attractive prices. The highest ranking stocks in the most promising industries are then subjected to additional fundamental and technical research. Generally, the Sub-Advisor attempts to identify profitable micro cap companies with capable management teams, above average reinvestment rates, strong industry positions and productive research and development efforts. To ensure a well diversified portfolio, commitments to any one issue or industry are generally limited to 5% and 15%, respectively, of the Fund's total assets. The Sub-Advisor reviews investment alternatives and implements portfolio changes as attractive investment opportunities become available. The closing prices of portfolio issues are reviewed daily. Any position that has declined 15% from its cost or from its recent high is re-examined as a potential sale candidate. Additionally, securities of companies which in the Sub-Advisor's opinion are overvalued or have lost earnings momentum, or are in industries no longer expected to perform well, are continually evaluated for sale.
THE KEY RISKS
The Fund's share price will fluctuate. You could lose money on your investment in the Fund, and the Fund could also return less than other investments:
o If the stock market as a whole goes down
o If the Sub-Advisor's selection process does not accurately identify attractive investments
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 companies that the Fund invests in do not grow as rapidly or increase in value as expected
o Because securities of micro cap companies may be more thinly traded and may have more frequent and larger price changes than securities of larger companies
o Because the Fund may invest in the technology sector which at times may be subject to greater market fluctuation than other sectors
o Because growth oriented funds may underperform when value investing is in favor
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the FDIC or any other government agency.
As with any mutual fund, there is no guarantee that the Fund will achieve its goal.
You can find more information about the Fund's investments and strategies under the "Investment Strategies and Risks" section of this Prospectus.
THE FUND'S PERFORMANCE
The bar chart and performance table below illustrate some indication of the risks of investing in the Fund by showing its Class Y performance (before taxes) during each full calendar year of operations. The table compares the Fund's Class Y average annual total returns (before and after taxes) for the period ended December 31, 2007 to those of the Russell Microcap Index. The returns for other classes of shares, offered by the Fund in a separate prospectus, will differ from the Class Y returns because the other classes have different expenses. After-tax returns are calculated using the highest individual federal income tax rate and do not reflect the impact of state and local taxes. Your after-tax returns may differ from those shown. The returns do not apply to shares held in an IRA, 401(k) or other tax-deferred account. The Fund's past performance (before and after taxes) does not necessarily indicate how it will perform in the future.
MICRO CAP GROWTH FUND - CLASS Y TOTAL RETURN
2005 2006 2007
4.24% 4.07% 3.52%
Best Quarter:
1st Quarter 2006 +11.56%
Worst Quarter:
2nd Quarter 2006 -10.95%
|
The year-to-date return of the Fund's Class Y shares as of June 30, 2008 is -19.05%.
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED DECEMBER 31, 2007
SINCE CLASS
1 YEAR STARTED(1)
MICRO CAP GROWTH FUND - CLASS Y
-----------------------------------------------------------------------------------------------------------
Return Before Taxes 3.52% 8.26%
Return After Taxes on Distributions 3.52% 8.26%
Return After Taxes on Distributions and Sale of Fund Shares 2.29% 7.12%
Russell Microcap Index(2) -8.00% 6.45%
|
(1) Class Y shares began operations on October 4, 2004 and Class A shares, which are offered in a separate prospectus, began operations on June 22, 2004. The Class Y shares performance was calculated using the historical performance of the Class A shares for the period from June 22, 2004 through October 3, 2004. Performance for this period has been restated to reflect the impact of Class Y shares fees and expenses.
(2) The Russell Microcap Index measures the performance of the microcap segment, representing less than 3% of the U.S. equity market. The Russell Microcap Index includes the securities of the smallest 1,000 companies in the small-cap Russell 2000 Index plus the securities of the next 1,000 smallest companies. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. The Indices reflect no deductions for fees, expenses or taxes. You cannot invest directly in an index.
WHAT IS AN INDEX?
An index measures the market price of a specific group of securities in a particular market of securities in a market sector. You cannot invest directly in an index. An index does not have an investment advisor and does not pay any commissions, expenses or taxes. If an index had expenses, its performance would be lower.
THE FUND'S FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold Class Y shares of the Fund:
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
--------------------------------------------------------------------------------
Management Fees 1.25%
Other Expenses 1.65%
Administration Fees 0.20%
Other Fees 1.45%
Total Annual Fund Operating Expenses 2.90%
Less Fee Waiver and/or Expense Reimbursement(1) 1.57%
Net Expenses(2) 1.33%
--------------------------------------------------------------------------------
|
(1) Touchstone Advisors and the Trust have entered into an Expense Limitation Agreement whereby Touchstone Advisors has contractually agreed to waive a portion of its advisory fee and/or reimburse certain Fund expenses in order to limit "Net Expenses" to no more than 1.33%. This expense limitation will remain in effect until at least March 31, 2009. Pursuant to its agreement with the Trust, Touchstone Advisors has no ability to recoup any previously waived fees or reimbursed expenses from the Fund. For purposes of these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is excluded from Touchstone Advisors' waiver obligations.
(2) "Net Expenses" shown above reflect a change in the Fund's operating expenses and will differ from the "Net Expenses" reflected in the Fund's Annual Report for the fiscal year ended March 31, 2008. The actual "Net Expenses" for the Fund's Class Y shares for the fiscal year ended March 31, 2008 were 1.57%.
Example. This example is intended to help you compare the cost of investing in Class Y shares of the Micro Cap Growth Fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in Class Y shares for the time periods indicated and then redeem 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. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year $293 3 Years $898 5 Years $1,528 -------------------------------------------------------------------------------- 10 Years $3,223 |
CAN THE FUND DEPART FROM ITS NORMAL INVESTMENT STRATEGIES?
The Fund may depart from its investment strategies by taking temporary defensive positions in response to adverse market, economic, political or other conditions, including conditions when the Sub-Advisor is unable to identify attractive investment opportunities. The Fund's temporary investments may include debt securities, money market instruments, repurchase agreements, commercial paper, U.S. Government securities or cash equivalents. During these times, the Fund may not achieve its investment goals.
DOES THE FUND ENGAGE IN ACTIVE TRADING OF SECURITIES?
The Fund may engage in active trading to achieve its investment goals. This may cause the Fund to realize higher capital gains, which would be passed on to you. Higher capital gains could increase your tax liability. Frequent trading also increases transaction costs, which would lower the Fund's performance.
CAN THE FUND CHANGE ITS INVESTMENT GOALS WITHOUT SHAREHOLDER APPROVAL?
The Fund may change its investment goals by a vote of the Board of Trustees without shareholder approval. You would be notified at least 30 days before any change takes effect.
DOES THE FUND HAVE OTHER INVESTMENT STRATEGIES, IN ADDITION TO ITS PRINCIPAL
INVESTMENT STRATEGY?
The Fund may also invest in:
o Initial public offerings
o Securities of foreign companies
o American depositary receipts ("ADRs"), American depositary shares ("ADSs") and other depositary receipts
o Securities of companies in emerging market countries
o Cash equivalents
o Other investment companies
ADDITIONAL INFORMATION ABOUT FUND INVESTMENTS
FOREIGN COMPANIES are companies that meet all of the following criteria:
o They are organized under the laws of a foreign country
o They maintain their principal place of business in a foreign country
o The principal trading market for their securities is located in a foreign country
o They derive at least 50% of their revenues or profits from operations in foreign countries
o They have at least 50% of their assets located in foreign countries
ADRS, ADSS AND OTHER DEPOSITARY RECEIPTS. ADRs and ADSs are securities that represent an ownership interest in a foreign security. They are generally issued by a U.S. bank to U.S. buyers as a substitute for direct ownership of a foreign security and are traded on U.S. exchanges. ADRs may be available through "sponsored" or "unsponsored" facilities. A sponsored facility is established jointly by the issuer of the security underlying the receipt and a depositary, whereas an unsponsored facility may be established by a depositary without participation by the issuer of the underlying security. The depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting rights with respect to the deposited security. The Fund may invest in both sponsored and unsponsored ADRs.
MARKET CAPITALIZATION. If a security that is within the market capitalization range for the Fund at the time of purchase later falls outside the range, which is most likely to happen because of market growth, the Fund may continue to hold the security if, in the Sub-Advisor's judgment, the security remains otherwise consistent with the Fund's investment goal and strategies. However, this change could affect the Fund's flexibility in making new investments.
UNDERVALUED STOCKS. A stock is considered undervalued if the Sub-Advisor believes it should be trading at a higher price than it is at the time of purchase. Factors considered may include:
o Price relative to earnings
o Price relative to cash flow
o Price relative to financial strength
EMERGING MARKET COUNTRIES are countries other than Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. When the Fund invests in securities of a company in an emerging market country, it invests in securities issued by a company that meet one or more of the following criteria:
o It is organized under the laws of an emerging market country
o It maintains its principal place of business in an emerging market country
o The principal trading market for its securities is located in an emerging market country
o It derives at least 50% of its revenues or profits from operations within emerging market countries
o It has at least 50% of its assets located in emerging market countries
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. or, if unrated, determined by the Advisor or Sub-Advisor to be of comparable credit quality.
OTHER INVESTMENT COMPANIES. The Fund may invest in securities issued by other investment companies. This may include money market funds, index funds, iShares(R), SPDRs and similar securities of other issuers. Touchstone Advisors has received an exemptive order from the Securities and Exchange Commission ("SEC") that permits the Fund to invest its uninvested cash or cash collateral in one or more affiliated money market funds. The Fund may invest up to 25% of its total assets in affiliated money market funds, subject to the Fund's investment limitations and certain other conditions pursuant to the exemptive order.
WHAT ARE THE PRINCIPAL RISKS OF INVESTING IN THE FUND?
MARKET RISK. Investments in common stocks are 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 four broad market capitalization categories - large cap, mid cap, small cap and micro 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 smaller cap companies, investors may migrate to the stocks of smaller 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 MICRO CAP COMPANIES. Micro cap companies may not be well-known to the investing public, may not have significant institutional ownership and may have cyclical, static or only moderate growth prospects. Micro cap companies may have greater risk and volatility than large companies and may lack the management depth of larger, mature issuers. Micro cap companies may have relatively small revenues and limited product lines, markets, or financial resources, and their securities may trade less frequently and in more limited volume than those of larger, more mature companies. In addition, micro cap companies may be developing or marketing new products or services for which markets are not yet established and may never become established. As a result, the prices of their securities may fluctuate more than those of larger issuers.
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.
INVESTMENT STYLE RISK. Different investment styles tend to shift in and out of favor depending upon market and economic conditions as well as investor sentiment. A Fund may outperform or underperform other funds that employ a different investment style. Examples of different investment styles include growth and value investing. Growth stocks may be more volatile than other stocks because they are more sensitive to investor perceptions of the issuing company's growth of earnings potential. Also, since growth companies usually invest a high portion of earnings in their business, growth stocks may lack the dividends of some value stocks that can cushion stock prices in a falling market. Growth oriented funds will typically underperform when value investing is in favor. Value stocks are those that are undervalued in comparison to their peers due to adverse business developments or other factors.
WHAT ARE SOME OF THE OTHER RISKS OF INVESTING IN THE FUND?
FOREIGN RISK. 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 instruments of foreign markets have had more frequent and larger price changes than those of U.S. markets.
o EMERGING MARKET COUNTRIES. Investments in a country that is still relatively underdeveloped involves exposure to economic structures that are generally less diverse and mature than in the U.S. and to political and legal systems that may be less stable. In the past, markets of developing countries have had more frequent and larger price changes than those of developed countries. Economic or political changes may cause larger price changes in these securities than in other foreign securities.
INITIAL PUBLIC OFFERING ("IPO") RISK. IPO risk is the risk that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high transaction costs. IPO shares are subject to market risk and liquidity risk (i.e., the potential that the Fund may be unable to dispose of the IPO shares promptly or at a reasonable price). When a Fund's asset base is small, a significant portion of its performance could be attributable to investments in IPOs, because such investments would have a magnified impact on the Fund. As the Fund's assets grow, the effect of investments in IPOs on the Fund's performance probably will decline, which could reduce performance.
LENDING OF PORTFOLIO SECURITIES. The Fund may lend its portfolio securities to brokers, dealers and financial institutions under guidelines adopted by the Board of Trustees, including a requirement that the Fund must receive collateral equal to no less than 100% of the market value of the securities loaned. The risk in lending portfolio securities, as with other extensions of credit, consists of possible loss of rights in the collateral should the borrower fail financially. In determining whether to lend securities, the Fund's sub-advisor will consider all relevant facts and circumstances, including the creditworthiness of the borrower. Lending portfolio securities results in additional income to a fund that is used to offset certain fund operating expenses, which, in turn, may serve to reduce the amount that would otherwise be payable by the Advisor to the Fund under the Advisor's contractual expense limitation arrangement (see "Contractual Fee Waiver Agreement").
WHERE CAN I FIND INFORMATION ABOUT THE FUND'S PORTFOLIO HOLDINGS DISCLOSURE POLICIES?
A description of the Fund's policies and procedures for disclosing portfolio securities to any person is available in the Statement of Additional Information ("SAI").
INVESTMENT ADVISOR
TOUCHSTONE ADVISORS, INC. ("TOUCHSTONE ADVISORS" OR THE "ADVISOR") 303 BROADWAY, SUITE 1100, CINCINNATI, OH 45202
Touchstone Advisors has been a registered investment advisor since 1994. As of June 30, 2008, Touchstone Advisors had approximately $7.5 billion in assets under management. As the Fund's advisor, Touchstone Advisors continuously reviews, supervises and administers the Fund's investment programs and also ensures compliance with the Fund's investment policies and guidelines.
Touchstone Advisors is responsible for selecting the Fund's sub-advisor, subject to approval 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 a 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 Sub-Advisor's performance 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 evaluations and recommendations to the Board of Trustees, including whether or not a sub-advisor's contract should be renewed, modified or terminated.
The SEC has granted an exemptive order that permits the Trust or Touchstone Advisors, under certain conditions, to select or change unaffiliated sub-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.
Two or more sub-advisors may manage a Fund, with each managing a portion of the Fund's assets. If a Fund has more than one sub-advisor, Touchstone Advisors allocates how much of a Fund's assets are managed by each sub-advisor. Touchstone Advisors may change these allocations from time to time, often based upon the results of its evaluations of the sub-advisory arrangements.
Touchstone Advisors is also responsible for running all of the operations of the Fund, except those that are subcontracted to the Sub-Advisor, custodian, transfer agent, accounting agent, sub-administrative agent or other parties. For its services, Touchstone Advisors is entitled to receive a base investment advisory fee from the Fund at an annualized rate, based on the average daily net assets of the Fund. Touchstone Advisors pays sub-advisory fees to the Sub-Advisor from it's advisory fee. The fee paid by the Fund to Touchstone Advisors during the Fund's most recent fiscal year, based on the average daily net assets of the Fund at an annualized rate, was 1.25%.
CONTRACTUAL FEE WAIVER AGREEMENT
Touchstone Advisors has contractually agreed to waive fees and reimburse expenses in order to limit the Fund's "Net Expenses" in the aggregate from exceeding 1.33%. However, for purposes of these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is excluded from Touchstone Advisors' waiver obligations. Fee waivers and/or expense reimbursements are calculated and applied monthly, based on the Fund's average net assets during such month. These fee waivers and expense reimbursements will remain in effect until March 31, 2009.
SUB-ADVISOR
The Sub-Advisor makes the daily decisions regarding buying and selling specific securities for the Fund. The Sub-Advisor manages the investments held by the Fund it serves according to the applicable investment goals and strategies.
BJURMAN, BARRY & ASSOCIATES ("BJURMAN")
2049 CENTURY PARK EAST, SUITE 2505, LOS ANGELES, CA 90067
Bjurman has been registered as an investment advisor since 1970. O. Thomas Barry III, CFA, CIC and Stephen W. Shipman, CFA, have joint and primary responsibility for managing the Fund. Mr. Barry is the Chief Investment Officer and Senior Executive Vice President of Bjurman and has worked at Bjurman since 1978. Mr. Shipman is the Director of Research and Executive Vice President and has worked at Bjurman since 1993. Bjurman and its portfolio managers have managed the Fund since its inception.
SUB-ADVISORY FEES
The fee paid by Touchstone Advisors to the Sub-Advisor during the Fund's most recent fiscal year, based on the average daily net assets of the Fund at an annualized rate, was 0.55%.*
*The Board of Trustees approved a change to the Fund's sub-advisory fee schedule, effective November 16, 2007. Under the previous schedule Touchstone Advisors paid Bjurman a fee of 0.85% of the Fund's average daily net assets. Under the new schedule Touchstone Advisors pays Bjurman a fee of 0.55% of the Fund's average daily net assets.
The SAI provides additional information about each portfolio manager's compensation, other managed accounts and ownership of securities in the Fund. A discussion of the basis for the Board of Trustees' approval of the Fund's advisory and sub-advisory agreements is in the Trust's March 31, 2008 Annual Report.
SHARE CLASS OFFERINGS. The Fund currently offers Class A, Class C and Class Y shares. The Fund's Class A and Class C shares are offered in a separate prospectus. For information about the Class A shares and Class C shares, or to obtain a copy of the prospectus, call Touchstone Securities, Inc. ("Touchstone") at 1.800.543.0407 or call your financial adviser.
DEALER COMPENSATION. 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 a Fund or other Touchstone Funds. 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. Touchstone Advisors, at its expense, may also provide additional compensation to certain affiliated and unaffiliated dealers, financial intermediaries or service providers for distribution, administrative and/or shareholder servicing activities. Touchstone Advisors may also reimburse Touchstone for making these payments.
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.
PURCHASING YOUR SHARES
Please read this Prospectus carefully and then determine how much you want to invest. You may purchase shares of the Fund directly from Touchstone or through your financial institution. If you purchase directly from Touchstone, you must complete an investment application. You can obtain an investment application from Touchstone, your financial institution, or by visiting our website at touchstoneinvestments.com.
MINIMUM INVESTMENT REQUIREMENTS. The minimum initial investment in Class Y shares of the Fund is $250,000. There is no minimum for additional purchases of Class Y shares. Touchstone may change the initial investment minimum or impose an additional investment minimum at any time.
For more information about how to purchase shares, call Touchstone at 1.800.543.0407.
- INVESTOR ALERT: Touchstone reserves the right to restrict or reject any purchase request that it regards as disruptive to efficient portfolio management. For example, a purchase request could be rejected because of the timing of the investment or because of a history of excessive trading by the investor. (See "Market Timing Policy" in this Prospectus.)
OPENING AN ACCOUNT
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING AN ACCOUNT
Federal law requires all financial institutions to obtain, verify and record
information that identifies each person who opens an account. What this means
for you: When you open an account, we will ask for your name, residential
address, date of birth, government identification number and other information
that will allow us to identify you. We may also ask to see your driver's license
or other identifying documents. If we do not receive these required pieces of
information, there may be a delay in processing your investment request, which
could subject your investment to market risk. If we are unable to immediately
verify your identity, the Fund may restrict further investment until your
identity is verified. However, if we are unable to verify your identity, the
Fund reserves the right to close your account without notice and return your
investment to you at the price determined at the end of business (usually 4:00
p.m. eastern time ("ET")) on the day your account is closed. If we close your
account because we are unable to verify your identity, your investment will be
subject to market fluctuation, which could result in a loss of a portion of your
principal investment.
INVESTING IN THE FUND
THROUGH TOUCHSTONE - BY MAIL
o Please make your check (drawn on a U.S. bank and payable in U.S. dollars) payable to the Touchstone Funds. We do not accept third party checks for initial investments.
o Send your check with the completed investment application by regular mail to Touchstone, P.O. Box 5354, Cincinnati, Ohio 45201-5354, or by overnight mail to Touchstone, c/o JPMorgan Chase Bank, N.A., 303 Broadway, Suite 900, Cincinnati, Ohio 45202-4203.
o Your application will be processed subject to your check clearing. If your check is returned for insufficient funds or uncollected funds, you may be charged a fee and you will be responsible for any resulting loss to the Fund.
THROUGH YOUR FINANCIAL INSTITUTION
o You may invest in Class Y shares by establishing an account through financial institutions that have appropriate selling agreements with Touchstone.
o Your financial institution will act as the shareholder of record of your Class Y shares.
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 Before investing in the Fund through your financial institution, you should read any materials provided by your financial institution together with this Prospectus.
o For more information about how to purchase shares, call Touchstone at 1.800.543.0407 or call your financial institution.
THROUGH A PROCESSING ORGANIZATION
You may also purchase shares of the Fund through a "processing organization," (e.g., a mutual fund supermarket) which is a broker-dealer, bank or other financial institution that purchases shares for its customers. Some of the Touchstone Funds have authorized certain processing organizations ("Authorized Processing Organizations") to receive purchase and sales orders on their behalf. Before investing in the Fund through a processing organization, you should read any materials provided by the processing organization together with this Prospectus. You should also ask the processing organization if they are authorized by Touchstone to receive purchase and sales orders on their behalf. If the processing organization is not authorized, then there could be a delay as to when the purchase or sales order is received for processing. When shares are purchased this way, there may be various differences. An Authorized Processing Organization may:
o Charge a fee for its services
o Act as the shareholder of record of the shares
o Set different minimum initial and additional investment requirements
o Impose other charges and restrictions
o Designate intermediaries to accept purchase and sales orders on the Fund's behalf
Shares held through a processing organization may be transferred into your name following procedures established by your processing organization and Touchstone. Certain processing organizations may receive compensation from the Fund, Touchstone, Touchstone Advisors or their affiliates.
It is the responsibility of the processing organization to transmit properly completed orders so that they will be received by Touchstone in a timely manner.
PROCESSING PURCHASE ORDERS
Touchstone considers a purchase 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 net asset value ("NAV") next computed after such order is received in proper form. A purchase or sales order transmitted through an entity that is not an Authorized Processing Organization may affect the effective date of your transaction.
Purchase orders received by Touchstone, or its authorized agent, by the close of the regular session of trading on the New York Stock Exchange ("NYSE"), generally 4:00 p.m. ET, are processed at that day's NAV.Purchase orders received by Touchstone, or its authorized agent, 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.
ADDING TO YOUR ACCOUNT
BY CHECK
o Complete the investment form provided at the bottom of a recent account statement.
o Make your check (drawn on a U.S. bank and payable in U.S. dollars) payable to the Touchstone Funds.
o Write your account number on the check.
o Either: (1) Mail the check with the investment form to Touchstone; or (2) Mail the check directly to your financial institution at the address printed on your account statement. Your financial institution is responsible for forwarding payment promptly to Touchstone.
o If your check is returned for insufficient funds or uncollected funds, you may be charged a fee and you will be responsible for any resulting loss to the Fund.
BY WIRE
o Contact Touchstone or your financial institution for further instructions.
o Contact your bank and ask it to wire federal funds to Touchstone. Specify your name and account number when remitting the funds.
o Your bank may charge a fee for handling wire transfers.
o Purchases in the Fund will be processed at that day's NAV if Touchstone receives a properly executed wire by the close of the regular session of trading on the NYSE, generally 4:00 p.m. ET, on a day when the NYSE is open for regular trading.
PURCHASES WITH SECURITIES
o 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 Touchstone Advisors.
AUTOMATIC INVESTMENT OPTIONS
The various ways you can automatically invest in the Fund are outlined below. Touchstone does not charge any fees for these services. For further details about these services, call Touchstone at 1.800.543.0407.
REINVESTMENT/CROSS REINVESTMENT. Dividends and capital gains can be automatically reinvested in Class Y shares of the Fund without a fee. Dividends and capital gains will be reinvested in the Fund, unless you indicate otherwise on your investment application. You may also choose to have your dividends or capital gains paid to you in cash. If you elect to receive dividends and distributions in cash and the payment (1) is returned and marked as "undeliverable" or (2) is not cashed for six months, your cash election will be changed automatically and future dividends will be reinvested in the Fund at the per share net asset value determined as of the date of payment. In addition, any undeliverable checks or checks that are not cashed for six months will be cancelled and then reinvested in the Fund at the per share NAV determined as of the date of cancellation.
Direct Deposit Purchase Plan. You may automatically invest Social Security checks, private payroll checks, pension pay outs or any other pre-authorized government or private recurring payments in the Fund.
SELLING YOUR SHARES
You may sell some or all of your shares through Touchstone or through your financial institution on any day that the Fund calculates Its NAV. If your request is received by Touchstone, or an Authorized Processing Organization, in proper form by the close of regular trading on the NYSE (normally 4:00 p.m. ET), you will receive a price based on that day's NAV for the shares you sell. Otherwise, the price you receive will be based on the NAV that is next calculated.
THROUGH TOUCHSTONE - BY TELEPHONE
o You can sell your shares over the telephone, unless you have specifically declined this option. If you do not wish to have this ability, you must mark the appropriate section of the investment application. You may only sell shares over the telephone if the amount is less than $100,000.
o To sell your Fund shares by telephone, call Touchstone at 1.800.543.0407.
o If we receive your sale request by the close of the regular session of trading on the NYSE, generally 4:00 p.m. ET, on a day when the NYSE is open for regular trading, the sale of your shares will be processed at the next determined NAV on that day. Otherwise it will occur on the next business day.
o Interruptions in telephone service could prevent you from selling your shares by telephone when you want to. When you have difficulty making telephone sales, you should mail to Touchstone (or send by overnight delivery), a written request for the sale of your shares.
o In order to protect your investment assets, Touchstone will only follow instructions received by telephone that are communicated by authorized persons. However, there is no guarantee that the instructions relied upon will always be genuine and Touchstone will not be liable, in those cases. Touchstone has certain procedures to confirm that telephone instructions are genuine. If it does not follow such procedures in a particular case, it may be liable for any losses due to unauthorized or fraudulent instructions. Some of these procedures may include:
o Requiring personal identification
o Making checks payable only to the owner(s) of the account shown on Touchstone's records
o Mailing checks only to the account address shown on Touchstone's records
o Directing wires only to the bank account shown on Touchstone's records
o Providing written confirmation for transactions requested by telephone
o Digitally recording instructions received by telephone
THROUGH TOUCHSTONE - BY MAIL
o Write to Touchstone.
o Indicate the number of shares or dollar amount to be sold.
o Include your name and account number.
o Sign your request exactly as your name appears on your investment application.
o You may be required to have your signature guaranteed (See "Signature Guarantees" in this Prospectus for more information).
THROUGH TOUCHSTONE - BY WIRE
o Complete the appropriate information on the investment application.
o You may also be charged a fee by your bank.
o Redemption proceeds will only be wired to a commercial bank or brokerage firm in the United States.
o Your redemption proceeds may be deposited without a charge directly into your bank account through an Automated Clearing House ("ACH") transaction. Contact Touchstone for more information.
THROUGH TOUCHSTONE - SYSTEMATIC WITHDRAWAL PLAN
o You may elect to receive, or send to a third party, withdrawals of $50 or more if your account value is at least $5,000.
o Withdrawals can be made monthly, quarterly, semiannually or annually.
o There is no special fee for this service.
<-- Special Tax Consideration
Systematic withdrawals may result in the sale of your shares at a loss or may result in taxable investment gains.
THROUGH YOUR FINANCIAL INSTITUTION OR PROCESSING ORGANIZATION
o You may also sell shares by contacting your financial institution or processing organization, which may charge you a fee for this service. Shares held in street name must be sold through your financial institution or, if applicable, the processing organization.
o Your financial institution or processing organization 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.
<-- Special Tax Consideration
Selling your shares may cause you to incur a taxable gain or loss.
- INVESTOR ALERT: Unless otherwise specified, proceeds will be sent to the record owner at the address shown on Touchstone's records.
SIGNATURE GUARANTEES
Some circumstances require that your request to sell shares be made in writing accompanied by an original Medallion Signature Guarantee. A Medallion Signature Guarantee helps protect you against fraud. You can obtain one from most banks or securities dealers, but not from a notary public. Some circumstances that may require an original Medallion Signature Guarantee include:
o Proceeds from the sale of shares of $100,000 or more
o Proceeds to be paid when information on your investment application has been changed within the last 30 days (including a change in your name or your address, or the name or address of a payee)
o Proceeds are being sent to an address other than the address of record
o Proceeds or shares are being sent/transferred from unlike registrations, such as from a joint account to an individual's account
o Sending proceeds via wire or ACH when bank instructions have been added or changed within 30 days of your redemption request
o Proceeds or shares are being sent/transferred between accounts with different account registrations
RECEIVING SALE PROCEEDS
Touchstone will forward the proceeds of your sale to you or your financial institution within 7 days (normally within 3 business days) after receipt of a proper request. Proceeds that are sent to your financial institution will not usually be reinvested for you unless you provide specific instructions to do so. Therefore, the financial institution may benefit from the use of your money.
FUND SHARES PURCHASED BY CHECK. We may delay paying your redemption proceeds for shares you recently purchased by check until your check clears, which may take up to 15 days. If you need your money sooner, you should purchase shares by bank wire.
DELAY OF PAYMENT. It is possible that the payment of your sale proceeds could be postponed or your right to sell your shares could be suspended during certain circumstances. These circumstances can occur:
o When the NYSE is closed on days other than customary weekends and holidays
o When trading on the NYSE is restricted
o When an emergency situation causes a sub-advisor to not be reasonably able to dispose of certain securities or to fairly determine the value of the Fund's net assets
o During any other time when the SEC, by order, permits
LOW ACCOUNT BALANCES. If your balance falls below the minimum amount required for your account, based on actual amounts you have invested (as opposed to a reduction from market changes), your account may be subject to an annual account maintenance fee or Touchstone may sell your shares and send the proceeds to you. Touchstone will notify you if your shares are about to be sold and you will have 30 days to increase your account balance to the minimum amount.
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. Shareholders may incur transaction and brokerage costs when they sell these portfolio securities.
MARKET TIMING POLICY
Market timing or excessive trading in accounts that you own or control may disrupt portfolio investment strategies, may increase brokerage and administrative costs, and may negatively impact investment returns for all shareholders, including long-term shareholders who do not generate these costs. The Fund will take reasonable steps to discourage excessive short-term trading and will not knowingly accommodate frequent purchases and redemptions of Fund shares by shareholders. The Board of Trustees has adopted the following policies and procedures with respect to market timing of the Fund by shareholders. The Fund will monitor selected trades on a daily basis in an effort to deter excessive short-term trading. If the Fund has reason to believe that a shareholder has engaged in excessive short-term trading, the Fund may ask the shareholder to stop such activities or restrict or refuse to process purchases or exchanges in the shareholder's accounts. While the Fund cannot assure the prevention of all excessive trading and market timing, by making these judgments the Fund believes it is acting in a manner that is in the best interests of its shareholders. However, because the Fund cannot prevent all market timing, shareholders may be subject to the risks described above.
Generally, a shareholder may be considered a market timer if he or she has (i)
requested an exchange or redemption out of any of the Touchstone Funds within 2
weeks of an earlier purchase or exchange request out of any Touchstone Fund, or
(ii) made more than 2 "round-trip" exchanges within a rolling 90 day period. A
"round-trip" exchange occurs when a shareholder exchanges from one Touchstone
Fund to another Touchstone Fund and back to the original Touchstone Fund. If a
shareholder exceeds these limits, the Fund may restrict or suspend that
shareholder's exchange privileges and subsequent exchange requests during the
suspension will not be processed. The Fund may also restrict or refuse to
process purchases by the shareholder. These policies and procedures generally do
not apply to purchases and redemptions of Money Market Funds (except in the case
of an exchange request into a Touchstone non-money market fund), exchanges
between Money Market Funds and systematic purchases and redemptions.
Financial intermediaries (such as investment advisors and broker-dealers) often establish omnibus accounts in the Fund for their customers through which transactions are placed. In accordance with Rule 22c-2 under the Investment Company Act of 1940, the Fund has entered into information sharing agreements with certain financial intermediaries. Under these agreements, a financial intermediary is obligated to: (1) enforce during the term of the agreement, the Fund's market-timing policy; (2) furnish the Fund, upon its request, with information regarding customer trading activities in shares of the Fund; and (3) enforce the Fund's market-timing policy with respect to customers identified by the Fund as having engaged in market timing. When information regarding transactions in the Fund's shares is requested by a Fund and such information is in the possession of a person that is itself a financial intermediary to a financial intermediary (an "indirect intermediary"), any financial intermediary with whom the Fund has an information sharing agreement is obligated to obtain transaction information from the indirect intermediary or, if directed by the Fund, to restrict or prohibit the indirect intermediary from purchasing shares of the Fund on behalf of other persons.
The Fund applies these policies and procedures uniformly to all shareholders believed to be engaged in market timing or excessive trading. The Fund has no arrangements to permit any investor to trade frequently in shares of the Fund, nor will they enter into any such arrangements in the future.
HOUSEHOLDING POLICY
The Fund will send one copy of prospectuses and shareholder reports to households containing multiple shareholders with the same last name. This process, known as "householding," reduces costs and provides a convenience to shareholders. If you share the same last name and address with another shareholder and you prefer to receive separate prospectuses and shareholder reports, call Touchstone at 1.800.543.0407 and we will begin separate mailings to you within 30 days of your request. If you or others in your household invest in the Fund through a broker or other financial institution, you may receive separate prospectuses and shareholder reports, regardless of whether or not you have consented to householding on your investment application.
PRICING OF FUND SHARES
The Fund's share price (also called "NAV") is determined as of the close of trading (normally 4:00 p.m. ET) every day the NYSE is open. The Fund calculates its NAV per share, generally using market prices, by dividing the total value of its net assets by the number of shares outstanding. Shares are purchased or sold at the next share price determined after your purchase or sale order is received in proper form by Touchstone or an Authorized Processing Organization.
The Fund's equity 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). The Fund may use pricing services to determine market value for investments. 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.
Although investing in foreign securities is not a principal investment strategy of the Fund, any foreign securities held by the Fund will be priced as follows:
o All assets and liabilities initially expressed in foreign currency values will be converted into U.S. dollar values.
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.
Securities held by the Fund that do not have readily available market quotations, or securities for which the available market quotation is not reliable, are priced at their fair value using procedures approved by the Board of Trustees. The Fund may use fair value pricing under the following circumstances, among others:
o If the value of a security has been materially affected by events occurring before the Fund's pricing time but after the close of the primary markets on which the security is traded.
o If a security, such as a small cap or micro cap security, is so thinly traded that reliable market quotations are unavailable due to infrequent training.
o If the exchange on which a portfolio security is principally traded closes early or if trading in a particular portfolio security was halted during the day and did not resume prior to the Fund's NAV calculation.
The use of fair value pricing has the effect of valuing a security based upon the price the Fund might reasonably expect to receive if it sold that security but does not guarantee that the security can be sold at the fair value price. With respect to any portion of the Fund's assets that is invested in other mutual funds, that portion of the Fund's NAV is calculated based on the NAV of that mutual fund. The prospectus for the other mutual fund explains the circumstances and effects of fair value pricing for that fund.
<-- Special Tax Consideration
You should consult 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. If you own shares on the Fund's record date, you will be entitled to receive the distribution.
You will receive dividends and distributions in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must notify the Fund in writing prior to the date of distribution. Your election will be effective for dividends and distributions paid after we receive your written notice. To cancel your election, simply send written notice to Touchstone, P.O. Box 5354, Cincinnati, Ohio 45201-5354, or by overnight mail to Touchstone, c/o JPMorgan Chase Bank, N.A., 303 Broadway, Suite 900, Cincinnati, Ohio 45202-4203, or call Touchstone at 1.800.543.0407.
TAX INFORMATION
DISTRIBUTIONS. The Fund may make distributions of dividends that may be taxed at different rates depending on the length of time the Fund holds its assets. The dividends and distributions you receive may be subject to federal, state and local taxation, depending upon your tax situation. If so, they are taxable whether or not you reinvest such dividends in additional shares of the Fund or choose to receive cash.
ORDINARY INCOME. Income distributions are generally taxable at ordinary income tax rates except to the extent they are designated as qualified dividend income. Dividends that are qualified dividend income are eligible for the reduced maximum rate to individuals of 15% (0% for individuals in lower tax brackets) to the extent that the Fund receives qualified dividend income. 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.
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%.
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 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.
The financial highlights tables are intended to help you understand the Fund's
financial performance for the period of the Fund's operation. Some of this
information reflects financial information 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 financial highlights for the Fund were audited by Ernst &
Young LLP, an independent registered public accounting firm. The report of Ernst
& Young LLP, along with the Fund's financial statements and related notes,
appears in the 2008 Annual Report for the Fund. You can obtain the Annual
Report, which contains more performance information, at no charge by calling
1.800.543.0407. The Annual Report has been incorporated by reference into the
SAI.
MICRO CAP GROWTH FUND--CLASS Y
PERIOD
YEAR ENDED MARCH 31, ENDED
-------------------------------------------- MARCH 31,
2008 2007 2006 2005(A)
--------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 13.21 $ 13.70 $ 11.16 $ 9.89
--------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.13) (0.21) (0.03) (0.13)
Net realized and unrealized gains (losses) on investments (2.66) (0.28) 2.57 1.40
--------------------------------------------------------------------------------------------------------------------------
Total from investment operations (2.79) (0.49) 2.54 1.27
--------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 10.42 $ 13.21 $ 13.70 $ 11.16
==========================================================================================================================
Total return (21.12%) (3.58%) 22.76% 12.84%(B)
==========================================================================================================================
Net assets at end of period (000's) $ 422 $ 440 $ 676 $ --(C)
==========================================================================================================================
Ratio of net expenses to average net assets 1.57% 1.70% 1.55% 1.55%(D)
Ratio of net investment loss to average net assets (0.95%) (1.05%) (0.77%) (2.34%)(D)
Portfolio turnover rate 74% 91% 90% 101%(D)
|
(A) Represents the period from commencement of operations (October 4, 2004)
through March 31, 2005.
(B) Not Annualized.
(C) Amount rounds to less than $1,000.
(D) Annualized.
TOUCHSTONE INVESTMENTS
DISTRIBUTOR
Touchstone Securities, Inc.*
303 Broadway, Suite 1100
Cincinnati, OH 45202-4203
1.800.638.8194
www.touchstoneinvestments.com
INVESTMENT ADVISOR
Touchstone Advisors, Inc.*
303 Broadway, Suite 1100
Cincinnati, OH 45202-4203
TRANSFER AGENT
JPMorgan Chase Bank, N.A.
303 Broadway, Suite 900
Cincinnati, OH 45202-4203
SHAREHOLDER SERVICE
1.800.543.0407
*A Member of Western & Southern Financial Group(R)
The following are federal trademark registrations and applications owned by IFS
Financial Services, Inc., a member of Western & Southern Financial Group(R):
Touchstone, Touchstone Funds, Touchstone Investments, Touchstone Family of Funds
and Touchstone Select.
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 ("FINANCIAL REPORTS"): The Fund's Financial 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 Financial Reports, other information and answers to your questions about the Fund by contacting your financial advisor, or the Fund at:
Touchstone Investments
P.O. Box 5354
Cincinnati, OH 45201-5354
1.800.543.0407
The SAI and Financial Reports are also available on the Touchstone Investments website at 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 1.202.551.8090.
Reports and other information about the Fund are available on the EDGAR database of 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 Section of the SEC, 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
AUGUST 1, 2008
DIVERSIFIED SMALL CAP GROWTH FUND
GROWTH OPPORTUNITIES FUND
LARGE CAP CORE EQUITY FUND
LARGE CAP GROWTH FUND
LARGE CAP VALUE FUND
MICRO CAP GROWTH FUND
MID CAP GROWTH FUND
This Statement of Additional Information ("SAI") is not a prospectus and relates only to the above-referenced funds (each a "Fund" and, together, the "Funds"). It is intended to provide additional information regarding the activities and operations of the Touchstone Strategic Trust (the "Trust") and should be read together with the Funds' Prospectuses dated August 1, 2008. The Funds' financial statements contained in the Trust's Annual Report and Semiannual Report, are incorporated by reference into and are deemed to be a part of this SAI. You may receive a copy of a Fund's Prospectus or the Trust's most recent Annual or Semiannual Report by writing the Trust at P.O. Box 5354, Cincinnati, Ohio 45201-5354, by calling the Trust at 1-800-543-0407, in Cincinnati 362-4921, or by visiting our website at touchstoneinvestments.com.
TOUCHSTONE STRATEGIC TRUST
303 BROADWAY, SUITE 1100
CINCINNATI, OHIO 45202-4203
TABLE OF CONTENTS
PAGE
THE TRUST.................................................................... DEFINITIONS, POLICIES AND RISK CONSIDERATIONS................................ INVESTMENT LIMITATIONS.......................................................
TRUSTEES AND OFFICERS........................................................ THE INVESTMENT ADVISOR ...................................................... THE SUB-ADVISORS............................................................. PORTFOLIO MANAGERS........................................................... PROXY VOTING PROCEDURES...................................................... THE DISTRIBUTOR.............................................................. DISTRIBUTION PLANS........................................................... SECURITIES TRANSACTIONS......................................................
CODE OF ETHICS............................................................... PORTFOLIO TURNOVER........................................................... DISCLOSURE OF PORTFOLIO HOLDINGS............................................. CALCULATION OF SHARE PRICE AND PUBLIC OFFERING PRICE......................... CHOOSING A SHARE CLASS....................................................... OTHER PURCHASE AND REDEMPTION INFORMATION.................................... TAXES........................................................................
PRINCIPAL SECURITY HOLDERS................................................... CUSTODIAN.................................................................... INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM................................ TRANSFER AND SUB-ADMINISTRATIVE AGENT........................................ FINANCIAL STATEMENTS.........................................................
APPENDIX.....................................................................
Touchstone Strategic Trust (the "Trust"), an open-end, diversified management investment company, was organized as a Massachusetts business trust on November 18, 1982. The Trust currently offers seven series of shares to investors: the Diversified Small Cap Growth Fund, the Growth Opportunities Fund, the Large Cap Core Equity Fund, the Large Cap Growth Fund, the Large Cap Value Fund, the Micro Cap Growth Fund and the Mid Cap Growth Fund (referred to individually as a "Fund" and collectively as the "Funds"). This SAI contains information about each Fund. Each Fund has its own investment goal and policies.
Touchstone Advisors, Inc. (the "Advisor") is the investment manager and administrator for each Fund. The Advisor has selected a sub-advisor(s) (individually, a "Sub-Advisor," collectively, the "Sub-Advisors") to manage, on a daily basis, the assets of each Fund. The Advisor has sub-contracted certain administrative and accounting services to JPMorgan Chase Bank, N.A. ("JPMorgan"). Touchstone Securities, Inc. (the "Distributor") is the principal distributor of the Funds' shares. The Distributor and certain Sub-Advisors are affiliates of the Advisor.
Pursuant to an Agreement and Plan of Reorganization, on May 1, 2000, the Mid Cap Growth Fund succeeded to the assets and liabilities of another mutual fund with the same name that was a series of Touchstone Series Trust. The investment goals, strategies, policies and restrictions of the Fund and its predecessor fund are substantially identical.
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 for the Large Cap Growth Fund are carried forward from the Navellier Performance Large Cap Growth Portfolio.
Pursuant to an Agreement and Plan of Reorganization dated May 18, 2006, between the Large Cap Core Equity Fund and the Value Plus Fund, the Large Cap Core Equity Fund acquired all of the assets and liabilities of the Value Plus Fund and the Value Plus Fund was terminated as a series of the Trust on August 14, 2006.
Pursuant to an Agreement and Plan of Reorganization dated August 15, 2007, between the Diversified Small Cap Growth Fund and the Small Cap Growth Fund, the Diversified Small Cap Growth Fund acquired all of the assets and liabilities of the Small Cap Growth Fund and the Small Cap Growth Fund was terminated as a series of the Trust on February 15, 2008.
Shares of each Fund have equal voting rights and liquidation rights. Each Fund shall vote separately on matters submitted to a vote of the shareholders except in matters where a vote of all series of the Trust in the aggregate is required by the Investment Company Act of 1940, as amended (the "1940 Act") or otherwise. Each class of shares of a Fund shall vote separately on matters relating to its plan of distribution pursuant to Rule 12b-1. When matters are submitted to shareholders for a vote, each shareholder is entitled to one vote for each full share owned and fractional votes for fractional shares owned. The Trust does not normally hold annual meetings of shareholders. The Trustees shall promptly call and give notice of a meeting of shareholders for the purpose of voting upon the removal of any Trustee when requested to do so in writing by shareholders holding 10% or more of the Trust's outstanding shares. The Trust will comply with the provisions of Section 16(c) of the 1940 Act in order to facilitate communications among shareholders.
Each share of a Fund represents an equal proportionate interest in the assets and liabilities belonging to that Fund with each other share of that Fund entitled to such dividends and distributions out of the income belonging to the Fund as are declared by the Trust. The shares do not have cumulative voting rights or any preemptive or conversion rights, and the Trustees have the authority from time to time to divide or combine the shares of any Fund into a greater or lesser number of shares of that Fund so long as the proportionate beneficial interest in the assets belonging to that Fund and the rights of shares of any other Fund are in no way affected. In case of any liquidation of a Fund, the holders of shares of the Fund being liquidated will be entitled to receive as a class a distribution out of the assets, net of the liabilities, belonging to that Fund. Expenses attributable to any Fund are borne by that Fund. Any general expenses of the Trust not readily identifiable as belonging to a particular Fund are allocated by or under the direction of the Trustees in such manner as the Trustees determine to be fair and equitable. Generally, the Trustees allocate such expenses on the basis of relative net assets or number of shareholders. No shareholder is liable to further calls or to assessment by the Trust without his express consent.
Class A shares, Class B shares, Class C shares and Class Y shares (formerly
Class I shares) of a Fund represent an interest in the same assets of such Fund,
have the same rights and are identical in all material respects except that (i)
each class of shares may bear different (or no) distribution fees; (ii) each
class of shares may be 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;
(iv) each class has exclusive voting rights with respect to matters relating to
its own distribution arrangements; and (v) certain classes offer different
features and services to shareholders and may have different investment
minimums. The Board of Trustees may classify and reclassify the shares of a Fund
into additional classes of shares at a future date.
Under Massachusetts law, under certain circumstances, shareholders of a Massachusetts business trust could be deemed to have the same type of personal liability for the obligations of the Trust as does a partner of a partnership. However, numerous investment companies registered under the 1940 Act have been formed as Massachusetts business trusts and the Trust is not aware of an instance where such result has occurred. In addition, the Trust Agreement disclaims shareholder liability for acts or obligations of the Trust and provides for the indemnification out of the Trust property for all losses and expenses of any shareholder held personally liable for the obligations of the Trust. Moreover, it provides that the Trust will, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the Trust and satisfy any judgment thereon. As a result, and particularly because the Trust assets are readily marketable and ordinarily substantially exceed liabilities, management believes that the risk of shareholder liability is slight and limited to circumstances in which the Trust itself would be unable to meet its obligations. Management believes that, in view of the above, the risk of personal liability is remote.
Each Fund has its own investment goals, strategies and related risks. There can be no assurance that a Fund's investment goals will be met. The investment goals and practices of each Fund are nonfundamental policies that may be changed by the Board of Trustees without shareholder approval, except in those instances where shareholder approval is expressly required. If there is a change in a Fund's investment goal, shareholders should consider whether the Fund remains an appropriate investment in light of their current financial position and needs. The investment restrictions of the Funds are fundamental and can only be changed by vote of a majority of the outstanding shares of the applicable Fund. A more detailed discussion of some of the terms used and investment policies described in the Prospectuses (see "Investment Strategies and Risks") appears below:
FIXED-INCOME AND OTHER DEBT SECURITIES
Fixed-income and other debt instrument securities include all bonds, high yield or "junk" bonds, municipal bonds, debentures, U.S. Government securities, mortgage-related securities including government stripped mortgage-related securities, zero coupon securities and custodial receipts. The market value of fixed-income obligations of the Funds will be affected by general changes in interest rates which will result in increases or decreases in the value of the obligations held by the Funds. The market value of the obligations held by a Fund can be expected to vary inversely to changes in prevailing interest rates. As a result, shareholders should anticipate that the market value of the obligations held by the Fund generally would increase when prevailing interest rates are declining and generally will decrease when prevailing interest rates are rising. Shareholders also should recognize that, in periods of declining interest rates, a Fund's yield will tend to be somewhat higher than prevailing market rates and, in periods of rising interest rates, a Fund's yield will tend to be somewhat lower. Also, when interest rates are falling, the inflow of net new money to a Fund from the continuous sale of its shares will tend to be invested in instruments producing lower yields than the balance of its portfolio, thereby reducing the Fund's current yield. In periods of rising interest rates, the opposite can be expected to occur. In addition, securities in which a Fund may invest may not yield as high a level of current income as might be achieved by investing in securities with less liquidity, less creditworthiness or longer maturities.
Ratings made available by Standard & Poor's Rating Service ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Fitch Ratings are relative and subjective and are not absolute standards of quality. Although these ratings are initial criteria for selection of portfolio investments, a 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 to this SAI.
MEDIUM AND LOWER RATED AND UNRATED SECURITIES. Securities rated in the fourth highest category by a rating organization although considered investment grade, may possess speculative characteristics, and changes in economic or other conditions are more likely to impair the ability of issuers of these securities to make interest and principal payments than is the case with respect to issuers of higher grade bonds.
Generally, medium or lower-rated securities and unrated securities of comparable quality, sometimes referred to as "junk bonds," offer a higher current yield than is offered by higher rated securities, but also (i) will likely have some quality and protective characteristics that, in the judgment of the rating organizations, are outweighed by large uncertainties or major risk exposures to adverse conditions and (ii) are predominantly speculative with respect to the issuer's capacity to pay interest and repay principal in accordance with the terms of the obligation. The yield of junk bonds will fluctuate over time.
The market values of certain of these securities also tend to be more sensitive to individual corporate developments and changes in economic conditions than higher quality bonds. In addition, medium and lower rated securities and comparable unrated securities generally present a higher degree of credit risk. The risk of loss due to default by these issuers is significantly greater because medium and lower-rated securities and unrated securities of comparable quality generally are unsecured and frequently are subordinated to the prior payment of senior indebtedness. Since the risk of default is higher for lower rated debt securities, the Sub-Advisor's research and credit analysis are an especially important part of managing securities of this type held by a Fund. In light of these risks, the Board of Trustees of the Trust has instructed the Sub-Advisor, in evaluating the creditworthiness of an issue, whether rated or unrated, to take various factors into consideration, which may include, as applicable, the issuer's financial resources, its sensitivity to economic conditions and trends, the operating history of and the community support for the facility financed by the issue, the ability of the issuer's management and regulatory matters.
In addition, the market value of securities in lower-rated categories is more volatile than that of higher quality securities, and the markets in which medium and lower-rated or unrated securities are traded are more limited than those in which higher rated securities are traded. The existence of limited markets may make it more difficult for the Funds to obtain accurate market quotations for purposes of valuing their respective portfolios and calculating their respective net asset values. Moreover, the lack of a liquid trading market may restrict the availability of securities for the Funds to purchase and may also have the effect of limiting the ability of a Fund to sell securities at their fair value either to meet redemption requests or to respond to changes in the economy or the financial markets.
Lower-rated debt obligations also present risks based on payment expectations. If an issuer calls the obligation for redemption, a Fund may have to replace the security with a lower yielding security, resulting in a decreased return for shareholders. Also, as the principal value of bonds moves inversely with movements in interest rates, in the event of rising interest rates the value of the securities held by a Fund may decline relatively proportionately more than a portfolio consisting of higher rated securities. If a Fund experiences unexpected net redemptions, it may be forced to sell its higher rated bonds, resulting in a decline in the overall credit quality of the securities held by the Fund and increasing the exposure of the Fund to the risks of lower rated securities. Investments in zero coupon bonds may be more speculative and subject to greater fluctuations in value due to changes in interest rates than bonds that pay interest currently.
Subsequent to its purchase by a Fund, an issue of securities may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither event will require sale of these securities by the Fund, but the Sub-Advisor will consider this event in its determination of whether the Fund should continue to hold the securities.
The market for lower-rated debt securities may be thinner and less active than that for higher rated debt securities, which can adversely affect the prices at which the former are sold. If market quotations are not available, lower-rated debt securities will be valued in accordance with procedures established by the Board of Trustees, including the use of outside pricing services. Judgment plays a greater role in valuing high yield corporate debt securities than is the case for securities for which more external sources for quotations and last sale information is available. Adverse publicity and changing investor perception may affect the ability of outside pricing services to value lower-rated debt securities and the ability to dispose of these securities.
In considering investments for a Fund, the Sub-Advisor will attempt to identify those issuers of high yielding debt securities whose financial condition is adequate to meet future obligations or has improved or is expected to improve in the future. The Sub-Advisor's analysis focuses on relative values based on such factors as interest or dividend coverage, asset coverage, earnings prospects and the experience and managerial strength of the issuer.
A Fund may choose, at its expense or in conjunction with others, to pursue litigation or otherwise exercise its rights as a security holder to seek to protect the interest of security holders if it determines this to be in the best interest of the Fund.
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND TIME DEPOSITS. Certificates of deposit are receipts issued by a depository institution in exchange for the deposit of funds. The issuer agrees to pay the amount deposited plus interest to the bearer of the receipt on the date specified on the certificate. The certificate usually can be traded in the secondary market prior to maturity. Bankers' acceptances typically arise from short-term credit arrangements designed to enable businesses to obtain funds to finance commercial transactions. Generally, an acceptance is a time draft drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then "accepted" by a bank that, in effect, 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. Investments in time deposits maturing in more than seven days will be subject to the SEC's restrictions that limit investments in illiquid securities to no more than 15% of the value of a Fund's net assets.
U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations issued or guaranteed by the U.S. Government, its agencies, authorities or instrumentalities. Some U.S. Government securities, such as U.S. Treasury bills, Treasury notes and Treasury bonds, which differ only in their interest rates, maturities and times of issuance, are supported by the full faith and credit of the United States. Others are supported by: (i) the right of the issuer to borrow from the U.S. Treasury, such as securities of the Federal Home Loan Banks; (ii) the discretionary authority of the U.S. Government to purchase the agency's obligations, such as securities of the Federal National Mortgage Association ("FNMA"); or (iii) only the credit of the issuer, such as securities of the Student Loan Marketing Association. No assurance can be given that the U.S. Government will provide financial support in the future to U.S. Government agencies, authorities or instrumentalities that are not supported by the full faith and credit of the United States.
Securities guaranteed as to principal and interest by the U.S. Government, its agencies, authorities or instrumentalities include: (i) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by the U.S. Government or any of its agencies, authorities or instrumentalities; and (ii) participation interests in loans made to foreign governments or other entities that are so guaranteed. The secondary market for certain of these participation interests is limited and, therefore, may be regarded as illiquid.
MORTGAGE-RELATED SECURITIES. There are several risks associated with mortgage-related securities generally. One is that the monthly cash inflow from the underlying loans may not be sufficient to meet the monthly payment requirements of the mortgage-related security. Prepayment of principal by mortgagors or mortgage foreclosures will shorten the term of the underlying mortgage pool for a mortgage-related security. Early returns of principal will affect the average life of the mortgage-related securities remaining in a Fund. The occurrence of mortgage prepayments is affected by factors including the level of interest rates, general economic conditions, the location and age of the mortgage and other social and demographic conditions. In periods of rising interest rates, the rate of prepayment tends to decrease, thereby lengthening the average life of a pool of mortgage-related securities. Conversely, in periods of falling interest rates the rate of prepayment tends to increase, thereby shortening the average life of a pool. Reinvestment of prepayments may occur at higher or lower interest rates than the original investment, thus affecting the yield of a Fund. Because prepayments of principal generally occur when interest rates are declining, it is likely that a Fund will have to reinvest the proceeds of prepayments at lower interest rates than those at which the assets were previously invested. If this occurs, a Fund's yield will correspondingly decline. Thus, mortgage-related securities may have less potential for capital appreciation in periods of falling interest rates than other fixed-income securities of comparable maturity, although these securities may have a comparable risk of decline in market value in periods of rising interest rates. To the extent that a Fund purchases mortgage-related securities at a premium, unscheduled prepayments, which are made at par, will result in a loss equal to any unamortized premium.
Collateralized Mortgage Obligations ("CMOs") are obligations fully collateralized by a portfolio of mortgages or mortgage-related securities. Payments of principal and interest on the mortgages are passed through to the holders of the CMOs on the same schedule as they are received, although certain classes of CMOs have priority over others with respect to the receipt of prepayments on the mortgages. Therefore, depending on the type of CMOs in which a Fund invests, the investment may be subject to a greater or lesser risk of prepayment than other types of mortgage-related securities.
Mortgage-related securities may not be readily marketable. To the extent any of these securities are not readily marketable in the judgment of the Sub-Advisor, the Funds' restrictions on investments in illiquid instruments will apply.
STRIPPED MORTGAGE-RELATED SECURITIES. These securities are either issued and guaranteed, or privately issued but collateralized by, securities issued by the Government National Mortgage Association ("GNMA"), FNMA or the Federal Home Loan Mortgage Corporation ("FHLMC"). These securities represent beneficial ownership interests in either periodic principal distributions ("principal-only") or interest distributions ("interest-only") on mortgage-related certificates issued by GNMA, FNMA or FHLMC, as the case may be. The certificates underlying the stripped mortgage-related securities represent all or part of the beneficial interest in pools of mortgage loans. A Fund will invest in stripped mortgage-related securities in order to enhance yield or to benefit from anticipated appreciation in value of the securities at times when its Sub-Advisor believes that interest rates will remain stable or increase. In periods of rising interest rates, the expected increase in the value of stripped mortgage-related securities may offset all or a portion of any decline in value of the securities held by the Fund.
Investing in stripped mortgage-related securities involves the risks normally associated with investing in mortgage-related securities. See "Mortgage-Related Securities" above. In addition, the yields on stripped mortgage-related securities are extremely sensitive to the prepayment experience on the mortgage loans underlying the certificates collateralizing the securities. If a decline in the level of prevailing interest rates results in a rate of principal prepayments higher than anticipated, distributions of principal will be accelerated, thereby reducing the yield to maturity on interest-only stripped mortgage-related securities and increasing the yield to maturity on principal-only stripped mortgage-related securities. Sufficiently high prepayment rates could result in a Fund not fully recovering its initial investment in an interest-only stripped mortgage-related security. Under current market conditions, the Fund expects that investments in stripped mortgage-related securities will consist primarily of interest-only securities. Stripped mortgage-related securities are currently traded in an over-the-counter market maintained by several large investment-banking firms. There can be no assurance that the Fund will be able to affect a trade of a stripped mortgage-related security at a time when it wishes to do so. The Fund will acquire stripped mortgage-related securities only if a secondary market for the securities exists at the time of acquisition. Except for stripped mortgage-related securities based on fixed rate FNMA and FHLMC mortgage certificates that meet certain liquidity criteria established by the Board of Trustees, a Fund will treat government stripped mortgage-related securities and privately-issued mortgage-related securities as illiquid and will limit its investments in these securities, together with other illiquid investments, to not more than 15% of net assets.
ZERO COUPON SECURITIES. Zero coupon U.S. Government securities are debt obligations that are issued or purchased at a significant discount from face value. The discount approximates the total amount of interest the security will accrue and compound over the period until maturity or the particular interest payment date at a rate of interest reflecting the market rate of the security at the time of issuance. Zero coupon securities do not require the periodic payment of interest. These investments benefit the issuer by mitigating its need for cash to meet debt service, but also require a higher rate of return to attract investors who are willing to defer receipt of cash. These investments may experience greater volatility in market value than U.S. Government securities that make regular payments of interest. A Fund accrues income on these investments for tax and accounting purposes, which is distributable to shareholders and which, because no cash is received at the time of accrual, may require the liquidation of other portfolio securities to satisfy the Fund's distribution obligations, in which case the Fund will forego the purchase of additional income producing assets with these funds. Zero coupon securities include Separately Traded Registered Interest and Principal Securities ("STRIPS"). STRIPS are securities underwritten by securities dealers or banks that evidence ownership of future interest payments, principal payments or both on certain notes or bonds issued by the U.S. Government, its agencies, authorities or instrumentalities. They also include Coupons Under Book Entry Safekeeping ("CUBES"), which are component parts of U.S. Treasury bonds and represent scheduled interest and principal payments on the bonds.
CUSTODIAL RECEIPTS. Custodial receipts or certificates include Certificates of Accrual on Treasury Securities ("CATS"), Treasury Investment Growth Receipts ("TIGRs") and Financial Corporation certificates ("FICO Strips"). CATS, TIGRs and FICO Strips are securities underwritten by securities dealers or banks that evidence ownership of future interest payments, principal payments or both on certain notes or bonds issued by the U.S. Government, its agencies, authorities or instrumentalities. The underwriters of these certificates or receipts purchase a U.S. Government security and deposit the security in an irrevocable trust or custodial account with a custodian bank, which then issues receipts or certificates that evidence ownership of the periodic unmatured coupon payments and the final principal payment on the U.S. Government security. Custodial receipts evidencing specific coupon or principal payments have the same general attributes as zero coupon U.S. Government securities, described above. Although typically under the terms of a custodial receipt a Fund is authorized to assert its rights directly against the issuer of the underlying obligation, the Fund may be required to assert through the custodian bank such rights as may exist against the underlying issuer. Thus, if the underlying issuer fails to pay principal and/or interest when due, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation of the issuer. In addition, if the trust or custodial account in which the underlying security has been deposited were determined to be an association taxable as a corporation, instead of a non-taxable entity, the yield on the underlying security would be reduced in respect of any taxes paid.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. These are instruments in amounts owed by a corporate, governmental or other borrower to another party. They may represent amounts owed to lenders or lending syndicates (loans and loan participations), to suppliers of goods or services (trade claims or other receivables) or to other parties. Direct debt instruments purchased by a Fund may have a maturity of any number of days or years, may be secured or unsecured, and may be of any credit quality. Direct debt instruments involve the risk of loss in the case of default or insolvency of the borrower. Direct debt instruments may offer less legal protection to a Fund in the event of fraud or misrepresentation. In addition, loan participations involve a risk of insolvency of the lending bank or other financial intermediary. Direct debt instruments also may include standby financing commitments that obligate a Fund to supply additional cash to the borrower on demand at a time when a Fund would not have otherwise done so, even if the borrower's condition makes it unlikely that the amount will ever be repaid.
These instruments will be considered illiquid securities and so will be limited in accordance with the Funds' restrictions on illiquid securities.
ILLIQUID SECURITIES
Historically, illiquid securities have included securities subject to contractual or legal restrictions on resale because they have not been registered under the Securities Act of 1933, as amended (the "1933 Act"), securities that are otherwise not readily marketable and repurchase agreements having a maturity of longer than seven days. Securities that have not been registered under the 1933 Act are referred to as "private placements" or "restricted securities" and are purchased directly from the issuer or in the secondary market. Investment companies do not typically hold a significant amount of these restricted securities or other illiquid securities because of the potential for delays on resale and uncertainty in valuation. Limitations on resale may have an adverse effect on the marketability of portfolio securities and an investment company might be unable to dispose of restricted or other illiquid securities promptly or at reasonable prices and might thereby experience difficulty satisfying redemptions within seven days. An investment company might also have to register such restricted securities in order to dispose of them, which would result in additional expense and delay. Adverse market conditions could impede such a public offering of securities. Each Fund may not invest more than 15% of its net assets in securities that are illiquid or otherwise not readily marketable.
In recent years, however, a large institutional market has developed for certain securities that are not registered under the 1933 Act, including repurchase agreements, commercial paper, foreign securities, municipal securities and corporate bonds and notes. Institutional investors depend on an efficient institutional market in which the unregistered security can be readily resold or on an issuer's ability to honor a demand for repayment. The fact that there are contractual or legal restrictions on resale of such investments to the general public or to certain institutions may not be indicative of their liquidity.
o RULE 144A SECURITIES. 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 Automated Quotation System ("NASDAQ").
A Sub-Advisor will monitor the liquidity of Rule 144A securities in each Fund's portfolio under the supervision of the Board of Trustees. In reaching liquidity decisions, the Sub-Advisor will consider, among other things, the following factors: (1) the frequency of trades and quotes for the security; (2) the number of dealers and other potential purchasers wishing to purchase or sell the security; (3) dealer undertakings to make a market in the security and (4) the nature of the security and of the marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers and the mechanics of the transfer).
A Fund may purchase securities in the United States that are not registered for sale under federal securities laws but which can be resold to institutions under SEC Rule 144A or under an exemption from such laws. Provided that a dealer or institutional trading market in such securities exists, these restricted securities or Rule 144A securities are treated as exempt from the Funds' limit on illiquid securities. The Board of Trustees of the Trust, with advice and information from the respective Sub-Advisor, will determine the liquidity of restricted securities or Rule 144A securities by looking at factors such as trading activity and the availability of reliable price information and, through reports from such Sub-Advisor, the Board of Trustees of the Trust will monitor trading activity in restricted securities. If institutional trading in restricted securities or Rule 144A securities were to decline, a Fund's illiquidity could increase and the Fund could be adversely affected.
o SECTION 4(2) COMMERCIAL PAPER. A Fund may invest in commercial paper
issued in reliance on the exemption from registration afforded by
Section 4(2) of the 1933 Act. Section 4(2) commercial paper is
restricted as to disposition under federal securities laws and is
generally sold to institutional investors who agree that they are
purchasing the paper for investment purposes and not with a view to
public distribution. Any resale by the purchaser must be in an
exempt transaction. Section 4(2) commercial paper is normally resold
to other institutional investors through or with the assistance of
the issuer or investment dealers who make a market in Section 4(2)
commercial paper, thus providing liquidity. The Sub-Advisor believes
that Section 4(2) commercial paper and possibly certain other
restricted securities that meet the criteria for liquidity
established by the Trustees are quite liquid. The Fund intends
therefore, to treat the restricted securities which meet the
criteria for liquidity established by the Trustees, including
Section 4(2) commercial paper, as determined by the Sub-Advisor, as
liquid and not subject to the investment limitation applicable to
illiquid securities. In addition, because Section 4(2) commercial
paper is liquid, the Fund does not intend to subject such paper to
the limitation applicable to restricted securities.
No Fund will invest more than 10% of its total assets in restricted securities (excluding Rule 144A securities).
FOREIGN SECURITIES
Investing in securities issued by foreign companies and governments involves considerations and potential risks not typically associated with investing in obligations issued by the U.S. Government and domestic corporations. Less information may be available about foreign companies than about domestic companies and foreign companies generally are not subject to uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic companies. The values of foreign investments are affected by changes in currency rates or exchange control regulations, restrictions or prohibitions on the repatriation of foreign currencies, application of foreign tax laws, including withholding taxes, changes in governmental administration or economic or monetary policy (in the United States or abroad) or changed circumstances in dealings between nations. Costs are also incurred in connection with conversions between various currencies. In addition, foreign brokerage commissions and custody fees are generally higher than those charged in the United States, and foreign securities markets may be less liquid, more volatile and less subject to governmental supervision than in the United States. Investments in foreign countries could be affected by other factors not present in the United States, including expropriation, confiscatory taxation, lack of uniform accounting and auditing standards and potential difficulties in enforcing contractual obligations and could be subject to extended clearance and settlement periods.
The Growth Opportunities Fund may invest up to 10% of its total assets at the time of purchase in the securities of foreign issuers. The Mid Cap Growth Fund may invest up to 20% of its total assets in securities of foreign issuers. The Large Cap Growth Fund may invest up to 15% of its total assets in foreign securities traded in the U.S. market. The Large Cap Value Fund may invest in common stocks of foreign large cap companies.
EMERGING MARKET COUNTRIES. Emerging market countries are countries other than Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. When a Fund invests in securities of a company in an emerging market country, it invests in securities issued by a company that (i) is organized under the laws of an emerging market country, (ii) maintains its principal place of business in an emerging market country, (iii) has its principal trading market for its securities in an emerging market country, (iv) derives at least 50% of its revenues or profits from operations within emerging market countries, or has at least 50% of its assets located in emerging market countries. The Mid Cap Growth Fund may invest up to 10% of its total assets in emerging market countries. The Large Cap Growth Fund may invest up to 15% of its total assets in securities of emerging market countries traded in the U.S. market. The Micro Cap Growth Fund and the Diversified Small Cap Growth Fund may also invest in securities of companies in emerging market countries.
Investments in securities of issuers based in emerging market countries entail all of the risks of investing in foreign issuers outlined in this section to a heightened degree. These heightened risks include: (i) expropriation, confiscatory taxation, nationalization, and less social, political and economic stability; (ii) the smaller size of the market for such securities and a low or nonexistent volume of trading, resulting in a lack of liquidity and in price volatility; (iii) certain national policies which may restrict a Fund's investment opportunities, including restrictions on investing in issuers in industries deemed sensitive to relevant national interests; and (iv) the absence of developed capital markets and legal structures governing private or foreign investment and private property and the possibility that recent favorable economic and political developments could be slowed or reversed by unanticipated events.
CURRENCY EXCHANGE RATES. A Fund's share value may change significantly when the currencies, other than the U.S. dollar, in which the Fund's investments are denominated, strengthen or weaken against the U.S. dollar. Currency exchange rates are generally determined by the forces of supply and demand in the foreign exchange markets and the relative merits of investments in different countries as seen from an international perspective. Currency exchange rates can also be affected unpredictably by intervention by U.S. or foreign governments or central banks or by currency controls or political developments in the United States or abroad.
ADRS, ADSS, EDRS AND CDRS. American Depositary Receipts ("ADRs") and American Depositary Shares ("ADSs") are U.S. dollar-denominated receipts typically issued by domestic banks or trust companies that represent the deposit with those entities of securities of a foreign issuer. They are publicly traded on exchanges or over-the-counter in the United States. European Depositary Receipts ("EDRs"), which are sometimes referred to as Continental Depositary Receipts ("CDRs"), may also be purchased by the Funds. EDRs and CDRs are generally issued by foreign banks and evidence ownership of either foreign or domestic securities. Certain institutions issuing ADRs, ADSs or EDRs may not be sponsored by the issuer of the underlying foreign securities. A non-sponsored depositary may not provide the same shareholder information that a sponsored depositary is required to provide under its contractual arrangements with the issuer of the underlying foreign securities.
OPTIONS
A Fund may write (sell), to a limited extent, only covered call and put options ("covered options") in an attempt to increase income. However, the Fund may forego the benefits of appreciation on securities sold or may pay more than the market price on securities acquired pursuant to call and put options written by the Fund.
When a Fund writes a covered call option, it gives the purchaser of the option the right to buy the underlying security at the price specified in the option (the "exercise price") by exercising the option at any time during the option period. If the option expires unexercised, the Fund will realize income in an amount equal to the premium received for writing the option. If the option is exercised, a decision over which the Fund has no control, the Fund must sell the underlying security to the option holder at the exercise price. By writing a covered call option, the Fund foregoes, in exchange for the premium less the commission ("net premium"), the opportunity to profit during the option period from an increase in the market value of the underlying security above the exercise price.
When a Fund writes a covered put option, it gives the purchaser of the option the right to sell the underlying security to the Fund at the specified exercise price at any time during the option period. If the option expires unexercised, the Fund will realize income in the amount of the premium received for writing the option. If the put option is exercised, a decision over which the Fund has no control, the Fund must purchase the underlying security from the option holder at the exercise price. By writing a covered put option, the Fund, in exchange for the net premium received, accepts the risk of a decline in the market value of the underlying security below the exercise price.
A Fund may terminate its obligation as the writer of a call or put option by purchasing an option with the same exercise price and expiration date as the option previously written. This transaction is called a "closing purchase transaction." Where the Fund cannot effect a closing purchase transaction, it may be forced to incur brokerage commissions or dealer spreads in selling securities it receives or it may be forced to hold underlying securities until an option is exercised or expires.
When a Fund writes an option, an amount equal to the net premium received by the Fund is included in the liability section of the Fund's Statement of Assets and Liabilities as a deferred credit. The amount of the deferred credit will be subsequently marked to market to reflect the current market value of the option written. The current market value of a traded option is the last sale price or, in the absence of a sale, the mean between the closing bid and asked price. If an option expires on its stipulated expiration date or if the Fund enters into a closing purchase transaction, the Fund will realize a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was sold), and the deferred credit related to such option will be eliminated. If a call option is exercised, the Fund will realize a gain or loss from the sale of the underlying security and the proceeds of the sale will be increased by the premium originally received. The writing of covered call options may be deemed to involve the pledge of the securities against which the option is being written.
When a Fund writes a call option, it will "cover" its obligation by segregating the underlying security on the books of the Fund's custodian or by placing liquid securities in a segregated account at the Fund's custodian. When a Fund writes a put option, it will "cover" its obligation by placing liquid securities in a segregated account or by earmarking assets at the Fund's custodian.
A Fund may purchase call and put options on any securities in which it may invest. The Fund would normally purchase a call option in anticipation of an increase in the market value of such securities. The purchase of a call option would entitle the Fund, in exchange for the premium paid, to purchase a security at a specified price during the option period. The Fund would ordinarily have a gain if the value of the securities increased above the exercise price sufficiently to cover the premium and would have a loss if the value of the securities remained at or below the exercise price during the option period.
A Fund would normally purchase put options in anticipation of a decline in the market value of securities in its portfolio ("protective puts") or securities of the type in which it is permitted to invest. The purchase of a put option would entitle the Fund, in exchange for the premium paid, to sell a security, which may or may not be held in the Fund's portfolio, at a specified price during the option period. The purchase of protective puts is designed merely to offset or hedge against a decline in the market value of the Fund's portfolio securities. Put options also may be purchased by the Fund for the purpose of affirmatively benefiting from a decline in the price of securities which the Fund does not own. The Fund would ordinarily recognize a gain if the value of the securities decreased below the exercise price sufficiently to cover the premium and would recognize a loss if the value of the securities remained at or above the exercise price. Gains and losses on the purchase of protective put options would tend to be offset by countervailing changes in the value of underlying portfolio securities.
The Funds have adopted certain other nonfundamental policies concerning option transactions that are discussed below. A Fund's activities in options may also be restricted by the requirements of the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated investment company.
The hours of trading for options on securities may not conform to the hours during which the underlying securities are traded. To the extent that the option markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying securities markets that cannot be reflected in the option markets. It is impossible to predict the volume of trading that may exist in such options, and there can be no assurance that viable exchange markets will develop or continue.
OPTIONS ON STOCKS. A Fund may write or purchase options on stocks. A call option gives the purchaser of the option the right to buy, and obligates the writer to sell, the underlying stock at the exercise price at any time during the option period. Similarly, a put option gives the purchaser of the option the right to sell, and obligates the writer to buy the underlying stock at the exercise price at any time during the option period. A covered call option with respect to which a Fund owns the underlying stock sold by the Fund exposes the Fund during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying stock or to possible continued holding of a stock which might otherwise have been sold to protect against depreciation in the market price of the stock. A covered put option sold by a Fund exposes the Fund during the term of the option to a decline in price of the underlying stock.
To close out a position when writing covered options, a Fund may make a "closing purchase transaction" which involves purchasing an option on the same stock with the same exercise price and expiration date as the option which it has previously written on the stock. The Fund will realize a profit or loss for a closing purchase transaction if the amount paid to purchase an option is less or more, as the case may be, than the amount received from the sale thereof. To close out a position as a purchaser of an option, the Fund may make a "closing sale transaction" which involves liquidating the Fund's position by selling the option previously purchased.
OPTIONS ON SECURITIES INDEXES. Such options give the holder the right to receive a cash settlement during the term of the option based upon the difference between the exercise price and the value of the index. Such options will be used for the purposes described above under "Options on Securities" or, to the extent allowed by law, as a substitute for investment in individual securities.
Options on securities indexes entail risks in addition to the risks of options on securities. The absence of a liquid secondary market to close out options positions on securities indexes is more likely to occur, although the Fund generally will only purchase or write such an option if the Sub-Advisor believes the option can be closed out.
Use of options on securities indexes also entails the risk that trading in such options may be interrupted if trading in certain securities included in the index is interrupted. The Fund will not purchase such options unless the respective Sub-Advisor believes the market is sufficiently developed such that the risk of trading in such options is no greater than the risk of trading in options on securities.
Price movements in a Fund's portfolio may not correlate precisely with movements in the level of an index and, therefore, the use of options on indexes cannot serve as a complete hedge. Because options on securities indexes require settlement in cash, the Sub-Advisor may be forced to liquidate portfolio securities to meet settlement obligations.
When a Fund writes a put or call option on a securities index it will cover the position by placing liquid securities in a segregated asset account or by earmarking assets with the Fund's custodian.
Options on securities indexes are generally similar to options on stock except
that the delivery requirements are different. Instead of giving the right to
take or make delivery of stock at a specified price, an option on a security
index gives the holders the right to receive a cash "exercise settlement amount"
equal to (a) the amount, if any, by which the fixed exercise price of the option
exceeds (in the case of a put) or is less than (in the case of a call) the
closing value of the underlying index on the date of the exercise, multiplied by
(b) a fixed "index multiplier." Receipt of this cash amount will depend upon the
closing level of the index upon which the option is based being greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the option. The amount of cash received will be equal to such difference between
the closing price of the index and the exercise price of the option expressed in
dollars or a foreign currency, as the case may be, times a specified multiple.
The writer of the option is obligated, in return for the premium received, to make delivery of this amount. The writer may offset its position in securities index options prior to expiration by entering into a closing transaction on an exchange or the option may expire unexercised. Because the value of an index option depends upon movements in the level of the index rather than the price of a particular security, whether the Fund will realize a gain or loss from the purchase or writing of options on an index depends upon movements in the level of securities prices in the market generally or, in the case of certain indexes, in an industry or market segment, rather than movements in price of a particular security. Accordingly, successful use by a Fund of options on security indexes will be subject to the Sub-Advisor's ability to predict correctly movement in the direction of that securities market generally or of a particular industry. This requires different skills and techniques than predicting changes in the price of individual securities.
RELATED INVESTMENT POLICIES. A Fund may purchase and write put and call options on securities indexes listed on domestic and, in the case of those Funds which may invest in foreign securities, on foreign exchanges. A securities index fluctuates with changes in the market values of the securities included in the index.
OPTIONS ON FOREIGN CURRENCIES. Options on foreign currencies are used for hedging purposes in a manner similar to that in which futures contracts on foreign currencies, or forward contracts, are utilized. For example, a decline in the dollar value of a foreign currency in which portfolio securities are denominated will reduce the dollar value of such securities, even if their value in the foreign currency remains constant. In order to protect against such diminutions in the value of portfolio securities, the Fund may purchase put options on the foreign currency. If the value of the currency does decline, a Fund will have the right to sell such currency for a fixed amount in dollars and will thereby offset, in whole or in part, the adverse effect on its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which securities to be acquired are denominated is projected, thereby increasing the cost of such securities, the Fund may purchase call options thereon. The purchase of such options could offset, at least partially, the effects of the adverse movements in exchange rates. As in the case of other types of options, however, the benefit to the Fund derived from purchases of foreign currency options will be reduced by the amount of the premium and related transaction costs. In addition, where currency exchange rates do not move in the direction or to the extent anticipated, the Fund could sustain losses on transactions in foreign currency options that would require it to forego a portion or all of the benefits of advantageous changes in such rates.
Options on foreign currencies may be written for the same types of hedging purposes. For example, where a Fund anticipates a decline in the dollar value of foreign currency denominated securities due to adverse fluctuations in exchange rates, it could, instead of purchasing a put option, write a call option on the relevant currency. If the expected decline occurs, the options will most likely not be exercised, and the diminution in value of portfolio securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an anticipated increase in the dollar cost of securities to be acquired, the Fund could write a put option on the relevant currency, which, if rates move in the manner projected, will expire, unexercised and allow the Fund to hedge such increased cost up to the amount of the premium. As in the case of other types of options, however, the writing of a foreign currency option will constitute only a partial hedge up to the amount of the premium, and only if rates move in the expected direction. If this does not occur, the option may be exercised and the Fund would be required to purchase or sell the underlying currency at a loss that may not be offset by the amount of the premium. Through the writing of options on foreign currencies, the Fund also may be required to forego all or a portion of the benefits that might otherwise have been obtained from favorable movements in exchange rates.
The Funds may write covered call options on foreign currencies. A call option written on a foreign currency by a Fund is "covered" if the Fund owns the underlying foreign currency covered by the call or has an absolute and immediate right to acquire that foreign currency without additional cash consideration (or for additional cash consideration held in a segregated account by its custodian) upon conversion or exchange of other foreign currency held in its portfolio. A call option is also covered if the Fund has a call on the same foreign currency and in the same principal amount as the call written where the exercise price of the call held (a) is equal to or less than the exercise price of the call written or (b) is greater than the exercise price of the call written if the difference is maintained by the Fund in cash and liquid securities in a segregated account with its custodian.
The Funds may also write call options on foreign currencies that are not covered for cross-hedging purposes. A call option on a foreign currency is for cross-hedging purposes if it is not covered, but is designed to provide a hedge against a decline in the U.S. dollar value of a security which the Fund owns or has the right to acquire and which is denominated in the currency underlying the option due to an adverse change in the exchange rate. In such circumstances, the Fund collateralizes the option by maintaining in a segregated account with its custodian, cash or liquid securities in an amount not less than the value of the underlying foreign currency in U.S. dollars marked to market daily.
RELATED INVESTMENT POLICIES. A Fund that invests in foreign securities may write covered put and call options and purchase put and call options on foreign currencies for the purpose of protecting against declines in the dollar value of portfolio securities and against increases in the dollar cost of securities to be acquired. The Fund may use options on currency to cross-hedge, which involves writing or purchasing options on one currency to hedge against changes in exchange rates for a different, but related currency. As with other types of options, however, the writing of an option on foreign currency will constitute only a partial hedge up to the amount of the premium received, and the Fund could be required to purchase or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The purchase of an option on foreign currency may be used to hedge against fluctuations in exchange rates although, in the event of exchange rate movements adverse to the Fund's position, it may not forfeit the entire amount of the premium plus related transaction costs. In addition, the Fund may purchase call options on currency when the Sub-Advisor anticipates that the currency will appreciate in value.
There is no assurance that a liquid secondary market on an options exchange will exist for any particular option, or at any particular time. If the Fund is unable to effect a closing purchase transaction with respect to covered options it has written, the Fund will not be able to sell the underlying currency or dispose of assets held in a segregated account until the options expire. Similarly, if the Fund is unable to effect a closing sale transaction with respect to options it has purchased, it would have to exercise the options in order to realize any profit and will incur transaction costs upon the purchase or sale of underlying currency. The Fund pays brokerage commissions or spreads in connection with its options transactions.
As in the case of forward contracts, certain options on foreign currencies are traded over-the-counter and involve liquidity and credit risks that may not be present in the case of exchange-traded currency options. A Fund's ability to terminate over-the-counter options ("OTC Options") will be more limited than the exchange-traded options. It is also possible that broker-dealers participating in OTC Options transactions will not fulfill their obligations. Until such time as the staff of the SEC changes its position, the Fund will treat purchased OTC Options and assets used to cover written OTC Options as illiquid securities. With respect to options written with primary dealers in U.S. Government securities pursuant to an agreement requiring a closing purchase transaction at a formula price, the amount of illiquid securities may be calculated with reference to the repurchase formula.
FORWARD CURRENCY CONTRACTS. Because, when investing in foreign securities, a Fund buys and sells securities denominated in currencies other than the U.S. dollar and receives interest, dividends and sale proceeds in currencies other than the U.S. dollar, such Funds from time to time may enter into forward currency transactions to convert to and from different foreign currencies and to convert foreign currencies to and from the U.S. dollar. A Fund either enters into these transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market or uses forward currency contracts to purchase or sell foreign currencies.
A forward currency contract is an obligation by a Fund to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract. Forward currency contracts establish an exchange rate at a future date. These contracts are transferable in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A forward currency contract generally has no deposit requirement and is traded at a net price without commission. Each Fund maintains with its custodian a segregated account of liquid securities in an amount at least equal to its obligations under each forward currency contract. Neither spot transactions nor forward currency contracts eliminate fluctuations in the prices of the Fund's securities or in foreign exchange rates, or prevent loss if the prices of these securities should decline.
A Fund may enter into foreign currency hedging transactions in an attempt to protect against changes in foreign currency exchange rates between the trade and settlement dates of specific securities transactions or changes in foreign currency exchange rates that would adversely affect a portfolio position or an anticipated investment position. Since consideration of the prospect for currency parities will be incorporated into a Sub-Advisor's long-term investment decisions, a Fund will not routinely enter into foreign currency hedging transactions with respect to security transactions; however, the Sub-Advisors believe that it is important to have the flexibility to enter into foreign currency hedging transactions when they determine that the transactions would be in a Fund's best interest. Although these transactions tend to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time they tend to limit any potential gain that might be realized should the value of the hedged currency increase. The precise matching of the forward currency contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of such securities between the date the forward currency contract is entered into and the date it matures. The projection of currency market movements is extremely difficult, and the successful execution of a hedging strategy is highly uncertain.
While these contracts are not presently regulated by the Commodity Futures Trading Commission (the "CFTC"), the CFTC may in the future assert authority to regulate forward currency contracts. In such event the Fund's ability to utilize forward currency contracts may be restricted. Forward currency contracts may reduce the potential gain from a positive change in the relationship between the U.S. dollar and foreign currencies. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not entered into such contracts. The use of forward currency contracts may not eliminate fluctuations in the underlying U.S. dollar equivalent value of the prices of or rates of return on a Fund's foreign currency denominated portfolio securities and the use of such techniques will subject a Fund to certain risks.
The matching of the increase in value of a forward currency contract and the decline in the U.S. dollar equivalent value of the foreign currency denominated asset that is the subject of the hedge generally will not be precise. In addition, a Fund may not always be able to enter into forward currency contracts at attractive prices and this will limit the Fund's ability to use such contract to hedge or cross-hedge its assets. Also, with regard to a Fund's use of cross-hedges, there can be no assurance that historical correlations between the movements of certain foreign currencies relative to the U.S. dollar will continue. Thus, at any time poor correlation may exist between movements in the exchange rates of the foreign currencies underlying a Fund's cross-hedges and the movements in the exchange rates of the foreign currencies in which the Fund's assets that are the subject of such cross-hedges are denominated.
BORROWING AND LENDING
BORROWING. The Funds may borrow money from banks (including their custodian bank) or from other lenders to the extent permitted under applicable law, for temporary or emergency purposes and to meet redemptions and may pledge their assets to secure such borrowings. The 1940 Act requires the Funds to maintain asset coverage of at least 300% for all such borrowings, and should such asset coverage at any time fall below 300%, the Funds would be required to reduce their borrowings within three days to the extent necessary to meet the requirements of the 1940 Act. To reduce their borrowings, the Funds might be required to sell securities at a time when it would be disadvantageous to do so. In addition, because interest on money borrowed is a Fund expense that it would not otherwise incur, the Funds may have less net investment income during periods when its borrowings are substantial. The interest paid by the Funds on borrowings may be more or less than the yield on the securities purchased with borrowed funds, depending on prevailing market conditions.
A Fund will not make any borrowing that would cause its outstanding borrowings to exceed one-third of the value of its total assets. As a matter of current operating policy, each Fund (except the Large Cap Value Fund) intends to borrow money only as a temporary measure for extraordinary or emergency purposes. The Large Cap Value Fund intends to borrow money only for temporary purposes to meet redemptions or to pay dividends. These policies are not fundamental and may be changed by the Board of Trustees without shareholder approval.
LENDING. By lending its securities, a Fund can increase its income by continuing to receive interest on the loaned securities as well as by either investing the cash collateral in short-term securities or obtaining yield in the form of interest paid by the borrower when U.S. Government obligations are used as collateral. There may be risks of delay in receiving additional collateral or risks of delay in recovery of the securities or even loss of rights in the collateral should the borrower of the securities fail financially. Each Fund will adhere to the following conditions whenever its securities are loaned: (i) the Fund must receive at least 100 percent cash collateral or equivalent securities from the borrower; (ii) the borrower must increase this collateral whenever the market value of the securities including accrued interest rises above the level of the collateral; (iii) the Fund must be able to terminate the loan at any time; (iv) the Fund must receive reasonable interest on the loan, as well as any dividends, interest or other distributions on the loaned securities, and any increase in market value; (v) the Fund may pay only reasonable custodian fees in connection with the loan; and (vi) voting rights on the loaned securities may pass to the borrower; provided, however, that if a material event adversely affecting the investment occurs, the Board of Trustees must terminate the loan and regain the right to vote the securities.
As a matter of current operating policy, the Large Cap Growth Fund intends to limit the amount of loans of portfolio securities to no more than 25% of its net assets. This policy may be changed by the Board of Trustees without shareholder approval.
OTHER INVESTMENT POLICIES
SWAP AGREEMENTS. To help enhance the value of its portfolio or manage its exposure to different types of investments, the Funds may enter into interest rate, currency and mortgage swap agreements and may purchase and sell interest rate "caps," "floors" and "collars."
In a typical interest rate swap agreement, one party agrees to make regular payments equal to a floating interest rate on a specified amount (the "notional principal amount") in return for payments equal to a fixed interest rate on the same amount for a specified period. If a swap agreement provides for payment in different currencies, the parties may also agree to exchange the notional principal amount. Mortgage swap agreements are similar to interest rate swap agreements, except that notional principal amount is tied to a reference pool of mortgages. In a cap or floor, one party agrees, usually in return for a fee, to make payments under particular circumstances. For example, the purchaser of an interest rate cap has the right to receive payments to the extent a specified interest rate exceeds an agreed level; the purchaser of an interest rate floor has the right to receive payments to the extent a specified interest rate falls below an agreed level. A collar entitles the purchaser to receive payments to the extent a specified interest rate falls outside an agreed range.
Swap agreements may involve leverage and may be highly volatile. Swap agreements may have a considerable impact on a Fund's performance, depending on how they are used. Swap agreements involve risks depending upon the other party's creditworthiness and ability to perform, as judged by the Sub-Advisor, as well as the Fund's ability to terminate its swap agreements or reduce its exposure through offsetting transactions. All swap agreements are considered as illiquid securities and, therefore, will be limited, along with all of a Fund's other illiquid securities, to 15% of that Fund's net assets.
WHEN-ISSUED AND DELAYED-DELIVERY SECURITIES. To secure prices deemed advantageous at a particular time, a Fund may purchase securities on a when-issued or delayed-delivery basis, in which case delivery of the securities occurs beyond the normal settlement period; payment for or delivery of the securities would be made prior to the reciprocal delivery or payment by the other party to the transaction. A Fund will enter into when-issued or delayed-delivery transactions for the purpose of acquiring securities and not for the purpose of leverage. When-issued securities purchased by a Fund may include securities purchased on a "when, as and if issued" basis under which the issuance of the securities depends on the occurrence of a subsequent event, such as approval of a merger, corporate reorganization or debt restructuring.
Securities purchased on a when issued or delayed-delivery basis may expose a Fund to risk because the securities may experience fluctuations in value prior to their actual delivery. The Fund does not accrue income with respect to a when-issued or delayed-delivery security prior to its stated delivery date. Purchasing securities on a when-issued or delayed-delivery basis can involve the additional risk that the yield available in the market when the delivery takes place may be higher than that obtained in the transaction itself.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions by which a Fund purchases a security and simultaneously commits to resell that security to the seller at an agreed upon time and price, thereby determining the yield during the term of the agreement. In the event of a bankruptcy or other default of the seller of a repurchase agreement, a Fund could experience both delays in liquidating the underlying security and losses. To minimize these possibilities, each Fund intends to enter into repurchase agreements only with its custodian, with banks having assets in excess of $10 billion and with broker-dealers who are recognized as primary dealers in U.S. Government obligations by the Federal Reserve Bank of New York. The Funds will enter into repurchase agreements that are collateralized by U.S. Government obligations. Collateral for repurchase agreements is held in safekeeping in the customer-only account of the Funds' Custodian at the Federal Reserve Bank. At the time a Fund enters into a repurchase agreement, the value of the collateral, including accrued interest, will equal or exceed the value of the repurchase agreement and, in the case of a repurchase agreement exceeding one day, the seller agrees to maintain sufficient collateral so that the value of the underlying collateral, including accrued interest, will at all times equal or exceed the value of the repurchase agreement.
REVERSE REPURCHASE AGREEMENTS AND FORWARD ROLL TRANSACTIONS. In a reverse repurchase agreement a Fund agrees to sell portfolio securities to financial institutions such as banks and broker-dealers and to repurchase them at a mutually agreed date and price. Forward roll transactions are equivalent to reverse repurchase agreements but involve mortgage-backed securities and involve a repurchase of a substantially similar security. At the time the Fund enters into a reverse repurchase agreement or forward roll transaction it will place in a segregated custodial account cash or liquid securities having a value equal to the repurchase price, including accrued interest. Reverse repurchase agreements and forward roll transactions involve the risk that the market value of the securities sold by the Fund may decline below the repurchase price of the securities. Reverse repurchase agreements and forward roll transactions are considered to be borrowings by a Fund.
TEMPORARY INVESTMENTS. For temporary defensive purposes during periods when the Sub-Advisor believes that pursuing the Fund's basic investment strategy may be inconsistent with the best interests of its shareholders, a Fund may invest its assets without limit in the following money market instruments: securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities (including those purchased in the form of custodial receipts), repurchase agreements, certificates of deposit, master notes, time deposits and bankers' acceptances issued by banks or savings and loan associations having assets of at least $500 million as of the end of their most recent fiscal year and high quality commercial paper.
A Fund also may hold a portion of its assets in money market instruments or cash in amounts designed to pay expenses, to meet anticipated redemptions or pending investments in accordance with its objectives and policies. Any temporary investments may be purchased on a when-issued basis.
MONEY MARKET INSTRUMENTS. A Fund may invest in money market instruments. Money
market securities are high-quality, dollar-denominated, short-term instruments.
They consist of (i) bankers' acceptances, certificates of deposit, notes and
time deposits of highly-rated U.S. banks and U.S. branches of foreign banks;
(ii) U.S. Treasury obligations and obligations issued or guaranteed by agencies
and instrumentalities of the U.S. Government; (iii) high-quality commercial
paper issued by U.S. foreign corporations; (iv) debt obligations with a maturity
of one year or less issued by corporations with outstanding high-quality
commercial paper ratings; and (v) repurchase agreements involving any of the
foregoing obligations entered into with highly-rated banks and broker-dealers.
CONVERTIBLE SECURITIES. Convertible securities may offer higher income than the common stocks into which they are convertible and include fixed-income or zero coupon debt securities, which may be converted or exchanged at a stated or determinable exchange ratio into underlying shares of common stock. Prior to their conversion, convertible securities may have characteristics similar to both non-convertible debt securities and equity securities. While convertible securities generally offer lower yields than non-convertible debt securities of similar quality, their prices may reflect changes in the value of the underlying common stock. Convertible securities entail less credit risk than the issuer's common stock.
ASSET COVERAGE. To assure that a Fund's use of futures and related options, as well as when-issued and delayed-delivery transactions, forward currency contracts and swap transactions, are not used to achieve investment leverage, the Fund will cover such transactions, as required under applicable SEC interpretations, either by owning the underlying securities or by establishing a segregated account with its custodian containing liquid securities in an amount at all times equal to or exceeding the Fund's commitment with respect to these instruments or contracts.
WARRANTS AND RIGHTS. Warrants are options to purchase equity securities at a specified price and are valid for a specific time period. Rights are similar to warrants, but normally have a short duration and are distributed by the issuer to its shareholders. A Fund may purchase warrants and rights, provided that no Fund presently intends to invest more than 5% of its net assets at the time of purchase in warrants and rights other than those that have been acquired in units or attached to other securities.
SHORT-TERM TRADING. Short-term trading involves the selling of securities held for a short time, ranging from several months to less than a day. The object of such short-term trading is to increase the potential for capital appreciation and/or income of the Fund in order to take advantage of what the Sub-Advisor believes are changes in market, industry or individual company conditions or outlook. Any such trading would increase the turnover rate of a Fund and its transaction costs.
DERIVATIVES. A Fund may invest in various instruments that are commonly known as derivatives. Generally, a derivative is a financial arrangement, the value of which is based on, or "derived" from, a traditional security, asset, or market index. Some "derivatives" such as certain mortgage-related and other asset-backed securities are in many respects like any other investment, although they may be more volatile or less liquid than more traditional debt securities. There are, in fact, many different types of derivatives and many different ways to use them. There is a range of risks associated with those uses. Futures and options are commonly used for traditional hedging purposes to attempt to protect a Fund from exposure to changing interest rates, securities prices, or currency exchange rates and as a low cost method of gaining exposure to a particular securities market without investing directly in those securities. However, some derivatives are used for leverage, which tends to magnify the effects of an instrument's price changes as market conditions change. Leverage involves the use of a small amount of money to control a large amount of financial assets, and can in some circumstances, lead to significant losses. A Sub-Advisor will use derivatives only in circumstances where the Sub-Advisor believes they offer the most economic means of improving the risk/reward profile of the Fund. Derivatives will not be used to increase portfolio risk above the level that could be achieved using only traditional investment securities or to acquire exposure to changes in the value of assets or indexes that by themselves would not be purchased for the Fund. The use of derivatives for non-hedging purposes may be considered speculative.
INITIAL PUBLIC OFFERINGS ("IPOS"). The Mid Cap Growth Fund, Micro Cap Growth Fund, Growth Opportunities Fund, Large Cap Value Fund and Diversified Small Cap Growth Fund may invest in IPOs. An IPO presents the risk that the market value of IPO shares will fluctuate considerably due to factors such as the absence of a prior public market, unseasoned trading, the small number of shares available for trading and limited information about the issuer. The purchase of IPO shares may involve high transactions costs. IPO shares are subject to market risk and liquidity risk. When a Fund's asset base is small, a significant portion of the Fund's performance could be attributable to investments in IPOs, because such investments would have a magnified impact on the Fund. As the Fund's assets grow, the effect of the Fund's investments in IPOs on the Fund's performance probably will decline, which could reduce the Fund's performance. Because of the price volatility of IPO shares, a Fund may choose to hold IPO shares for a very short period of time. This may increase the turnover of a Fund and may lead to increased expenses to the Fund, such as commissions and transaction costs. By selling IPO shares, the Fund may realize taxable gains it will subsequently distribute to shareholders. In addition, the market for IPO shares can be speculative and/or inactive for extended periods of time. There is no assurance that the Fund will be able to obtain allocable portions of IPO shares. The limited number of shares available for trading in some IPOs may make it more difficult for the Fund to buy or sell significant amounts of shares without an unfavorable impact on prevailing prices. Investors in IPO shares can be affected by substantial dilution in the value of their shares, by sales of additional shares and by concentration of control in existing management and principal shareholders.
The Fund's investments in IPO shares may include the securities of "unseasoned" companies (companies with less than three years of continuous operations), which present risks considerably greater than common stocks of more established companies. These companies may have limited operating histories and their prospects for profitability may be uncertain. These companies may be involved in new and evolving businesses and may be vulnerable to competition and changes in technology, markets and economic conditions. They may be more dependent on key managers and third parties and may have limited products.
MICRO CAP SECURITIES. The Micro Cap Growth Fund, the Large Cap Value Fund and the Growth Opportunities Fund may invest in companies whose total market capitalization at the time of investment is generally between $30 million and $500 million, referred to as micro cap companies. Micro cap companies may not be well-known to the investing public, may not have significant institutional ownership and may have cyclical, static or only moderate growth prospects. Micro cap companies may have greater risk and volatility than large companies and may lack the management depth of larger, mature issuers. Micro cap companies may have relatively small revenues and limited product lines, markets, or financial resources, and their securities may trade less frequently and in more limited volume than those of larger, more mature companies. In addition, micro cap companies may be developing or marketing new products or services for which markets are not yet established and may never become established. As a result, the prices of their securities may fluctuate more than those of larger issuers.
SECURITIES OF OTHER INVESTMENT COMPANIES. A Fund may invest in shares of other investment companies to the extent permitted by the 1940 Act. The Advisor has received an exemptive order from the SEC that permits each Fund to invest its uninvested cash or cash collateral in one or more affiliated money market funds. Each Fund may invest up to 25% of its assets in affiliated money market funds, subject to its investment limitations and certain other conditions pursuant to the exemptive order.
MAJORITY. As used in this SAI, the term "majority" of the outstanding shares of the Trust (or of any Fund) means the lesser of (1) 67% or more of the outstanding shares of the Trust (or the applicable Fund) present at a meeting, if the holders of more than 50% of the outstanding shares of the Trust (or the applicable Fund) are present or represented at such meeting, or (2) more than 50% of the outstanding shares of the Trust (or the applicable Fund).
RATING SERVICES. The ratings of nationally recognized statistical rating organizations represent their opinions as to the quality of the securities that they undertake to rate. It should be emphasized, however, that ratings are relative and subjective and are not absolute standards of quality. Although these ratings are an initial criterion for selection of portfolio investments, each Sub-Advisor also makes its own evaluation of these securities, subject to review by the Board of Trustees of the Trust. After purchase by a Fund, an obligation may cease to be rated or its rating may be reduced below the minimum required for purchase by the Fund. Neither event would require a Fund to eliminate the obligation from its portfolio, but a Sub-Advisor will consider such an event in its determination of whether a Fund should continue to hold the obligation. A description of the ratings used herein and in the Funds' Prospectuses is set forth in the Appendix to this SAI.
FUNDAMENTAL LIMITATIONS. The Trust has adopted certain fundamental investment limitations designed to reduce the risk of an investment in the Funds. These limitations may not be changed with respect to any Fund without the affirmative vote of a majority of the outstanding shares of that Fund. The vote of a majority of the outstanding shares means the vote of the lesser of (1) 67% or more of the shares present or represented by proxy at the meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy, or (2) more than 50% of the outstanding shares.
THE FUNDAMENTAL LIMITATIONS FOR THE FUNDS ARE:
1. BORROWING MONEY. The Funds may not engage in borrowing except as permitted by the Investment Company Act of 1940, any rule, regulation or order under the Act or any SEC staff interpretation of the Act.
2. UNDERWRITING. The Funds may not underwrite securities issued by other persons, except to the extent that, in connection with the sale or disposition of portfolio securities, a Fund may be deemed to be an underwriter under certain federal securities laws or in connection with investments in other investment companies.
3. LOANS. The Funds may not make loans to other persons except that a Fund
may (1) engage in repurchase agreements, (2) lend portfolio securities,
(3) purchase debt securities, (4) purchase commercial paper, and (5) enter
into any other lending arrangement permitted by the Investment Company Act
of 1940, any rule, regulation or order under the Act or any SEC staff
interpretation of the Act.
4. REAL ESTATE. The Funds may not purchase or sell real estate except that a Fund may (1) hold and sell real estate acquired as a result of the Fund's ownership of securities or other instruments (2) purchase or sell securities or other instruments backed by real estate or interests in real estate and (3) purchase or sell securities of entities or investment vehicles, including real estate investment trusts that invest, deal or otherwise engage in transactions in real estate or interests in real estate.
5. COMMODITIES. The Funds may not purchase or sell physical commodities except that a Fund may (1) hold and sell physical commodities acquired as a result of the Fund's ownership of securities or other instruments, (2) purchase or sell securities or other instruments backed by physical commodities, (3) purchase or sell options, and (4) purchase or sell futures contracts.
6. CONCENTRATION OF INVESTMENTS. The Funds may not purchase the securities of an issuer (other than securities issued or guaranteed by the United States Government, its agencies or its instrumentalities) if, as a result, more than 25% of the Fund's total assets would be invested in the securities of companies whose principal business activities are in the same industry.
7. SENIOR SECURITIES. The Funds may not issue senior securities except as permitted by the Investment Company Act of 1940, any rule, regulation or order under the Act or any SEC staff interpretation of the Act.
NONFUNDAMENTAL LIMITATIONS. The Trust, on behalf of each Fund, has adopted the following nonfundamental investment limitations as a matter of "operating policy." These limitations may be changed by the Board of Trustees without shareholder vote.
THE NONFUNDAMENTAL INVESTMENT LIMITATIONS FOR THE LARGE CAP CORE EQUITY FUND ARE:
1. BORROWING MONEY. The Fund will not borrow money (including through reverse repurchase agreements or forward roll transactions involving mortgage-backed securities or similar investment techniques entered into for leveraging purposes), except that the Fund may borrow for temporary or emergency purposes up to 10% of its total assets; provided, however, the Fund may not purchase any security while outstanding borrowings exceed 5%.
2. PLEDGING. The Fund will not pledge, mortgage or hypothecate for any purpose in excess of 10% of its total assets (taken at market value), provided that collateral arrangements with respect to options and futures, including deposits of initial deposit and variation margin, and reverse repurchase agreements are not considered a pledge of assets for purposes of this restriction.
3. MARGIN PURCHASES. The Fund will not purchase any security or evidence of interest therein on margin, except that such short-term credit as may be necessary for the clearance of purchases and sales of securities may be obtained and except that deposits of initial deposit and variation margin may be made in connection with the purchase, ownership, holding or sale of futures.
4. SELLING SECURITIES. The Fund will not sell any security which it does not own unless by virtue of its ownership of other securities it has at the time of sale a right to obtain securities, without payment of further consideration, equivalent in kind and amount to the securities sold and provided that if such right is conditional the sale is made upon the same conditions.
5. INVESTING FOR CONTROL. The Fund will not invest for the purpose of exercising control or management.
6. ILLIQUID SECURITIES. The Fund will not invest more than 15% of its net assets (taken at the greater of cost or market value) in securities that are illiquid or not readily marketable (defined as a security that cannot be sold in the ordinary course of business within seven days at approximately the value at which the Fund has valued the security) not including (a) Rule 144A securities that have been determined to be liquid by the Board of Trustees; and (b) commercial paper that is sold under section 4(2) of the 1933 Act which is not traded flat or in default as to interest or principal and either (i) is rated in one of the two highest categories by at least two nationally recognized statistical rating organizations and the Fund's Board of Trustees has determined the commercial paper to be liquid; or (ii) is rated in one of the two highest categories by one nationally recognized statistical rating agency and the Fund's Board of Trustees has determined that the commercial paper is equivalent quality and is liquid.
7. RESTRICTED SECURITIES. The Fund will not invest more than 10% of its total assets in securities that are restricted from being sold to the public without registration under the 1933 Act (other than Rule 144A securities deemed liquid by the Fund's Board of Trustees).
8. SECURITIES OF ONE ISSUER. The Fund will not purchase securities of any issuer if such purchase at the time thereof would cause the Fund to hold more than 10% of any class of securities of such issuer, for which purposes all indebtedness of an issuer shall be deemed a single class and all preferred stock of an issuer shall be deemed a single class, except that futures or option contracts shall not be subject to this restriction.
9. SHORT SALES. The Fund will not make short sales of securities or maintain a short position, unless at all times when a short position is open it owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue and equal in amount to, the securities sold short, and unless not more than 10% of the Fund's net assets (taken at market value) is represented by such securities, or securities convertible into or exchangeable for such securities, at any one time (the Fund has no current intention to engage in short selling).
10. PURCHASE OF PUTS AND CALLS. The Fund will not purchase puts, calls, straddles, spreads and any combination thereof if by reason thereof the value of the Fund's aggregate investment in such classes of securities will exceed 5% of its total assets.
11. WRITING OF PUTS AND CALLS. The Fund will not write puts and calls on securities unless each of the following conditions are met: (a) the security underlying the put or call is within the investment policies of the Fund and the option is issued by the OCC, except for put and call options issued by non-U.S. entities or listed on non-U.S. securities or commodities exchanges; (b) the aggregate value of the obligations underlying the puts determined as of the date the options are sold shall not exceed 50% of the Fund's net assets; (c) the securities subject to the exercise of the call written by the Fund must be owned by the Fund at the time the call is sold and must continue to be owned by the Fund until the call has been exercised, has lapsed, or the Fund has purchased a closing call, and such purchase has been confirmed, thereby extinguishing the Fund's obligation to deliver securities pursuant to the call it has sold; and (d) at the time a put is written, the Fund establishes a segregated account with its custodian consisting of cash or liquid securities equal in value to the amount the Fund will be obligated to pay upon exercise of the put (this account must be maintained until the put is exercised, has expired, or the Fund has purchased a closing put, which is a put of the same series as the one previously written).
12. PUTS AND CALLS ON FUTURES. The Fund will not buy and sell puts and calls on securities, stock index futures or options on stock index futures, or financial futures or options on financial futures unless such options are written by other persons and: (a) the options or futures are offered through the facilities of a national securities association or are listed on a national securities or commodities exchange, except for put and call options issued by non-U.S. entities or listed on non-U.S. securities or commodities exchanges; (b) the aggregate premiums paid on all such options which are held at any time do not exceed 20% of the Fund's total net assets; and (c) the aggregate margin deposits required on all such futures or options thereon held at any time do not exceed 5% of the Fund's total assets.
THE NONFUNDAMENTAL INVESTMENT LIMITATION FOR THE MID CAP GROWTH FUND IS:
1. BORROWING MONEY. The Fund intends to borrow money only as a temporary measure for extraordinary or emergency purposes. In addition, the Fund may engage in reverse repurchase agreements, forward roll transactions involving mortgage-backed securities or other investment techniques entered into for the purpose of leverage.
THE NONFUNDAMENTAL INVESTMENT LIMITATIONS FOR THE GROWTH OPPORTUNITIES FUND ARE:
1. ILLIQUID INVESTMENTS. The Fund will not purchase securities for which there are legal or contractual restrictions on resale or for which no readily available market exists (or engage in a repurchase agreement maturing in more than seven days) if, as a result thereof, more than 15% of the value of its net assets would be invested in such securities.
2. MARGIN PURCHASES. The Fund will not purchase securities or evidences of interest thereon on "margin." This limitation is not applicable to short-term credit obtained by the Fund for the clearance of purchases and sales or redemption of securities or to the extent necessary to engage in transactions described in the Prospectus and Statement of Additional Information involving margin purchases.
3. SHORT SALES. The Fund will not make short sales of securities.
NONFUNDAMENTAL 80% INVESTMENT POLICIES. Certain Funds have adopted nonfundamental 80% investment policies that may be changed by the Board of Trustees without shareholder approval. Shareholders will be provided with at least 60 days' prior notice of any change in a Fund's nonfundamental 80% investment 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.
THE NONFUNDAMENTAL 80% INVESTMENT POLICIES FOR THE LARGE CAP GROWTH FUND, MICRO CAP GROWTH FUND, LARGE CAP CORE EQUITY FUND, MID CAP GROWTH FUND, LARGE CAP VALUE FUND AND DIVERSIFIED SMALL CAP GROWTH FUND ARE:
1. LARGE CAP GROWTH FUND 80% INVESTMENT POLICY. Under normal circumstances, the Fund will invest at least 80% of its assets (defined as net assets plus the amount of any borrowing for investment purposes) in common stocks of large cap companies.
2. MICRO CAP GROWTH FUND 80% INVESTMENT POLICY. Under normal circumstances, the Fund will invest at least 80% of its assets (defined as net assets plus the amount of any borrowing for investment purposes) in the common stocks of U.S. companies whose total market capitalization at the time of investment is generally between $30 million and $500 million, referred to as micro cap companies, and which, in the opinion of the Sub-Advisor, have superior earnings growth characteristics.
3. LARGE CAP CORE EQUITY FUND 80% INVESTMENT POLICY. Under normal circumstances, the Fund will invest at least 80% of its assets (defined as net assets plus the amount of any borrowing for investment purposes) in common stocks of large cap companies.
4. MID CAP GROWTH FUND 80% INVESTMENT POLICY. Under normal circumstances, the Fund will invest at least 80% of its assets (defined as net assets plus the amount of any borrowing for investment purposes) in common stocks of mid cap companies.
5. LARGE CAP VALUE FUND 80% INVESTMENT POLICY. Under normal circumstances, the Fund will invest at least 80% of its assets (defined as net assets plus the amount of any borrowing for investment purposes) in common stocks of large cap companies.
6. DIVERSIFIED SMALL CAP GROWTH FUND 80% INVESTMENT POLICY. Under normal circumstances, the Fund will invest at least 80% of its assets (defined as net assets plus the amount of any borrowing for investment purposes) in common stocks of small cap companies. A small cap company has a market capitalization of less than $2.5 billion.
With respect to the percentages adopted by the Trust as maximum limitations on the Funds' investment policies and restrictions, an excess above the fixed percentage (except for the percentage limitations relative to the borrowing of money or investing in illiquid securities) will not be a violation of the policy or restriction unless the excess results immediately and directly from the acquisition of any security or the action taken.
The following is a list of the Trustees and executive officers of the Trust, the length of time served, principal occupations for the past 5 years, number of funds overseen in the Touchstone Fund Complex and other directorships held. All funds managed by the Advisor are part of the "Touchstone Fund Complex." The Touchstone Fund Complex consists of the Trust, Touchstone Investment Trust, Touchstone Tax-Free Trust, Touchstone Variable Series Trust, Touchstone Funds Group Trust and Touchstone Institutional Funds Trust (formerly Constellation Institutional Portfolios). The Trustees who are not interested persons of the Trust, as defined in the 1940 Act, are referred to as "Independent Trustees."
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INTERESTED
TRUSTEES(1):
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NAME POSITION TERM OF PRINCIPAL OCCUPATION(S) DURING NUMBER OF OTHER
ADDRESS HELD WITH OFFICE PAST 5 YEARS FUNDS DIRECTORSHIPS
YEAR OF TRUST AND OVERSEEN HELD(4)
BIRTH LENGTH IN THE
OF TIME TOUCHSTONE
SERVED(2) FUND
COMPLEX(3)
------------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder Trustee and Until Senior Vice President of The Western and 41 Director of
Touchstone President retirement Southern Life Insurance Company. LaRosa's (a
Advisors, Inc at age 75 President, CEO and a director of IFS restaurant
303 Broadway or until Financial Services, Inc. (a holding chain).
Cincinnati, OH she company). She is a director of Capital
Year of Birth: 1955 resigns or Analysts Incorporated (an investment
is removed advisor and broker-dealer), IFS Fund
Distributors, Inc. (a broker-dealer),
Trustee Touchstone Advisors, Inc. (the Trust's
since 1999 investment advisor and administrator), W&S
Financial Group Distributors, Inc. (an
annuity distributor) and Touchstone
Securities, Inc. (the Trust's
distributor). She is also President and a
director of IFS Systems, Inc. She is
Senior Vice President and a director of W&S
Brokerage Services, Inc. (a broker-dealer).
She is President and Chief Executive
Officer of Integrity Life Insurance Company
and National Integrity Life Insurance
Company. She is President of Touchstone
Tax-Free Trust, Touchstone Investment
Trust, Touchstone Variable Series Trust,
Touchstone Strategic Trust, Touchstone
Funds Group Trust and Touchstone
Institutional Funds Trust. She was
President of Touchstone Advisors, Inc., and
Touchstone Securities, Inc. until 2004.
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INDEPENDENT
TRUSTEES:
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NAME POSITION TERM OF PRINCIPAL OCCUPATION(S) DURING NUMBER OF OTHER
ADDRESS HELD WITH OFFICE PAST 5 YEARS FUNDS DIRECTORSHIPS
YEAR OF TRUST AND OVERSEEN HELD(4)
BIRTH LENGTH IN THE
OF TIME TOUCHSTONE
SERVED(2) FUND
COMPLEX(3)
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Phillip R. Cox Trustee Until President and Chief Executive Officer of 41 Director of
105 East Fourth Street retirement Cox Financial Corp. (a financial services Duke Energy (a
Cincinnati, OH at age 75 company). utility
Year of Birth: 1947 or until company)
he resigns
or is
removed
Trustee
since 1999
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H. Jerome Lerner Trustee Until Principal of HJL Enterprises (a privately 41 None
c/o Touchstone retirement held investment company).
Advisors, Inc. at age 75
303 Broadway or until
Cincinnati, OH he resigns
Year of Birth: 1938 or is
removed
Trustee
since 1989
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Donald C. Siekmann Trustee Until Executive for Duro Bag Manufacturing Co. (a 41 None
c/o Touchstone retirement bag manufacturer); President of Shor
Advisors, Inc. at age 75 Foundation for Epilepsy Research (a
303 Broadway or until charitable foundation); Trustee of
Cincinnati, OH he resigns Riverfront Funds (mutual funds) from 1999 -
Year of Birth: 1938 or is 2004.
removed
Trustee
since 2005
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Robert E. Stautberg Trustee Until Retired Partner of KPMG LLP (a certified 41 Trustee of
c/o Touchstone retirement public accounting firm). He is Vice Tri-Health
Advisors, Inc. at age 75 President of St. Xavier High School. Physician
303 Broadway or until Enterprise
Cincinnati, OH he resigns Corporation.
Year of Birth: 1934 or is
removed
Trustee
since 1999
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John P. Zanotti Trustee Until CEO, Chairman and Director of Avaton, Inc. 41 Director of
c/o Touchstone retirement (a wireless entertainment company) until QMed (a health
Advisors, Inc. at age 75 2006. President of Cincinnati Biomedical care
303 Broadway or until (a life science and economic development management
Cincinnati, OH he resigns company). company).
Year of Birth: 1948 or is
removed
Trustee
since 2002
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(1) Ms. McGruder, as a director of the Advisor and the Distributor, and an officer of affiliates of the Advisor and the 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 until he or she sooner resigns or is removed.
(3) The Touchstone Fund Complex consists of 7 series of the Trust, 4 series of Touchstone Tax-Free Trust, 5 series of Touchstone Investment Trust, 11 variable annuity series of Touchstone Variable Series Trust, 10 series of Touchstone Funds Group Trust and 4 series of Touchstone Institutional Funds Trust.
(4) Each Trustee is also a Trustee of Touchstone Tax-Free Trust, Touchstone Investment Trust, Touchstone Variable Series Trust, Touchstone Funds Group Trust and Touchstone Institutional Funds Trust.
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PRINCIPAL
OFFICERS:
------------------------------------------------------------------------------------------------------------
NAME POSITION TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) DURING
ADDRESS HELD WITH TRUST(1) LENGTH OF TIME PAST 5 YEARS
YEAR OF BIRTH SERVED
------------------------------------------------------------------------------------------------------------
Jill T. McGruder President Until resignation, See biography above.
Touchstone removal or
Advisors, Inc. disqualification
303 Broadway
Cincinnati, OH President since
Year of Birth: 1955 2004; President
from 2000-2002
------------------------------------------------------------------------------------------------------------
Brian E. Hirsch Vice President and Until resignation, Senior Vice
Touchstone Chief Compliance removal or President-Compliance of IFS
Advisors, Inc. Officer disqualification Financial Services, Inc.,
303 Broadway Director of Compliance of W&S
Cincinnati, OH Vice President Brokerage Services, Inc.
Year of Birth: 1956 since 2003
------------------------------------------------------------------------------------------------------------
William A. Dent Vice President Until resignation, Senior Vice President of
Touchstone removal or Touchstone Advisors, Inc.;
Advisors, Inc. disqualification Marketing Director of
303 Broadway Promontory Interfinancial
Cincinnati, OH Vice President Network from 2002-2003.
Year of Birth: 1963 since 2004
------------------------------------------------------------------------------------------------------------
Gregory A. Harris Vice President Until resignation, Vice President-Fund
Touchstone Advisors, Inc. removal or Administration of Touchstone
303 Broadway disqualification Investments; Managing
Cincinnati, OH Director, Fund Project
Year of Birth: 1968 Vice President Services, Inc. 1998 - 2007.
since 2007
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Terrie A. Wiedenheft Controller Until resignation, Senior Vice President, Chief
Touchstone and Treasurer removal or Financial Officer and
Advisors, Inc. disqualification Treasurer of IFS Fund
303 Broadway Distributors, Inc.; Senior
Cincinnati, OH Controller since Vice President and Chief
Year of Birth: 1962 2000 Financial Officer of W & S
Brokerage Services, Inc.;
Treasurer since 2003 Chief Financial Officer of IFS
Financial Services, Inc.,
Touchstone Advisors, Inc. and
Touchstone Securities, Inc.;
Senior Vice President and
Chief Financial Officer of
Fort Washington Investment
Advisors, Inc. Vice-President
and Treasurer of IIS Broadway
Corp. She served as Senior
Vice President, Chief
Financial Officer and
Treasurer of Integrated
Investment Services, Inc. up
to April 2007.
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Jay S. Fitton Secretary Until resignation, Assistant Vice President and
JPMorgan. removal or Senior Counsel at JPMorgan
303 Broadway disqualification Chase Bank, N.A.
Cincinnati, OH
Year of Birth: 1970 Secretary since
2006. Assistant
Secretary from
2002 - 2006
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(1) Each officer also holds the same office with Touchstone Investment Trust, Touchstone Tax-Free Trust, Touchstone Variable Series Trust, Touchstone Funds Group Trust and Touchstone Institutional Funds Trust.
(2) The Touchstone Fund Complex consists of 7 series of the Trust, 4 series of Touchstone Tax-Free Trust, 5 series of Touchstone Investment Trust, 11 variable annuity series of Touchstone Variable Series Trust, 10 series of Touchstone Funds Group Trust and 4 series of Touchstone Institutional Funds Trust.
TRUSTEE OWNERSHIP IN THE TOUCHSTONE FUNDS
The following table reflects the Trustees' beneficial ownership in the Funds* and the Touchstone Fund Complex as of December 31, 2007.
DOLLAR RANGE OF DOLLAR RANGE OF DOLLAR RANGE OF DOLLAR RANGE OF
EQUITY SECURITIES IN EQUITY SECURITIES IN EQUITY SECURITIES IN EQUITY SECURITIES IN
THE LARGE CAP GROWTH THE LARGE CAP CORE THE GROWTH THE MID CAP
FUND EQUITY FUND OPPORTUNITIES FUND GROWTH FUND
------------------------------------------------------------------------------------------
Phillip R. Cox None None None $10,001 - $50,000
H. Jerome Lerner None None None None
Jill T. McGruder $50,001 - $100,000 $50,001 - $100,000 $10,001 - $50,000 $50,001 - $100,000
Donald C. Siekmann Over $100,000 None None Over $100,000
Robert E. Stautberg $50,001 - $100,000 None None $50,001 - $100,000
John P. Zanotti $10,001 - $50,000 $10,001 - $50,000 $1 - $10,000 $1 - $10,000
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DOLLAR RANGE OF AGGREGATE DOLLAR
EQUITY SECURITIES IN RANGE OF EQUITY
THE LARGE CAP SECURITIES IN THE
VALUE FUND TOUCHSTONE FUND
Complex(1)
------------------------------------------
Phillip R. Cox None $10,001 - $50,000
H. Jerome Lerner None Over $100,000
Jill T. McGruder $1 - $10,000 Over $100,000
Donald C. Siekmann None Over $100,000
Robert E. Stautberg None Over $100,000
John P. Zanotti None $50,001 - $100,000
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* The Trustees did not have any beneficial interest in the Diversified Small Cap Growth Fund or the Micro Cap Growth Fund.
(1) The Touchstone Fund Complex consists of 7 series of the Trust, 4 series of Touchstone Tax-Free Trust, 5 series of Touchstone Investment Trust, 10 series of Touchstone Funds Group Trust, 4 series of Touchstone Institutional Funds Trust and 11 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 Fund Complex during the fiscal year ended March 31, 2008.
AGGREGATE COMPENSATION
COMPENSATION FROM THE TOUCHSTONE FUND
NAME FROM TRUST(1) COMPLEX(1,2)
---- ------------- ------------
Philip R. Cox $11,458 $68,750
H. Jerome Lerner $12,708 $76,250
Jill T. McGruder None None
Donald C. Siekmann $10,708 $64,250
Robert E. Stautberg $12,041 $72,250
John P. Zanotti $7,958 $47,750
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(1) 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, 2008 is as follows:
Robert E. Stautberg - $20,000.
(2) The Touchstone Fund Complex consists of 7 series of the Trust, 4 series of Touchstone Tax-Free Trust, 5 series of Touchstone Investment Trust, 10 series of Touchstone Funds Group Trust, 4 series of Touchstone Institutional Funds Trust and 11 variable annuity series of Touchstone Variable Series Trust.
Each Independent Trustee receives a quarterly retainer of $9,500 and a fee of $4,500 for each Board meeting attended in person and $1,500 for attendance by telephone. Each Committee member receives a fee of $2,250 for each committee meeting attended in person and $1,500 for attendance by telephone. The lead Trustee receives an additional $3,000 quarterly retainer. The Committee Chairmen receive an additional $1,500 - $2,000 quarterly retainer, depending on the committee. All fees are split equally among the Trusts comprising the Touchstone Fund Complex.
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. Siekmann 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, 2008, the Audit Committee held four meetings.
GOVERNANCE COMMITTEE. Messrs. Cox, Lerner and Zanotti are members of the Governance Committee. The Governance Committee is responsible for overseeing the Trust's compliance program and compliance issues, procedures for valuing securities and responding to any pricing issues. During the fiscal year ended March 31, 2008, the Governance Committee held four meetings.
In addition, the Governance Committee is responsible for recommending candidates to serve on the Board. The Governance Committee will consider shareholder recommendations for nomination to the Board only in the event that there is a vacancy on the Board. Shareholders who wish to submit recommendations for nominations to the Board to fill the vacancy must submit their recommendations in writing to John P. Zanotti, Chairman of the Governance Committee, c/o Touchstone, 303 Broadway, Suite 1100, Cincinnati, OH 45202. Shareholders should include appropriate information on the background and qualifications of any person recommended to the Governance Committee (e.g., a resume), as well as the candidate's contact information and a written consent from the candidate to serve if nominated and elected. Shareholder recommendations for nominations to the Board will be accepted on an ongoing basis and such recommendations will be kept on file for consideration in the event of a future vacancy on the Board.
INVESTMENT ADVISOR. Touchstone Advisors, Inc. (the "Advisor"), is the Funds' investment manager and administrator. 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 she is a Director of the Advisor and an officer of affiliates of the Advisor. Ms. McGruder, by reason of such affiliations, may directly or indirectly receive benefits from the advisory fees paid to the Advisor.
INVESTMENT ADVISORY AGREEMENT. Under the terms of the investment advisory agreement between the Trust and the Advisor, the Advisor appoints and supervises each Sub-Advisor, reviews and evaluates the performance of the Sub-Advisors and determines whether or not a Sub-Advisor should be replaced. The Advisor furnishes at its own expense all facilities and personnel necessary in connection with providing these services. Each Fund pays the Advisor a fee computed and accrued daily and paid monthly at an annual rate as shown below:
Mid Cap Growth Fund 0.80%
Large Cap Core Equity Fund 0.65% on the first $100 million
0.60% from $100 million to $200 million
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0.55% from $200 million to $300 million
0.50% thereafter
Large Cap Growth Fund 0.75% on the first $200 million
0.70% from $200 million to $1 billion
0.65% thereafter
Growth Opportunities Fund 1.00% on the first $50 million
0.90% from $50 million to $100 million
0.80% from $100 million to $1 billion
0.75% thereafter
Micro Cap Growth Fund 1.25%
Large Cap Value Fund 0.75%
Diversified Small Cap 1.05%
Growth Fund
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Each Fund shall pay the expenses of its operation, including but not limited to
(i) charges and expenses of outside pricing services, (ii) the charges and
expenses of auditors; (iii) the charges and expenses of its custodian, transfer
agent and administrative agent appointed by the Trust with respect to a Fund;
(iv) brokers' commissions, and issue and transfer taxes chargeable to a Fund in
connection with securities transactions to which a Fund is a party; (v)
insurance premiums, interest charges, dues and fees for membership in trade
associations and all taxes and fees payable to federal, state or other
governmental agencies; (vi) fees and expenses involved in registering and
maintaining registrations of the Funds with the SEC, state or blue sky
securities agencies and foreign countries; (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 the Independent Trustees of the
Trust; (x) compliance fees and expenses; and (xi) interest on borrowed money, if
any. The compensation and expenses of any officer, Trustee or employee of the
Trust who is an affiliated person of the Advisor is paid by the Advisor.
By its terms, the Funds' investment advisory agreement will remain in force for an initial period of two years and from year to year thereafter, subject to annual approval by (a) the Board of Trustees or (b) a vote of the majority of a Fund's outstanding voting securities; provided that in either event continuance is also approved by a majority of the Independent Trustees, by a vote cast in person at a meeting called for the purpose of voting such approval. The Funds' investment advisory agreement may be terminated at any time, on sixty days' written notice, without the payment of any penalty, by the Board of Trustees, by a vote of a majority of a Fund's outstanding voting securities, or by the Advisor. The investment advisory agreement automatically terminates in the event of its assignment, as defined by the 1940 Act and the rules thereunder.
EXPENSE LIMITATION AGREEMENT. Pursuant to an Expense Limitation Agreement between the Advisor and the Trust, the Advisor has agreed to waive advisory fees and/or reimburse expenses in order to limit the Funds' net expenses as follows:
--------------------------------------------------------------------------------
LARGE CAP GROWTH FUND 1.25% for Class A shares
--------------------------------------------------------------------------------
2.00% for Class B shares
--------------------------------------------------------------------------------
2.00% for Class C shares
--------------------------------------------------------------------------------
0.99% for Class Y shares
--------------------------------------------------------------------------------
MID CAP GROWTH FUND 1.50% for Class A shares
--------------------------------------------------------------------------------
2.25% for Class B shares
--------------------------------------------------------------------------------
2.25% for Class C shares
--------------------------------------------------------------------------------
LARGE CAP CORE EQUITY FUND 1.15% for Class A shares
--------------------------------------------------------------------------------
1.90% for Class C shares
--------------------------------------------------------------------------------
MICRO CAP GROWTH FUND 1.58% for Class A shares
--------------------------------------------------------------------------------
2.33% for Class C shares
--------------------------------------------------------------------------------
1.33% for Class Y shares
--------------------------------------------------------------------------------
LARGE CAP VALUE FUND 1.35% for Class A shares
--------------------------------------------------------------------------------
2.10% for Class C shares
--------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND 1.55% for Class A shares
--------------------------------------------------------------------------------
2.30% for Class B shares
--------------------------------------------------------------------------------
2.30% for Class C shares
--------------------------------------------------------------------------------
DIVERSIFIED SMALL CAP GROWTH FUND 1.40% for Class A shares
--------------------------------------------------------------------------------
2.15% for Class C shares
--------------------------------------------------------------------------------
1.15% for Class Y shares
--------------------------------------------------------------------------------
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These fee waivers and expense limitations will remain in effect until at least July 31, 2009, except for the share classes of the Micro Cap Growth Fund which will remain in effect until at least March 31, 2009.
SPONSOR AGREEMENT. Prior to January 1, 2007, the Advisor and the Trust entered into a Sponsor Agreement on behalf of all Funds except the Large Cap Growth Fund and the Growth Opportunities Fund. Under the Sponsor Agreement, the Advisor provided certain management support and administrative oversight services to the Funds in exchange for payment of a sponsor fee of 0.20% of a Fund's average daily net assets. The Sponsor Agreement also provided that the Advisor would waive a portion of its fees and/or reimburse Fund expenses in order to limit a Fund's net operating expenses to the amounts stated in the Sponsor Agreement. On January 1, 2007, the Sponsor Agreement was terminated and the Funds are no longer subject to any sponsor fees. The expense limitations contained in the Sponsor Agreement are now provided in the Expense Limitation Agreement.
ADVISORY FEES, SPONSOR FEES AND FEE WAIVERS. Set forth below are the advisory and sponsor fees incurred by the Funds during the last three fiscal periods. The Advisor has contractually agreed to waive fees and reimburse certain expenses, as indicated in the footnotes below:
FOR THE FOR THE FOR THE
YEAR YEAR YEAR
ADVISORY FEES ENDED ENDED ENDED
03/31/08 03/31/07 03/31/06
-------- -------- --------
Mid Cap Growth Fund(1) $9,248,908 $8,436,781 $7,640,242
Growth Opportunities Fund(2) $488,853 $705,662 $1,053,963
Large Cap Core Equity Fund(3) $653,058 $474,047 $130,011
Micro Cap Growth Fund(4) $754,844 $1,029,804 $831,824
Large Cap Value Fund(5) $348,118 $204,009 $5,781
Large Cap Growth Fund(6) $7,064,421 $7,703,319 $5,021,672
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FOR THE
YEAR
ENDED FOR THE PERIOD
03/31/08 09/06/06 - 3/31/07
-------- ------------------
Diversified Small Cap Growth Fund(7) $181,305 $65,039
FOR THE FOR THE
YEAR YEAR
SPONSOR FEES ENDED ENDED
03/31/07 03/31/06
-------- --------
Mid Cap Growth Fund(1) $1,555,989 $1,910,078
Large Cap Core Equity Fund(3) $95,624 $40,002
Micro Cap Growth Fund(4) $ 127,496 $133,093
Large Cap Value Fund(5) $34,389 $1,542
FOR THE PERIOD
09/06/06-3/31/07
----------------
Diversified Small Cap Growth Fund(7) $6,767
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(1) Pursuant to a Sponsor Agreement and/or an Expense Limitation Agreement between the Advisor and the Trust, the Advisor waived fees and/or reimbursed the Fund $18,858, $373,593 and $438,781 for the fiscal years ended March 31, 2008, 2007 and 2006, respectively.
(2) Pursuant to an Expense Limitation Agreement between the Advisor and the Trust, the Advisor waived fees and/or reimbursed the Fund $190,556, $35,763 and $0 for the fiscal years ended March 31, 2008, 2007 and 2006, respectively.
(3) Pursuant to a Sponsor Agreement and/or an Expense Limitation Agreement between the Advisor and the Trust, the Advisor waived fees and/or reimbursed the Fund $108,062, $170,908 and $181,253 for the fiscal years ended March 31, 2008, 2007 and 2006, respectively.
(4) Pursuant to a Sponsor Agreement and/or an Expense Limitation Agreement between the Advisor and the Trust, the Advisor waived fees and/or reimbursed the Fund$168,558, $213,738 and $176,366 for the fiscal years ended March 31, 2008, 2007 and 2006, respectively.
(5) Pursuant to a Sponsor Agreement and/or an Expense Limitation Agreement between the Advisor and the Trust, the Advisor waived fees and/or reimbursed the Fund $84,361 and $131,921 for the fiscal years ended March 31, 2008 and 2007, respectively.
(6) Pursuant to an Expense Limitation Agreement between the Advisor and the Trust, the Advisor waived fees and/or reimbursed the Fund $848,156, $728,209 and $0 for the fiscal years ended March 31, 2008, March 31, 2007 and March 31, 2006.
(7) Pursuant to a Sponsor Agreement and/or an Expense Limitation Agreement between the Advisor and the Trust, the Advisor waived fees and/or reimbursed the Fund $110,734 for the fiscal year ended March 31, 2008 and $74,361 for the period from September 6, 2006 to March 31, 2007.
DISCUSSION OF BOARD OF TRUSTEE CONSIDERATIONS REGARDING THE AMENDMENT OF THE LARGE CAP GROWTH FUND'S ADVISORY FEE SCHEDULE. On November 18, 2004, the Board of Trustees of the Trust met to review certain information with respect to amending the Fee Schedule to the Advisory Agreement with the Advisor for the Large Cap Growth Fund. Specifically, the Board met to consider whether to approve a change in the Fund's breakpoint schedule to increase the advisory fee applicable to Fund assets in excess of $500 million. The Advisor proposed this change because, for historical reasons, the Fund's fee structure at higher levels was lower than the fee structure applicable to the Trust's other equity funds such that, under the pre-existing breakpoint levels, the Advisor anticipated that at higher asset levels it would be unable to earn a reasonable economic return on the Fund and that it might therefore be necessary to close the Fund to investment by new and existing shareholders. Accordingly, the Advisor proposed that the fee structure be changed to levels commensurate with its peers in the Trust and unaffiliated funds. After its deliberations, the Board, including Independent Trustees, determined to recommend that shareholders of the Fund vote for the amendment of the Fee Schedule to the Advisory Agreement, and after approval by the shareholders that change went into effect.
The Board reevaluated its decision at a meeting on May 18, 2006 in response to a request from the SEC staff. The Board reconsidered the amendment of the Advisory Agreement's Fee Schedule and the Board, including a majority of the Independent Trustees, again concluded that the new Fee Schedule was in the best interests of the Fund and its shareholders.
In evaluating and approving the proposal, the Board, including a majority of the Independent Trustees, in consultation with their independent counsel, requested and evaluated information provided by the Advisor which, in the view of the Board, constituted information necessary for the Board to form a judgment as to whether implementation of the proposed new investment advisory Fee Schedule would be in the best interests of the Fund and its shareholders. The Board reconsidered the new Fee Schedule without reference to any costs or potential losses incurred by the Advisor's affiliates from distribution and shareholder servicing; at the November 2004 board meeting the Advisor had indicated that if it and its affiliates together were to suffer losses from the operation of the Fund (as was expected if the new Fee Schedule had not been approved), it might have been necessary to recommend the closure of the Fund to new investors and new investment by current shareholders after the Fund attained $500 million in assets.
The information provided to the Board included: (1) industry data comparing advisory fees and expense ratios of comparable investment companies, (2) comparative performance information; (3) the Advisor's revenues and costs of providing services to the Fund; and (4) information about the Advisor's personnel. Prior to voting, the Independent Trustees reviewed with management and with experienced independent counsel the amendment of the Fee Schedule and received materials from such counsel discussing the legal standards for their consideration. The Independent Trustees also reviewed the amendment in private sessions with their independent counsel, at which no representatives of management were present.
In evaluating and approving the proposal, the Board considered various factors, including:
(i) the rate of the investment advisory fees and other expenses that would be paid by the Fund under the amended Fee Schedule as compared to those of representative comparable funds managed by other investment advisers. The Trustees noted in particular that for the Fund, the proposed new investment advisory fee would be reasonable because it is within the range of contractual advisory fee rates at comparable asset levels for representative comparable funds, as indicated in material prepared for the Board by the Advisor based on information contained in various publicly available documents. Specifically, the fee contained in the amended Fee Schedule was at the median of comparable funds;
(ii) The portion of the advisory fee that would be retained by the Advisor after payment of the Fund's Sub-Advisor, as compared to the comparable portion retained by the Advisor with respect to other funds it manages and retained by the advisers to representative sub-advised funds managed by other investment advisers. The Trustees noted in particular that at higher asset levels the portion of the advisory fee retained by the Advisor under the old breakpoint schedule was significantly lower than both the portion retained by the Advisor of the advisory fee it charges other funds it manages and the comparable amounts retained by other advisers with respect to representative sub-advised funds. The portion of the advisory fee to be retained by the Advisor under the new Fee Schedule, on the other hand, was substantially the same as both the portion retained by the Advisor of the advisory fee it charges other funds it manages and the comparable amounts retained by other advisers with respect to representative sub-advised funds.
(iii) the impact of the proposed changes in investment advisory fee rates on the Fund's Net Expense ratio both before and after any waivers or reimbursements;
(iv) the outstanding investment performance of the Fund and its consistent top tier rankings based on comparisons with the same funds used for the advisory fee comparisons described above;
(v) the nature and quality of investment advisory services provided by the Advisor to the Fund;
(vi) other benefits to the Advisor in providing investment advisory services to the Fund, both under the current Fee Schedule and the proposed new Fee Schedule; and
(vii) the inclusion of a breakpoint in the new Fee Schedule for assets above $1 billion to reflect potential economies of scale. At the May 2006 meeting the Advisor informed the Board that it would consider the possibility of introducing further breakpoints into the Fee Schedule if warranted by further potential economies of scale at higher levels.
In considering the proposal, the Board concluded that the new Fee Schedule should: (i) over the long-term, enable the Advisor to continue to provide high-quality investment advisory services to the Fund at reasonable and competitive fee rates; and (ii) enable the Advisor to provide investment advisory services to the Fund at levels consistent with the increased demands of the current marketplace, while maintaining the current investment sub-advisory structure. The Board concluded that the amendment to the Fee Schedule was on balance more favorable for shareholders than the alternative presented to it of closing the Fund to new investors and new investments, as the Advisor indicated might be necessary if the new Fee Schedule was not implemented.
ADMINISTRATION AGREEMENT. Effective January 1, 2007, the Advisor began providing administrative services to the Trust under an Administration Agreement. The Advisor supervises the performance of the service providers, provides performance and compliance reports, supervises the disbursement of expenses and assists with the development of new series. The Administration Agreement provides that the Trust will pay an administrative fee to the Advisor of 0.20% of aggregate net assets up to $6 billion; 0.16% of the next $4 billion of aggregate net assets and 0.12% on assets in excess of 10 billion. Aggregate net assets include the average daily net assets of all series of Touchstone Strategic Trust, Touchstone Tax-Free Trust, Touchstone Funds Group Trust and Touchstone Investment Trust, except the TINT Institutional Money Market Fund. The Advisor has sub-contracted certain administrative and accounting services to JPMorgan and pays JPMorgan a sub-administrative fee out of its administrative fee. (See "Transfer and Sub-Administrative Agent" in this SAI).
The Advisor has retained one or more Sub-Advisor(s) to serve as the discretionary portfolio manager(s) of each Fund. The Sub-Advisor selects the portfolio securities for investment by a Fund, purchases and sells securities of a Fund and places orders for the execution of such portfolio transactions, subject to the general supervision of the Board of Trustees and the Advisor. The Sub-Advisor receives a fee from the Advisor that is paid monthly at an annual rate of a Fund's average daily net assets as set forth below.
MID CAP GROWTH FUND*
TCW Investment Management Company 0.50%
Westfield Capital Management Company, LP 0.50%
LARGE CAP GROWTH FUND
Navellier & Associates, Inc. 0.40% of the first $1 billion
0.35% thereafter
LARGE CAP CORE EQUITY FUND
Todd Investment Advisors, Inc. 0.325% on the first $100 million
0.30% on the next $100 million
0.275% on the next $100 million
0.25% thereafter
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GROWTH OPPORTUNITIES FUND
Westfield Capital Management Company, LP 0.60% on the first $50 million
0.50% on the next $450 million
0.40% on the next $500 million
0.35% thereafter
|
MICRO CAP GROWTH FUND
Bjurman, Barry & Associates 0.55%
LARGE CAP VALUE FUND
JS Asset Management, LLC 0.40% on the first $250 million
0.35% thereafter
DIVERSIFIED SMALL CAP GROWTH FUND
Fort Washington Investment Advisors, Inc. 0.50%
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* The Advisor has allocated responsibility for managing the Mid Cap Growth Fund between TCW Investment Management Company and Westfield Capital Management Company LP. TCW uses a value style management process and Westfield uses a growth style process.
The Advisor paid to the Sub-Advisors the following amounts for each Fund for the periods indicated:
FOR THE FOR THE FOR THE
FISCAL YEAR FISCAL YEAR FISCAL YEAR
ENDED ENDED ENDED
03/31/08 03/31/07 03/31/06
---------------------------------------------
Mid Cap Growth Fund - TCW $2,568,921 $2,470,247 $2,308,714
- Westfield $3,210,000 $2,817,252 $2,468,066
Large Cap Growth Fund - Navellier $3,976,088 $4,321,638 $2,818,473
Large Cap Core Equity Fund - Todd $326,436 $200,757 $50,112
Growth Opportunities Fund - Mastrapasqua $0 $160,341 $601,964
- Westfield* $292,708 $253,053 $0
Micro Cap Growth Fund - Bjurman $460,017 $699,716 $566,749
Large Cap Value Fund - JS Asset Management $185,539 $109,162 $0
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FOR THE FISCAL FOR THE PERIOD
YEAR ENDED 09/06/06 -
03/31/08 03/31/07
-------------------------------
Diversified Small Cap Growth Fund - Ft. Washington $81,860 $24,907
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* Since Westfield replaced Mastrapasqua as Sub-Advisor to the Growth Opportunities Fund on July 18, 2006, Touchstone paid sub-advisory fees to both Mastrapasqua and Westfield for the fiscal year ended March 31, 2007.
The services provided by the Sub-Advisors are paid for wholly by the Advisor. The compensation of any officer, director or employee of the Sub-Advisor who is rendering services to a Fund is paid by the Sub-Advisor.
Each sub-advisory agreement will remain in force for an initial two year period and from year to year thereafter, subject to annual approval by (a) the Board of Trustees or (b) a vote of the majority of a Fund's outstanding voting securities; provided that in either event continuance is also approved by a majority of the Independent Trustees, by a vote cast in person at a meeting called for the purpose of voting such approval. A sub-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 a majority of a Fund's outstanding voting securities, by the Advisor, or by the Sub-Advisor. Each sub-advisory agreement will automatically terminate in the event of its assignment, as defined by the 1940 Act and the rules thereunder.
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 a Fund will be notified of any changes in its Sub-Advisor.
SUB-ADVISOR CONTROL. Listed below is a description of the persons or entities that control the Sub-Advisors.
WESTFIELD CAPITAL MANAGEMENT COMPANY, LP is approximately 40% employee owned and is a subsidiary of Boston Private Financial Holdings Company, Inc., a publicly traded company listed on the NASDAQ exchange.
TCW INVESTMENT MANAGEMENT COMPANY is a subsidiary of The TCW Group, Inc. The TCW Group, Inc. is a subsidiary of Societe Generale Asset Management S.A., which is owned by Societe Generale S.A.
NAVELLIER & ASSOCIATES, INC.'S majority and primary owner is Louis G. Navellier.
TODD INVESTMENT ADVISORS, INC. is a wholly owned subsidiary of Fort Washington Investment Advisors, Inc. Fort Washington Investment Advisors, Inc. 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. Ms. McGruder may be deemed to be an affiliate of Todd Investment Advisors, Inc.
FORT WASHINGTON INVESTMENT ADVISORS, INC. 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 Fort Washington Investment Advisors, Inc.
BJURMAN, BARRY & ASSOCIATES is owned by the George A. Bjurman Trust dated March 5, 2003 and the Tom Barry Living Trust U/D/T Dated 3-03-1998 as restated 3-31-1999.
JS ASSET MANAGEMENT, LLC is controlled by John Schneider.
The following charts list the Funds' portfolio managers, the number of their other managed accounts per investment category, the total assets in each category of managed accounts and the beneficial ownership in the Fund(s) managed at the end of the March 31, 2008 fiscal year. Listed below the charts is (i) a description of accounts managed where the advisory fee is based on the performance of the account, if any, (ii) a description of the portfolio managers' compensation structure as of March 31, 2008, and (iii) a description of any material conflicts that may arise in connection with the portfolio manager's management of the Fund's investments and the investments of the other accounts included in the chart and any material conflicts in allocation of investment opportunities between the Fund and other accounts managed by the portfolio manager.
MID CAP GROWTH FUND - TCW INVESTMENT MANAGEMENT COMPANY
WESTFIELD CAPITAL MANAGEMENT COMPANY, LP
OTHER ACCOUNTS MANAGED
------------------------------------------------------------------------------------------------------------
PORTFOLIO MANAGER TYPE OF ACCOUNT NUMBER OF TOTAL BENEFICIAL
ACCOUNTS ASSETS IN OWNERSHIP
ACCOUNTS IN FUND
------------------------------------------------------------------------------------------------------------
Susan Suvall Registered Investment 6 $949.3Million None
(TCW) Companies
------------------------------------------------------------------------------------------------------------
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------------------------------------------------------------------------------------------------------------
Other Pooled Investment 9 $478.3 Million
Vehicles
------------------------------------------------------------------------------------------------------------
Other Accounts 24 $1.3 Billion
------------------------------------------------------------------------------------------------------------
John A. Gibbons Registered Investment 6 $1.38 Billion None
(TCW) Companies
------------------------------------------------------------------------------------------------------------
Other Pooled Investment 9 $478.3 Million
Vehicles
------------------------------------------------------------------------------------------------------------
Other Accounts 24 $1.30 Billion
------------------------------------------------------------------------------------------------------------
William Muggia (Westfield) Registered Investment 11 $2,651,651,530 None
Companies
------------------------------------------------------------------------------------------------------------
Other Pooled Investment 4 $764,092,406
Vehicles
------------------------------------------------------------------------------------------------------------
Other Accounts 583 $7,782,102,206
------------------------------------------------------------------------------------------------------------
Arthur Bauernfeind Registered Investment 11 $2,651,651,530 None
(Westfield) Companies
------------------------------------------------------------------------------------------------------------
Other Pooled Investment 1 $16,678,469
Vehicles
------------------------------------------------------------------------------------------------------------
Other Accounts 586 $8,511,795,246
------------------------------------------------------------------------------------------------------------
Ethan Meyers Registered Investment 11 $2,651,651,530 None
(Westfield) Companies
------------------------------------------------------------------------------------------------------------
Other Pooled Investment 1 $16,678,469
Vehicles
------------------------------------------------------------------------------------------------------------
Other Accounts 581 $8,468,963,504
------------------------------------------------------------------------------------------------------------
Scott Emerman Registered Investment 11 $2,651,651,530 None
(Westfield) Companies
------------------------------------------------------------------------------------------------------------
Other Pooled Investment 1 $16,678,469
Vehicles
------------------------------------------------------------------------------------------------------------
Other Accounts 581 $8,469,769,388
------------------------------------------------------------------------------------------------------------
Matthew Strobeck Registered Investment 11 $2,651,651,530 None
(Westfield) Companies
------------------------------------------------------------------------------------------------------------
Other Pooled Investment 1 $16,678,469
Vehicles
------------------------------------------------------------------------------------------------------------
Other Accounts 584 $8,498,371,327
------------------------------------------------------------------------------------------------------------
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ACCOUNTS WHERE ADVISORY FEE IS BASED ON THE ACCOUNT'S PERFORMANCE (TCW). Mr. Gibbons and Ms. Suvall co-manage 6 "Pooled Investment Vehicles" and 2 "Other Accounts" where the advisory fee is based on the performance of the account. The total assets in the "Pooled Investment Vehicles" are $49.0 million and the total assets in the "Other Accounts" are $252.0 million.
ACCOUNTS WHERE ADVISORY FEE IS BASED ON THE ACCOUNT'S PERFORMANCE (WESTFIELD). Mr. Muggia is the portfolio manager for 4 pooled investment vehicles (limited partnerships) and 15 other accounts (separately managed accounts) where the advisory fee is either based in part or fully on the performance of the account. The total assets in the limited partnerships are $764,092,406 and the total assets in the separately managed accounts are $911,942,274. The remaining managers manage 1 pooled investment vehicle (limited partnership) and 15 other accounts (separately managed accounts) where the advisory fee is based in part on the performance of the account. The total assets in the limited partnership are $16,678,469 and the total assets in the separately managed accounts are $911,942,274.
COMPENSATION STRUCTURE (TCW). Portfolio managers are compensated through a combination of base salary, profit sharing based compensation ("profit sharing"), bonus and equity incentive participation in TCW's immediate parent, The TCW Group, Inc. and/or ultimate parent, Societe Generale ("equity incentives"). Profit sharing and equity incentives generally represent most of the portfolio managers' compensation. In some cases, portfolio managers are eligible for discretionary bonuses.
Profit sharing is linked quantitatively to a fixed percentage of income relating to accounts in the investment strategy area for which the portfolio managers are responsible and is paid quarterly. Profit sharing may be determined on a gross basis, without the deduction of expenses; in most cases, revenues are allocated to a pool and profit sharing compensation is paid out after the deduction of group expenses. The profit sharing percentage used to compensate a portfolio manager for management of the Fund is generally the same as that used to compensate them for all other client accounts they manage in the same strategy for TCW, with limited exceptions involving grandfathered accounts (accounts that become clients of TCW before or after a specified date or former clients of a manager that joined TCW from another firm), firm capital of TCW or accounts sourced through a distinct distribution channel. Income included in a profit sharing pool will relate to the products managed by the portfolio manager. In some cases, the pool includes revenues related to more than one equity or fixed income product where the portfolio managers work together as a team, in which case each participant in the pool is entitled to profit sharing derived from all the included products. In some cases, the profit sharing percentage is subject to increase based on the relative pre-tax performance of the investment strategy composite returns, net of fees and expenses, to that of the benchmark.
In general, portfolio managers do not receive discretionary bonuses. However, in some cases where portfolio managers do not receive profit sharing or where the company has determined the combination of salary and profit sharing does not adequately compensate the portfolio manager, discretionary bonuses may be paid by TCW.
All portfolio managers participate in equity incentives based on overall firm performance of TCW and its affiliates, through stock ownership or participation in stock option or stock appreciation plans of TCW and/or Societe Generale.
COMPENSATION STRUCTURE (WESTFIELD). All members of the investment committee are eligible to receive four components of compensation:
All investment committee members receive a base salary commensurate with industry standards. This salary is reviewed annually during the employee's performance assessment.
Investment committee members, with the exception of Mr. Muggia and Mr. Strobeck, are eligible to receive a performance based bonus award. This bonus award is determined and paid in December. The amount awarded is based on the employee's individual performance attribution and contribution to the investment performance of Westfield.
All investment committee members are eligible to receive a bonus pool distribution award. This award is derived from a pool based on 40% of the operating profit of Westfield. Individual awards are determined by a member's overall performance within the firm, including contribution to company strategy, participation in marketing and client service initiatives as well as and longevity at the firm.
All investment committee members are eligible to receive equity awards. Those committee members who receive equity will sign non-competition agreements with Westfield. Effective July 1, 2008, all investment committee members will receive equity.
Additionally, as manager of four limited partnerships, Mr. Muggia is entitled to receive a portion of any performance fees earned on the partnerships. Mr. Muggia is also granted discretion to award a portion of any performance based fees earned by such limited partnerships to any member of Westfield. We believe the enhanced compensation structure aligns with the long-term interests of the Fund and its shareholders.
CONFLICTS OF INTEREST (TCW). Actual or potential conflicts of interest may arise when a portfolio manager has management responsibilities to more than one account (including the Fund), such as devotion of unequal time and attention to the management of the accounts, inability to allocate limited investment opportunities across a broad band of accounts and incentive to allocate opportunities to an account where the portfolio manager or TCW has a greater financial incentive, such as a performance fee account or where an account or fund managed by a portfolio manager has a higher fee sharing arrangement than the portfolio manager's fee sharing percentage with respect to the Fund. TCW has adopted policies and procedures reasonably designed to address these types of conflicts and TCW believes its policies and procedures serve to operate in a manner that is fair and equitable among its clients, including the Fund.
CONFLICTS OF INTEREST (WESTFIELD). Westfield seeks to identify areas of potential conflicts of interest resulting from managing both the Fund and other accounts. Westfield has adopted polices and procedures to address such potential conflicts.
The management of multiple funds and accounts may result in allocating unequal attention and time to the management of each fund and account if each has different objectives, benchmarks, time horizons and fees, as the investment committee must allocate their time and investment ideas across multiple funds and accounts. A conflict of interest can also arise between those portfolios that incorporate a performance fee and those that do not. From time to time, the same securities may be recommended for both types of accounts. If this is the case, the securities are allocated in a manner Westfield believes to be fair and equitable to all effected funds and accounts. Although Westfield seeks best execution for security transactions, a potential conflict can exist in determining which broker to use to execute transaction orders because Westfield may be limited by a client with respect to the selection of brokers or may be instructed to direct trades through a particular broker. To fulfill our obligation to seek best execution, while satisfying client directed brokerage arrangements, Westfield will bundle directed broker orders with non-directed broker orders, and then utilize step out trades to satisfy the direction. If a client directed brokerage arrangement does not allow the use of step-out trades, such orders will typically go last. Furthermore, personal accounts may give rise to potential conflicts of interest; trading in personal accounts is regulated by the firm's Code of Ethics.
LARGE CAP CORE EQUITY FUND - TODD INVESTMENT ADVISORS, INC.
OTHER ACCOUNTS MANAGED
-------------------------------------------------------------------------------------------------------------------
PORTFOLIO MANAGER TYPE OF ACCOUNT NUMBER OF TOTAL BENEFICIAL
ACCOUNTS ASSETS IN OWNERSHIP
ACCOUNTS IN FUND
-------------------------------------------------------------------------------------------------------------------
Curtiss Scott Registered Investment Companies 1 $80.74Million $100,001-$500,000
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0
Vehicles
-------------------------------------------------------------------------------------------------------------------
Other Accounts 82 $2.6 Billion
-------------------------------------------------------------------------------------------------------------------
John White Registered Investment Companies 5 $207.9 Million $100,001-$500,000
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0
Vehicles
-------------------------------------------------------------------------------------------------------------------
Other Accounts 82 $2.6 Billion
-------------------------------------------------------------------------------------------------------------------
Robert Bordogna Registered Investment Companies 2 $126.1 Million None
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0
Vehicles
-------------------------------------------------------------------------------------------------------------------
Other Accounts 82 $2.6 Billion
-------------------------------------------------------------------------------------------------------------------
Bosworth Todd Registered Investment Companies 1 $80.7 Million None
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0
Vehicles
-------------------------------------------------------------------------------------------------------------------
Other Accounts 82 $2.6 Billion
-------------------------------------------------------------------------------------------------------------------
|
ACCOUNTS WHERE ADVISORY FEE IS BASED ON THE ACCOUNT'S PERFORMANCE. None
COMPENSATION STRUCTURE. Each portfolio manager is paid a fixed base salary and short-term bonus arrangement. The specific compensation a portfolio manger receives from the short-term bonus pool is based primarily on the firm's profitability and secondarily on how each individual contributes to the organization. Todd's parent also has long-term deferred compensation arrangement that provides significant additional incentives for key professionals to remain within the organization.
CONFLICTS OF INTEREST. Todd believes the management of its accounts, including the Fund, does not present any material conflicts of interest in either the devotion of time, attention or the allocation of investment opportunities. The Fund tracks Todd's flagship strategy and holds identical positions. Todd concentrates on larger capitalization, well-traded securities. Allocation of investment opportunities is not an issue within this universe.
LARGE CAP GROWTH FUND - NAVELLIER & ASSOCIATES, INC.
OTHER ACCOUNTS MANAGED
-------------------------------------------------------------------------------------------------------------------
PORTFOLIO MANAGER TYPE OF ACCOUNT NUMBER OF TOTAL BENEFICIAL
ACCOUNTS ASSETS IN OWNERSHIP
ACCOUNTS IN FUND
-------------------------------------------------------------------------------------------------------------------
Louis Navellier Registered Investment Companies 2 $204 Million $100,001-$500,000
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0
Vehicles
-------------------------------------------------------------------------------------------------------------------
Other Accounts 7,687 $2,796 Million
-------------------------------------------------------------------------------------------------------------------
Shawn Price Registered Investment Companies 1 $18 Million $100,001-$500,000
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0
Vehicles
-------------------------------------------------------------------------------------------------------------------
Other Accounts 6,472 $2,513 Million
-------------------------------------------------------------------------------------------------------------------
|
ACCOUNTS WHERE ADVISORY FEE IS BASED ON THE ACCOUNT'S PERFORMANCE. Mr. Navellier manages 136 other accounts where the advisory fee is based on the performance of the account. The total assets in these accounts are $60.53 million. Mr. Price manages 41 other accounts where the advisory fee is based on the performance of the account. The total assets in these accounts are $19.12 million.
COMPENSATION STRUCTURE. Portfolio managers receive a fixed base salary and incentive compensation. Incentive compensation is based upon the asset growth of the portfolio(s) for which they are responsible. Incentive compensation is based upon reaching certain asset levels and is measured on a quarterly basis. Incentive compensation is paid as a percentage of the management fees received from those portfolios for which the portfolio manager is directly responsible. Portfolio managers are eligible to participate in Navellier's stock ownership program. Stock is granted to key employees dependent upon various measures such as asset growth and performance.
CONFLICTS OF INTEREST. Actual or potential conflicts of interest may arise when a portfolio manager has management responsibilities to more than one account (including the Fund), such as devotion of unequal time and attention to the management of the accounts, inability to allocate limited investment opportunities across a broad band of accounts and incentive to allocate opportunities to an account where the portfolio manager has a greater financial incentive, such as a pooled investment vehicle or other account with a performance based fee. Navellier manages separate managed accounts that conform to the same investment model as the Fund; however a portfolio manager is not compensated differently on other account types. Additionally, the portfolio manager issues orders to buy and sell securities to Navellier's Trading Department and does not give specific instructions as to whether a particular account should receive priority in the trading process.
GROWTH OPPORTUNITIES FUND - WESTFIELD CAPITAL MANAGEMENT COMPANY, LP
OTHER ACCOUNTS MANAGED
-------------------------------------------------------------------------------------------------------------------
PORTFOLIO MANAGER TYPE OF ACCOUNT NUMBER OF TOTAL BENEFICIAL
ACCOUNTS ASSETS IN OWNERSHIP
ACCOUNTS IN FUND
-------------------------------------------------------------------------------------------------------------------
William Muggia Registered Investment 11 $3,205,457,656 None
Companies
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment 4 $764,092,406
Vehicles
-------------------------------------------------------------------------------------------------------------------
Other Accounts 583 $7,782,102,206
-------------------------------------------------------------------------------------------------------------------
Arthur Bauernfeind Registered Investment 11 $3,205,457,656 None
Companies
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment 1 $16,678,469
Vehicles
-------------------------------------------------------------------------------------------------------------------
Other Accounts 586 $8,511,795,246
-------------------------------------------------------------------------------------------------------------------
Ethan Meyers Registered Investment 11 $3,205,457,656 None
Companies
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment 1 $16,678,469
Vehicles
-------------------------------------------------------------------------------------------------------------------
Other Accounts 581 $8,468,963,504
-------------------------------------------------------------------------------------------------------------------
Scott Emerman Registered Investment 11 $3,205,457,656 None
Companies
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment 1 $16,678,469
Vehicles
-------------------------------------------------------------------------------------------------------------------
Other Accounts 581 $8,469,769,388
-------------------------------------------------------------------------------------------------------------------
Matthew Strobeck Registered Investment 11 $3,205,457,656 None
Companies
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment 1 $16,678,469
Vehicles
-------------------------------------------------------------------------------------------------------------------
Other Accounts 584 $8,498,371,327
-------------------------------------------------------------------------------------------------------------------
|
ACCOUNTS WHERE ADVISORY FEE IS BASED ON THE ACCOUNT'S PERFORMANCE. See
description under "Mid Cap Growth Fund (Westfield)."
COMPENSATION STRUCTURE. See description under "Mid Cap Growth Fund (Westfield)."
CONFLICTS OF INTEREST. See description under "Mid Cap Growth Fund (Westfield)."
MICRO CAP GROWTH FUND - BJURMAN BARRY & ASSOCIATES
OTHER ACCOUNTS MANAGED
-------------------------------------------------------------------------------------------------------------------
PORTFOLIO MANAGER TYPE OF ACCOUNT NUMBER OF TOTAL BENEFICIAL
ACCOUNTS ASSETS IN OWNERSHIP
ACCOUNTS IN FUND
-------------------------------------------------------------------------------------------------------------------
O. Thomas Barry III Registered Investment Companies 6 $388 Million None
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0
Vehicles
-------------------------------------------------------------------------------------------------------------------
Other Accounts 15 $116 Million
-------------------------------------------------------------------------------------------------------------------
Stephen Shipman Registered Investment Companies 6 $388 Million None
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0
Vehicles
-------------------------------------------------------------------------------------------------------------------
Other Accounts 27 $44 Million
-------------------------------------------------------------------------------------------------------------------
|
ACCOUNTS WHERE ADVISORY FEE IS BASED ON THE ACCOUNT'S PERFORMANCE. Mr. Shipman manages 9 "Small Cap Absolute Return Strategy" accounts where the advisory fee may be subject to a performance fee in addition to the annual management fee. The total assets in these accounts are $6.75 million. Mr. Shipman also manages 1 "Multi Cap Absolute Return Strategy" account where the advisory fee may be subject to a performance fee in addition to the annual management fee. The total assets in this account are $0.43 million.
COMPENSATION STRUCTURE. Mr. Barry and Mr. Shipman manage other accounts that may have an investment focus similar to one of their managed Funds. The management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, and the aggregation and allocation of trades. In addition, Mr. Shipman manages accounts where the advisory fee may be subject to a performance fee in addition to the annual management fee. A conflict of interest could arise between an account Mr. Shipman manages that may have a performance based fee and the Fund. From time to time the same securities may be recommended for both types of accounts.
CONFLICTS OF INTEREST. Mr. Barry and Mr. Shipman manage other accounts that may have an investment focus similar to one of their managed Funds. The management of multiple funds and accounts may create potential conflicts of interest relating to the allocation of investment opportunities, and the aggregation and allocation of trades. In addition, Mr. Shipman manages accounts where the advisory fee may be subject to a performance fee in addition to the annual management fee. A conflict of interest could arise between an account Mr. Shipman manages that may have a performance based fee and the Fund. From time to time the same securities may be recommended for both types of accounts.
LARGE CAP VALUE FUND - JS ASSET MANAGEMENT, LLC
OTHER ACCOUNTS MANAGED
-------------------------------------------------------------------------------------------------------------------
PORTFOLIO MANAGER TYPE OF ACCOUNT NUMBER OF TOTAL BENEFICIAL
ACCOUNTS ASSETS IN OWNERSHIP
ACCOUNTS IN FUND
-------------------------------------------------------------------------------------------------------------------
John Schneider Registered Investment Companies 5 $267.5 Million None
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment Vehicles 2 $25.9 Million
-------------------------------------------------------------------------------------------------------------------
Other Accounts 5 $33.6 Million
-------------------------------------------------------------------------------------------------------------------
|
ACCOUNTS WHERE ADVISORY FEE IS BASED ON THE ACCOUNT'S PERFORMANCE. Mr. Schneider manages 1 "Pooled Investment Vehicle" and 1 "Other Account" where the advisory fee is based on the performance of the account. The total assets in these accounts are $8.7 million.
COMPENSATION STRUCTURE. Mr. Schneider's compensation is primarily based on a fixed salary. There is currently no bonus structure in place for Mr. Schneider. Mr. Schneider's compensation package also includes amounts paid by certain accounts subject to performance-based fee arrangements. Furthermore, Mr. Schneider, as a majority shareholder of JS Asset Management, LLC, may receive additional compensation based on the net earnings of the firm. This additional compensation would not be considered a bonus as it would represent the distribution of profits proportionate to Mr. Schneider's ownership in the firm.
CONFLICTS OF INTEREST. Actual or potential conflicts of interest may arise when Mr. Schneider has management responsibilities to more than one account (including the Fund), such as devotion of unequal time and attention to the management of the accounts and the inability to allocate limited investment opportunities across a broad band of accounts. While Mr. Schneider manages 2 accounts that are entitled to receive a performance-based adjustment, JSAM does not believe that such adjustment presents a significant incentive for JSAM to unfairly favor such accounts because JSAM has a policy to manage each account based on its investment objectives and related restrictions. JSAM has adopted policies and procedures reasonably designed to allocate investment opportunities across all accounts, generally on a pro rata basis.
DIVERSIFIED SMALL CAP GROWTH FUND - FORT WASHINGTON INVESTMENT ADVISORS, INC.
OTHER ACCOUNTS MANAGED
-------------------------------------------------------------------------------------------------------------------
PORTFOLIO MANAGER TYPE OF ACCOUNT NUMBER OF TOTAL BENEFICIAL
ACCOUNTS ASSETS IN OWNERSHIP
ACCOUNTS IN FUND
-------------------------------------------------------------------------------------------------------------------
Richard R. Jandrain Registered Investment Companies 1 $41.9 Million $100,001-$500,000
III
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment Vehicles 0 0
-------------------------------------------------------------------------------------------------------------------
Other Accounts 4 $125.1 Million
-------------------------------------------------------------------------------------------------------------------
Daniel J. Kapusta Registered Investment Companies 1 $41.9 Million $50,001 - $100,000
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment Vehicles 0 0
-------------------------------------------------------------------------------------------------------------------
Other Accounts 4 $125.1 Million
-------------------------------------------------------------------------------------------------------------------
David K. Robinson Registered Investment Companies 1 $41.9 Million $50,001-$100,000
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment Vehicles 0 0
-------------------------------------------------------------------------------------------------------------------
Other Accounts 4 $125.1 Million
-------------------------------------------------------------------------------------------------------------------
Bihag Patel Registered Investment Companies 1 $41.9 Million $10,001 - $50,000
-------------------------------------------------------------------------------------------------------------------
Other Pooled Investment Vehicles 0 0
-------------------------------------------------------------------------------------------------------------------
Other Accounts 4 $125.1 Million
-------------------------------------------------------------------------------------------------------------------
|
ACCOUNTS WHERE ADVISORY FEE IS BASED ON THE ACCOUNT'S PERFORMANCE. None
COMPENSATION STRUCTURE. All of Fort Washington's portfolio managers receive a fixed base salary and annual performance bonuses. Bonuses are based primarily on the overall performance of Fort Washington as well as the pre-tax performance (relative to the appropriate benchmark) of their respective asset category over a one-year and a three-year time horizon. Secondarily, portfolio managers are also assessed on their ability to retain clients and attract new clients. Additionally a long-term retention plan was instituted in 2000, whereby certain investment professionals are periodically granted participation units with a 7-year cliff vesting schedule. The structure includes long-term vesting provisions. The percentage of compensation allocated to performance bonuses, asset-increase incentives and long-term incentive compensation is determined annually by the firm's President and approved by the Board of Directors.
CONFLICTS OF INTEREST. Actual or potential conflicts of interest may arise when a portfolio manager has management responsibilities to more than one account (including the Fund). This would include devotion of unequal time and attention to the management of the accounts, inability to allocate limited investment opportunities across a broad array of accounts and incentive to allocate opportunities to an account where the portfolio manager has a greater financial incentive, such as allocation opportunities for performance based accounts. Fort Washington has adopted policies and procedures to address such conflicts.
The Funds have adopted the Sub-Advisors' policies and procedures for voting proxies relating to portfolio securities held by the Funds, including procedures used when a vote presents a conflict between the interests of a Fund's shareholders and those of the Sub-Advisor or its affiliates. Information about how the Funds voted proxies relating to their portfolio securities during the most recent year ending June 30 is available by August 31st of that year without charge, upon request, by calling toll-free 1-800-543-0407 and on the SEC website at http://www.sec.gov and on the Touchstone website at www.touchstoneinvestments.com. Listed below is a summary of the Sub-Advisors' proxy voting procedures:
TCW INVESTMENT MANAGEMENT COMPANY. (Mid Cap Growth Fund) TCW has adopted proxy voting guidelines on issues involving governance, capital structure, mergers and restructuring, board of directors, anti-takeover provisions, compensation and other issues. When voting proxies, TCW's utmost concern is that all decisions be made solely in the interests of the Fund and with the goal of maximizing the value of the Fund's investments. The voting guidelines generally specify whether TCW will vote for or against a particular type of proposal. TCW's underlying philosophy is that its portfolio managers are best able to determine how best to further the Fund's interests and goals. The portfolio managers may, in their discretion, take into account the recommendations of TCW management, the Proxy Committee and an outside proxy voting service.
Consistent with the approaches described above, the following are examples of TCW's voting position on specific matters.
o TCW will vote for director nominees in uncontested elections.
o TCW will vote against proposals to authorize preferred stock if the Board has unlimited rights to set the terms and conditions.
o TCW will vote against proposals to ratify or adopt poison pill plans.
o TCW will vote against proposals to establish or increase super majority vote requirements.
o TCW will vote for executive and director compensation plans unless they are dilutive beyond pre-determined levels, in which case such votes will be determined on a case-by-case basis.
o TCW will vote for mergers and acquisitions.
If a potential conflict of interest arises, the primary means by which TCW will avoid a conflict is by casting such votes solely in the interests of the Fund and in the interests of maximizing the value of its portfolio holdings. If a conflict of interest arises and the proxy vote is predetermined, TCW will vote accordingly. If a conflict of interest arises and there is no predetermined vote, TCW will refer the vote to an outside service for its consideration in the event the client's relationship is determined to be material to TCW. If TCW identifies a conflict of interest between a portfolio manager and an issuer soliciting proxy votes from TCW clients, the Proxy Committee will cast the vote.
WESTFIELD CAPITAL MANAGEMENT COMPANY, LP. (Mid Cap Growth Fund and Growth Opportunities Fund) Westfield's policy is to vote all proxies in the best interest of the Fund in accordance with its fiduciary obligations and applicable law. Westfield has a Proxy Committee composed of individuals from the investment, marketing and compliance departments. The Proxy Committee is responsible for setting general policy and voting guidelines as to proxies. Westfield has also contracted with Glass Lewis & Co. to assist in the proxy voting process. In addition to using Glass Lewis corporate governance research, Westfield utilizes the Glass Lewis Viewpoint Proxy platform to manage and maintain documentation to substantiate the manner in which Westfield votes. Westfield maintains written voting guidelines, that are available on its website, setting forth the voting positions determined by its Proxy Committee on those issues believed most likely to arise day to day. These issues include board-approved proposals (election of directors, executive compensation, capitalization, acquisitions, mergers, reorganizations and anti-takeover measures) and shareholder proposals. Westfield will vote proxies in accordance with these guidelines, subject to the following exceptions: 1) if the analyst believes that following the guidelines would not be in the Fund's best interests, 2) for clients with plan assets subject to ERISA, Westfield may accept instructions to vote proxies in accordance with AFL-CIO proxy voting guidelines and 3) for clients who support social responsible issues, Westfield may accept instructions to vote proxies in accordance with Westfield's policy, coupled with Glass Lewis' Socially Responsible guidelines, when specific SRI issues are not covered
The following are examples of Westfield's voting position on specific matters.
o Westfield will withhold votes for any nominee for director if the board does not have a two-third majority of independent directors or the board does not have a nominating, audit and compensation committee composed solely of independent directors.
o Westfield will vote against equity based compensation plans if Glass Lewis' research indicates that the proposed plan is excessive from the average plan for the peer group on a range of criteria, including dilution to shareholders and the projected annual cost relative to the company's financial performance.
o Westfield will vote against board approved proposals to adopt anti-takeover measures such as a shareholder rights plan, supermajority voting provisions, issuance of blank check preferred stock and the creation of a separate class of stock with disparate voting rights, except Westfield will vote for proposals to adopt fair price provisions.
If a conflict of interest should arise when voting proxies of an issuer that has a significant business relationship with Westfield, Westfield will vote proxies based solely on the investment merits of the proposal.
TODD INVESTMENT ADVISORS, INC. (Large Cap Core Equity Fund) Todd will vote proxies solely in the best long-term interests of the Fund. Todd has adopted guidelines on key issues such as election of directors, stock incentive plans, expensing of options, severance agreements, takeover provisions, and social and environmental issues. Todd employs Institutional Shareholder Services ("ISS") to help it analyze particular issues. The following are examples of Todd's position on specific matters.
Todd will generally vote for proposals seeking to end the staggered election of directors and prefers that all directors be elected annually.
o Todd will generally support proposals requiring a majority of independent directors on the board.
o Todd prefers to see the separation of Chairman and CEO positions.
o Todd prefers that all incumbent directors own company stock.
o Todd prefers that all stock incentive plans be limited to restricted stock or other truly long-term incentive plans, but recognizes that short-term incentive plans do have a place in providing key executives with a balanced compensation program.
o Todd supports proposals requiring the expensing of options.
If a conflict of interest should arise, Todd will inform its Executive Committee of the conflict and notify the Fund why Todd's vote may differ from the Fund's request. Todd will consider a Fund's request but will vote only for what it believes will best advance the long-term interests of the Fund.
BJURMAN, BARRY & ASSOCIATES. (Micro Cap Growth Fund) Bjurman, Barry & Associates ("Bjurman") seeks to avoid material conflicts of interests by using an Independent Third Party ("ITP") service provider to vote proxies in accordance with detailed, pre-determined written proxy voting guidelines (the "Voting Guidelines") in an objective and consistent manner across client accounts. Effective February 1, 2007, BB&A elected Glass, Lewis to serve as the ITP for providing proxy voting services. The voting process involves an assessment performed by the ITP service provider in accordance with the Voting Guidelines. BB&A reviews all proxies and the recommendations of the ITP service provider in formulating its vote, but the ultimate voting decision belongs to Bjurman. In the event that Bjurman votes against the ITP recommendations, documentation must be prepared to describe the basis for the decisions and to substantiate that Bjurman clients' interests were not subrogated to is own. The Voting Guidelines address issues involving board of directors, proxy contest defenses, election of auditors, tender offer defenses, miscellaneous governance provisions, capital structure, executive and director compensation, mergers and corporate restructuring, mutual fund proxies and social and environmental issues. The following are examples of Voting Guidelines on specific matters:
o Votes on corporate governance generally provide that the ITP will recommend a vote for proposals to allow shareholders holding at least 15% of a company's outstanding voting power to call a special meeting of the shareholders; permit shareholders to act by written consent; and require a majority vote for the election of directors unless such a requirement would clearly disadvantage the company of put shareholders at risk.
The ITP will generally recommend a vote against shareholder rights plans ("poison pills"); advance notice requirements for shareholder ballot proposals; and supermajority voting requirements. On matters of capital structure, the ITP will generally recommend a vote for authorizing additional shares to be used for financing acquisitions and operations of the company if the company's historical capital structure and use of stock for such purposes are in line with the proposal, and a vote against proposals for additional authorized shares to bolster the efficacy of takeover defenses such as a poison pill.
o On matters relating to management compensation, the ITP will generally recommend a vote for stock incentive plans that are performance-based equity compensation plans, and a vote against proposals to allow for repricing of management stock options, except where the stock price has declined dramatically because of macroeconomic or industry trends (rather than specific company issues) and repricing is necessary to motivate and retain employees.
o The ITP will recommend a vote relating to proposed mergers, capital reorganizations, and similar transactions in accordance with the general Voting Guidelines based upon the ITP's analysis of the proposed transaction. The ITP will recommend withholding votes for some of the inside or affiliated directors, where the company's board is composed of less than two-thirds of members who are independent.
NAVELLIER & ASSOCIATES, INC. (Large Cap Growth Fund) 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.
JS ASSET MANAGEMENT, LLC. (Large Cap Value Fund) JSAM forwards all proxies to ISS and reviews the analysis of the proxy issues provided by ISS. JSAM then communicates its voting position to ISS and ISS executes the vote. JSAM votes proxies in a way that is consistent and facilitates voting solely in the interests of the Fund and for the exclusive purpose of providing economic benefits to the Fund. In general, JSAM votes "FOR" those proposals that more closely link the fortunes of employees and management to the performance of the corporation's stock and/or aid in accountability to shareholders. Proxy proposals that serve to entrench management or to reduce management's accountability to shareholders are typically voted "AGAINST."
FORT WASHINGTON INVESTMENT ADVISORS, INC. (Diversified Small Cap Growth Fund) Fort Washington's policy is to vote proxies in the best interests of the Fund at all times. Fort Washington has adopted procedures that it believes are reasonably designed to ensure that proxies are voted in the best interests of the Fund in accordance with its fiduciary duties and SEC rules governing investment advisers. Reflecting a basic investment philosophy that good management is shareholder focused, proxy votes will generally be cast in support of management on routine corporate matters and in support of any management proposal that is plainly in the interest of all shareholders. Specifically, proxy votes generally will be cast in favor of proposals that:
o maintain or strengthen the shared interests of stockholders and management;
o increase shareholder value; and
o maintain or increase shareholder rights generally.
Proxy votes will generally be cast against proposals having the opposite effect of the above. Where Fort Washington perceives that a management proposal, if approved, would tend to limit or reduce the market value of the company's securities, it will generally vote against it. Fort Washington generally supports shareholder rights and recapitalization measures undertaken unilaterally by boards of directors properly exercising their responsibilities and authority, unless such measures could have the effect of reducing shareholder rights or potential shareholder value. In cases where shareholder proposals challenge such actions, Fort Washington's voting position will generally favor not interfering with the directors' proper function in the interest of all shareholders.
Fort Washington may delegate its responsibilities under its proxy voting procedures to a third party, provided that Fort Washington retains final authority and fiduciary responsibility for proxy voting. Fort Washington has retained ISS to assist it in the proxy voting process and will use ISS's proxy voting guidelines as a resource in its proxy voting.
Fort Washington will review each proxy to assess the extent, if any, to which there may be a material conflict between it and the interests of the Fund. If Fort Washington determines that a potential conflict may exist, it will be reported to the Proxy Voting Committee. The Proxy Voting Committee is authorized to resolve any conflict in a manner that is in the collective best interests of the Fund (excluding a potential conflict). The Proxy Voting Committee may resolve a potential conflict in any of the following manners:
o If the proposal is specifically addressed in the proxy voting procedures, Fort Washington may vote the proxy in accordance with these policies, provided that such pre-determined policy involves little discretion on Fort Washington's part;
o Fort Washington may engage an independent third party to determine how the proxy should be voted;
o Fort Washington may establish an ethical wall or other informational barriers between the person involved in the potential conflict and the persons making the voting decision in order to insulate the potential conflict from the decision maker.
Touchstone Securities, Inc. (the "Distributor"), 303 Broadway, Cincinnati, Ohio 45202, is the principal distributor of the Trust and, as such, the exclusive agent for distribution of shares of the Funds. The Distributor is an affiliate of the Advisor by reason of common ownership. The Distributor is obligated to sell the shares on a best efforts basis only against purchase orders for the shares. Shares of the Funds are offered to the public on a continuous basis.
The Distributor currently allows concessions to dealers who sell shares of the Funds. The Distributor receives that portion of the sales charge that is not reallowed to the dealers who sell shares of a Fund. The Distributor retains the entire sales charge on all direct initial investments in a Fund and on all investments in accounts with no designated dealer of record.
For the fiscal year ended March 31, 2008, the aggregate underwriting commissions on sales of the Trust's shares were $1,755,363 of which the Distributor paid $1,321,561 to unaffiliated broker-dealers in the selling network, earned $187,652 as a broker-dealer in the selling network and retained $246,151 in underwriting commissions.
For the fiscal year ended March 31, 2007, the aggregate underwriting commissions on sales of the Trust's shares were $2,464,893 of which the Distributor paid $1,914,488 to unaffiliated broker-dealers in the selling network, earned $176,019 as a broker-dealer in the selling network and retained $374,004 in underwriting commissions.
For the fiscal year ended March 31, 2006, the aggregate underwriting commissions on sales of the Trust's shares were $3,520,315 of which the Distributor paid $2,723,888 to unaffiliated broker-dealers in the selling network, earned $284,723 as a broker-dealer in the selling network and retained $516,664 in underwriting commissions.
The Distributor retains the contingent deferred sales charge on redemptions of shares of the Funds that are subject to a contingent deferred sales charge.
For the fiscal year ended March 31, 2008, the Distributor collected $4,542, $389, $79,995, $7,859, $1,869, $121,083 and $5 of contingent deferred sales charges on redemptions of Class B and Class C shares of the Growth Opportunities Fund, Large Cap Core Equity Fund, Large Cap Growth Fund, Large Cap Value Fund, Micro Cap Growth Fund, Mid Cap Growth Fund and Diversified Small Cap Growth Fund, respectively.
For the fiscal year ended March 31, 2007, the Distributor collected $10,423, $3,827, $157,796, $1,505, $11,558 and $160,553 of contingent deferred sales charges on redemptions of Class B and Class C shares of the Growth Opportunities Fund, Large Cap Core Equity Fund, Large Cap Growth Fund, Large Cap Value Fund, Micro Cap Growth Fund and Mid Cap Growth Fund, respectively.
For the fiscal year ended March 31, 2006, the Distributor collected $193,948, $3,659, $79,558 and $9,494 of contingent deferred sales charges on redemptions of Class B and Class C shares of the Mid Cap Growth Fund, the Large Cap Core Equity Fund, the Large Cap Growth Fund and the Micro Cap Growth Fund, respectively.
Ms. McGruder may be deemed to be an affiliate of the Distributor because she is a Director of the Distributor and an officer of affiliates of the Distributor. Ms. McGruder, by reason of such affiliation, may directly or indirectly be deemed to receive benefits from the underwriting fees paid to the Distributor.
The Distributor may from time to time pay from its own resources cash bonuses or other incentives to selected dealers in connection with the sale of shares of the Funds. On some occasions, such bonuses or incentives may be conditioned upon the sale of a specified minimum dollar amount of the shares of the Funds and/or other funds in the Touchstone Funds during a specific period of time. Such bonuses or incentives may include financial assistance to dealers in connection with conferences, sales or training programs for their employees, seminars for the public, advertising, sales campaigns and other dealer-sponsored programs or events. The Advisor, at its expense, may also provide additional compensation to certain affiliated and unaffiliated dealers, financial intermediaries or service providers for distribution, administrative and/or shareholder servicing activities. The Advisor may also reimburse the Distributor for making these payments.
The Funds may compensate dealers, including the Distributor and its affiliates, based on the average balance of all accounts in the Funds for which the dealer is designated as the party responsible for the account. See "Distribution Plans" below.
CLASS A SHARES. The Funds have adopted a plan of distribution (the "Class A Plan") pursuant to Rule 12b-1 under the 1940 Act which permits a Fund to pay for expenses incurred in the distribution and promotion of its shares, including but not limited to, the printing of prospectuses, SAIs, and reports used for sales purposes, advertisements, expenses of preparation and printing of sales literature, promotion, marketing and sales expenses, and other distribution-related expenses, including any distribution fees paid to securities dealers or other firms who have executed a distribution or service agreement with the Distributor. The Class A Plan expressly limits payment of the distribution expenses listed above in any fiscal year to a maximum of .25% of the average daily net assets of Class A shares of a Fund. Unreimbursed expenses will not be carried over from year to year.
For the fiscal period ended March 31, 2008, the aggregate distribution-related expenditures of the Growth Opportunities Fund, the Mid Cap Growth Fund, the Large Cap Growth Fund, the Large Cap Core Equity Fund, the Micro Cap Growth Fund, the Large Cap Value Fund and the Diversified Small Cap Growth Fund under the Class A Plan were $86,044, $1,837,436, $1,796,445, $242,263, $94,304, $76,535 and $22,626, respectively. Payments were to broker-dealers and others for advertising, printing and mailing, asset growth and retention and other expenses.
CLASS B SHARES. Each Fund (except the Large Cap Core Equity Fund, Micro Cap Growth Fund, Diversified Small Cap Growth Fund and Large Cap Value Fund) has also adopted a plan of distribution (the "Class B Plan") with respect to its Class B shares. The Class B Plan provides for two categories of payments. First, the Class B Plan provides for the payment to the Distributor of an account maintenance fee, in an amount equal to an annual rate of .25% of the average daily net assets of the Class B shares, which may be paid to other dealers based on the average value of Class B shares owned by clients of such dealers. In addition, a Fund may pay up to an additional .75% per annum of the daily net assets of the Class B shares for expenses incurred in the distribution and promotion of the shares, including prospectus costs for prospective shareholders, costs of responding to prospective shareholder inquiries, payments to brokers and dealers for selling and assisting in the distribution of Class B shares, costs of advertising and promotion and any other expenses related to the distribution of the Class B shares. Unreimbursed expenditures will not be carried over from year to year. A Fund may make payments to dealers and other persons in an amount up to .75% per annum of the average value of Class B shares owned by their clients, in addition to the .25% account maintenance fee described above.
For the fiscal year ended March 31, 2008, the aggregate distribution-related expenditures of the Growth Opportunities Fund, the Mid Cap Growth Fund and the Large Cap Growth Fund under the Class B Plan were $22,909, $731,820 and $300,676, respectively. Payments were to broker-dealers and others for advertising, printing and mailing, asset growth and retention and other expenses.
CLASS C SHARES. The Funds have also adopted a plan of distribution (the "Class C Plan") with respect to their Class C shares. The Class C Plan provides for two categories of payments. First, the Class C Plan provides for the payment to the Distributor of an account maintenance fee, in an amount equal to an annual rate of .25% of the average daily net assets of the Class C shares, which may be paid to other dealers based on the average value of Class C shares owned by clients of such dealers. In addition, a Fund may pay up to an additional .75% per annum of the daily net assets of the Class C shares for expenses incurred in the distribution and promotion of the shares, including prospectus costs for prospective shareholders, costs of responding to prospective shareholder inquiries, payments to brokers and dealers for selling and assisting in the distribution of Class C shares, costs of advertising and promotion and any other expenses related to the distribution of the Class C shares. Unreimbursed expenditures will not be carried over from year to year. The Funds may make payments to dealers and other persons in an amount up to .75% per annum of the average value of Class C shares owned by their clients, in addition to the .25% account maintenance fee described above.
For the fiscal period ended March 31, 2008, the aggregate distribution-related expenditures of the Growth Opportunities Fund, the Mid Cap Growth Fund, the Large Cap Growth Fund, the Large Cap Core Equity Fund, the Micro Cap Growth Fund, the Large Cap Value Fund and the Diversified Small Cap Growth Fund under the Class C Plan were $123,038, $3,479,564, $2,170,829, $37,777, $221,104, $157,927 and $5,292, respectively. Payments were to broker-dealers and others for advertising, printing and mailing, asset growth and retention and other expenses.
GENERAL INFORMATION. Agreements implementing the Plans (the "Implementation Agreements"), including agreements with dealers wherein such dealers agree for a fee to act as agents for the sale of the Funds' shares, are in writing and have been approved by the Board of Trustees. All payments made pursuant to the Plans are made in accordance with written agreements. Some financial intermediaries charge fees in excess of the amounts available under the Plans, in which case the Advisor pays the additional fees.
The continuance of the Plans and the Implementation Agreements must be specifically approved at least annually by a vote of the Trust's Board of Trustees and by a vote of the Independent Trustees who have no direct or indirect financial interest in the Plans or any Implementation Agreement at a meeting called for the purpose of voting on such continuance. A Plan may be terminated at any time by a vote of a majority of the Independent Trustees or by a vote of the holders of a majority of the outstanding shares of a Fund or the applicable class of a Fund. In the event a Plan is terminated in accordance with its terms, the affected Fund (or class) will not be required to make any payments for expenses incurred by the Distributor after the termination date. Each Implementation Agreement terminates automatically in the event of its assignment and may be terminated at any time by a vote of a majority of the Independent Trustees or by a vote of the holders of a majority of the outstanding shares of a Fund (or the applicable class) on not more than 60 days' written notice to any other party to the Implementation Agreement. The Plans may not be amended to increase materially the amount to be spent for distribution without shareholder approval. All material amendments to the Plans must be approved by a vote of the Trust's Board of Trustees and by a vote of the Independent Trustees.
In approving the Plans, the Trustees determined, in the exercise of their business judgment and in light of their fiduciary duties as Trustees, that there is a reasonable likelihood that the Plans will benefit the Funds and their shareholders. The Board of Trustees believes that expenditure of the Funds' assets for distribution expenses under the Plans should assist in the growth of the Funds, which will benefit each Fund and its shareholders through increased economies of scale, greater investment flexibility, greater portfolio diversification and less chance of disruption of planned investment strategies. The Plans will be renewed only if the Trustees make a similar determination for each subsequent year of the Plans. There can be no assurance that the benefits anticipated from the expenditure of the Funds' assets for distribution will be realized. While the Plans are in effect, all amounts spent by the Funds pursuant to the Plans and the purposes for which such expenditures were made must be reported quarterly to the Board of Trustees for its review. Distribution expenses attributable to the sale of more than one class of shares of a Fund will be allocated at least annually to each class of shares based upon the ratio in which the sales of each class of shares bears to the sales of all the shares of the Fund. In addition, the selection and nomination of those Trustees who are not interested persons of the Trust are committed to the discretion of the Independent Trustees during such period.
Jill T. McGruder, as an interested person of the Trust, may be deemed to have a financial interest in the operation of the Plans and the Implementation Agreements.
Decisions to buy and sell securities for the Funds and the placing of the Funds' securities transactions and negotiation of commission rates where applicable are made by the Sub-Advisors and are subject to review by the Advisor and the Board of Trustees. In the purchase and sale of portfolio securities, the Sub-Advisor's primary objective will be to obtain the most favorable price and execution for a Fund, taking into account such factors as the overall direct net economic result to the Fund (including commissions, which may not be the lowest available but ordinarily should not be higher than the generally prevailing competitive range), the financial strength and stability of the broker, the efficiency with which the transaction will be effected, the ability to effect the transaction at all where a large block is involved and the availability of the broker or dealer to stand ready to execute possibly difficult transactions in the future.
Set forth below are the brokerage commissions paid by the Funds during their three most recent fiscal years (or periods):
-------------------------------------------------------------------------------- NAME OF FUND FISCAL PERIOD COMMISSION AMOUNT -------------------------------------------------------------------------------- Growth Opportunities Fund 4-1-07 - 3-31-08 $105,373 -------------------------------------------------------------------------------- Growth Opportunities Fund 4-1-06 - 3-31-07 $315,965 -------------------------------------------------------------------------------- Growth Opportunities Fund 4-1-05 - 3-31-06 $196,719 -------------------------------------------------------------------------------- Large Cap Core Equity Fund 4-1-07 - 3-31-08 $130,630 -------------------------------------------------------------------------------- Large Cap Core Equity Fund 4-1-06 - 3-31-07 $63,017 -------------------------------------------------------------------------------- Large Cap Core Equity Fund 4-1-05 - 3-31-06 $7,805 -------------------------------------------------------------------------------- Mid Cap Growth Fund 4-1-07 - 3-31-08 $2,037,669 -------------------------------------------------------------------------------- Mid Cap Growth Fund 4-1-06 - 3-31-07 $1,668,351 -------------------------------------------------------------------------------- Mid Cap Growth Fund 4-1-05 - 3-31-06 $1,925,105 -------------------------------------------------------------------------------- Large Cap Growth Fund 4-1-07 - 3-31-08 $581,620 -------------------------------------------------------------------------------- Large Cap Growth Fund 4-1-06 - 3-31-07 $1,391,344 -------------------------------------------------------------------------------- Large Cap Growth Fund 4-1-05 - 3-31-06 $1,130,573 -------------------------------------------------------------------------------- Micro Cap Growth Fund 4-1-07 - 3-31-08 $241,079 -------------------------------------------------------------------------------- Micro Cap Growth Fund 4-1-06 - 3-31-07 $447,141 -------------------------------------------------------------------------------- Micro Cap Growth Fund 4-1-05 - 3-31-06 $401,769 -------------------------------------------------------------------------------- Large Cap Value Fund 4-1-07 - 3-31-08 $120,095 -------------------------------------------------------------------------------- Large Cap Value Fund 4-1-06 - 3-31-07 $132,470 -------------------------------------------------------------------------------- Large Cap Value Fund 3-6-06 - 3-31-06 $26,668 -------------------------------------------------------------------------------- Diversified Small Cap Growth Fund 4-1-07 - 3-31-08 $63,541 -------------------------------------------------------------------------------- Diversified Small Cap Growth Fund 9-6-06 - 3-31-07 $35,918 -------------------------------------------------------------------------------- |
The Diversified Small Cap Growth Fund's brokerage commissions increased significantly from the previous year due to the Fund having a full year of operations from March 31, 2007 through March 31, 2008. The Growth Opportunities Fund's brokerage commissions decreased significantly from the previous year because of the rebalancing of the portfolio due to the change in Sub-Advisors that occurred in July of 2006. The Large Cap Growth Fund's brokerage commissions decreased significantly from the previous year due to a decrease in the portfolio turnover. The Micro Cap Growth Fund's brokerage commissions decreased significantly from the previous year because of a decrease in assets of the Fund. The Large Cap Core Equity Fund's brokerage commissions increased significantly from the previous year because of a change in the Fund's investment strategy relating to the number of securities the Fund can hold.
Each Sub-Advisor is specifically authorized to pay a broker who provides research services to the Sub-Advisor an amount of commission for effecting a portfolio transaction in excess of the amount of commission another broker would have charged for effecting such transaction, in recognition of such additional research services rendered by the broker or dealer, but only if the Sub-Advisor determines in good faith that the excess commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer viewed in terms of the particular transaction or the Sub-Advisor's overall responsibilities with respect to discretionary accounts that it manages, and that the Fund derives or will derive a reasonably significant benefit from such research services.
During the fiscal year ended March 31, 2008, the amount of brokerage transactions and related commissions for the Funds directed to brokers due to research services provided were as follows:
BROKERAGE TRANSACTIONS BROKERAGE COMMISSIONS
DIRECTED TO RESEARCH FROM RESEARCH
-------------------- -------------
Growth Opportunities Fund $6,542,918 $7,185
Mid Cap Growth Fund $109,690,963 $141,961
Large Cap Growth Fund $110,964,306 $99,796
Micro Cap Growth Fund $5,516,160 $13,352
Large Cap Value Fund $24,190,213 $39,057
Large Cap Core Equity Fund $2,953,183 $3,567
Diversified Small Cap Growth Fund $1,952,199 $3,235
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Research services include securities and economic analyses, reports on issuers' financial conditions and future business prospects, newsletters and opinions relating to interest trends, general advice on the relative merits of possible investment securities for the Funds and statistical services and information with respect to the availability of securities or purchasers or sellers of securities. Although this information is useful to the Funds and the Sub-Advisors, it is not possible to place a dollar value on it. Research services furnished by brokers through whom a Fund effects securities transactions may be used by the Sub-Advisor in servicing all of its accounts and not all such services may be used by the Sub-Advisor in connection with a Fund. The Funds have no obligation to deal with any broker or dealer in the execution of securities transactions. However, the Funds may effect securities transactions that are executed on a national securities exchange or transactions in the over-the-counter market conducted on an agency basis. A Fund will not effect any brokerage transactions in its portfolio securities with an affiliated broker if such transactions would be unfair or unreasonable to its shareholders. Over-the-counter transactions will be placed either directly with principal market makers or with broker-dealers. Although the Funds do not anticipate any ongoing arrangements with other brokerage firms, brokerage business may be transacted from time to time with other firms. Affiliated broker-dealers of the Trust will not receive reciprocal brokerage business as a result of the brokerage business transacted by the Funds with other brokers. The Funds may direct transactions to certain brokers in order to reduce brokerage commissions through a commission recapture program offered by Lynch Jones & Ryan, Inc. The Funds may also participate in a custody offset program offered by Brown Brothers Harriman & Co. ("BBH"), the Trust's custodian, that provides a custody offset credit and a low commission rate for agency trades placed through BBH's brokerage firm that do not include research services. Under the BBH custody offset program, any payments or benefits accrued by or credited to a particular Fund are applied against the Fund's gross expenses. Accordingly, in the event that the Advisor waives or limits its fees or assumes other expenses of a Fund in accordance with the Expense Limitation Agreement described herein (collectively, "expense reimbursements"), payments or benefits accrued by or credited to the Fund under the custody offset program may reduce the expense reimbursements owed by the Advisor to the Fund.
In certain instances there may be securities that are suitable for a Fund as well as for one or more of the respective Sub-Advisor's other clients. Investment decisions for a Fund and for the Sub-Advisor's other clients are made with a view to achieving their respective investment objectives. It may develop that a particular security is bought or sold for only one client even though it might be held by, or bought or sold for, other clients. Likewise, a particular security may be bought for one or more clients when one or more clients are selling that same security. Some simultaneous transactions are inevitable when several clients receive investment advice from the same investment advisor, particularly when the same security is suitable for the investment objectives of more than one client. When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed to be equitable to each. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as a Fund is concerned. However, it is believed that the ability of a Fund to participate in volume transactions will produce better executions for the Fund.
During the fiscal year ended March 31, 2008, the Funds acquired common stock of the Trust's regular broker-dealers as follows:
NUMBER OF SHARES MARKET VALUE
FUND BROKER-DEALER ON 3-31-08 ON 3-31-08
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Large Cap Value Fund Wachovia Bank & Trust Company 54,900 $1,482,300
Citigroup Global Markets 74,400 $1,593,648
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The Trust, the Advisor, the Sub-Advisors and the Distributor 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 a Fund. The Code of Ethics adopted by each of the Trust, the Advisor, the Sub-Advisors and the Distributor is on public file with, and is available from, the SEC.
A Fund's portfolio turnover rate is calculated by dividing the lesser of purchases or sales of portfolio securities for the fiscal year by the monthly average of the value of the portfolio securities owned by the Fund during the fiscal year. High portfolio turnover involves correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Fund. High turnover may result in a Fund recognizing greater amounts of income and capital gains, which would increase the amount of commissions. A 100% turnover rate would occur if all of the Fund's portfolio securities were replaced once within a one-year period. The rate of portfolio turnover will depend upon market and other conditions, and will not be a limiting factor when the Sub-Advisor believes that portfolio changes are appropriate. A Fund may engage in active trading to achieve its investment goals and, as a result, may have substantial portfolio turnover.
The Touchstone Funds have adopted policies and procedures for disclosing the Funds' portfolio holdings to any person requesting this information. These policies and procedures are monitored on an on-going basis by the Board of Trustees through periodic reporting by the Funds' Chief Compliance Officer. The Chief Compliance Officer will report any material violations immediately to the Board of Trustees and will report any immaterial violations to the Board at the next quarterly meeting. No compensation will be received by a Fund, the Advisor, or any other party in connection with the disclosure of information about portfolio securities.
The procedures prohibit the disclosure of portfolio holdings except under the following conditions:
1) A request made by a Sub-Advisor for a Fund (or that portion of a Fund) that it manages;
2) A request by executive officers of the Advisor for routine oversight and management purposes;
3) For use in preparing and distributing routine shareholder reports, including disclosure to the Funds' independent registered public accounting firm, typesetter and printer. Routine shareholder reports are filed as of the end of each calendar quarter with the SEC within 60 days after the quarter end and routine shareholder reports are distributed to shareholders within 60 days after the six-month period. The Funds provide their full holdings to their registered public accounting firm annually, as of the end of their fiscal year, within one to ten business days after fiscal year end. The Funds provide their full holdings to their typesetter at least 30 days after the end of the calendar quarter. The Funds provide their full holdings to their printer at least 45 days after the six-month period.
o The Funds provide their top ten holdings on their publicly available website and to market data agencies monthly, as of the end of a calendar month, at least seven business days after month end.
o The Funds provide their full holdings on their publicly available website, and to market data agencies, their typesetter and printer, quarterly, as of the end of a calendar quarter, at least fifteen days after quarter end.
You may access the public website at www.touchstoneinvestments.com.
Employees of Touchstone Investments and the Funds' Sub-Advisors that are access persons under the Funds' Code of Ethics have access to Fund holdings on a regular basis, but are subject to confidentiality requirements and trading prohibitions in the Code of Ethics. In addition, custodians of the Funds' assets and the Funds' accounting services agent, each of whose agreements contains a confidentiality provision, have access to the current Fund holdings on a daily basis.
The Chief Compliance Officer is authorized to determine whether disclosure of a Fund's portfolio securities is for a legitimate business purpose and is in the best interests of the Fund and its shareholders. Any conflict between the interests of shareholders and the interests of the Advisor, the Distributor, or any affiliates, will be reported to the Board, which will make a determination that is in the best interests of shareholders.
The share price or net asset value ("NAV") and the public offering price (NAV plus applicable sales load) of shares of the Funds are normally determined as of the close of the regular session of trading on the New York Stock Exchange (currently 4:00 p.m. eastern time), each day the Trust is open for business. The Trust is open for business 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 when there is sufficient trading in a Fund's portfolio securities that its NAV might be materially affected. If a Fund holds foreign securities, they may be primarily listed on foreign exchanges or traded in foreign markets that are open on days (such as Saturdays and U.S. holidays) when the New York Stock Exchange is not open for business. As a result the NAV of a Fund holding foreign securities may be significantly affected by trading on days when the Trust is not open for business. For a description of the methods used to determine the share price and public offering price, see "Pricing of Fund Shares" in the Prospectuses.
Securities held by a Fund that do not have readily available market quotations, or securities for which the available market quotation is not reliable, are priced at their fair value using procedures approved by the Board of Trustees. Any debt securities held by a Fund for which market quotations are not readily available are generally priced at their most recent bid prices as obtained from one or more of the major market makers for such securities. If a Fund holds foreign securities, it may invest in foreign securities traded on markets that close prior to the time the Fund determines its NAV. The Funds may use fair value pricing if the exchange on which a portfolio security is principally traded closes early or if trading in a particular portfolio security was halted during the day and did not resume prior to the Fund's NAV calculation. The Funds may also use fair value pricing if the value of a security has been materially affected by events occurring before the Fund's pricing time but after the close of the primary markets on which the security is traded. The Funds may also use fair value pricing if reliable market quotations are unavailable due to infrequent trading. The use of fair value pricing has the effect of valuing a security based upon the price a Fund might reasonably expect to receive if it sold that security but does not guarantee that the security can be sold at the fair value price. With respect to any portion of a Fund's assets that is invested in other mutual funds, that portion of the Fund's NAV is calculated based on the NAV of that mutual fund. The prospectus for the other mutual fund explains the circumstances and effects of fair value pricing for that fund.
Each Fund offers the following classes of shares.
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CLASS A CLASS B CLASS C CLASS Y*
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Diversified Small Cap Growth Fund X X X
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Growth Opportunities Fund X X X
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Large Cap Core Equity Fund X X
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Large Cap Growth Fund X X X X
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Large Cap Value Fund X X
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Micro Cap Growth Fund X X X
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Mid Cap Growth Fund X X X
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*Prior to November 20, 2006, Class Y shares were named "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, distribution expense amounts and shareholder features. Before choosing a class, you should consider the following factors, as well as any other relevant facts and circumstances.
The decision as to which class of shares is more beneficial to you depends on the amount of your investment, the intended length of your investment and the quality and scope of the value-added services provided by financial advisors who may work with a particular sales load structure as compensation for their services. If you qualify for reduced front-end sales charges or, in the case of purchases of $1 million or more, no initial sales charge, you may find Class A shares attractive. Moreover, Class A shares are subject to lower ongoing expenses than Class B or Class C shares over the term of the investment. As an alternative, Class B and Class C shares are sold without an initial sales charge so the entire purchase price is immediately invested in a Fund. Any investment return on these investments may be partially or wholly offset by the higher annual expenses. However, because a Fund's future returns cannot be predicted, there can be no assurance that this would be the case. If your initial investment in the Micro Cap Growth Fund, Diversified Small Cap Growth Fund or Large Cap Growth Fund is $250,000 or more, you may find Class Y shares attractive since Class Y shares are sold without a sales charge or 12b-1 distribution fee. However, if you purchased your Class Y shares through an asset allocation program offered by your financial advisor, 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 offered by your financial advisor.
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. The Distributor 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 these value-added services can benefit you through market cycles.
Finally, you should consider the effect of the contingent deferred sales charge ("CDSC") and any conversion rights of each class in the context of your investment timeline. For example, Class C shares are generally subject to a significantly lower CDSC upon redemption than Class B shares, however, unlike Class B shares, they do not convert to Class A shares after a stated period of time. Class C shares, therefore, are subject to a 1.00% annual 12b-1 fee for an indefinite period of time, while Class B shares will convert to Class A shares after approximately eight years and will be subject to only a .25% annual 12b-1 fee. Thus, Class B shares may be more attractive than Class C shares if you have a longer-term investment outlook. On the other hand, if you are unsure of the length of time you intend to invest or the conversion feature is not attractive to you, you may wish to elect Class C shares.
THE CHART BELOW SHOW SALES CHARGES, 12B-1 FEES AND CONVERSION FEATURES FOR EACH CLASS:
CLASS SALES CHARGE 12B-1 FEE CONVERSION FEATURE
------------------------------------------------------------------------------------------------
A Maximum 5.75% initial sales charge 0.25% None
reduced for purchases of $50,000 and
over; purchases of $1 million or more
sold without an initial sales charge may
be subject to a 1.00% CDSC if redeemed
during 1st year and a commission was paid
to an unaffiliated dealer
B Maximum 5.00% CDSC during 1st year 1.00% Class B Shares automatically
that decreases incrementally and is convert to Class A shares
0 after 6 years after approximately 8 years
C 1.00% CDSC during 1st year 1.00% None
Y None None None
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CLASS A SHARES. Class A shares are sold at NAV plus an initial sales charge as shown in the table below. In some cases, reduced or waived initial sales charges for the purchase of Class A shares may be available, as described below. Class A shares are also subject to an annual 12b-1 distribution fee of up to .25% of a Fund's average daily net assets allocable to Class A shares
Sales Sales Dealer
Charge as Charge as % Reallowance
% of Offering of Net Amount as % of Net
Price Invested Amount Invested
--------------- --------------- ---------------
Less than $50,000 5.75% 6.10% 5.00%
$50,000 but less than $100,000 4.50% 4.71% 3.75%
$100,000 but less than $250,000 3.50% 3.63% 2.75%
$250,000 but less than $500,000 2.95% 3.04% 2.25%
$500,000 but less than $1,000,000 2.25% 2.30% 1.75%
$1,000,000 or more None None
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For initial purchases of Class A shares of $1 million or more and subsequent purchases further increasing the size of the account, participating unaffiliated dealers may receive compensation of up to 1.00% of such purchases from the Distributor according to the following schedule:
Amount of Investment Dealer Fee -------------------- ---------- $1 million but less than $3 million 1.00% $3 million but less than $5 million 0.75% $5 million but less than $25 million 0.50% $25 million or more 0.25% |
The Distributor does not have an annual reset for these fees. In determining a dealer's eligibility for such commission, purchases of Class A shares of the Funds may be aggregated with concurrent purchases of Class A shares of other Touchstone Funds. If a commission was paid to a participating unaffiliated dealer and the Class A shares are redeemed within a year of their purchase, a CDSC of 1.00% will be charged on the redemption. Dealers should contact the Distributor for more information on the calculation of the dealer's commission in the case of combined purchases.
An exchange from other Touchstone funds will not qualify for payment of the dealer's commission unless the exchange is from a Touchstone fund with assets as to which a dealer's commission or similar payment has not been previously paid. No commission will be paid if the purchase represents the reinvestment of a redemption from a Fund made during the previous twelve months. Redemptions of Class A shares may result in the imposition of a CDSC if the dealer's commission described in this paragraph was paid in connection with the purchase of such shares. See "CDSC for Certain Redemptions of Class A shares" below.
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. The amount of sales charge will depend on how long you have held your shares, as set forth in the following table:
YEAR SINCE PURCHASE PAYMENT MADE CDSC AS A % OF AMOUNT SUBJECT TO CHARGE
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First 5.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 1.00%
Seventh and thereafter* None
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* 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. The Distributor 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. The Distributor intends to pay a commission of 1.00% of the purchase amount to your broker at the time you purchase Class C shares.
CLASS Y SHARES. Class Y 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 a Fund. Class Y shares are offered through certain broker-dealers or financial institutions that have distribution agreements with the Distributor. 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 Y shares may also be purchased directly through the Distributor.
ADDITIONAL INFORMATION ON THE CDSC
The CDSC is waived under the following circumstances:
o Any partial or complete redemption following death or disability (as defined in the Internal Revenue Code) of a shareholder (including one who owns the shares with his or her spouse as a joint tenant with rights of survivorship) from an account in which the deceased or disabled is named. The Distributor may require documentation prior to waiver of the charge, including death certificates, physicians' certificates, etc.
o Redemptions from a systematic withdrawal plan. If the systematic withdrawal plan is based on a fixed dollar amount or number of shares, systematic withdrawal redemptions are limited to no more than 10% of your account value or number of shares per year, as of the date the transfer agent receives your request. If the systematic withdrawal plan is based on a fixed percentage of your account value, each redemption is limited to an amount that would not exceed 10% of your annual account value at the time of withdrawal.
o Redemptions from retirement plans qualified under Section 401 of the Internal Revenue Code. The CDSC will be waived for benefit payments made by Touchstone directly to plan participants. Benefit payments will include, but are not limited to, payments resulting from death, disability, retirement, separation from service, required minimum distributions (as described under Section 401(a)(9) of the Internal Revenue Code), in-service distributions, hardships, loans and qualified domestic relations orders. The CDSC waiver will not apply in the event of termination of the plan or transfer of the plan to another financial institution.
o Redemptions that are mandatory withdrawals from a traditional IRA account after age 70 1/2.
GENERAL. All sales charges imposed on redemptions are paid to the Distributor. In determining whether the CDSC is payable, it is assumed that shares not subject to the CDSC are the first redeemed followed by other shares held for the longest period of time. The CDSC will not be imposed upon shares representing reinvested dividends or capital gains distributions, or upon amounts representing share appreciation.
CDSC FOR CERTAIN REDEMPTIONS OF CLASS A SHARES. A CDSC is imposed upon certain redemptions of Class A shares of the Funds (or shares into which such Class A shares were exchanged) purchased at NAV in amounts totaling $1 million or more, if the dealer's commission described above was paid by the Distributor and the shares are redeemed within one year from the date of purchase. The CDSC will be paid to the Distributor and will be equal to the commission percentage paid at the time of purchase as applied to the lesser of (1) the NAV at the time of purchase of the Class A shares being redeemed, or (2) the NAV of such Class A shares at the time of redemption. If a purchase of Class A shares is subject to the CDSC, you will be notified on the confirmation you receive for your purchase. Redemptions of such Class A shares of the Funds held for at least one year will not be subject to the CDSC.
EXAMPLES. The following example will illustrate the operation of the CDSC. Assume that you open an account and purchase 1,000 shares at $10 per share and that six months later the NAV per share is $12 and, during such time, you have acquired 50 additional shares through reinvestment of distributions. If at such time you should redeem 450 shares (proceeds of $5,400), 50 shares will not be subject to the charge because of dividend reinvestment. With respect to the remaining 400 shares, the charge is applied only to the original cost of $10 per share and not to the increase in NAV of $2 per share. Therefore, $4,000 of the $5,400 redemption proceeds will pay the charge. At the rate of 5.00%, the CDSC would be $200 for redemptions of Class B shares. At the rate of 1.00%, the CDSC would be $40 for redemptions of Class C shares. In determining whether an amount is available for redemption without incurring a deferred sales charge, the purchase payments made for all shares in your account are aggregated.
The following example will illustrate the operation of the CDSC for Class B shares. Assume that you open an account and purchase 1,000 shares at $10 per share and that twenty-eight months later the NAV per share is $14 and, during such time, you have acquired (a) 150 additional shares through reinvestment of distributions and (b) 500 shares through purchases at $11 per share during the second year. If at such time you should redeem 1,450 shares (proceeds of $20,300), 150 shares will not be subject to the charge because of dividend reinvestment. With respect to the remaining 1,300 shares, the charge is applied only to the (a) original cost of $10 per share for the first 1,000 shares and not to the increase in NAV of $4 per share and (b) to the original cost of $11 per share for the next 300 shares and not to the increase in NAV of $3 per share. Therefore, $18,200 of the $20,300 redemption proceeds will pay the charge. The redemption of the first 1,000 shares is in the third year of the CDSC schedule and will be charged at the rate of 3.00%, or $300. The redemption of the next 300 shares is in the second year of the CDSC schedule and will be charged at the rate of 4.00%, or $132. After this transaction is completed, the account has 200 shares remaining with an initial purchase value of $11 per share and these shares are in the second year of the CDSC schedule.
WAIVER OF MINIMUM INVESTMENT REQUIREMENTS. The minimum and subsequent investment requirements for purchases in the Funds may not apply to:
1. Any director, officer or other employee (and their immediate family members) of Western & Southern Life Insurance Company or any of its affiliates or any portfolio advisor or service provider to the Trust.
2. Any employee benefit plan that is provided administrative services by a third-party administrator that has entered into a special service arrangement with the Distributor.
The minimum investment waivers are not available for Class Y shares of the Funds. Accounts that opened prior to November 20, 2006 are not subject to the minimum initial investment increases that became effective November 20, 2006.
WAIVER OF CLASS A SALES CHARGES. In addition to the categories of purchasers described in the prospectus from whom the sales charge on purchases of Class A shares of the Funds may be waived, Class A shares issued or purchased in the following transactions are not subject to sales charges (and no concessions are paid by the Distributor on such purchases):
1. purchases into a Fund by any director, officer, employee (and their immediate family members, as defined below), or current separate account client of or referral by a Sub-Advisor to that particular Fund;
2. purchases by any director, officer or other employee (and their immediate family members, as defined below) of Western & Southern Financial Group or any of its affiliates; and
3. purchases by any employees of JPMorgan (formerly Integrated Investment Services, Inc.), who provide services for Touchstone Investments.
Exemptions must be qualified in advance by the Distributor. At the option of the Trust, the front-end sales charge may be included on purchases by such persons in the future.
Immediate family members are defined as the spouse, parents, siblings, domestic partner, natural or adopted children, mother-in-law, father-in-law, brother-in-law, and sister-in-law of a director, officer or employee. The term "employee" is deemed to include current and retired employees.
WAIVER OF LARGE CAP GROWTH FUND CLASS A SALES CHARGE FOR FORMER NAVELLIER SHAREHOLDERS. Effective October 6, 2003, sales charges do not apply to Class A shares of the Large Cap Growth Fund purchased by former shareholders of the Navellier Performance Large Cap Growth Portfolio who are purchasing additional shares for their account or opening new accounts in the Large Cap Growth Fund.
WAIVER OF CLASS A SALES CHARGE FOR FORMER CONSTELLATION SHAREHOLDERS. Shareholders who owned shares of the Touchstone Fund Group Trust as of November 17, 2006 who are purchasing additional shares for their accounts or opening new accounts in any Touchstone Fund are not subject to the frond-end sales charge for purchases of Class A Shares. If you are purchasing shares through a financial intermediary, you must notify the intermediary at the time of purchase that a purchase qualifies for a sales load waiver and you may be required to provide copies of account statements verifying your qualification.
PURCHASES IN KIND. 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 objectives and is otherwise acceptable to the Advisor.
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 Funds are committed to pay redemptions in cash, rather than in kind, to any shareholder of record of a Fund who redeems during any ninety day period, the lesser of $250,000 or 1% of a Fund's NAV at the beginning of such period.
UNCASHED DISTRIBUTION CHECKS. If you elect to receive dividends and distributions in cash and the payment (1) is returned and marked as "undeliverable" or (2) is not cashed for six months, your cash election will be changed automatically and future dividends will be reinvested in the Fund at the per share net asset value determined as of the date of payment. In addition, any undeliverable checks or checks that are not cashed for six months will be cancelled and then reinvested in the Fund at the per share net asset value determined as of the date of cancellation.
The Trust intends to qualify annually and to elect that each Fund be treated as a regulated investment company under the Code. To qualify as a regulated investment company, each Fund must, among other things: (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale or other disposition of stock, securities or foreign currencies or other income derived with respect to its business of investing in such stock, securities or currencies; (b) diversify its holdings so that, at the end of each quarter of the taxable year, (i) at least 50% of the market value of the Fund's assets is represented by cash and cash items (including receivables), U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities of any one issuer limited for the purposes of this calculation to an amount not greater than 5% of the value of the Fund's total assets and not greater than 10% of the outstanding voting securities of such issuer and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer other than U.S. Government securities or the securities of other regulated investment companies); and (c) distribute at least 90% of its investment company taxable income (which includes, among other items, dividends, interest and net short-term capital gains in excess of net long-term capital losses) and its net tax-exempt interest income, if any, each taxable year.
As a regulated investment company, each Fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gains (the
excess of net long-term capital gains over net short-term capital losses), if
any, that it distributes to shareholders. The Fund intends to distribute to its
shareholders, at least annually, substantially all of its investment company
taxable income and net capital gains. Amounts not distributed on a timely basis
in accordance with a calendar year distribution requirement are subject to a
nondeductible 4% excise tax. To prevent imposition of the excise tax, the Fund
must distribute during each calendar year an amount equal to the sum of: (1) at
least 98% of its ordinary income (not taking into account any capital gains or
losses) for the calendar year; (2) at least 98% of its capital gains in excess
of its capital losses (adjusted for certain ordinary losses, as prescribed by
the Code) for the one-year period ending on October 31 of the calendar year; and
(3) any ordinary income and capital gains for previous years that was not
distributed during those years. A distribution will be treated as paid on
December 31 of the current calendar year if it is declared by the Fund in
October, November or December with a record date in such a month and paid by the
Fund during January of the following calendar year. Such distributions will be
taxable to shareholders in the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are received.
To prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement.
A Fund's net realized capital gains from securities transactions will be distributed only after reducing such gains by the amount of any available capital loss carryforwards. Capital losses may be carried forward to offset any capital gains for eight years, after which any undeducted capital loss remaining is lost as a deduction. As of March 31, 2008, the following Funds had capital loss carryforwards for federal income tax purposes.
AMOUNT EXPIRATION DATE
Diversified Small Cap Growth Fund $11,436,443 March 31, 2014
Growth Opportunities Fund $21,887,780 March 31, 2011
$17,098,132 March 31, 2012
$1,976,702 March 31, 2013
Large Cap Growth Fund* $26,177,120 March 31, 2015
Micro Cap Growth Fund $2,247,184 March 31, 2015
--------------------------------------------------------------------------------
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*A portion of these capital loss carryforwards may be limited under tax regulations.
Each shareholder will receive, if appropriate, various written notices at the end of the calendar year as to the federal income status of his dividends and distributions that were received from the Fund during the year. Shareholders should consult their tax advisors as to any state and local taxes that may apply to these dividends and distributions.
FOREIGN TAXES. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. It is impossible to determine the effective rate of foreign tax in advance since the amount of each applicable Fund's assets to be invested in various countries will vary. If the Fund is liable for foreign taxes, and if more than 50% of the value of the Fund's total assets at the close of its taxable year consists of stocks or securities of foreign corporations, it may make an election pursuant to which certain foreign taxes paid by it would be treated as having been paid directly by shareholders of the entities, such as the corresponding Fund, which have invested in the Fund. Pursuant to such election, the amount of foreign taxes paid will be included in the income of the corresponding Fund's shareholders, and such Fund shareholders (except tax-exempt shareholders) may, subject to certain limitations, claim either a credit or deduction for the taxes. Each such Fund shareholder will be notified after the close of the Fund's taxable year whether the foreign taxes paid will "pass through" for that year and, if so, such notification will designate (a) the shareholder's portion of the foreign taxes paid to each such country and (b) the portion which represents income derived from sources within each such country. The amount of foreign taxes for which a shareholder may claim a credit in any year will generally be subject to a separate limitation for "passive income," which includes, among other items of income, dividends, interest and certain foreign currency gains. Because capital gains realized by the Fund on the sale of foreign securities will be treated as U.S.-source income, the available credit of foreign taxes paid with respect to such gains may be restricted by this limitation.
DISTRIBUTIONS. Dividends paid out of the Fund's investment company taxable income will be taxable to U.S. shareholders, other than corporations, at the qualified dividend income rate of 15%, or 0% for lower income levels and may qualify for the corporate dividends-received deduction, to the extent derived from qualified dividend income. Distributions of net capital gains, if any, designated as capital gain dividends are taxable as long-term capital gains, regardless of how long the shareholder has held the Fund's shares, and are not eligible for the dividends-received deduction. Shareholders receiving distributions in the form of additional shares, rather than cash, generally will have a cost basis in each such share equal to the NAV of a share of the Fund on the reinvestment date. Shareholders will be notified annually as to the U.S. federal tax status of distributions.
SALE OF SHARES. Any gain or loss realized by a shareholder upon the sale or other disposition of any shares of a Fund, or upon receipt of a distribution in complete liquidation of a Fund, generally will be a capital gain or loss which will be long-term or short-term, generally depending upon the shareholder's holding period for the shares. Any loss realized on a sale or exchange will be disallowed to the extent the shares disposed of are replaced (including shares acquired pursuant to a dividend reinvestment plan) within a period of 61 days beginning 30 days before and ending 30 days after disposition of the shares. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Any loss realized by a shareholder on a disposition of Fund shares held by the shareholder for six months or less will be treated as a long-term capital loss to the extent of any distributions of net capital gains received by the shareholder with respect to such shares.
TIMING OF INVESTMENT. At the time of a shareholder's purchase of a Fund's shares, a portion of the purchase price may be attributable to realized or unrealized appreciation in the Fund's portfolio or undistributed taxable income of the Fund. Consequently, subsequent distributions by the Fund with respect to these shares from such appreciation or income may be taxable to such shareholder even if the NAV of the shareholder's shares is, as a result of the distributions, reduced below the shareholder's cost for such shares and the distributions economically represent a return of a portion of the investment.
FOREIGN WITHHOLDING TAXES. Income received by a Fund from sources within foreign countries may be subject to withholding and other taxes imposed by such countries.
BACKUP WITHHOLDING. A Fund may be required to withhold U.S. federal income tax on all taxable distributions 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 a Fund may be different from those described herein. Foreign shareholders are advised to consult their tax advisors with respect to their particular tax consequences from an investment in a Fund.
OTHER TAXATION. Shareholders may be subject to state and local taxes on their Fund distributions. Shareholders are advised to consult their own tax advisors with respect to the particular tax consequences to them of an investment in a Fund.
As of July 7, 2008, the following shareholders owned of record or beneficially over 5% of the outstanding shares of a class of a Fund.
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FUND SHAREHOLDER % OF CLASS
--------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund - Charles Schwab & Company, Inc. 20.23%
Class A Cust SPL Custody Bnft
101 Montgomery Street San Francisco, CA
--------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund - Merrill Lynch, Pierce Fenner & Smith Incorporated** 29.01%
Class A For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
--------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund - Merrill Lynch, Pierce Fenner & Smith Incorporated** 38.10%
Class B For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
--------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund - Merrill Lynch, Pierce Fenner & Smith Incorporated** 54.67%
Class C For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
--------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund - National Financial Services 18.01%
Class Y 200 Liberty Street, 1 World
New York, NY
--------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund - Fidelity Investments Institutional 20.31%
Class Y 100 Magellan Way
Covington, KY
--------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund - SEI Private Trust Company 19.40%
Class Y C/O Suntrust Bank
One Freedom Valley Drive Oaks, PA
--------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund - US Bank 5.06%
Class Y FBO Newport Net
P.O. Box 1787 Milwaukee, WI
--------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund - Prudential Investment Mutual Fund 9.28%
Class Y 100 Mulberry Street
Newark, NJ
--------------------------------------------------------------------------------------------------------------
Growth Opportunities Fund - Class A Charles Schwab & Company, Inc. 5.68%
Mutual Funds - Special Custody
101 Montgomery Street San Francisco, CA
--------------------------------------------------------------------------------------------------------------
Growth Opportunities Fund-Class A Merrill Lynch, Pierce Fenner & Smith Incorporated 5.35%
For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
--------------------------------------------------------------------------------------------------------------
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Growth Opportunities Fund-Class C Merrill Lynch, Pierce Fenner & Smith Incorporated 10.30%
For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
--------------------------------------------------------------------------------------------------------------
Mid Cap Growth Fund-Class A Merrill Lynch, Pierce Fenner & Smith Incorporated 9.41%
For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
--------------------------------------------------------------------------------------------------------------
Mid Cap Growth Fund-Class A Charles Schwab & Company, Inc. 5.54%
Mutual Funds - Special Custody
101 Montgomery Street San Francisco, CA
--------------------------------------------------------------------------------------------------------------
Mid Cap Growth Fund-Class B Merrill Lynch, Pierce Fenner & Smith Incorporated 15.68%
For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
--------------------------------------------------------------------------------------------------------------
Mid Cap Growth Fund-Class C Merrill Lynch, Pierce Fenner & Smith Incorporated** 31.58%
For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
--------------------------------------------------------------------------------------------------------------
Large Cap Core Equity Fund-Class A Fifth Third Bank - Trustee 14.45%
FBO Various Fascorp Record Kept Plans
8515 E. Orchard 2T2 Centennial, CO
--------------------------------------------------------------------------------------------------------------
Large Cap Core Equity Fund-Class A The Western & Southern Life Insurance Co.*,** 39.48%
400 Broadway Cincinnati, OH
--------------------------------------------------------------------------------------------------------------
Large Cap Core Equity Fund-Class A The Western & Southern Financial Group*,** 27.56%
400 Broadway Cincinnati, OH
--------------------------------------------------------------------------------------------------------------
Large Cap Core Equity Fund - Class C Merrill Lynch, Pierce Fenner & Smith Incorporated 10.18%
For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
--------------------------------------------------------------------------------------------------------------
Large Cap Core Equity Fund - Class C The Western & Southern Life Insurance Co.* 12.27%
400 Broadway Cincinnati, OH
--------------------------------------------------------------------------------------------------------------
Large Cap Core Equity Fund - Class C The Western & Southern Financial Group* 8.64%
400 Broadway Cincinnati, OH
--------------------------------------------------------------------------------------------------------------
Micro Cap Growth Fund-Class A Western & Southern Life Insurance Co.*, ** 27.55%
400 Broadway Cincinnati, OH
--------------------------------------------------------------------------------------------------------------
Micro Cap Growth Fund-Class A Merrill Lynch, Pierce Fenner & Smith Incorporated 11.50%
For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
--------------------------------------------------------------------------------------------------------------
Micro Cap Growth Fund-Class C Merrill Lynch, Pierce Fenner & Smith Incorporated** 34.35%
For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
--------------------------------------------------------------------------------------------------------------
Micro Cap Growth Fund-Class Y RBC Capital Markets Corp FBO Jon Larson 7.02%
--------------------------------------------------------------------------------------------------------------
Micro Cap Growth Fund-Class Y RBC Capital Markets Corp FBO Madeline Galkin 5.81%
--------------------------------------------------------------------------------------------------------------
Micro Cap Growth Fund-Class Y RBC Capital Markets Corp FBO Painted Quail LLC 8.77%
--------------------------------------------------------------------------------------------------------------
Micro Cap Growth Fund-Class Y RBC Capital Markets Corp FBO Thomas 9.64%
--------------------------------------------------------------------------------------------------------------
Large Cap Value Fund-Class A National Financial Services FBO John Swanson 12.69%
--------------------------------------------------------------------------------------------------------------
Large Cap Value Fund-Class A Western & Southern Life Insurance Co.*,** 33.15%
400 Broadway Cincinnati, OH
--------------------------------------------------------------------------------------------------------------
Large Cap Value Fund -Class C Merrill Lynch, Pierce Fenner & Smith Incorporated 8.46%
For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
--------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Fund Western & Southern Financial Group* 24.69%
-Class A 400 Broadway Cincinnati, OH
--------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Fund Fifth Third Bank - Trustee 14.13%
-Class A FBO Various Fascorp Record Kept Plans
8515 E. Orchard 2T2 Centennial, CO
--------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Fund Western & Southern Financial Group*,** 41.06%
-Class Y 400 Broadway Cincinnati, OH
--------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Fund Prudential Investment Mutual Fund** 49.81%
-Class Y 100 Mulberry Street
Newark, NJ
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* Indicates that shares are held beneficially.
** May be deemed to control a class because it owned beneficially more than 25% of the outstanding shares as of July 7, 2008.
As of July 7, 2008, the Trustees and officers of the Trust as a group owned of record or beneficially less than 1% of the outstanding shares of the Trust and of each Fund (or class thereof).
Brown Brothers Harriman & Co. ("BBH"), 40 Water Street, Boston, MA 02109, serves as the Trust's custodian. BBH acts as the Trust's depository, safe keeps its portfolio securities, collects all income and other payments with respect thereto, disburses funds as instructed and maintains records in connection with its duties.
The firm of Ernst & Young LLP has been selected as the independent registered public accounting firm for the Trust for the fiscal year ending March 31, 2009. The independent accountants will perform an audit of the Trust's financial statements for its fiscal year end and advise the Trust as to certain accounting matters.
TRANSFER AGENT. The Trust's transfer agent, JPMorgan, is located at 303 Broadway, Suite 900, Cincinnati, Ohio 45202. JPMorgan maintains the records of each shareholder's account, answers shareholders' inquiries concerning their accounts, processes purchases and redemptions of the Funds' shares, acts as dividend and distribution disbursing agent and performs other shareholder service functions. For providing transfer agent and shareholder services to the Trust, JPMorgan receives a monthly per account fee from each Fund, plus out of-pocket expenses.
The Funds may also pay a fee to certain servicing organizations (such as broker-dealers and financial institutions) that provide sub-transfer agency services. These services include maintaining shareholder records, processing shareholder transactions and distributing communications to shareholders.
SUB-ADMINISTRATIVE AGENT. Effective January 1, 2007, the Advisor began providing administrative services to the Trust under an Administration Agreement and has sub-contracted certain accounting and administrative services to JPMorgan. The sub-administrative services sub-contracted to JPMorgan include accounting and pricing services, SEC and state security filings, providing executive and administrative services and providing reports for meetings of the Board of Trustees. The Advisor pays JPMorgan a sub-administrative fee out of its administration fee. Set forth below are the sub-administration fees paid by the Advisor to JPMorgan during the stated periods:
SUB-ADMINISTRATIVE FEES FOR THE FISCAL YEAR FOR THE PERIOD
ENDED 03/31/08 01/01/07 - 03/31/07
-------------- -------------------
Mid Cap Growth Fund $920,499 $224,619
Large Cap Core Equity Fund $80,161 $20,306
Growth Opportunities Fund $39,007 $11,486
Micro Cap Growth Fund $48,013 $15,114
Large Cap Value Fund $36,924 $8,146
Large Cap Growth Fund $794,217 $201,123
Diversified Small Cap Growth Fund $13,830 $2,284
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ACCOUNTING AND PRICING FEES. Prior to January 1, 2007, the Funds paid JPMorgan an accounting service fee based on the asset size of the Fund, plus out-of-pocket expenses and the costs of outside pricing services. Set forth below are the accounting service fees paid by the Funds to JPMorgan during the stated fiscal periods:
ACCOUNTING SERVICE FEES
3-31-06 - 3-31-05 -
12-31-06 3-31-06
------------------------
Mid Cap Growth Fund $51,750 $69,000
Large Cap Core Equity Fund $29,125 $39,000
Growth Opportunities Fund $34,750 $51,000
Micro Cap Growth Fund $33,750 $43,976
Large Cap Value Fund $23,625 $2,621
Large Cap Growth Fund $57,375 $76,500
09-06-06
12-31-06
--------
Diversified Small Cap Growth Fund $10,347
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ADMINISTRATION FEES. Prior to January 1, 2007, JPMorgan provided administrative services to the Funds and the Funds paid JPMorgan an administrative service fee based on the asset size of the Funds. Set forth below are the administrative service fees paid by the Funds to JPMorgan during the stated fiscal periods:
ADMINISTRATIVE SERVICE FEES (JPMORGAN)
3-31-06 3-31-05 -
12-31-06 3-31-06
------------------------
Mid Cap Growth Fund $309,976 $384,261
Large Cap Core Equity Fund $26,311 $11,000
Growth Opportunities Fund $32,169 $61,496
Micro Cap Growth Fund $35,129 $36,599
Large Cap Value Fund $9,534 $424
Large Cap Growth Fund $332,190 $296,223
9-06-06
12-31-06
--------
Diversified Small Cap Growth Fund $1,870
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Effective January 1, 2007, the Advisor provides administrative services to the Funds and the Funds pay the Advisor an administrative service fee based on the asset size of the Funds. Set forth below are the administrative service fees paid by the Funds to the Advisor during the stated periods:
ADMINISTRATIVE FEES (ADVISOR) FOR THE FISCAL YEAR FOR THE PERIOD
ENDED 03/31/08 01/01/07 - 03/31/07
-------------- -------------------
Mid Cap Growth Fund $2,312,246 $553,216
Large Cap Core Equity Fund $201,368 $32,721
Growth Opportunities Fund $98,026 $28,499
Micro Cap Growth Fund $120,776 $37,205
Large Cap Value Fund $92,832 $19,937
Large Cap Growth Fund $1,993,889 $497,624
Diversified Small Cap Growth Fund $34,534 $5,612
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COMPLIANCE SERVICE FEES. JPMorgan provides compliance program development, implementation and administration services to the Trust pursuant to a Compliance Services Agreement entered into on October 5, 2004. For providing compliance services to the Trust, the Funds pay a one-time compliance program development and implementation fee plus an annual compliance administration fee. The Funds also pay other costs and expenses incurred in connection with the services provided under the Compliance Services Agreement. Set forth below are the compliance fees and expenses paid by the Funds during the stated periods:
COMPLIANCE FEES FOR THE FISCAL YEAR FOR THE FISCAL YEAR FOR THE FISCAL YEAR
ENDED 03/31/08 ENDED 03/31/07 ENDED 03/31/06
-------------- -------------- --------------
Mid Cap Growth Fund $4,400 $4,714 $3,601
Large Cap Core Equity Fund $1,754 $1,514 $24
Growth Opportunities Fund $1,016 $657 $553
Micro Cap Growth Fund $1,104 $736 $219
Large Cap Value Fund $968 $700 $10
Large Cap Growth Fund $4,195 $5,093 $1,975
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FOR THE FISCAL YEAR FOR THE PERIOD
ENDED 03/31/08 09/06/06 - 03/31/07
-------------- -------------------
Diversified Small Cap Growth Fund $480 $600
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The Funds' annual financial statements as of March 31, 2008 appear in the Trust's Annual Report, which is incorporated by reference herein. The Trust's annual financial statements were audited by Ernst & Young LLP. The Funds' semiannual financial statements as of September 30, 2007 appear in the Trust's Semiannual Report, which is incorporated by reference into this SAI. The Trust's semiannual financial statements are unaudited.
BOND AND COMMERCIAL PAPER RATINGS
Set forth below are descriptions of the ratings of Moody's, S&P and Fitch, which represent their opinions as to the quality of the securities which they undertake to rate. It should be emphasized, however, that ratings are relative and subjective and are not absolute standards of quality.
MOODY 'S BOND RATINGS
Aaa Bonds that are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuations of protective elements may be of greater amplitude or
there may be other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A Bonds that are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds that are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B Bonds that are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
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C Bonds that are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
S&P'S BOND RATINGS
AAA Bonds rated AAA have the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from higher rated issues only in a small degree.
A Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in the highest rated categories.
BBB Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories.
BB, B, Bonds rated BB, B, CCC, CC, and C are regarded, on balance, as
CCC, predominantly speculative with respect to capacity to pay interest and
CC, C repay principal in accordance with the terms of this obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, they are outweighed by large uncertainties
of major risk exposures to adverse conditions.
D Bonds rated D are in default, and payment of interest and/or repayment
of principal is in arrears.
Plus (+) or Minus (-). The ratings from "AA" to "CCC" may be modified by
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the addition of a plus or minus sign to show relative standing within the major rating categories.
NR Not rated.
FITCH RATINGS:
AAA - "AAA ratings denote the lowest expectation of credit risk. They are assigned only in cases of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events."
AA - "AA ratings denote a very low expectation of credit risk. They indicate strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events."
A - "A ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings."
BBB - "BBB ratings indicate that there is currently a low expectation of credit risk. Capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment grade category."
BB - "BB ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade."
B - "B ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment."
CCC, CC, C - "Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A 'CC' rating indicates that default of some kind appears probable. 'C' ratings signal imminent default."
DDD, DD and D - "Securities are not meeting current obligations and are extremely speculative. 'DDD' designates the highest potential for recovery of amounts outstanding on any securities involved. For U.S. corporates, for example, 'DD' indicates expected recovery of 50%-90% of such outstanding, and 'D' the lowest recovery potential, i.e. below 50%."
UNRATED. Where no rating has been assigned or where a rating has been suspended or withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the effect of which preclude satisfactory analysis; if there is no longer available reasonable up-to-date data to permit a judgment to be formed; if a bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A, Baa, Ba and B groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aa-1, A-1, Baa-1, Ba-1 and B-1.
S&P'S COMMERCIAL PAPER RATINGS
A. S& P's commercial paper rating is a current opinion of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into several categories, ranging from "A" for the highest-quality obligations to "D" for the lowest. These categories are as follows:
A-1 This designation indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation.
A-2 Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated "A-1."
A-3 Issues carrying this designation have an adequate capacity for timely payment. The are, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations.
B Issues rated "B" are regarded as having only speculative capacity for timely payment.
C This rating is assigned to short-term debt obligations with a doubtful capacity for payment.
D Debt rated "D" is in payment default. The "D" rating category is used when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired, unless S&P believes such payments will be made during such grace period.
MOODY'S COMMERCIAL PAPER RATINGS
Issuers rated Prime-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well-established industries; high rates of return on funds employed; conservative capitalization structures with moderate reliance on debt and ample asset protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; well-established access to a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable capacity for repayment of short-term promissory obligations. The effect of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and the requirement for relatively high financial leverage. Adequate alternate liquidity is maintained.
MOODY'S CORPORATE NOTE RATINGS
MIG-1 "Notes which are rated MIG-1 are judged to be of the best quality.
There is present strong protection by established cash flows,
superior liquidity support or demonstrated broad-based access to the
market for refinancing."
MIG-2 "Notes which are rated MIG-2 are judged to be of high quality.
Margins of protection are ample although not so large as in the
preceding group."
S&P'S CORPORATE NOTE RATINGS
SP-1 "Debt rated SP-1 has very strong or strong capacity to pay principal
and interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation."
SP-2 "Debt rated SP-2 has satisfactory capacity to pay principal and
interest."
SP-3 "Debt rated SP-3 has speculative capacity to pay principal and
interest."
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PART C. OTHER INFORMATION
ITEM 23. EXHIBITS:
(a)(1) 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, are herein incorporated by reference to Exhibit (b)(1) of Post-Effective Amendment No. 36 to Registrant's Registration Statement on Form N-1A (File No. 002-80859), filed with the SEC on July 31, 1998.
(a)(2) Amendment No. 4 to Restated Agreement and Declaration of Trust dated February 12, 1998 and Amendments to Restated Agreement and Declaration of Trust dated March 16, 2000 and April 6, 2000 are herein incorporated by reference to Exhibit (a) of Post-Effective Amendment No. 42 to Registrant's Registration Statement on Form N-1A (File No. 002-80859), filed with the SEC on August 1, 2000.
(a)(3) Amendments to Restated Agreement and Declaration of Trust dated September 21, 2000 and March 27, 2001 are herein incorporated by reference to Exhibit (a) of Post-Effective Amendment No. 45 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2001.
(a)(4) Amendment to Restated Agreement and Declaration of Trust dated August 28, 2002 is herein incorporated by reference to Exhibit (a) of Post-Effective Amendment No. 48 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on September 6, 2002.
(a)(5) Amendment to Restated Agreement and Declaration of Trust dated November 7, 2002 is herein incorporated by reference to Exhibit (a) of Post-Effective Amendment No. 49 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2003.
(a)(6) Amendment to Restated Agreement and Declaration of Trust dated April 14, 2004 is herein incorporated by reference to Exhibit (1) of Post-Effective Amendment No. 54 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on July 30, 2004.
(a)(7) Amendment to Restated Agreement and Declaration of Trust dated January 3, 2006 is herein incorporated by reference to Exhibit (a) of Post-Effective Amendment No. 60 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on March 1, 2006.
(b) By-Laws and Amendments to By-Laws dated July 17, 1984 and April 5, 1989 are herein incorporated by reference to Exhibit (b)(2) of Post-Effective Amendment No. 36 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on July 31, 1998.
(c) Instruments Defining Rights of Security Holders are herein incorporated by reference to Exhibit (c) of Post-Effective Amendment No. 65 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on November 20, 2006.
(d)(1) Advisory Agreement with Touchstone Advisors, Inc. is herein incorporated by reference to Exhibit (d)(1) of Post-Effective Amendment No. 67 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2007.
(d)(2) Sub-Advisory Agreement between Touchstone Advisors, Inc. and TCW Investment Management Company dated May 1, 2001 with respect to the Mid Cap Growth Fund (formerly the Emerging Growth Fund) is herein incorporated by reference to Exhibit (d)(iv) of Post-Effective Amendment No. 45 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2001.
(d)(3) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Westfield Capital Management, LP with respect to the Mid Cap Growth Fund is filed herewith.
(d)(4) Form of Subadvisory Agreement between Touchstone Advisors, Inc. and Navellier & Associates, Inc. for the Large Cap Growth Fund is herein incorporated by reference to Exhibit (3) of Post-Effective Amendment No. 54 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on July 30, 2004.
(d)(5) Amendment to Sub-Advisory Agreement with Navellier & Associates, Inc. is herein incorporated by reference to Exhibit (d)(vi)(b) of Post-Effective Amendment No. 57 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on June 2, 2005.
(d)(6) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Todd Investment Advisors, Inc. for the Large Cap Core Equity Fund is herein incorporated by reference to Exhibit (d)(vii) of Post-Effective Amendment No. 49 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2003.
(d)(7) Amendment to Sub-Advisory Agreement between Touchstone Advisors, Inc. and Todd Investment Advisors, Inc. with respect to the Large Cap Core Equity Fund is herein incorporated by reference to Exhibit (d)(7) of Post-Effective Amendment No. 67 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2007.
(d)(8) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Bjurman, Barry & Associates for the Micro Cap Growth Fund is herein incorporated by reference to Exhibit (4) of Post-Effective Amendment No. 54 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on July 30, 2004.
(d)(9) Addendum to Sub-Advisory Agreement between Touchstone Advisors, Inc. and Bjurman, Barry & Associates for the Micro Cap Growth Fund is filed herewith.
(d)(10) Form of Sub-Advisory Agreement between Touchstone Advisors, Inc. and JS
Asset Management LLC is herein incorporated by reference to Exhibit
(d)(xi) of Post-Effective Amendment No. 60 to Registrant's Registration
Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with
the SEC on March 1, 2006.
(d)(11) Sub-Advisory Agreement between Touchstone Advisor, Inc. and Westfield Capital Management Company, LP with respect to the Growth Opportunities Fund is filed herewith.
(d)(12) Sub-Advisory Agreement between Touchstone Advisor, Inc. and Fort
Washington Investment Advisors, Inc. with respect to the Diversified
Small Cap Growth Fund is herein incorporated by reference to Exhibit
(d)(15) of Post-Effective Amendment No. 67 to Registrant's Registration
Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with
the SEC on August 1, 2007.
(d)(13) Addendum to Sub-Advisory Agreement between Touchstone Advisor, Inc. and Fort Washington Investment Advisors, Inc. with respect to the Diversified Small Cap Growth Fund is herein incorporated by reference to Exhibit (d)(16) of Post-Effective Amendment No. 67 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2007.
(d)(14) Addendum to Sub-Advisory Agreement between Touchstone Advisor, Inc. and Fort Washington Investment Advisors, Inc. with respect to the Diversified Small Cap Growth Fund is filed herewith.
(e)(1) Distribution Agreement with Touchstone Securities, Inc. is herein incorporated by reference to Exhibit (e)(i) of Post-Effective Amendment No. 45 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2001.
(e)(2) Form of Underwriter's Dealer Agreement is herein incorporated by reference to Exhibit (e) of Post-Effective Amendment No. 56 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on September 10, 2004.
(f) Touchstone Trustee Deferred Compensation Plan is herein incorporated by reference to Exhibit (b)(7) of Post-Effective Amendment No. 43 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on March 1, 2001.
(g)(1) Custodian Agreement with Brown Brothers Harriman & Co. is filed herewith.
(g)(2) Form of Securities Lending Agreement is herein incorporated by reference to Exhibit (g)(ii) of Post-Effective Amendment No. 49 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2003.
(g)(3) Amendments to Securities Lending Agreement are filed herewith.
(g)(4) Novation and Amendment to Securities Lending Agreement dated February 25, 2008 is filed herewith.
(g)(5) Custody Fee Offset Agreement with Brown Brothers Harriman & Co. is herein incorporated by reference to Exhibit (g)(iii) of Post-Effective Amendment No. 58 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2005.
(h)(1) Recordkeeping Agreement is herein incorporated by reference to Exhibit
(h)(vii) of Post-Effective Amendment No. 51 to Registrant's
Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on March 5, 2005.
(h)(2) Amended Transfer Agency Agreement with JPMorgan Chase Bank, N.A. (formerly Integrated Investment Services) dated January 1, 2007 is herein incorporated by reference to Exhibit (h)(6) of Post-Effective Amendment No. 67 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2007.
(h)(3) Amended Administration Agreement with Touchstone Advisors, Inc. dated January 1, 2007 is herein incorporated by reference to Exhibit (h)(8) of Post-Effective Amendment No. 67 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2007.
(h)(4) Amended Sub-Administration Agreement between Touchstone Advisors, Inc. and JPMorgan Chase Bank, N.A. dated September 17, 2007 is filed herewith.
(h)(5) Addendum to Amended Sub-Administration Agreement dated December 31, 2007 is filed herewith.
(h)(6) Allocation Agreement for Allocation of Fidelity Bond Proceeds is filed herewith.
(h)(7) Amended Expense Limitation Agreement with Touchstone Advisors, Inc. is filed herewith.
(h)(8) Amended i-Compliance Services Agreement with JPMorgan Chase Bank, N.A. is filed herewith.
(i) Opinion and Consent of Counsel is is herein incorporated by reference to Exhibit (h)(6) of Post-Effective Amendment No. 67 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2007.
(j) Auditor's Consent is filed herewith.
(k) Not Applicable.
(l) 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)(1) Registrant's Plans of Distribution Pursuant to Rule 12b-1 for Class A Shares and Class C Shares are herein incorporated by reference to Exhibit (m)(1) of Post- Effective Amendment No. 42 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2000.
(m)(2) Registrant's Plan of Distribution Pursuant to Rule 12b-1 for Class B Shares is herein incorporated by reference to Exhibit (m)(ii) of Post-Effective Amendment No. 45 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2001.
(n) Amended Rule 18f-3 Plan Adopted with Respect to the Multiple Class Distribution System is herein incorporated by reference to Exhibit (n) of Post- Effective Amendment No. 56 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on September 10, 2004.
(o) Not Applicable.
(p)(1) Code of Ethics for Touchstone Advisors, Inc., Touchstone Strategic Trust and Touchstone Securities, Inc. is herein incorporated by reference to Exhibit (p)(1) of Post-Effective Amendment No. 67 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2007.
(p)(2) Code of Ethics for Fort Washington Investment Advisors, Inc. is herein incorporated by reference to Exhibit (p)(2) of Post-Effective Amendment No. 67 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2007.
(p)(3) Code of Ethics for Westfield Capital Management Company, LP is filed herewith.
(p)(4) Code of Ethics for Todd Investment Advisors, Inc. is herein incorporated by reference to Exhibit (p)(4) of Post-Effective Amendment No. 67 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2007.
(p)(5) Code of Ethics for The TCW Group, Inc. is herein incorporated by reference to Exhibit (p)(5) of Post-Effective Amendment No. 67 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2007.
(p)(6) Code of Ethics for Bjurman, Barry & Associates is herein incorporated by reference to Exhibit (o)(ix) of Post-Effective Amendment No. 57 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on June 2, 2005.
(p)(7) Code of Ethics for Navellier & Associates is herein incorporated by reference to Exhibit (10) of Post-Effective Amendment No. 54 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on July 30, 2004.
(p)(8) Code of Ethics for JS Asset Management LLC is herein incorporated by reference to Exhibit (p)(ix) of Post-Effective Amendment No. 60 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on March 1, 2006.
(q) Powers of Attorney for Jill T. McGruder, Philip R. Cox, H. Jerome Lerner, Donald C. Siekmann, Robert E. Stautberg and John P. Zanotti are herein incorporated by reference to Exhibit (p)(i) of Post-Effective Amendment No. 61 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on June 1, 2006.
Item 24. Persons Controlled by or Under Common Control with the Registrant
None
Item 25. INDEMNIFICATION
(a) Article VI of the Registrant's Restated Agreement and Declaration of Trust provides for indemnification of officers and Trustees as follows:
Section 6.4 Indemnification of Trustees, Officers, etc.
The Trust shall indemnify each of its Trustees and officers, including persons who serve at the Trust's request as directors, officers or trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise (hereinafter referred to as a "Covered Person") against all liabilities, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and expenses, including reasonable accountants' and counsel fees, incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such person may be or may have been threatened, while in office or thereafter, by reason of being or having been such a Trustee or officer, director or trustee, and except that no Covered Person shall be indemnified against any liability to the Trust or its Shareholders to which such Covered Person would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office ("disabling conduct"). Anything herein contained to the contrary notwithstanding, no Covered Person shall be indemnified for any liability to the Trust or its Shareholders to which such Covered Person would otherwise be subject unless (1) a final decision on the merits is made by a court or other body before whom the proceeding was brought that the Covered Person to be indemnified was not liable by reason of disabling conduct or, (2) in the absence of such a decision, a reasonable determination is made, based upon a review of the facts, that the Covered Person was not liable by reason of disabling conduct, by (a) the vote of a majority of a quorum of Trustees who are neither "interested persons" of the Company as defined in the Investment Company Act of 1940 nor parties to the proceeding "disinterested, non-party Trustees"), or (b) an independent legal counsel in a written opinion.
Section 6.5 Advances of Expenses.
The Trust shall advance attorneys' fees or other expenses incurred by a Covered Person in defending a proceeding, upon the undertaking by or on behalf of the Covered Person to repay the advance unless it is ultimately determined that such Covered Person is entitled to indemnification, so long as one of the following conditions is met: (i) the Covered Person shall provide security for his undertaking, (ii) the Trust shall be insured against losses arising by reason of any lawful advances, or (iii) a majority of a quorum of the disinterested non-party Trustees of the Trust, or an independent legal counsel in a written opinion, shall determine, based on a review of readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the Covered Person ultimately will be found entitled to indemnification.
Section 6.6 Indemnification Not Exclusive, etc.
The right of indemnification provided by this Article VI shall not be exclusive of or affect any other rights to which any such Covered Person may be entitled. As used in this Article VI, "Covered Person" shall include such person's heirs, executors and administrators, an "interested Covered Person" is one against whom the action, suit or other proceeding in question or another action, suit or other proceeding on the same or similar grounds is then or has been pending or threatened, and a "disinterested" person is a person against whom none of such actions, suits or other proceedings or another action, suit or other proceeding on the same or similar grounds is then or has been pending or threatened. Nothing contained in this article shall affect any rights to indemnification to which personnel of the Trust, other than Trustees and officers, and other persons may be entitled by contract or otherwise under law, nor the power of the Trust to purchase and maintain liability insurance on behalf of any such person.
(b) The Registrant maintains a mutual fund and investment advisory professional and directors and officer's liability policy. The policy provides coverage to the Registrant, its trustees and officers and includes losses by reason of any act, error, omission, misstatement, misleading statement, neglect or breach of duty. The Registrant may not pay for insurance that 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 Subadvisory) 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.
Item 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISORS
A. TOUCHSTONE ADVISORS, INC. (the "Adviser") is a registered investment adviser that provides investment advisory services to the Touchstone Fund Complex.
The following list sets forth the business and other connections of the Directors and Executive Officers of the Adviser. Unless otherwise noted with an (*), the address of the corporations listed below is 303 Broadway, Cincinnati, Ohio 45202.
(1) Jill T. McGruder - CEO and Director Touchstone Advisors, Inc.
(a) President and Chief Executive Officer-IFS Financial Services, Inc.
(b) President and Chief Executive Officer-Integrity Life Insurance Co.
(c) President and Chief Executive Officer, National Integrity Life Insurance Co.
(d) Chief Executive Officer-Touchstone Fund Complex
(e) Senior Vice President-Western & Southern Financial Group*
(f) President-IFS Systems, Inc.
(g) Senior Vice President-W&S Brokerage Services, Inc.*
(h) Director - Western & Southern Financial Group*, Capital Analysts, Inc., IFS Financial Services, Inc., IFS Systems, Inc., Integrity Life Insurance Co., National Integrity Life Insurance Company, Touchstone Securities, Inc., Western & Southern Financial Group Distributors, Inc.*, LaRosa's, Inc., W&S Brokerage Services, Inc.*
(2) Brian E. Hirsch - Vice President & Chief Compliance Officer-Touchstone Advisors, Inc.
(a) Senior Vice President-IFS Financial Services, Inc.
(b) Vice President & Chief Compliance Officer-Touchstone Fund Complex
(c) Director of Compliance of W&S Brokerage Services, Inc.
(d) Chief Compliance Officer-MMA Praxis Funds, Inc.
(3) Donald J. Wuebbling - Director & Chief Legal Officer-Touchstone Advisors, Inc.
(a) Director-AM Concepts, Inc.*, Touchstone Securities, Inc., IFS Agency Services, Inc., W&S Financial Group Distributors, Inc.*, IFS Systems, Inc., Eagle Realty Investments, Inc.*, Insurance Profillment Solutions, LLC.*, Capital Analysts Inc., Integrity Life Insurance Company,* National Integrity Life Insurance Company,* WestAd Inc*, Server Vault Corp.*, Todd Investment Advisors, Inc.*, Eagle Realty Group, LLC.*, IFS Financial Services, Inc., Western & Southern Agency Services, Inc.*, Fort Washington Investment Advisors, Inc., W&S Brokerage Services, Inc.*, Columbus Insurance Company*, IIS Broadway*
(b) Senior Vice President and General Counsel-Western & Southern Life Insurance Company
(c) Senior Vice President -W&S Brokerage Services, Inc.*, Columbus Life Insurance Co.*
(d) Secretary -Eagle Realty Group, LLC.*, IFS Financial Services, Inc., Western & Southern Agency Services, Inc.*, Fort Washington Investment Advisors, Inc., AM Concepts, Inc.*, Columbus Life Insurance Co.*
(e) Assistant Secretary-Eagle Realty Investments, Inc*.
(f) Vice President-AM Concepts, Inc.*
(4) Richard K. Taulbee-Vice President-Touchstone Advisors, Inc.
(a) Vice President-Capital Analysts, Inc., Eagle Realty Group, LLC.*, Eagle Realty Investments*, IFS Financial Services, Inc., IFS Fund Distributors, Inc., IFS Systems, Inc., IIS Broadway Corporation*, Integrity Life Insurance Company, National Integrity Life Insurance Company, Western & Southern Life Insurance Company*, Touchstone Securities, Inc., WestAd, Inc.*, W&S Brokerage Services, Inc.*, W&S Financial Group Distributors, Inc.*, Western & Southern Agency Service, Inc.*, IFS Agency Services, Inc.*
(5) James J. Vance-Vice President & Treasurer-Touchstone Advisors, Inc.
(a) Vice President & Treasurer-Western & 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, WestAd Inc.*, AM Concepts, Inc*.
(b) Treasurer-W&S Brokerage Services, Inc.*, Fort Washington Capital Partners, LLC., Insurance Profillment Solutions*, Tristate Ventures, LLC.*
(6) Terrie A. Wiedenheft - Senior Vice President and Chief Financial Officer-Touchstone Advisors, Inc.
(a) Senior Vice President and Chief Financial Officer-Fort Washington Investment Advisors, Inc., W&S Brokerage Services, Inc.*, IFS Financial Services, IFS Fund Distributors, Inc., and Touchstone Securities, Inc.
(b) Treasurer & Controller-Touchstone Fund Complex (c) Treasurer of IFS Fund Distributors, Inc.
(7) James N. Clark - Director-Touchstone Advisors, Inc.
(a) Vice President, Director and Secretary-Western & Southern Mutual Holding Company*, Western & Southern Financial Group, Inc.*, Western & Southern Life Assurance Company*, Western-Southern Life Assurance Company.*
(b) Director and Secretary-WestAd, Inc.*
(c) Director-Columbus Life Insurance Company*, Eagle Realty Group,
LLC.*, Eagle Realty Investments, Inc.*, IFS Agency Services, Inc.,
IFS Systems, Inc., Touchstone Securities, Inc., W&S Financial Group
Distributors, Inc.*, Capital Analysts, Inc., AM Concepts*, IFS
Financial Services, Western & Southern Agency Services, Inc.*,
Lafayette Life Insurance Company*, Western & Southern Agency
Services, Inc.
(8) William A. Dent-Senior Vice President - Product Management and Marketing-Touchstone Advisors, Inc.
(a) Vice President-Touchstone Fund Complex
(9) Gregory A. Harris-Vice President-Touchstone Advisors, Inc.
(a) Vice President Fund Administration-Touchstone Fund Complex
(10) Jeffrey K. Ringdahl-Vice President-Touchstone Advisors, Inc.
(b) Vice President Product Management-Touchstone Fund Complex
(11) Rhonda S. Malone-Secretary-Touchstone Advisors, Inc.
(a) Secretary-Touchstone Securities, Inc., W&S Brokerage Services, Inc.*, W&S Financial Group Distributors, Inc.*, IFS Systems, Inc., IFS Fund Distributors, Inc., IFS Agency Services Inc.
(b) Associate Counsel - Securities-Western & Southern Financial Group, Inc.*
B. FORT WASHINGTON INVESTMENT ADVISORS, INC. ("Fort Washington") is a registered investment adviser that provides sub-advisory services to the Diversified Small Cap Growth Fund. Fort Washington serves as the Sub-Advisor to Touchstone Investment Trust, Touchstone Tax-Free Trust and certain series of Touchstone Variable Series Trust. Fort Washington also provides investment advice to institutional and individual clients. The address of Fort Washington is 303 Broadway, Cincinnati Ohio 45202
The following list sets forth the business and other connections of the directors and executive officers of Fort Washington.
(1) Maribeth S. Rahe, President and Director
(a) Director of Todd Investment Advisors, Inc., 3160 National City Tower, Louisville, KY 40202, Capital Analysts Incorporated, Committee of 200/Foundation, Cincinnati USA Regional Chamber, Thunderbird School of Global Management and Cincinnati Arts Association
(b) Senior Vice President of The Western and Southern Life Insurance Company
(c) President of Tristate Ventures, LLC*
(2) Nicholas P. Sargen, Chief Investment Officer and Director
(a) Director of Todd Investment Advisors, Inc.
(b) Senior Vice President & Chief Investment Officer of The Western and Southern Life Insurance Company, Columbus Life Insurance Company, Integrity Life Insurance Company and National Integrity Life Insurance Company
(c) Chief Investment Officer of Tristate Ventures, LLC*
(d) Director of Good Samaritan Hospital Foundation
(3) John F. Barrett, Chairman and Director
(a) President, Director and Chief Executive Officer of The Western and Southern Life Insurance Company, Western- Southern Life Assurance Company and Western & Southern Financial Group
(b) Trustee of Touchstone Variable Series Trust, Touchstone Investment Trust, Touchstone Tax-Free Trust, Touchstone Strategic Trust, Touchstone Funds Group Trust and Touchstone Institutional Funds 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., Todd Investment Advisors, Inc., Capital Analysts, Inc., The Andersons, Convergys Corp. and Fifth Third Bancorp.
(e) Director, Chairman & CEO of WestAd, Inc.
(f) President & Director of Western & Southern Financial Fund
(4) Brendan M. White, Managing Director & Senior Portfolio Manager
(a) Director of The Friars Club
(6) James A. Markley, Managing Director
(7) Roger M. Lanham - Managing Director & Manager
(8) John J. O'Connor, Managing Director
(a) Director of Friars Club Foundation and SC Ministry Foundation
(9) Timothy J. Policinksi, Managing Director
(10) Michele Hawkins, Chief Compliance Officer & Vice President
(11) Donald J. Wuebbling - Secretary & Director See biography above
(12) Margaret C. Bell, Managing Director
(13) Robert L. Walker, Director
(a) Director of Eagle Realty Group, LLC, Integrity Life Insurance Company, Todd Investment Advisors, Inc., Computer Services, Inc. and Tri-Health
(b) Chief Financial Officer of The Western and Southern Life Insurance Company
(14) Richard Jandrain III - Managing Director
(a) Chief Equity Strategist of Banc One Investment Advisors Corporation until 2004
(15) Terrie A. Wiedenheft, Senior Vice President and Chief Financial Officer - See biography above
(16) James J. Vance, Vice President & Treasurer - See biography above.
(17) Stephen A. Baker, Managing Director of Private Equity
(a) Director of SeverVault Corp.*, Walnut Hills High School Alumni Foundation, Greater Cincinnati Rowing Foundation, Fortis Security Products, LLC, NeoGenesis Pharmaceuticals, CH Mack, Inc., TCI Medical, Inc., CoMeT Solutions, Inc. and Laboratory Partners, Inc.
(18) Christopher L. Baucom, Managing Director of Private Equity
(a) Director of Biostart and Cincinnati Opera
(19) John P. Bessone, Vice President
(20) Paul D. Cohn, Vice President of Private Equity
(21) Rance G. Duke, Vice President and Sr. Portfolio Manager
(a) Director of Spring Grove Cemetery, Bethesda Foundation, Bethesda, Inc. and YMCA of Greater Cincinnati
(22) Thomas L. Finn, Vice President and Sr. Portfolio Manager
(a) Director of The Cincinnati Foundation for the Aged
(23) Mark A. Frietch, Vice President
(24) John J. Goetz, Vice President and Sr. Portfolio Manager
(25) Daniel J. Kapusta, Vice President and Sr. Portfolio Manager
(26) Howard R. Lodge, Vice President and Sr. Portfolio Manager
(27) Bihag N. Patel, Vice President & Sr. Portfolio Manager
(28) David K. Robinson, Vice President
(29) Nancy E. Schultz, Vice President and Controller
(a) Vice President and Controller of IFS Financial Services, Inc.
(30) Charles A. Ulbricht, Vice President and Sr. Portfolio Manager
(31) Scott D. Weston, Vice President and Portfolio Manager
(a) Director of Cincinnati Children's Theatre
(32) Stephen Ball, Vice President
(33) Marty Flesher, Vice President
(34) Jeff Meek, Vice President and Senior Financial Officer
C. TCW INVESTMENT MANAGEMENT COMPANY ("TCW") is a registered investment adviser providing sub-advisory services to the Mid Cap 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) Robert D. Beyer - Director, Chairman and Chief Executive Officer
(2) Jeffrey E. Gundlach - Director, Group Managing Director & Chief Investment Officer
(3) William C. Sonneborn - Director, President & Chief Operating Officer
(4) Marc I. Stern - Director & Vice Chairman
(5) Thomas E. Larkin Jr. - Vice Chairman
(6) Michael E. Cahill - Group Managing Director, General Counsel & Secretary
(7) David S. Devito - Group Managing Director, Chief Financial Officer & Assistant Secretary
(8) Hilary G. Lord - Managing Director, Chief Compliance Officer & Assistant Secretary
D. WESTFIELD CAPITAL MANAGEMENT COMPANY, LP ("WESTFIELD") is a registered adviser providing sub-advisory services to the Mid Cap Growth Fund and the Growth Opportunities 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 and Chairman
(3) William A. Muggia - Director, President, Chief Executive Officer, Partner and Chief Investment Officer
(4) Timothy L. Vaill - Director
(5) Karen A. Digravio - Director, Chief Financial Officer, Chief Compliance Officer and Partner
(6) Ethan J. Meyers - Director and Partner
(7) Morton L. Fearey - Director and Partner
(8) Matthew W. Strobeck - Director and Partner
E. TODD INVESTMENT ADVISORS, INC. ("TODD") is a registered adviser providing sub-advisory services to the Large Cap Core Equity Fund. The address of Todd is 3160 National City Tower, Louisville, KY 40202. The following are executive officers and directors of Todd:
(1) Bosworth M. Todd - Chairman Emeritus, Director
(2) Robert P. Bordogna - Chairman, Director
(3) Maribeth S. Rahe - Director
(4) Curtiss M. Scott, Jr. - President, Director & Chief Executive Officer
(5) Gayle S. Dorsey - Partner, Private Client Services & Director
(6) Jennifer J. Doss, Partner, Secretary/Treasurer
(7) John J. White, Partner, Director of Research
(8) John F. Barrett - Director
(9) Nicholas P. Sargen- Director
(10) Michele Hawkins - Chief Compliance Officer
(11) William P. O'Connor - Director of Marketing
(12) Robert L. Walker, Director
(13) Donald J. Wuebbling, Director
(14) John C. Holden, Partner, Sr. Portfolio Manager
(15) J. Christian Feduchak, Sr. Vice President Business Development
F. BJURMAN, BARRY & ASSOCIATES ("BJURMAN") is a registered adviser providing sub-advisory services to the Micro Cap Growth Fund. The address of Bjurman is 2049 Century Park East, Suite 2505, 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
(4) Stephen W. Shipman, Director of Research and Executive Vice President.
(5) Patrick Bradford, Assistant Vice President
H. 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, Chief Executive Officer
(2) Arjen P. Kuyper, President & Chief Operating Officer
(3) Peter R. Knapp, Vice President & Chief Compliance Officer
(4) Keith M. Basso, Vice President
(5) James H. O'Leary, Vice President
(6) Paula M. Boyd, Vice President
I. JS ASSET MANAGEMENT, LLC ("JSAM") is a registered advisor providing sub-advisory services to the Large Cap Value Fund. The address of JSAM is One Tower Bridge, 100 Front Street, West Conshohocken, Pennsylvania, 19428. The following are officers of JSAM.
(1) John K. Schneider, Chief Executive Officer/Chief Investment Officer
(2) Gerard Scarpati, Chief Compliance Officer
(3) William L. Norton, Analyst
(4) Jennifer L. Baker, Analyst
Item 27 Principal Underwriters
(a) Touchstone Securities, Inc. also acts as underwriter for Touchstone Investment Trust, Touchstone Tax-Free Trust, Touchstone Variable Series Trust, Touchstone Funds Group Trust and Touchstone Institutional Funds Trust.
Unless otherwise noted, the address of the persons named below is 303 Broadway, Cincinnati, Ohio 45202. *The address is 400 Broadway, Cincinnati, Ohio 45202.
(b)
NAME POSITION WITH POSITION WITH
UNDERWRITER REGISTRANT
Jill T. McGruder Director Trustee/President
James N. Clark* Director None
Donald J. Wuebbling* Director None
Patricia J. Wilson Chief Compliance Officer None
Richard K. Taulbee* Vice President None
James J. Vance* Treasurer None
Terrie A. Wiedenheft Chief Financial Officer Controller/ Treasurer
Rhonda Malone Secretary None
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(c) None
Item 28. LOCATION OF ACCOUNTS AND RECORDS
Accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder will be maintained by the Registrant.
Item 29. MANAGEMENT SERVICES NOT DISCUSSED IN PART A OR PART B
None.
Item 30. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the provisions of Massachusetts law and the Agreement and Declaration of Trust of the Registrant or the Bylaws of the Registrant, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Registration Statement under Rule 485(b) under the Securities Act of 1933 and has duly caused this Post Effective Amendment No. 68 to Registration Statement No. 002-80859 to be signed on its behalf by the undersigned, duly authorized, in the City of Cincinnati, State of Ohio on the 1st day of August, 2008.
TOUCHSTONE STRATEGIC TRUST
By: /s/ Jill T. McGruder ------------------------ 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 capacity on the dates indicated.
/s/ Jill T. McGruder
-----------------------------
Jill T. McGruder Trustee & President August 1, 2008
/s/ Terrie A. Wiedenheft
-----------------------------
Terrie A. Wiedenheft Controller, Treasurer August 1, 2008
and Principal Financial
Officer
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*
-----------------------------
Phillip R. Cox Trustee August 1, 2008
*
-----------------------------
H. Jerome Lerner Trustee August 1, 2008
*
-----------------------------
Donald C. Siekmann Trustee August 1, 2008
*
-----------------------------
Robert E. Stautberg Trustee August 1, 2008
*
-----------------------------
John P. Zanotti Trustee August 1, 2008
By: /s/ Jay S. Fitton
------------------------
Jay S. Fitton
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*Attorney-in-Fact
August 1, 2008
Exhibits
(d)(3) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Westfield Capital Management, LP with respect to the Mid Cap Growth Fund is filed herewith.
(d)(9) Addendum to Sub-Advisory Agreement between Touchstone Advisors, Inc. and Bjurman, Barry & Associates for the Micro Cap Growth Fund is filed herewith.
(d)(11) Sub-Advisory Agreement between Touchstone Advisor, Inc. and Westfield Capital Management Company, LP with respect to the Growth Opportunities Fund is filed herewith.
(d)(14) Addendum to Sub-Advisory Agreement between Touchstone Advisor, Inc. and Fort Washington Investment Advisors, Inc. with respect to the Diversified Small Cap Growth Fund is filed herewith.
(g)(1) Custodian Agreement with Brown Brothers Harriman & Co. is filed herewith.
(g)(3) Amendments to Securities Lending Agreement are filed herewith.
(g)(4) Novation and Amendment to Securities Lending Agreement dated February 25, 2008 is filed herewith.
(h)(4) Amended Sub-Administration Agreement between Touchstone Advisors, Inc. and JPMorgan Chase Bank, N.A. dated September 17, 2007 is filed herewith.
(h)(5) Addendum to Amended Sub-Administration Agreement dated December 31, 2007 is filed herewith.
(h)(6) Allocation Agreement for Allocation of Fidelity Bond Proceeds is filed herewith.
(h)(7) Amended Expense Limitation Agreement with Touchstone Advisors, Inc. is filed herewith.
(h)(8) Amended i-Compliance Services Agreement with JPMorgan Chase Bank, N.A. is filed herewith.
(j) Auditor's Consent is filed herewith.
(p)(3) Code of Ethics for Westfield Capital Management Company, LP is filed herewith.
SUB-ADVISORY AGREEMENT
TOUCHSTONE MID CAP GROWTH FUND
TOUCHSTONE STRATEGIC TRUST
This SUB-ADVISORY AGREEMENT (the "Agreement") is made as of May 15, 2008, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and WESTFIELD CAPITAL MANAGEMENT COMPANY, L.P, a Delaware limited partnership (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the Investment Advisers Act of 1940, as amended, and has been retained by Touchstone Strategic Trust (the "Trust"), a Delaware business trust organized pursuant to an Agreement and Declaration of Trust dated May 19, 1993 (as amended) and registered as an open-end diversified management investment company under the Investment Company Act of 1940 (the "1940 Act"), to provide investment advisory services with respect to certain assets of the Touchstone Mid Cap Growth Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it with portfolio management services in connection with the Advisor's investment advisory activities on behalf of the Fund, and the Sub-Advisor is willing to furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the Investment Advisory Agreement between the Trust and the Advisor, attached hereto as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the Sub-Advisor to manage the investment and reinvestment of that portion of the assets of the Fund allocated to it by the Advisor (the "Fund Assets"), in conformity with the Fund's currently effective Registration Statement, prospectus and Statement of Additional Information and subject to the control and direction of the Advisor and the Trust's Board of Trustees, for the period and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such employment and agrees during such period to render the services and to perform the duties called for by this Agreement for the compensation herein provided. The Sub-Advisor shall at all times maintain its registration as an investment advisor under the Investment Advisers Act of 1940 (the "Advisers Act") and shall otherwise comply in all material respects with all applicable laws and regulations, both state and federal. The Sub-Advisor shall for all purposes herein be deemed an independent contractor and shall, except as expressly provided or authorized (whether herein or otherwise), have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust or the Fund.
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the Fund Assets, subject to and in accordance with the investment objectives, policies and restrictions of the Fund and in conformity with the Fund's currently effective Registration Statement, prospectus and Statement of Additional Information and any directions which the Advisor or the Trust's Board of Trustees may give from time to time with respect to the Fund. In furtherance of the foregoing, the Sub-Advisor will make all determinations with respect to the investment of the Fund Assets and the purchase and sale of portfolio securities and shall take such steps as may be necessary or advisable to implement the same. The Sub-Advisor also will determine the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the portfolio securities will be exercised. The Sub-Advisor will render regular reports to the Trust's Board of Trustees and to the Advisor (or such other advisor or advisors as the Advisor shall engage to assist it in the evaluation of the performance and activities of the Sub-Advisor). Such reports shall be made in such form and manner and with respect to such matters regarding the Fund and the Sub-Advisor as the Trust or the Advisor shall from time to time request; provided, however, that in the absence of extraordinary circumstances, the individual primarily responsible for management of Fund Assets for the Sub-Advisor will not be required to attend in person more than one meeting per year with the trustees of the Trust.
b. The Sub-Advisor shall immediately notify the Advisor if the Sub-Advisor reasonably believes that the value of any security held by the Fund may not reflect fair value. Upon request, the Sub-Advisor agrees to provide any pricing information of which the Sub-Advisor is aware to the Advisor and/or any Fund pricing agent to assist in the determination of the fair value of any Fund holdings for which market quotations are not readily available or as otherwise required in accordance with the 1940 Act or the Fund's valuation procedures for the purpose of calculating the Fund's net asset value in accordance with procedures and methods established by the Board.
c. Regulatory Compliance.
(i) The Sub-Advisor agrees to comply with the requirements of the 1940 Act, the Advisers Act, the Securities Act of 1933 (the "1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Commodity Exchange Act and the respective rules and regulations thereunder, as applicable, as well as with all other applicable federal and state laws, rules, regulations and case law that relate to the services and relationships described hereunder and to the conduct of its business as a registered investment adviser. In selecting the Fund's portfolio securities and performing the Sub-Advisor's obligations hereunder, the Sub-Advisor shall cause the Fund to comply with the diversification and source of income requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated investment company. The Sub-Advisor shall maintain compliance procedures that it reasonably believes are adequate to ensure the compliance with the foregoing. No supervisory activity undertaken by the Advisor shall limit the Sub-Advisor's full responsibility for any of the foregoing.
(ii) The Sub-Advisor has adopted a written code of ethics that it reasonably believes complies with the requirements of Rule 17j-1 under the 1940 Act, which it will provide to the Advisor and the Fund. The Sub-Advisor shall ensure that its Access Persons (as defined in the Sub-Advisor's Code of Ethics) comply in all material respects with the Sub-Advisor's Code of Ethics, as in effect from time to time. Upon request, the Sub-Advisor shall provide the Fund with (i) a copy of the Sub-Advisor's current Code of Ethics, as in effect from time to time, and (ii) a certification that it has adopted procedures reasonably necessary to prevent Access Persons from engaging in any conduct prohibited by the Sub-Advisor's Code of Ethics. No less frequently than annually, the Sub-Advisor shall furnish a written report, which complies with the requirements of Rule 17j-1, concerning the Sub-Advisor's Code of Ethics to the Fund and the Advisor. The Sub-Advisor shall respond to requests for information from the Advisor as to violations of the Code by Access Persons and the sanctions imposed by the Sub-Advisor. The Sub-Advisor shall immediately notify the Advisor of any material violation of the Code, whether or not such violation relates to a security held by any Fund.
(iii) The Sub-Advisor shall notify the Trust's Chief Compliance Officer and Advisor immediately upon detection of (i) any material failure to manage any Fund in accordance with its investment objectives and policies or any applicable law; or (ii) any material breach of any of the Fund's or the Advisor's policies, guidelines or procedures. In addition, the Sub-Advisor shall provide a quarterly report regarding its compliance with the Fund's investment objectives and policies and applicable law, including, but not limited to the 1940 Act, the Code, and the Fund's and the Advisor's policies, guidelines or procedures as applicable to the Sub-Advisor's obligations under this Agreement. The Sub-Advisor acknowledges and agrees that the Advisor may, in its discretion, provide such quarterly compliance certifications to the Board. The Sub-Advisor agrees to correct any such failure promptly and to take any action that the Board and/or the Advisor may reasonably request in connection with any such breach. The Sub-Advisor shall also provide the officers of the Trust with supporting certifications in connection with such certifications of Fund financial statements and disclosure controls pursuant to the Sarbanes-Oxley Act. The Sub-Advisor will promptly notify the Trust in the event (i) the Sub-Advisor is served or otherwise receives notice of any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board, or body, involving the affairs of the Trust (excluding class action suits in which a Fund is a member of the plaintiff class by reason of the Fund's ownership of shares in the defendant) or the compliance by the Sub-Advisor with the federal or state securities laws or (ii) the controlling stockholder of the Sub-Advisor changes or an actual change in control resulting in an "assignment" (as defined in the 1940 Act) has occurred or is otherwise proposed to occur.
(iv) The Sub-Advisor shall maintain separate books and detailed records of all matters pertaining to the Fund's assets advised by the Sub-Advisor required by Rule 31a-1 under the 1940 Act (other than those records being maintained by the Advisor, custodian or transfer agent appointed by the Fund) relating to its responsibilities provided hereunder with respect to the Fund, and shall preserve such records for the periods and in a manner prescribed therefore by Rule 31a-2 under the 1940 Act (the "Fund Books and Records"). The Fund Books and Records shall be available to the Advisor and the Board at any time upon request, shall be delivered to the Trust upon the termination of this Agreement and shall be available for telecopying without delay during any day the Fund is open for business.
d. The Sub-Advisor shall provide support to the Advisor with respect to the marketing of the Fund, including but not limited to: (i) permission to use the Sub-Advisor's name as provided in Section 5, (ii) permission to use the past performance and investment history of the Sub-Advisor with respect to a composite of other funds managed by the Sub-Advisor that are comparable, in investment objective and composition, to the Fund, (iii) access to the individual(s) responsible for day-to-day management of the Fund for marketing conferences, teleconferences and other activities involving the promotion of the Fund, subject to the reasonable request of the Advisor, (iv) permission to use biographical and historical data of the Sub-Advisor and individual manager(s), and (v) permission to use the names of those clients pre-approved by the Sub-Advisor to which the Sub-Advisor provides investment management services, subject to receipt of the consent of such clients to the use of their names.
e. The Sub-Advisor will, in the name of the Fund, place orders for the execution of all portfolio transactions in accordance with the policies with respect thereto set forth in the Trust's registration statements under the 1940 Act and the 1933 Act, as such registration statements may be in effect from time to time. When placing orders with brokers and dealers, the Sub-Advisor's primary objective shall be to obtain the most favorable price and execution available for the Fund, and in placing such orders the Sub-Advisor may consider a number of factors, including, without limitation, the overall direct net economic result to the Fund (including commissions, which may not be the lowest available but ordinarily should not be higher than the generally prevailing competitive range), the financial strength and stability of the broker, the efficiency with which the transaction will be effected, the ability to effect the transaction at all where a large block is involved and the availability of the broker or dealer to stand ready to execute possibly difficult transactions in the future. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking most favorable price and execution and compliance with Rule 12b-1(h) under the 1940 Act, the Sub-Advisor may select brokers and dealers to execute portfolio transactions of the Fund that promote or sell shares of the Fund. The Sub-Advisor is specifically authorized, to the extent authorized by law (including, without limitation, Section 28(e) of the 1934 Act), to pay a broker or dealer who provides research services to the Sub-Advisor an amount of commission for effecting a portfolio transaction in excess of the amount of commission another broker or dealer would have charged for effecting such transaction, in recognition of such additional research services rendered by the broker or dealer, but only if the Sub-Advisor determines in good faith that the excess commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer viewed in terms of the particular transaction or the Sub-Advisor's overall responsibilities with respect to discretionary accounts that it manages, and that the Fund derives or will derive a reasonable benefit from such research services. The Sub-Advisor will present a written report to the Board of Trustees of the Trust, at least quarterly, indicating total brokerage expenses, actual or imputed, as well as the services obtained in consideration for such expenses, broken down by broker-dealer and containing such information as the Board of Trustees reasonably shall request.
f. The Sub-Advisor shall maintain errors and omissions insurance coverage in an appropriate amount and shall provide prior written notice to the Trust (i) of any material changes in its insurance policies or insurance coverage; or (ii) if any material claims will be made on its insurance policies. Furthermore, the Sub-Advisor shall, upon reasonable request, provide the Trust with any information it may reasonably require concerning the amount of or scope of such insurance.
g. In the event of any reorganization or other change in the Sub-Advisor, its investment principals, supervisors or members of its investment (or comparable) committee, the Sub-Advisor shall give the Advisor and the Trust's Board of Trustees written notice of such reorganization or change within a reasonable time (but not later than 30 days) after such reorganization or change.
h. The Sub-Advisor will bear its expenses of providing services to the Fund pursuant to this Agreement except such expenses as are expressly undertaken by the Advisor or the Trust.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties undertaken hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor a monthly fee equal on an annual basis to 0.50% of average daily net assets of the Fund managed by the Sub Advisor without regard to any total expense limitation of the Trust or the Advisor. Such fee shall be computed and accrued daily. If the Sub-Advisor serves in such capacity for less than the whole of any period specified in this Section 3a, the compensation to the Sub-Advisor shall be prorated. For purposes of calculating the Sub-Advisor's fee, the daily value of the Fund Assets shall be computed by the same method as the Trust uses to compute the net asset value of the Fund for purposes of purchases and redemptions of shares thereof.
b. The Sub-Advisor reserves the right to waive all or a part of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor may perform investment advisory services for various other clients, including other investment companies. The Trust and the Advisor further acknowledge that the Sub-Advisor may serve as an investment advisor or sub-advisor to future funds, which have the same, similar, or overlapping investment objectives. Provided, however that the Sub-Advisor represents and warrants that it has no arrangement or understanding with any party, other than the Trust, that would influence the decision of the Sub-Advisor with respect to its selection of securities for the Fund, and that all selections shall be done in accordance with what is in the best interest of the Fund in a manner consistent with Sub-Advisor's fiduciary duty.
The Sub-Advisor will report to the Board of Trustees of the Trust (at regular quarterly meetings and at such other times as such Board of Trustees reasonably shall request, subject to the limitation on personal attendance at such meetings set forth in Section 2a) (i) the financial condition and prospects of the Sub-Advisor, (ii) the nature and amount of transactions affecting the Fund that involve the Sub-Advisor and affiliates of the Sub-Advisor, (iii) information regarding any potential conflicts of interest arising by reason of its continuing provision of advisory services to the Fund and to its other accounts, and (iv) such other information as the Board of Trustees shall reasonably request regarding the Fund, the Fund's performance, the services provided by the Sub-Advisor and affiliates of the Sub-Advisor to the Fund as compared to its other accounts and the plans of, and the capability of, the Sub-Advisor with respect to providing future services to the Fund and its other accounts. The Sub-Advisor agrees to submit to the Trust a statement defining its policies with respect to the allocation of business among the Fund and its other clients.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's statement of financial condition) and will hereafter supply to the Advisor, promptly upon the preparation thereof, copies of all amendments or restatements of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name of the Sub-Advisor in any prospectus, sales literature or other material relating to the Advisor or the Trust in any manner not approved in advance by the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses of its name which merely refer in accurate terms to its appointment hereunder or which are required by the Securities and Exchange Commission (the "SEC") or a state securities commission; and provided further, that in no event shall such approval be unreasonably withheld. The Sub-Advisor shall not use the name of the Advisor or the Trust in any material relating to the Sub-Advisor in any manner not approved in advance by the Advisor or the Trust, as the case may be; provided, however, that the Advisor and the Trust shall each approve all uses of their respective names which merely refer in accurate terms to the appointment of the Sub-Advisor hereunder or which are required by the SEC or a state securities commission; and, provided further, that in no event shall such approval be unreasonably withheld.
6. LIABILITY OF THE SUB-ADVISOR. The Sub-Advisor shall indemnify and hold
harmless the Trust and all affiliated persons thereof (within the meaning of
Section 2(a)(3) of the 1940 Act) and all controlling persons (as described in
Section 15 of the 1933 Act) (collectively, the "Sub-Advisor Indemnitees")
against any and all losses, claims, damages, liabilities or litigation
(including reasonable legal and other expenses) by reason of or arising out of:
(a) the Sub-Advisor being in material violation of any applicable federal or
state law, rule or regulation or any investment policy or restriction set forth
in the Funds' Registration Statement or any written guidelines or instruction
provided in writing by the Board, or (b) the Sub-Advisor's willful misfeasance,
bad faith or gross negligence generally in the performance of its duties
hereunder or its reckless disregard of its obligations and duties under this
Agreement. In no case shall the Sub-Advisor be liable for actions taken or
non-actions with respect to the performance of its services under this Agreement
based upon specific written information, instructions, or requests made to the
Sub-Advisor by an officer of the Trust thereunto duly authorized. As used in
this Section 6, the term "Sub-Advisor" shall include the Sub-Advisor and/or any
of its affiliates and the directors, officers and employees of the Sub-Advisor
and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that it
has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the Fund Assets and
(ii) the Sub-Advisor shall not seek satisfaction of any such obligation from the
holders of shares of the Fund, other than the Advisor, nor from any Trustee,
officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or errors occurring by reason of circumstances beyond its control, including but not limited to acts of civil or military authority, national emergencies, work stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or failure of communication or power supply. In the event of equipment breakdowns beyond its control, the Sub-Advisor shall take all reasonable steps to minimize service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner terminated
as hereinafter provided, until May 15, 2010; and it shall continue
thereafter provided that such continuance is specifically approved by the
parties and, in addition, at least annually by (i) the vote of the holders
of a majority of the outstanding voting securities (as herein defined) of
the Fund or by vote of a majority of the Trust's Board of Trustees and
(ii) by the vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the Sub-Advisor,
cast in person at a meeting called for the purpose of voting on such
approval.
b. This Agreement may be terminated at any time, without payment of any penalty, (i) by the Advisor upon not more than sixty (60) days' nor less than thirty (30) days' written notice delivered or mailed by registered mail, postage prepaid, to the Sub-Advisor; (ii) by the Sub-Advisor upon not less than sixty (60) days' written notice delivered or mailed by registered mail, postage prepaid, to the Advisor; or (iii) by the Trust upon either (y) the majority vote of its Board or (z) the affirmative vote of a majority of the outstanding voting securities of the Fund. This Agreement shall terminate automatically in the event of its assignment.
c. This Agreement may be amended at any time by the parties hereto, subject to approval by the Trust's Board of Trustees and, if required by applicable SEC rules and regulations, a vote of the majority of the outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the outstanding voting securities" shall have the meaning set forth for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or shall be found to be invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing addressed and delivered personally (or by telecopy) or mailed postage-paid, to the other party at such address as such other party may designate in accordance with this paragraph for the receipt of such notice. Until further notice to the other party, it is agreed that the address of the Trust and that of the Advisor for this purpose shall be 303 Broadway, Suite 1100, Cincinnati, Ohio 45202 and that the address of the Sub-Advisor shall be One Financial Center, 23rd Floor, Boston, Massachusetts 02111.
12. MISCELLANEOUS. Each party agrees to perform such further actions and execute such further documents as are necessary to effectuate the purposes hereof. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Ohio and the Sub-Advisor consents to the jurisdiction of courts, both state or federal, in Ohio, with respect to any dispute under this Agreement. The captions in this Agreement are included for convenience only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
By:
------------------------------- ----------------------------------
James H. Grifo
Name: President
--------------------------
Title:
-------------------------
WESTFIELD CAPITAL MANAGEMENT
COMPANY, L.P.
Attest:
By:
------------------------------- -----------------------------------
Name: Name:
-------------------------- -----------------------------------
Title: Title:
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ADDENDUM TO SUB-ADVISORY AGREEMENT
MICRO CAP GROWTH FUND
TOUCHSTONE STRATEGIC TRUST
This Agreement is entered into and is effective as of November 16, 2007 by and between Touchstone Advisors, Inc. ("Touchstone") and Bjurman, Barry & Associates ("Bjurman").
WHEREAS, Touchstone and Bjurman entered into a Sub-Advisory Agreement dated as of June 21, 2004 (the "Sub-Advisory Agreement") with respect to the Micro Cap Growth Fund (the "Fund"), a series of Touchstone Strategic Trust; and
WHEREAS, Touchstone and Bjurman wish to enter into this Addendum to the Sub-Advisory Agreement;
NOW, THEREFORE, it is agreed by and between the parties hereto as follows:
1. Section 3a of the Sub-Advisory Agreement will be replaced with the following:
As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.55% of the
average daily net assets of the Fund without regard to any total
expense limitation of the Trust or the Advisor. Such fee shall be
computed and accrued daily. If the Sub-Advisor serves in such
capacity for less than the whole of any period specified in this
Section 3a, the compensation to the Sub-Advisor shall be prorated.
For purposes of calculating the Sub-Advisor's fee, the daily value
of the Fund Assets shall be computed by the same method as the Trust
uses to compute the net asset value of the Fund for purposes of
purchases and redemptions of shares thereof.
2. Except for the provisions of this Addendum, the Sub-Advisory Agreement shall continue in full force and effect and be binding upon the parties notwithstanding the execution and delivery of this Addendum.
3. This Addendum shall be binding upon the parties and, to the extent permitted by the Sub-Advisory Agreement, their respective successors and assigns.
IN WITNESS WHEREOF, each of the parties hereto has caused this Addendum to be duly executed and delivered in its name and on its behalf by their respective officers thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC. BJURMAN, BARRY & ASSOCIATES
By: /s/ James H. Grifo By: /s/ G. Andrew Bjurman
-------------------- ---------------------------------
Print Name: Print Name:
-------------------- ---------------------------------
Print Title: President Print Title: President
-------------------- ---------------------------------
Date: 11-13-07 Date: 11-30-07
-------------------- ---------------------------------
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SUB-ADVISORY AGREEMENT
TOUCHSTONE GROWTH OPPORTUNITIES FUND
TOUCHSTONE STRATEGIC TRUST
This SUB-ADVISORY AGREEMENT (the "Agreement") is made as of May 15, 2008, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and WESTFIELD CAPITAL MANAGEMENT COMPANY, L.P., a Delaware limited partnership (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the Investment Advisers Act of 1940, as amended, and has been retained by Touchstone Strategic Trust (the "Trust"), a Delaware business trust organized pursuant to an Agreement and Declaration of Trust dated May 19, 1993 (as amended) and registered as an open-end diversified management investment company under the Investment Company Act of 1940 (the "1940 Act"), to provide investment advisory services with respect to certain assets of the Touchstone Growth Opportunities Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it with portfolio management services in connection with the Advisor's investment advisory activities on behalf of the Fund, and the Sub-Advisor is willing to furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the Investment Advisory Agreement between the Trust and the Advisor, attached hereto as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the Sub-Advisor to manage the investment and reinvestment of that portion of the assets of the Fund allocated to it by the Advisor (the "Fund Assets"), in conformity with the Fund's currently effective Registration Statement, prospectus and Statement of Additional Information and subject to the control and direction of the Advisor and the Trust's Board of Trustees, for the period and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such employment and agrees during such period to render the services and to perform the duties called for by this Agreement for the compensation herein provided. The Sub-Advisor shall at all times maintain its registration as an investment advisor under the Investment Advisers Act of 1940 (the "Advisers Act") and shall otherwise comply in all material respects with all applicable laws and regulations, both state and federal. The Sub-Advisor shall for all purposes herein be deemed an independent contractor and shall, except as expressly provided or authorized (whether herein or otherwise), have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust or the Fund.
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the Fund Assets, subject to and in accordance with the investment objectives, policies and restrictions of the Fund and in conformity with the Fund's currently effective Registration Statement, prospectus and Statement of Additional Information and any directions which the Advisor or the Trust's Board of Trustees may give from time to time with respect to the Fund. In furtherance of the foregoing, the Sub-Advisor will make all determinations with respect to the investment of the Fund Assets and the purchase and sale of portfolio securities and shall take such steps as may be necessary or advisable to implement the same. The Sub-Advisor also will determine the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the portfolio securities will be exercised. The Sub-Advisor will render regular reports to the Trust's Board of Trustees and to the Advisor (or such other advisor or advisors as the Advisor shall engage to assist it in the evaluation of the performance and activities of the Sub-Advisor). Such reports shall be made in such form and manner and with respect to such matters regarding the Fund and the Sub-Advisor as the Trust or the Advisor shall from time to time request; provided, however, that in the absence of extraordinary circumstances, the individual primarily responsible for management of Fund Assets for the Sub-Advisor will not be required to attend in person more than one meeting per year with the trustees of the Trust.
b. The Sub-Advisor shall immediately notify the Advisor if the Sub-Advisor reasonably believes that the value of any security held by the Fund may not reflect fair value. Upon request, the Sub-Advisor agrees to provide any pricing information of which the Sub-Advisor is aware to the Advisor and/or any Fund pricing agent to assist in the determination of the fair value of any Fund holdings for which market quotations are not readily available or as otherwise required in accordance with the 1940 Act or the Fund's valuation procedures for the purpose of calculating the Fund's net asset value in accordance with procedures and methods established by the Board.
c. Regulatory Compliance.
(i) The Sub-Advisor agrees to comply with the requirements of the 1940 Act, the Advisers Act, the Securities Act of 1933 (the "1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Commodity Exchange Act and the respective rules and regulations thereunder, as applicable, as well as with all other applicable federal and state laws, rules, regulations and case law that relate to the services and relationships described hereunder and to the conduct of its business as a registered investment adviser. In selecting the Fund's portfolio securities and performing the Sub-Advisor's obligations hereunder, the Sub-Advisor shall cause the Fund to comply with the diversification and source of income requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated investment company. The Sub-Advisor shall maintain compliance procedures that it reasonably believes are adequate to ensure the compliance with the foregoing. No supervisory activity undertaken by the Advisor shall limit the Sub-Advisor's full responsibility for any of the foregoing.
(ii) The Sub-Advisor has adopted a written code of ethics that it reasonably believes complies with the requirements of Rule 17j-1 under the 1940 Act, which it will provide to the Advisor and the Fund. The Sub-Advisor shall ensure that its Access Persons (as defined in the Sub-Advisor's Code of Ethics) comply in all material respects with the Sub-Advisor's Code of Ethics, as in effect from time to time. Upon request, the Sub-Advisor shall provide the Fund with (i) a copy of the Sub-Advisor's current Code of Ethics, as in effect from time to time, and (ii) a certification that it has adopted procedures reasonably necessary to prevent Access Persons from engaging in any conduct prohibited by the Sub-Advisor's Code of Ethics. No less frequently than annually, the Sub-Advisor shall furnish a written report, which complies with the requirements of Rule 17j-1, concerning the Sub-Advisor's Code of Ethics to the Fund and the Advisor. The Sub-Advisor shall respond to requests for information from the Advisor as to violations of the Code by Access Persons and the sanctions imposed by the Sub-Advisor. The Sub-Advisor shall immediately notify the Advisor of any material violation of the Code, whether or not such violation relates to a security held by any Fund.
(iii) The Sub-Advisor shall notify the Trust's Chief Compliance Officer and Advisor immediately upon detection of (i) any material failure to manage any Fund in accordance with its investment objectives and policies or any applicable law; or (ii) any material breach of any of the Fund's or the Advisor's policies, guidelines or procedures. In addition, the Sub-Advisor shall provide a quarterly report regarding its compliance with the Fund's investment objectives and policies and applicable law, including, but not limited to the 1940 Act, the Code, and the Fund's and the Advisor's policies, guidelines or procedures as applicable to the Sub-Advisor's obligations under this Agreement. The Sub-Advisor acknowledges and agrees that the Advisor may, in its discretion, provide such quarterly compliance certifications to the Board. The Sub-Advisor agrees to correct any such failure promptly and to take any action that the Board and/or the Advisor may reasonably request in connection with any such breach. The Sub-Advisor shall also provide the officers of the Trust with supporting certifications in connection with such certifications of Fund financial statements and disclosure controls pursuant to the Sarbanes-Oxley Act. The Sub-Advisor will promptly notify the Trust in the event (i) the Sub-Advisor is served or otherwise receives notice of any action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, public board, or body, involving the affairs of the Trust (excluding class action suits in which a Fund is a member of the plaintiff class by reason of the Fund's ownership of shares in the defendant) or the compliance by the Sub-Advisor with the federal or state securities laws or (ii) the controlling stockholder of the Sub-Advisor changes or an actual change in control resulting in an "assignment" (as defined in the 1940 Act) has occurred or is otherwise proposed to occur.
(iv) The Sub-Advisor shall maintain separate books and detailed records of all matters pertaining to the Fund's assets advised by the Sub-Advisor required by Rule 31a-1 under the 1940 Act (other than those records being maintained by the Advisor, custodian or transfer agent appointed by the Fund) relating to its responsibilities provided hereunder with respect to the Fund, and shall preserve such records for the periods and in a manner prescribed therefore by Rule 31a-2 under the 1940 Act (the "Fund Books and Records"). The Fund Books and Records shall be available to the Advisor and the Board at any time upon request, shall be delivered to the Trust upon the termination of this Agreement and shall be available for telecopying without delay during any day the Fund is open for business.
d. The Sub-Advisor shall provide support to the Advisor with respect to the marketing of the Fund, including but not limited to: (i) permission to use the Sub-Advisor's name as provided in Section 5, (ii) permission to use the past performance and investment history of the Sub-Advisor with respect to a composite of other funds managed by the Sub-Advisor that are comparable, in investment objective and composition, to the Fund, (iii) access to the individual(s) responsible for day-to-day management of the Fund for marketing conferences, teleconferences and other activities involving the promotion of the Fund, subject to the reasonable request of the Advisor, (iv) permission to use biographical and historical data of the Sub-Advisor and individual manager(s), and (v) permission to use the names of those clients pre-approved by the Sub-Advisor to which the Sub-Advisor provides investment management services, subject to receipt of the consent of such clients to the use of their names.
e. The Sub-Advisor will, in the name of the Fund, place orders for the execution of all portfolio transactions in accordance with the policies with respect thereto set forth in the Trust's registration statements under the 1940 Act and the 1933 Act, as such registration statements may be in effect from time to time. When placing orders with brokers and dealers, the Sub-Advisor's primary objective shall be to obtain the most favorable price and execution available for the Fund, and in placing such orders the Sub-Advisor may consider a number of factors, including, without limitation, the overall direct net economic result to the Fund (including commissions, which may not be the lowest available but ordinarily should not be higher than the generally prevailing competitive range), the financial strength and stability of the broker, the efficiency with which the transaction will be effected, the ability to effect the transaction at all where a large block is involved and the availability of the broker or dealer to stand ready to execute possibly difficult transactions in the future. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking most favorable price and execution and compliance with Rule 12b-1(h) under the 1940 Act, the Sub-Advisor may select brokers and dealers to execute portfolio transactions of the Fund that promote or sell shares of the Fund. The Sub-Advisor is specifically authorized, to the extent authorized by law (including, without limitation, Section 28(e) of the 1934 Act), to pay a broker or dealer who provides research services to the Sub-Advisor an amount of commission for effecting a portfolio transaction in excess of the amount of commission another broker or dealer would have charged for effecting such transaction, in recognition of such additional research services rendered by the broker or dealer, but only if the Sub-Advisor determines in good faith that the excess commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer viewed in terms of the particular transaction or the Sub-Advisor's overall responsibilities with respect to discretionary accounts that it manages, and that the Fund derives or will derive a reasonable benefit from such research services. The Sub-Advisor will present a written report to the Board of Trustees of the Trust, at least quarterly, indicating total brokerage expenses, actual or imputed, as well as the services obtained in consideration for such expenses, broken down by broker-dealer and containing such information as the Board of Trustees reasonably shall request.
f. The Sub-Advisor shall maintain errors and omissions insurance coverage in an appropriate amount and shall provide prior written notice to the Trust (i) of any material changes in its insurance policies or insurance coverage; or (ii) if any material claims will be made on its insurance policies. Furthermore, the Sub-Advisor shall, upon reasonable request, provide the Trust with any information it may reasonably require concerning the amount of or scope of such insurance.
g. In the event of any reorganization or other change in the Sub-Advisor, its investment principals, supervisors or members of its investment (or comparable) committee, the Sub-Advisor shall give the Advisor and the Trust's Board of Trustees written notice of such reorganization or change within a reasonable time (but not later than 30 days) after such reorganization or change.
h. The Sub-Advisor will bear its expenses of providing services to the Fund pursuant to this Agreement except such expenses as are expressly undertaken by the Advisor or the Trust.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties undertaken hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor a monthly fee equal on an annual basis to 0.60% of the first $50 million of average daily net assets of the Fund, 0.50% of the next $450 million of average daily net assets of the Fund, 0.40% of the next $500 million of average daily net assets of the Fund, and 0.35% of the average daily net assets of the Fund in excess of $1 billion without regard to any total expense limitation of the Trust or the Advisor. Such fee shall be computed and accrued daily. If the Sub-Advisor serves in such capacity for less than the whole of any period specified in this Section 3a, the compensation to the Sub-Advisor shall be prorated. For purposes of calculating the Sub-Advisor's fee, the daily value of the Fund Assets shall be computed by the same method as the Trust uses to compute the net asset value of the Fund for purposes of purchases and redemptions of shares thereof.
b. The Sub-Advisor reserves the right to waive all or a part of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor may perform investment advisory services for various other clients, including other investment companies. The Trust and the Advisor further acknowledge that the Sub-Advisor may serve as an investment advisor or sub-advisor to future funds, which have the same, similar, or overlapping investment objectives. Provided, however that the Sub-Advisor represents and warrants that it has no arrangement or understanding with any party, other than the Trust, that would influence the decision of the Sub-Advisor with respect to its selection of securities for the Fund, and that all selections shall be done in accordance with what is in the best interest of the Fund in a manner consistent with Sub-Advisor's fiduciary duty.
The Sub-Advisor will report to the Board of Trustees of the Trust (at regular quarterly meetings and at such other times as such Board of Trustees reasonably shall request, subject to the limitation on personal attendance at such meetings set forth in Section 2a) (i) the financial condition and prospects of the Sub-Advisor, (ii) the nature and amount of transactions affecting the Fund that involve the Sub-Advisor and affiliates of the Sub-Advisor, (iii) information regarding any potential conflicts of interest arising by reason of its continuing provision of advisory services to the Fund and to its other accounts, and (iv) such other information as the Board of Trustees shall reasonably request regarding the Fund, the Fund's performance, the services provided by the Sub-Advisor and affiliates of the Sub-Advisor to the Fund as compared to its other accounts and the plans of, and the capability of, the Sub-Advisor with respect to providing future services to the Fund and its other accounts. The Sub-Advisor agrees to submit to the Trust a statement defining its policies with respect to the allocation of business among the Fund and its other clients.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's statement of financial condition) and will hereafter supply to the Advisor, promptly upon the preparation thereof, copies of all amendments or restatements of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name of the Sub-Advisor in any prospectus, sales literature or other material relating to the Advisor or the Trust in any manner not approved in advance by the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses of its name which merely refer in accurate terms to its appointment hereunder or which are required by the Securities and Exchange Commission (the "SEC") or a state securities commission; and provided further, that in no event shall such approval be unreasonably withheld. The Sub-Advisor shall not use the name of the Advisor or the Trust in any material relating to the Sub-Advisor in any manner not approved in advance by the Advisor or the Trust, as the case may be; provided, however, that the Advisor and the Trust shall each approve all uses of their respective names which merely refer in accurate terms to the appointment of the Sub-Advisor hereunder or which are required by the SEC or a state securities commission; and, provided further, that in no event shall such approval be unreasonably withheld.
6. LIABILITY OF THE SUB-ADVISOR. The Sub-Advisor shall indemnify and hold
harmless the Trust and all affiliated persons thereof (within the meaning of
Section 2(a)(3) of the 1940 Act) and all controlling persons (as described in
Section 15 of the 1933 Act) (collectively, the "Sub-Advisor Indemnitees")
against any and all losses, claims, damages, liabilities or litigation
(including reasonable legal and other expenses) by reason of or arising out of:
(a) the Sub-Advisor being in material violation of any applicable federal or
state law, rule or regulation or any investment policy or restriction set forth
in the Funds' Registration Statement or any written guidelines or instruction
provided in writing by the Board, or (b) the Sub-Advisor's willful misfeasance,
bad faith or gross negligence generally in the performance of its duties
hereunder or its reckless disregard of its obligations and duties under this
Agreement. In no case shall the Sub-Advisor be liable for actions taken or
non-actions with respect to the performance of its services under this Agreement
based upon specific written information, instructions, or requests made to the
Sub-Advisor by an officer of the Trust thereunto duly authorized. As used in
this Section 6, the term "Sub-Advisor" shall include the Sub-Advisor and/or any
of its affiliates and the directors, officers and employees of the Sub-Advisor
and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that it
has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the Fund Assets and
(ii) the Sub-Advisor shall not seek satisfaction of any such obligation from the
holders of shares of the Fund, other than the Advisor, nor from any Trustee,
officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or errors occurring by reason of circumstances beyond its control, including but not limited to acts of civil or military authority, national emergencies, work stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or failure of communication or power supply. In the event of equipment breakdowns beyond its control, the Sub-Advisor shall take all reasonable steps to minimize service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner terminated
as hereinafter provided, until May 15, 2010; and it shall continue
thereafter provided that such continuance is specifically approved by the
parties and, in addition, at least annually by (i) the vote of the holders
of a majority of the outstanding voting securities (as herein defined) of
the Fund or by vote of a majority of the Trust's Board of Trustees and
(ii) by the vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the Sub-Advisor,
cast in person at a meeting called for the purpose of voting on such
approval.
b. This Agreement may be terminated at any time, without payment of any penalty, (i) by the Advisor upon not more than sixty (60) days' nor less than thirty (30) days' written notice delivered or mailed by registered mail, postage prepaid, to the Sub-Advisor; (ii) by the Sub-Advisor upon not less than sixty (60) days' written notice delivered or mailed by registered mail, postage prepaid, to the Advisor; or (iii) by the Trust upon either (y) the majority vote of its Board or (z) the affirmative vote of a majority of the outstanding voting securities of the Fund. This Agreement shall terminate automatically in the event of its assignment.
c. This Agreement may be amended at any time by the parties hereto, subject to approval by the Trust's Board of Trustees and, if required by applicable SEC rules and regulations, a vote of the majority of the outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the outstanding voting securities" shall have the meaning set forth for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or shall be found to be invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing addressed and delivered personally (or by telecopy) or mailed postage-paid, to the other party at such address as such other party may designate in accordance with this paragraph for the receipt of such notice. Until further notice to the other party, it is agreed that the address of the Trust and that of the Advisor for this purpose shall be 303 Broadway, Suite 1100, Cincinnati, Ohio 45202 and that the address of the Sub-Advisor shall be One Financial Center, 23rd Floor, Boston, Massachusetts 02111.
12. MISCELLANEOUS. Each party agrees to perform such further actions and execute such further documents as are necessary to effectuate the purposes hereof. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Ohio and the Sub-Advisor consents to the jurisdiction of courts, both state or federal, in Ohio, with respect to any dispute under this Agreement. The captions in this Agreement are included for convenience only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
THE REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
By:
--------------------------------- -------------------------------
James H. Grifo
Name: President
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Title:
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WESTFIELD CAPITAL MANAGEMENT
COMPANY, L.P.
Attest:
By:
--------------------------------- -------------------------------
Name: Name:
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Title: Title:
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ADDENDUM TO SUB-ADVISORY AGREEMENT
DIVERSIFIED SMALL CAP GROWTH FUND
TOUCHSTONE STRATEGIC TRUST
This Agreement is entered into as of August 15, 2007 by and between Touchstone Advisors, Inc. ("Touchstone") and Fort Washington Investment Advisors, Inc. ("Fort Washington").
WHEREAS, Touchstone and Fort Washington entered into a Sub-Advisory Agreement dated as of September 5, 2006, (the "Sub-Advisory Agreement") with respect to the Diversified Small Cap Growth Fund (the "Fund"), a series of Touchstone Strategic Trust; and
WHEREAS, Touchstone and Fort Washington wish to enter into this Addendum to the Sub-Advisory Agreement;
NOW, THEREFORE, it is agreed by and between the parties hereto as follows:
1. Section 3a of the Sub-Advisory Agreement will be replaced with the following:
As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.50% of
average daily net assets of the Fund without regard to any total
expense limitation of the Trust or the Advisor. Such fee shall be
computed and accrued daily. If the Sub-Advisor serves in such
capacity for less than the whole of any period specified in this
Section 3a, the compensation to the Sub-Advisor shall be prorated.
For purposes of calculating the Sub-Advisor's fee, the daily value
of the Fund Assets shall be computed by the same method as the Trust
uses to compute the net asset value of the Fund for purposes of
purchases and redemptions of shares thereof.
2. This Addendum shall supersede the Addendum to the Sub-Advisory Agreement entered into on September 5, 2006.
3. Except for the provisions of this Addendum, the Sub-Advisory Agreement shall continue in full force and effect and be binding upon the parties notwithstanding the execution and delivery of this Addendum.
4. This Addendum shall be binding upon the parties and, to the extent permitted by the Sub-Advisory Agreement, their respective successors and assigns.
IN WITNESS WHEREOF, each of the parties hereto has caused this Addendum to be duly executed and delivered in its name and on its behalf by their respective officers thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC. FORT WASHINGTON INVESTMENT ADVISORS, INC.
By: /s/ William Dent By: /s/ Maribeth S. Rahe
---------------------- -----------------------------
Print Name: Print Name:
---------------------- -----------------------------
Print Title: Senior Vice President Print Title: President & CEO
---------------------- -----------------------------
Date: August 15, 2007 Date: August 15, 2007
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CUSTODIAN AGREEMENT
THIS AGREEMENT, dated as of February 25, 2008, between Touchstone Investment Trust, Touchstone Variable Series Trust, Touchstone Strategic Trust, Touchstone Tax-Free Trust, Touchstone Funds Group Trust, and Touchstone Institutional Funds Trust, each a business trust organized under the laws of the State of Massachusetts, and registered with the Commission under the 1940 Act acting with respect to each series of each Trust (individually a FUND and collectively, the FUNDS), and BROWN BROTHERS HARRIMAN & CO., a limited partnership formed under the laws of the State of New York (BBH&CO. or the CUSTODIAN),
W I T N E S S E T H:
WHEREAS, the Fund wishes to employ BBH&Co. to act as custodian for the Fund and to provide related services, all as provided herein, and BBH&Co. is willing to accept such employment, subject to the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Fund and BBH&Co. hereby agree, as follows:
1. APPOINTMENT OF CUSTODIAN. The Fund hereby appoints BBH&Co. as the Fund's custodian, and BBH&Co. hereby accepts such appointment. All Investments of the Fund delivered to the Custodian or its agents or Subcustodians shall be dealt with as provided in this Agreement. The duties of the Custodian with respect to the Fund's Investments shall be only as set forth expressly in this Agreement which duties are generally comprised of safekeeping and various administrative duties that will be performed in accordance with Instructions and as reasonably required to effect Instructions.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE FUND. The Fund hereby represents, warrants and covenants each of the following:
2.1 This Agreement has been, and at the time of delivery of each Instruction such Instruction will have been, duly authorized, executed and delivered by the Fund. This Agreement does not violate any Applicable Law or conflict with or constitute a default under the Fund's prospectus or other organic document, agreement, judgment, order or decree to which the Fund is a party or by which it or its Investments is bound.
2.2 By providing an Instruction with respect to the first acquisition of an Investment in a jurisdiction other than the United States of America, the Fund shall be deemed to have confirmed to the Custodian that the Fund has (a) assessed and accepted all material Country or Sovereign Risks and accepted responsibility for their occurrence, (b) made all determinations required to be made by the Fund under the 1940 Act, and (iii) appropriately and adequately disclosed to its shareholders, other investors and all persons who have rights in or to such Investments, all material investment risks, including those relating to the custody and settlement infrastructure or the servicing of securities in such jurisdiction.
2.3 The Fund shall safeguard and shall solely be responsible for the safekeeping of any testkeys, identification codes, passwords, other security devices or statements of account with which the Custodian provides it. In furtherance and not limitation of the foregoing, in the event the Fund utilizes any on-line service offered by the Custodian, the Fund and the Custodian shall be fully responsible for the security of each party's connecting terminal, access thereto and the proper and authorized use thereof and the initiation and application of continuing effective safeguards in respect thereof. Additionally, if the Fund uses any on-line or similar communications service made available by the Custodian, the Fund shall be solely responsible for ensuring the security of its access to the service and for the use of the service, and shall only attempt to access the service and the Custodian's computer systems as directed by the Custodian. If the Custodian provides any computer software to the Fund relating to the services described in this Agreement, the Fund will only use the software for the purposes for which the Custodian provided the software to the Fund, and will abide by the license agreement accompanying the software and any other security policies which the Custodian provides to the Fund.
3. REPRESENTATION AND WARRANTY OF BBH&CO. BBH&Co. hereby represents and warrants that this Agreement has been duly authorized, executed and delivered by BBH&Co. and does not and will not violate any Applicable Law or conflict with or constitute a default under BBH&Co.'s limited partnership agreement or any agreement, instrument, judgment, order or decree to which BBH&Co. is a party or by which it is bound.
4. INSTRUCTIONS. Unless otherwise explicitly indicated herein, the Custodian shall perform its duties pursuant to Instructions. As used herein, the term INSTRUCTION shall mean a directive initiated by the Fund, acting directly or through its board of directors, officers or other Authorized Persons, which directive shall conform to the requirements of this Section 4.
4.1 AUTHORIZED PERSONS. For purposes hereof, an AUTHORIZED PERSON shall be a person or entity authorized to give Instructions for or on behalf of the Fund by written notices to the Custodian or otherwise in accordance with procedures delivered to and acknowledged by the Custodian, including without limitation the Fund's Investment Adviser or Foreign Custody Manager. The Custodian may treat any Authorized Person as having full authority of the Fund to issue Instructions hereunder unless the notice of authorization contains explicit limitations as to said authority. The Custodian shall be entitled to rely upon the authority of Authorized Persons until it receives appropriate written notice from the Fund to the contrary.
4.2 FORM OF INSTRUCTION. Each Instruction shall be transmitted by such secured or authenticated electro-mechanical means as the Custodian shall make available to the Fund from time to time unless the Fund shall elect to transmit such Instruction in accordance with Subsections 4.2.1 through 4.2.3 of this Section.
4.2.1 FUND DESIGNATED SECURED-TRANSMISSION METHOD. Instructions may be transmitted through a secured or tested electro-mechanical means identified by the Fund or by an Authorized Person entitled to give Instruction and acknowledged and accepted by the Custodian; it being understood that such acknowledgment shall authorize the Custodian to receive and process such means of delivery but shall not represent a judgment by the Custodian as to the reasonableness or security of the method determined by the Authorized Person.
4.2.2 WRITTEN INSTRUCTIONS. Instructions may be transmitted in a writing that bears the manual signature of Authorized Persons.
4.2.3 OTHER FORMS OF INSTRUCTION. Instructions may also be transmitted by another means determined by the Fund or Authorized Persons and acknowledged and accepted by the Custodian (subject to the same limits as to acknowledgements as is contained in Subsection 4.2.1, above) including Instructions given orally or by SWIFT, telex or telefax (whether tested or untested).
When an Instruction is given by means established under Subsections 4.2.1 through 4.2.3 above, it shall be the responsibility of the Custodian to use reasonable care to adhere to any security or other procedures established in writing between the Custodian and the Authorized Person with respect to such means of Instruction, but such Authorized Person shall be solely responsible for determining that the particular means chosen is reasonable under the circumstances. Oral Instructions shall be binding upon the Custodian only if and when the Custodian takes action with respect thereto. With respect to telefax instructions, the parties agree and acknowledge that receipt of legible instructions cannot be assured, that the Custodian cannot verify that authorized signatures on telefax instructions are original or properly affixed, and that the Custodian shall not be liable for losses or expenses incurred through actions taken in reliance on inaccurately stated, illegible or unauthorized telefax instructions. The provisions of Section 4A of the Uniform Commercial Code shall apply to Funds Transfers performed in accordance with Instructions. The Funds Transfer Services Schedule and the Electronic and Online Services Schedule to this Agreement shall comprise a designation of form of a means of delivering Instructions for purposes of this Section 4.2.
4.3 COMPLETENESS AND CONTENTS OF INSTRUCTIONS. The Authorized Person shall be responsible for assuring the adequacy and accuracy of Instructions. Particularly, upon any acquisition or disposition or other dealing in the Fund's Investments and upon any delivery and transfer of any Investment or moneys, the person initiating such Instruction shall give the Custodian an Instruction with appropriate detail, including, without limitation:
4.3.1 The transaction date and the date and location of settlement;
4.3.2 The specification of the type of transaction;
4.3.3 A description of the Investments or moneys in question, including, as appropriate, quantity, price per unit, amount of money to be received or delivered and currency information. Where an Instruction is communicated by electronic means, or otherwise where an Instruction contains an identifying number such as a CUSIP, SEDOL or ISIN number, the Custodian shall be entitled to rely on such number as controlling notwithstanding any inconsistency contained in such Instruction, particularly with respect to Investment description; and
4.3.4 The name of the broker or similar entity concerned with execution of the transaction.
If the Custodian shall determine that an Instruction is either unclear or incomplete, the Custodian may give prompt notice of such determination to the Fund, and the Fund shall thereupon amend or otherwise reform such Instruction. In such event, the Custodian shall have no obligation to take any action in response to the Instruction initially delivered until the redelivery of an amended or reformed Instruction
4.4 TIMELINESS OF INSTRUCTIONS. In giving an Instruction, the Fund shall take into consideration delays which may occur due to the involvement of a Subcustodian or agent, differences in time zones, and other factors particular to a given market, exchange or issuer. When the Custodian has established specific timing requirements or deadlines with respect to particular classes of Instruction, or when an Instruction is received by the Custodian at such a time that it could not reasonably be expected to have acted on such instruction due to time zone differences or other factors beyond its reasonable control, the execution of any Instruction received by the Custodian after such deadline or at such time (including any modification or revocation of a previous Instruction) shall be at the risk of the Fund.
5. SAFEKEEPING OF FUND ASSETS. The Custodian shall hold Investments delivered to it or Subcustodians for the Fund in accordance with the provisions of this Section. The Custodian shall not be responsible for (a) the safekeeping of Investments not delivered or that are not caused to be issued to it or its Subcustodians; or, (b) pre-existing faults or defects in Investments that are delivered to the Custodian, or its Subcustodians. The Custodian is hereby authorized to hold with itself or a Subcustodian, and to record in one or more accounts, all Investments delivered to and accepted by the Custodian, any Subcustodian or their respective agents pursuant to an Instruction or in consequence of any corporate action. The Custodian shall hold Investments for the account of the Fund and shall segregate Investments from assets belonging to the Custodian and shall cause its Subcustodians to segregate Investments from assets belonging to the Subcustodian in an account held for the Fund or in an account maintained by the Subcustodian generally for non-proprietary assets of the Custodian.
5.1 USE OF SECURITIES DEPOSITORIES. The Custodian may deposit and maintain Investments in any Securities Depository, either directly or through one or more Subcustodians appointed by the Custodian. Investments held in a Securities Depository shall be held (a) subject to the agreement, rules, statement of terms and conditions or other document or conditions effective between the Securities Depository and the Custodian or the Subcustodian, as the case may be, and (b) in an account for the Fund or in bulk segregation in an account maintained for the non-proprietary assets of the entity holding such Investments in the Depository. If market practice or the rules and regulations of the Securities Depository prevent the Custodian, the Subcustodian or (any agent of either) from holding its client assets in such a separate account, the Custodian, the Subcustodian or other agent shall as appropriate segregate such Investments for benefit of the Fund or for benefit of clients of the Custodian generally on its own books.
5.2 CERTIFICATED ASSETS. Investments which are certificated may be held in registered or bearer form: (a) in the Custodian's vault; (b) in the vault of a Subcustodian or agent of the Custodian or a Subcustodian; or (c) in an account maintained by the Custodian, Subcustodian or agent at a Securities Depository; all in accordance with customary market practice in the jurisdiction in which any Investments are held.
5.3 REGISTERED ASSETS. Investments which are registered may be registered in the name of the Custodian, a Subcustodian, or in the name of the Fund or a nominee for any of the foregoing, and may be held in any manner set forth in paragraph 5.2 above with or without any identification of fiduciary capacity in such registration.
5.4 BOOK ENTRY ASSETS. Investments which are represented by book-entry may be so held in an account maintained by the Book-entry Agent on behalf of the Custodian, a Subcustodian or another agent of the Custodian, or a Securities Depository.
5.5 REPLACEMENT OF LOST INVESTMENTS. In the event of a loss of Investments for which the Custodian is responsible under the terms of this Agreement, the Custodian shall replace such Investment, or in the event that such replacement cannot be effected, the Custodian shall pay to the Fund the fair market value of such Investment based on the last available price as of the close of business in the relevant market on the date that a claim was first made to the Custodian with respect to such loss, or, if less, such other amount as shall be agreed by the parties as the date for settlement.
6. ADMINISTRATIVE DUTIES OF THE CUSTODIAN. The Custodian shall perform the following administrative duties with respect to Investments of the Fund.
6.1 PURCHASE OF INVESTMENTS. Pursuant to Instruction, Investments purchased for the account of the Fund shall be paid for (a) against delivery thereof to the Custodian or a Subcustodian, as the case may be, either directly or through a Clearing Corporation or a Securities Depository (in accordance with the rules of such Securities Depository or such Clearing Corporation), or (b) otherwise in accordance with an Instruction, Applicable Law, generally accepted trade practices, or the terms of the instrument representing such
6.2 SALE OF INVESTMENTS. Pursuant to Instruction, Investments sold for the account of the Fund shall be delivered (a) against payment therefor in cash, by check or by bank wire transfer, (b) by credit to the account of the Custodian or the applicable Subcustodian, as the case may be, with a Clearing Corporation or a Securities Depository (in accordance with the rules of such Securities Depository or such Clearing Corporation), or (c) otherwise in accordance with an Instruction, Applicable Law, generally accepted trade practices, or the terms of the instrument representing such Investment.
6.3 DELIVERY AND RECEIPT IN CONNECTION WITH BORROWINGS OF THE FUND OR OTHER COLLATERAL AND MARGIN REQUIREMENTS. Pursuant to Instruction, the Custodian may deliver or receive Investments or cash of the Fund in connection with borrowings or loans by the Fund and other collateral and margin requirements.
6.4 FUTURES AND OPTIONS. If, pursuant to an Instruction, the Custodian shall become a party to an agreement with the Fund and a futures commission merchant regarding margin (TRI-PARTY AGREEMENT), the Custodian shall (a) receive and retain, to the extent the same are provided to the Custodian, confirmations or other documents evidencing the purchase or sale by the Fund of exchange-traded futures contracts and commodity options, (b) when required by such Tri-Party Agreement, deposit and maintain in an account opened pursuant to such Agreement (MARGIN ACCOUNT), segregated either physically or by book-entry in a Securities Depository for the benefit of any futures commission merchant, such Investments as the Fund shall have designated as initial, maintenance or variation "margin" deposits or other collateral intended to secure the Fund's performance of its obligations under the terms of any exchange-traded futures contracts and commodity options; and (c) thereafter pay, release or transfer Investments into or out of the margin account in accordance with the provisions of such Agreement. Alternatively, the Custodian may deliver Investments, in accordance with an Instruction, to a futures commission merchant for purposes of margin requirements in accordance with Rule 17f-6. The Custodian shall in no event be responsible for the acts and omissions of any futures commission merchant to whom Investments are delivered pursuant to this Section; for the sufficiency of Investments held in any Margin Account; or, for the performance of any terms of any exchange-traded futures contracts and commodity options.
6.5 CONTRACTUAL OBLIGATIONS AND SIMILAR INVESTMENTS. From time to time, the Fund's Investments may include Investments that are not ownership interests as may be represented by certificate (whether registered or bearer), by entry in a Securities Depository or by book entry agent, registrar or similar agent for recording ownership interests in the relevant Investment. If the Fund shall at any time acquire such Investments, including without limitation deposit obligations, loan participations, repurchase agreements and derivative arrangements, the Custodian shall (a) receive and retain, to the extent the same are provided to the Custodian, confirmations or other documents evidencing the arrangement; and (b) perform on the Fund's account in accordance with the terms of the applicable arrangement, but only to the extent directed to do so by Instruction. The Custodian shall have no responsibility for agreements running to the Fund as to which it is not a party other than to retain, to the extent the same are provided to the Custodian, documents or copies of documents evidencing the arrangement and, in accordance with Instruction, to include such arrangements in reports made to the Fund.
6.6 EXCHANGE OF SECURITIES. Unless otherwise directed by Instruction, the Custodian shall: (a) exchange securities held for the account of the Fund for other securities in connection with any reorganization, recapitalization, conversion, split-up, change of par value of shares or similar event, and (b) deposit any such securities in accordance with the terms of any reorganization or protective plan.
6.7 SURRENDER OF SECURITIES. Unless otherwise directed by Instruction, the Custodian may surrender securities: (a) in temporary form for definitive securities; (b) for transfer into the name of an entity allowable under Section 5.3; and (c) for a different number of certificates or instruments representing the same number of shares or the same principal amount of indebtedness.
6.8 RIGHTS, WARRANTS, ETC. Pursuant to Instruction, the Custodian shall
(a) deliver warrants, puts, calls, rights or similar securities to the issuer or
trustee thereof, or to any agent of such issuer or trustee, for purposes of
exercising such rights or selling such securities, and (b) deposit securities in
response to any invitation for the tender thereof.
6.9 MANDATORY CORPORATE ACTIONS. Unless otherwise directed by Instruction, the Custodian shall: (a) comply with the terms of all mandatory or compulsory exchanges, calls, tenders, redemptions or similar rights of securities ownership affecting securities held on the Fund's account and promptly notify the Fund of such action; and (b) collect all stock dividends, rights and other items of like nature with respect to such securities.
6.10 INCOME COLLECTION. Unless otherwise directed by Instruction, the Custodian shall collect any amount due and payable to the Fund with respect to Investments and promptly credit the amount collected to a Principal or Agency Account; provided, however, that the Custodian shall not be responsible for: (a) the collection of amounts due and payable with respect to Investments that are in default; or (b) the collection of cash or share entitlements with respect to Investments that are not registered in the name of the Custodian or its Subcustodians. The Custodian is hereby authorized to endorse and deliver any instrument required to be so endorsed and delivered to effect collection of any amount due and payable to the Fund with respect to Investments.
6.11 OWNERSHIP CERTIFICATES AND DISCLOSURE OF THE FUND'S INTEREST. The Custodian is hereby authorized to execute on behalf of the Fund ownership certificates, affidavits or other disclosure required under Applicable Law or established market practice in connection with the receipt of income, capital gains or other payments by the Fund with respect to Investments, or in connection with the sale, purchase or ownership of Investments.
With respect to securities issued in the United States of America, the Custodian [ ] may [ ] may not release the identity of the Fund to an issuer which requests such information pursuant to the Shareholder Communications Act of 1985 for the specific purpose of direct communications between such issuer and the Fund. IF NO BOX IS CHECKED, THE CUSTODIAN SHALL RELEASE SUCH INFORMATION UNTIL IT RECEIVES CONTRARY INSTRUCTIONS FROM THE FUND. With respect to securities issued outside of the United States of America, information shall be released in accordance with law or custom of the particular country in which such security is located.
6.12 PROXY MATERIALS. The Custodian shall deliver, or cause to be delivered, to the Fund proxy forms, notices of meeting, and any other notices or announcements materially affecting or relating to Investments received by the Custodian or any nominee.
6.13. TAXES. The Custodian shall, where applicable, assist the Fund in the reclamation of taxes withheld on dividends and interest payments received by the Fund. In the performance of its duties with respect to tax withholding and reclamation, the Custodian shall be entitled to rely on the advice of counsel and upon information and advice regarding the Fund's tax status that is received from or on behalf of the Fund without duty of separate inquiry.
6.14 OTHER DEALINGS. The Custodian shall otherwise act as directed by Instruction, including without limitation effecting the free payments of moneys or the free delivery of securities, provided that such Instruction shall indicate the purpose of such payment or delivery and that the Custodian shall record the party to whom such payment or delivery is made.
The Custodian shall attend to all nondiscretionary details in connection with the sale or purchase or other administration of Investments, except as otherwise directed by an Instruction, and may make payments to itself or others for minor expenses of administering Investments under this Agreement; provided that the Fund shall have the right to request an accounting with respect to such expenses.
In fulfilling the duties set forth in Sections 6.6 through 6.10 above, the Custodian shall provide to the Fund all material information pertaining to a corporate action which the Custodian actually receives; provided that the Custodian shall not be responsible for the completeness or accuracy of such information. Information relative to any pending corporate action made available to the Fund via any of the services described in the Electronic and Online Services Schedule shall constitute delivery of such information by the Custodian hereunder. Any advance credit of cash or shares expected to be received as a result of any corporate action shall be subject to actual collection and may, when the Custodian deems collection unlikely, be reversed by the Custodian.
The Custodian may at any time or times in its discretion appoint (and may at any time remove) agents (other than Subcustodians) to carry out some or all of the administrative provisions of this Agreement (AGENTS), provided, however, that the appointment of such agent shall not relieve the Custodian of its administrative obligations under this Agreement.
7. CASH ACCOUNTS, DEPOSITS AND MONEY MOVEMENTS. Subject to the terms and conditions set forth in this Section 7, the Fund hereby authorizes the Custodian to open and maintain, with itself or with Subcustodians, cash accounts in United States Dollars, in such other currencies as are the currencies of the countries in which the Fund maintains Investments or in such other currencies as the Fund shall from time to time request by Instruction.
7.1 TYPES OF CASH ACCOUNTS. Cash accounts opened on the books of the Custodian (PRINCIPAL ACCOUNTS) shall be opened in the name of the Fund. Such accounts collectively shall be a deposit obligation of the Custodian and shall be subject to the terms of this Section 7 and the general liability provisions contained in Section 10. Cash accounts opened on the books of a Subcustodian may be opened in the name of the Fund or the Custodian or in the name of the Custodian for its customers generally (AGENCY ACCOUNTS). Such deposits shall be obligations of the Subcustodian and shall be treated as an Investment of the Fund. Accordingly, the Custodian shall be responsible for exercising reasonable care in the administration of such accounts but shall not be liable for their repayment in the event such Subcustodian, by reason of its bankruptcy, insolvency or otherwise, fails to make repayment.
7.1.1. ADMINISTRATIVE ACCOUNTS. In connection with the services provided hereunder, the Custodian is hereby directed to open cash accounts on its books and records from time to time for the purposes of receiving subscriptions and/or processing redemptions on behalf of the Fund and/or for the purposes of aggregating, netting and/or clearing transactions (including, without limitation, foreign exchange, repurchase agreements, capital stock activity, and/or expense payments) or other administrative purposes, each on behalf of the Fund (each an "Account"). Each such Account shall be subject to the terms and conditions of this Agreement and the Fund shall be liable for the satisfaction of its own obligations in connection with each Account.
7.2 PAYMENTS AND CREDITS WITH RESPECT TO THE CASH ACCOUNTS. The Custodian shall make payments from or deposits to any of said accounts in the course of carrying out its administrative duties, including but not limited to income collection with respect to the Fund's Investments, and otherwise in accordance with Instructions. The Custodian and its Subcustodians shall be required to credit amounts to the cash accounts only when moneys are actually received in cleared funds in accordance with banking practice in the country and currency of deposit. Any credit made to any Principal or Agency Account before actual receipt of cleared funds shall be provisional and may be reversed by the Custodian in the event such payment is not actually collected. Unless otherwise specifically agreed in writing by the Custodian or any Subcustodian, all deposits shall be payable only at the branch of the Custodian or Subcustodian where the deposit is made or carried.
7.3 CURRENCY AND RELATED RISKS. The Fund bears risks of holding or
transacting in any currency. The Custodian shall not be liable for any loss or
damage arising from the applicability of any law or regulation now or hereafter
in effect, or from the occurrence of any event, which may delay or affect the
transferability, convertibility or availability of any currency in the country
(a) in which such Principal or Agency Accounts are maintained or (b) in which
such currency is issued, and in no event shall the Custodian be obligated to
make payment of a deposit denominated in a currency during the period during
which its transferability, convertibility or availability has been affected by
any such law, regulation or event. Without limiting the generality of the
foregoing, neither the Custodian nor any Subcustodian shall be required to repay
any deposit made at a foreign branch of either the Custodian or Subcustodian if
such branch cannot repay the deposit due to a cause for which the Custodian
would not be responsible in accordance with the terms of Section 10 of this
Agreement unless the Custodian or such Subcustodian expressly agrees in writing
to repay the deposit under such circumstances. All currency transactions in any
account opened pursuant to this Agreement are subject to exchange control
regulations of the United States and of the country where such currency is the
lawful currency or where the account is maintained. Any taxes, costs, charges or
fees imposed on the convertibility of a currency held by the Fund shall be for
the account of the Fund.
7.4 FOREIGN EXCHANGE TRANSACTIONS. The Custodian shall, subject to the terms of this Section, settle foreign exchange transactions (including contracts, futures, options and options on futures) on behalf and for the account of the Fund with such currency brokers or banking institutions, including Subcustodians, as the Fund may direct pursuant to Instructions. The Custodian may act as principal in any foreign exchange transaction with the Fund in accordance with Section 7.4.2 of this Agreement. The obligations of the Custodian in respect of all foreign exchange transactions (whether or not the Custodian shall act as principal in such transaction) shall be contingent on the free, unencumbered transferability of the currency transacted on the actual settlement date of the transaction.
7.4.1 THIRD PARTY FOREIGN EXCHANGE TRANSACTIONS. The Custodian shall process foreign exchange transactions (including without limitation contracts, futures, options, and options on futures), where any third party acts as principal counterparty to the Fund on the same basis it performs duties as agent for the Fund with respect to any other of the Fund's Investments. Accordingly the Custodian shall only be responsible for delivering or receiving currency on behalf of the Fund in respect of such contracts pursuant to Instructions. The Custodian shall not be responsible for the failure of any counterparty (including any Subcustodian) in such agency transaction to perform its obligations thereunder. The Custodian (a) shall transmit cash and Instructions to and from the currency broker or banking institution with which a foreign exchange contract or option has been executed pursuant hereto, (b) may make free outgoing payments of cash in the form of Dollars or foreign currency without receiving confirmation of a foreign exchange contract or option or confirmation that the countervalue currency completing the foreign exchange contract has been delivered or received or that the option has been delivered or received, and (c) shall hold all confirmations, certificates and other documents and agreements received by the Custodian and evidencing or relating to such foreign exchange transactions in safekeeping. The Fund accepts full responsibility for its use of third-party foreign exchange dealers and for execution of said foreign exchange contracts and options and understands that the Fund shall be responsible for any and all costs and interest charges which may be incurred by the Fund or the Custodian as a result of the failure or delay of third parties to deliver foreign exchange.
7.4.2 FOREIGN EXCHANGE WITH THE CUSTODIAN AS PRINCIPAL. The Custodian may undertake foreign exchange transactions with the Fund as principal as the Custodian and the Fund may agree from time to time. In such event, the foreign exchange transaction will be performed in accordance with the particular agreement of the parties, or in the event a principal foreign exchange transaction is initiated by Instruction in the absence of specific agreement, such transaction will be performed in accordance with the usual commercial terms of the Custodian.
7.5 DELAYS. If no event of Force Majeure shall have occurred and be
continuing and in the event that a delay shall have been caused by the
negligence or willful misconduct of the Custodian in carrying out an Instruction
to credit or transfer cash, the Custodian shall be liable to the Fund: (a) with
respect to Principal Accounts, for interest to be calculated at the rate
customarily paid on such deposit and currency by the Custodian on overnight
deposits at the time the delay occurs for the period from the day when the
transfer should have been effected until the day it is in fact effected; and,
(b) with respect to Agency Accounts, for interest to be calculated at the rate
customarily paid on such deposit and currency by the Subcustodian on overnight
deposits at the time the delay occurs for the period from the day when the
transfer should have been effected until the day it is in fact effected. The
Custodian shall not be liable for delays in carrying out such Instructions to
transfer cash which are not due to the Custodian's own negligence or willful
misconduct.
7.6 ADVANCES. If, for any reason in the conduct of its safekeeping duties pursuant to Section 5 hereof or its administration of the Fund's assets pursuant to Section 6 hereof, the Custodian or any Subcustodian advances monies to facilitate settlement or otherwise for benefit of the Fund (whether or not any Principal or Agency Account shall be overdrawn either during, or at the end of, any Business Day), the Fund hereby does:
7.6.1 acknowledge that the Fund shall have no right or title to any
Investments purchased with such Advance save a right to receive such
Investments upon: (a) the debit of the Principal or Agency Account; or,
(b) if such debit would produce an overdraft in such account, other
reimbursement of the associated Advance;
7.6.2 grant to the Custodian a security interest in all Investments; and,
7.6.3 agree that the Custodian may secure the resulting Advance by perfecting a security interest in all Investments under Applicable Law.
Neither the Custodian nor any Subcustodian shall be obligated to advance monies to the Fund, and in the event that such Advance occurs, any transaction giving rise to an Advance shall be for the account and risk of the Fund and shall not be deemed to be a transaction undertaken by the Custodian for its own account and risk. If such Advance shall have been made by a Subcustodian or any other person, the Custodian may assign the security interest and any other rights granted to the Custodian hereunder to such Subcustodian or other person. If the Fund shall fail to repay when due the principal balance of an Advance and accrued and unpaid interest thereon, the Custodian or its assignee, as the case may be, shall be entitled to utilize the available cash balance in any Agency or Principal Account and to dispose of any Investments to the extent necessary to recover payment of all principal of, and interest on, such Advance in full. The Custodian may assign any rights it has hereunder to a Subcustodian or third party. Any security interest in Investments taken hereunder shall be treated as financial assets credited to securities accounts under Articles 8 and 9 of the Uniform Commercial Code (1997). Accordingly, the Custodian shall have the rights and benefits of a secured creditor that is a securities intermediary under such Articles 8 and 9.
7.7 INTEGRATED ACCOUNT. For purposes hereof, deposits maintained in all Principal Accounts (whether or not denominated in Dollars) shall collectively constitute a single and indivisible current account with respect to the Fund's obligations to the Custodian, or its assignee, and balances in such Principal Accounts shall be available for satisfaction of the Fund's obligations under this Section 7. The Custodian shall further have a right of offset against the balances in any Agency Account maintained hereunder to the extent that the aggregate of all Principal Accounts is overdrawn.
8. SUBCUSTODIANS AND SECURITIES DEPOSITORIES. Subject to the provisions hereinafter set forth in this Section 8, the Fund hereby authorizes the Custodian to utilize Securities Depositories to act on behalf of the Fund and to appoint from time to time and to utilize Subcustodians. With respect to securities and funds held by a Subcustodian, either directly or indirectly (including by a Securities Depository or Clearing Corporation), notwithstanding any provisions of this Agreement to the contrary, payment for securities purchased and delivery of securities sold may be made prior to receipt of securities or payment, respectively, and securities or payment may be received in a form, in accordance with (a) governmental regulations, (b) rules of Securities Depositories and clearing agencies, (c) generally accepted trade practice in the applicable local market, (d) the terms and characteristics of the particular Investment, or (e) the terms of Instructions.
8.1 DOMESTIC SUBCUSTODIANS AND SECURITIES DEPOSITORIES. The Custodian may deposit and/or maintain, either directly or through one or more agents appointed by the Custodian, Investments of the Fund in any Securities Depository in the United States, including The Depository Trust Company, provided such Depository meets applicable requirements of the Federal Reserve Bank or of the Securities and Exchange Commission. The Custodian may, at any time and from time to time, appoint any bank as defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act on behalf of the Fund as a Subcustodian for purposes of holding Investments of the Fund in the United States.
8.2 FOREIGN SUBCUSTODIANS AND SECURITIES DEPOSITORIES. Unless instructed otherwise by the Fund, the Custodian may deposit and/or maintain non-U.S. Investments of the Fund in any non-U.S. Securities Depository provided such Securities Depository meets the requirements of an "eligible securities depository" under Rule 17f-7 promulgated under the 1940 Act, or any successor rule or regulation ("Rule 17f-7") or which by order of the Securities and Exchange Commission is exempted therefrom. Prior to the time that securities are placed with such depository, but subject to the provisions of Section 8.2.4 below, the Custodian shall have prepared an assessment of the custody risks associated with maintaining assets with the Securities Depository and shall have established a system to monitor such risks on a continuing basis in accordance with subsection 8.2.3 of this Section. Additionally, the Custodian may, at any time and from time to time, appoint (a) any bank, trust company or other entity meeting the requirements of an "eligible foreign custodian" under Rule 17f-5 or which by order of the Securities and Exchange Commission is exempted therefrom, or (b) any bank as defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act on behalf of the Fund as a Subcustodian for purposes of holding Investments of the Fund outside the United States. Such appointment of foreign Subcustodians shall be subject to approval of the Fund in accordance with Subsections 8.2.1 and 8.2.2 hereof, and use of non-U.S. Securities Depositories shall be subject to the terms of Subsections 8.2.3 and 8.2.4 hereof. An Instruction to open an account in a given country shall comprise authorization of the Custodian to hold assets in such country in accordance with the terms of this Agreement. The Custodian shall not be required to make independent inquiry as to the authorization of the Fund to invest in such country.
8.2.1 BOARD APPROVAL OF FOREIGN SUBCUSTODIANS. Unless and except to the extent that the Board has delegated to and the Custodian has accepted delegation of review of certain matters concerning the appointment of Subcustodians pursuant to Subsection 8.2.2 below, the Custodian shall, prior to the appointment of any Subcustodian for purposes of holding Investments of the Fund outside the United States, obtain written confirmation of the approval of the Board of Trustees or Directors of the Fund with respect to (a) the identity of a Subcustodian, and (b) the Subcustodian agreement which shall govern such appointment, such approval to be signed by an Authorized Person.
8.2.2 DELEGATION OF BOARD REVIEW OF SUBCUSTODIANS. From time to time, the Custodian may agree to perform certain reviews of Subcustodians and of Subcustodian Contracts as delegate of the Fund's Board. In such event, the Custodian's duties and obligations with respect to this delegated review will be performed in accordance with the terms of the attached 17f-5 Delegation Schedule to this Agreement.
8.2.3 MONITORING AND RISK ASSESSMENT OF SECURITIES DEPOSITORIES.
Prior to the placement of any assets of the Fund with a non-U.S.
Securities Depository, the Custodian: (a) shall provide to the Fund or its
authorized representative an assessment of the custody risks associated
with maintaining assets within such Securities Depository; and (b) shall
have established a system to monitor the custody risks associated with
maintaining assets with such Securities Depository on a continuing basis
and to promptly notify the Fund or its Investment Adviser of any material
changes in such risk. In performing its duties under this subsection, the
Custodian shall use reasonable care and may rely on such reasonable
sources of information as may be available including but not limited to:
(i) published ratings; (ii) information supplied by a Subcustodian that is
a participant in such Securities Depository; (iii) industry surveys or
publications; (iv) information supplied by the depository itself, by its
auditors (internal or external) or by the relevant Foreign Financial
Regulatory Authority. It is acknowledged that information procured through
some or all of these sources may not be independently verifiable by the
Custodian and that direct access to Securities Depositories is limited
under most circumstances. Accordingly, the Custodian shall not be
responsible for errors or omissions in its duties hereunder provided that
it has performed its monitoring and assessment duties with reasonable
care. The risk assessment shall be provided to the Fund or its Investment
Advisor by such means as the Custodian shall reasonably establish. Advices
of material change in such assessment may be provided by the Custodian in
the manner established as customary between the Fund and the Custodian for
transmission of material market information.
8.2.4 SPECIAL TRANSITIONAL RULE. It is acknowledged that Rule 17f-7 has an effective date of July 1, 2001 and that the Custodian will require a period of time to fully prepare risk assessment information and to establish a risk monitoring system as provided in Subsection 8.2.3 above. Accordingly, until July 1, 2001, the Custodian shall use reasonable efforts to implement the measures required by Subsection 8.2.3, and shall in the interim provide to the Fund or its Investment Advisor the depository information customarily provided and shall promptly inform the Fund or its Investment Advisor of any material development affecting the custody risks associated with the maintenance of assets with a particular Securities Depository of which it becomes aware in the course of its general duties under this Agreement or from its duties under Subsection 8.2.3 above as such duties have been implemented at any given time.
8.3 RESPONSIBILITY FOR SUBCUSTODIANS. Except as provided in the last sentence of this Section 8.3, the Custodian shall be liable to the Fund for any loss or damage to the Fund caused by or resulting from the acts or omissions of any Subcustodian to the extent that such acts or omissions would be deemed to be negligence, gross negligence or willful misconduct in accordance with the terms of the relevant subcustodian agreement under the laws, circumstances and practices prevailing in the place where the act or omission occurred. The liability of the Custodian in respect of the countries and subcustodians so designated by the Custodian, from time to time, on the Global Custody Network Listing, shall be subject to the additional condition that the Custodian actually recovers such loss or damage from the Subcustodian.
8.4 NEW COUNTRIES. The Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed investment which is to be held in a country in which no Subcustodian is authorized to act in order that the Custodian shall, if it deems appropriate to do so, have sufficient time to establish a subcustodial arrangement in accordance herewith. In the event, however, the Custodian is unable to establish such arrangements prior to the time such investment is to be acquired, the Custodian is authorized to designate at its discretion a local safekeeping agent, and the use of such local safekeeping agent shall be at the sole risk of the Fund, and accordingly the Custodian shall be responsible to the Fund for the actions of such agent if and only to the extent the Custodian shall have recovered from such agent for any damages caused the Fund by such agent.
9. RESPONSIBILITY OF THE CUSTODIAN. In performing its duties and obligations hereunder, the Custodian shall use reasonable care under the facts and circumstances prevailing in the market where performance is effected. Subject to the specific provisions of this Section, the Custodian shall be liable for any direct damage incurred by the Fund in consequence of the Custodian's negligence, bad faith or willful misconduct. In no event shall the Custodian be liable hereunder for any special, indirect, punitive or consequential damages arising out of, pursuant to or in connection with this Agreement even if the Custodian has been advised of the possibility of such damages. It is agreed that the Custodian shall have no duty to assess the risks inherent in the Fund's Investments or to provide investment advice with respect to such Investments and that the Fund as principal shall bear any risks attendant to particular Investments such as failure of counterparty or issuer.
10.1 LIMITATIONS OF PERFORMANCE. The Custodian shall not be responsible under this Agreement for any failure to perform its duties, and shall not liable hereunder for any loss or damage in association with such failure to perform, for or in consequence of the following causes:
10.1.1 FORCE MAJEURE. FORCE MAJEURE shall mean any circumstance or event which is beyond the reasonable control of the Custodian, a Subcustodian or any agent of the Custodian or a Subcustodian and which adversely affects the performance by the Custodian of its obligations hereunder, by the Subcustodian of its obligations under its Subcustody Agreement or by any other agent of the Custodian or the Subcustodian, including any event caused by, arising out of or involving (a) an act of God, (b) accident, fire, water damage or explosion, (c) any computer, system or other equipment failure or malfunction caused by any computer virus or the malfunction or failure of any communications medium, (d) any interruption of the power supply or other utility service, (e) any strike or other work stoppage, whether partial or total, (f) any delay or disruption resulting from or reflecting the occurrence of any Sovereign Risk, (g) any disruption of, or suspension of trading in, the securities, commodities or foreign exchange markets, whether or not resulting from or reflecting the occurrence of any Sovereign Risk, (h) any encumbrance on the transferability of a currency or a currency position on the actual settlement date of a foreign exchange transaction, whether or not resulting from or reflecting the occurrence of any Sovereign Risk, or (i) any other cause similarly beyond the reasonable control of the Custodian.
10.1.2 COUNTRY RISK. COUNTRY RISK shall mean, with respect to the acquisition, ownership, settlement or custody of Investments in a jurisdiction, all risks relating to, or arising in consequence of, systemic and markets factors affecting the acquisition, payment for or ownership of Investments including (a) the prevalence of crime and corruption, (b) the inaccuracy or unreliability of business and financial information, (c) the instability or volatility of banking and financial systems, or the absence or inadequacy of an infrastructure to support such systems, (d) custody and settlement infrastructure of the market in which such Investments are transacted and held, (e) the acts, omissions and operation of any Securities Depository, (f) the risk of the bankruptcy or insolvency of banking agents, counterparties to cash and securities transactions, registrars or transfer agents, and (g) the existence of market conditions which prevent the orderly execution or settlement of transactions or which affect the value of assets.
10.1.3 SOVEREIGN RISK. SOVEREIGN RISK shall mean, in respect of any
jurisdiction, including the United States of America, where Investments is
acquired or held hereunder or under a Subcustody Agreement, (a) any act of
war, terrorism, riot, insurrection or civil commotion, (b) the imposition
of any investment, repatriation or exchange control restrictions by any
Governmental Authority, (c) the confiscation, expropriation or
nationalization of any Investments by any Governmental Authority, whether
de facto or de jure, (iv) any devaluation or revaluation of the currency,
(d) the imposition of taxes, levies or other charges affecting
Investments, (vi) any change in the Applicable Law, or (e) any other
economic or political risk incurred or experienced.
10.2. LIMITATIONS ON LIABILITY. The Custodian shall not be liable for any loss, claim, damage or other liability arising from the following causes:
10.2.1 FAILURE OF THIRD PARTIES. The failure of any third party including: (a) any issuer of Investments or book-entry or other agent of and issuer; (b) any counterparty with respect to any Investment, including any issuer of exchange-traded or other futures, option, derivative or commodities contract; (c) failure of an Investment Advisor, Foreign Custody Manager or other agent of the Fund; or (d) failure of other third parties similarly beyond the control or choice of the Custodian.
10.2.2 INFORMATION SOURCES. The Custodian may rely upon information received from issuers of Investments or agents of such issuers, information received from Subcustodians and from other commercially reasonable sources such as commercial data bases and the like, but shall not be responsible for specific inaccuracies in such information, provided that the Custodian has relied upon such information in good faith, or for the failure of any commercially reasonable information provider.
10.2.3 RELIANCE ON INSTRUCTION. Action by the Custodian or the Subcustodian in accordance with an Instruction, even when such action conflicts with, or is contrary to any provision of, the Fund's declaration of trust, certificate of incorporation or by-laws, Applicable Law, or actions by the trustees, directors or shareholders of the Fund.
10.2.4 RESTRICTED SECURITIES. The limitations inherent in the rights, transferability or similar investment characteristics of a given Investment of the Fund.
11. INDEMNIFICATION. The Fund hereby indemnifies the Custodian and each Subcustodian, and their respective agents, nominees and the partners, employees, officers and directors, and agrees to hold each of them harmless from and against all direct claims and liabilities, including reasonable counsel fees and taxes, incurred or assessed against any of them in connection with the performance of this Agreement and any Instruction. In no event shall the Fund or its affiliates be liable hereunder for any special, indirect, punitive or consequential damages arising out of, pursuant to or in connection with this Agreement even if the Fund or its affiliates have been advised of the possibility of such damages. If a Subcustodian or any other person indemnified under the preceding sentence, gives written notice of claim to the Custodian, the Custodian shall promptly give written notice to the Fund. Not more than thirty (30) days following the date of such notice, unless the Custodian shall be liable under Section 9 hereof in respect of such claim, the Fund will pay the amount of such claim or reimburse the Custodian for any payment made by the Custodian in respect thereof. The Custodian hereby indemnifies the Fund, and its respective agents, nominees and the partners, employees, officers and directors, and agrees to hold each of them harmless from and against all direct claims and liabilities, including reasonable counsel fees and taxes, incurred or assessed against any of them in connection with the performance of this Agreement. Not more than thirty (30) days following the date of written notice of a claim from the Fund to the Custodian, unless the Fund shall be liable in respect of such claim, the Custodian will pay the amount of such claim or reimburse the Fund for any payment made by the Fund in respect thereof.
12. REPORTS AND RECORDS. The Custodian shall:
12.1 create and maintain records relating to the performance of its obligations under this Agreement;
12.2 make available to the Fund, its auditors, agents and employees, during regular business hours of the Custodian, upon reasonable request and during normal business hours of the Custodian, all records maintained by the Custodian pursuant to paragraph 12.1 above, subject, however, to all reasonable security requirements of the Custodian then applicable to the records of its custody customers generally; and
12.3 make available to the Fund all Electronic Reports; it being understood that the Custodian shall not be liable hereunder for the inaccuracy or incompleteness thereof or for errors in any information included therein.
The Fund shall examine all records, howsoever produced or transmitted, promptly upon receipt thereof and notify the Custodian promptly of any discrepancy or error therein. Unless the Fund delivers written notice of any such discrepancy or error within a reasonable time after its receipt thereof, such records shall be deemed to be true and accurate. It is understood that the Custodian now obtains and will in the future obtain information on the value of assets from outside sources which may be utilized in certain reports made available to the Fund. The Custodian deems such sources to be reliable but it is acknowledged and agreed that the Custodian does not verify nor represent nor warrant as to the accuracy or completeness of such information and accordingly shall be without liability in selecting and using such sources and furnishing such information.
13. MISCELLANEOUS.
13.1 PROXIES, ETC. The Fund will promptly execute and deliver, upon request, such proxies, powers of attorney or other instruments as may be necessary or desirable for the Custodian to provide, or to cause any Subcustodian to provide, custody services.
13.2 ENTIRE AGREEMENT. Except as specifically provided herein, this Agreement (together with any exhibits, schedules or other agreements or documents referenced herein) constitutes the entire agreement between the Fund and the Custodian with respect to the subject matter hereof. Accordingly, this Agreement supersedes any custody agreement or other oral or written agreements heretofore in effect between the Fund and the Custodian with respect to the custody of the Fund's Investments.
13.3 WAIVER AND AMENDMENT. No provision of this Agreement may be waived, amended or modified, and no addendum to this Agreement shall be or become effective, or be waived, amended or modified, except by an instrument in writing executed by the party against which enforcement of such waiver, amendment or modification is sought; provided, however, that an Instruction shall, whether or not such Instruction shall constitute a waiver, amendment or modification for purposes hereof, shall be deemed to have been accepted by the Custodian when it commences actions pursuant thereto or in accordance therewith.
13.4 GOVERNING LAW AND JURISDICTION. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND BE GOVERNED BY THE LAWS OF, THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAW OF SUCH STATE. THE PARTIES HERETO IRREVOCABLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE FEDERAL COURTS LOCATED IN NEW YORK CITY IN THE BOROUGH OF MANHATTAN.
13.5 NOTICES. Notices and other writings contemplated by this Agreement, other than Instructions, shall be delivered (a) by hand, (b) by first class registered or certified mail, postage prepaid, return receipt requested, (c) by a nationally recognized overnight courier, or (d) by facsimile transmission, provided that any notice or other writing sent by facsimile transmission shall also be mailed, postage prepaid, to the party to whom such notice is addressed. All such notices shall be addressed, as follows:
If to the Fund:
Touchstone Investments
303 Broadway, Suite 1100
Cincinnati, OH 45202
Attn: Mr. James H. Grifo
Telephone: 513.362.8292
Facsimile 513.362.8319
If to the Custodian:
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Attn: Manager, Securities Department
Telephone: (617) 772-1818
Facsimile: (617) 772-2263,
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or such other address as the Fund or the Custodian may have designated in writing to the other.
13.6 HEADINGS. Paragraph headings included herein are for convenience of reference only and shall not modify, define, expand or limit any of the terms or provisions hereof.
13.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. This Agreement shall become effective when one or more counterparts have been signed and delivered by the Fund and the Custodian.
13.8 CONFIDENTIALITY. The parties hereto agree that each shall treat confidentially the terms and conditions of this Agreement and all information provided by each party to the other regarding its business and operations. All confidential information provided by a party hereto shall be used by any other party hereto solely for the purpose of rendering or obtaining services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party without the prior consent of such providing party. The foregoing shall not be applicable to any information that is publicly available when provided or thereafter becomes publicly available other than through a breach of this Agreement, or that is required to be disclosed by or to any bank examiner of the Custodian or any Subcustodian, any Regulatory Authority, any auditor of the parties hereto, or by judicial or administrative process or otherwise by Applicable Law.
13.9 COUNSEL. In fulfilling its duties hereunder, the Custodian shall be entitled to receive and act upon the advice of (i) counsel regularly retained by the Custodian in respect of such matters, (ii) counsel for the Fund or (iii) such counsel as the Fund and the Custodian may agree upon, with respect to all matters, and the Custodian shall be without liability for any action reasonably taken or omitted pursuant to such advice.
13.10 CONFLICT. Nothing contained in this Agreement shall prevent the Custodian and its associates from (i) dealing as a principal or an intermediary in the sale, purchase or loan of the Fund's Investments to, or from the Custodian or its associates; (ii) acting as a custodian, a subcustodian, a trustee, an agent, securities dealer, an investment manager or in any other capacity for any other client whose interests may be adverse to the interest of the Fund; or (iii) buying, holding, lending, and dealing in any way in any assets for the benefit of its own account, or for the account of any other client whose interests may be adverse to the Fund notwithstanding that the same or similar assets may be held or dealt in by, or for the account of the Fund by the Custodian. The Fund hereby voluntarily consents to, and waives any potential conflict of interest between the Custodian and/or its associates and the Fund, and agrees that:
(a) the Custodian's and/or its associates' engagement in any such transaction shall not disqualify the Custodian from continuing to perform as the custodian of the Fund under this Agreement;
(b) the Custodian and/or its associates shall not be under any duty to disclose any information in connection with any such transaction to the Fund;
(c) the Custodian and/or its associates shall not be liable to account to the Fund for any profits or benefits made or derived by or in connection with any such transaction; and
(d) the Fund shall use all reasonable efforts to disclose this provision, among other provisions in this Agreement, to its shareholders.
14. DEFINITIONS. The following defined terms will have the respective meanings set forth below.
14.1 ADVANCE(S) shall mean any extension of credit by or through the Custodian or by or through any Subcustodian and shall include, without limitation, amounts due to the Custodian as the principal counterparty to any foreign exchange transaction with the Fund as described in Section 7.4.2 hereof, or paid to third parties for account of the Fund or in discharge of any expense, tax or other item payable by the Fund.
14.2 AGENCY ACCOUNT(S) shall mean any deposit account opened on the books of a Subcustodian or other banking institution in accordance with Section 7.1 hereof.
14.3 AGENT(S) shall have the meaning set forth in the last sentence of
Section 6 hereof.
14.4 APPLICABLE LAW shall mean with respect to each jurisdiction, all (a) laws, statutes, treaties, regulations, guidelines (or their equivalents); (b) orders, interpretations licenses and permits; and (c) judgments, decrees, injunctions writs, orders and similar actions by a court of competent jurisdiction; compliance with which is required or customarily observed in such jurisdiction.
14.5 AUTHORIZED PERSON(S) shall mean any person or entity authorized to give Instructions on behalf of the Fund in accordance with Section 4.1 hereof.
14.6 BOOK-ENTRY AGENT(S) shall mean an entity acting as agent for the issuer of Investments for purposes of recording ownership or similar entitlement to Investments, including without limitation a transfer agent or registrar.
14.7 CLEARING CORPORATION shall mean any entity or system established for purposes of providing securities settlement and movement and associated functions for a given market.
14.8 DELEGATION SCHEDULE shall mean any separate schedule entered into between the Custodian and the Fund or its authorized representative with respect to certain matters concerning the appointment and administration of Subcustodians delegated to the Custodian pursuant to Rule 17f-5.
14.9 ELECTRONIC AND ONLINE SERVICES SCHEDULE shall mean any separate schedule to this agreement entered into between the Custodian and the Fund or its authorized representative with respect to certain matters concerning electronic and online services as described therein and as may be made available from time to time by the Custodian to the Fund.
14.10 ELECTRONIC REPORTS shall mean any reports prepared by the Custodian and remitted to the Fund or its
authorized representative via the internet or electronic mail.
14.11 FOREIGN CUSTODY MANAGER shall mean the Fund's foreign custody manager appointed pursuant to Rule 17f-5 of the 1940 Act.
14.12 FOREIGN FINANCIAL REGULATORY AUTHORITY shall have the meaning given by Section 2(a)(50) of the 1940 Act.
14.13 FUNDS TRANSFER SERVICES SCHEDULE shall mean any separate schedule entered into between the Custodian and the Fund or its authorized representative with respect to certain matters concerning the processing of payment orders from Principal Accounts of the Fund.
14.14 GLOBAL CUSTODY NETWORK LISTING shall mean the Countries and Subcustodians approved for Investments in non-U.S. Markets.
14.15 INSTRUCTION(S) shall have the meaning assigned in Section 4 hereof.
14.16 INVESTMENT ADVISOR shall mean any person or entity who is an Authorized Person to give Instructions with respect to the investment and reinvestment of the Fund's Investments.
14.17 INVESTMENT(S) shall mean any investment asset of the Fund, including without limitation securities, bonds, notes, and debentures as well as receivables, derivatives, contractual rights or entitlements and other intangible assets.
14.18 MARGIN ACCOUNT shall have the meaning set forth in Section 6.4 hereof.
14.19 PRINCIPAL ACCOUNT(S) shall mean deposit accounts of the Fund carried on the books of BBH&Co. as principal in accordance with Section 7 hereof.
14.20 SAFEKEEPING ACCOUNT shall mean an account established on the books of the Custodian or any Subcustodian for purposes of segregating the interests of the Fund (or clients of the Custodian or Subcustodian) from the assets of the Custodian or any Subcustodian.
14.21 SECURITIES DEPOSITORY shall mean a central or book entry system or agency established under Applicable Law for purposes of recording the ownership and/or entitlement to investment securities for a given market that, if a foreign Securities Depository, meets the definitional requirements of Rule 17f-7 under the 1940 Act.
14.22 SUBCUSTODIAN(S) shall mean each foreign bank appointed by the Custodian pursuant to Section 8 hereof, but shall not include Securities Depositories.
14.23 TRI-PARTY AGREEMENT shall have the meaning set forth in Section 6.4 hereof.
14.24 1940 ACT shall mean the Investment Company Act of 1940.
15. COMPENSATION. The Fund agrees to pay to the Custodian (a) a fee in an amount set forth in the fee letter between the Fund and the Custodian in effect on the date hereof or as amended from time to time, and (b) all out-of-pocket expenses incurred by the Custodian, including the fees and expenses of all Subcustodians, and payable from time to time. Amounts payable by the Fund under and pursuant to this Section 14 shall be payable by wire transfer to the Custodian at BBH&Co. in New York, New York.
16. TERMINATION. This Agreement may be terminated by either party in accordance with the provisions of this Section. The provisions of this Agreement and any other rights or obligations incurred or accrued by any party hereto prior to termination of this Agreement shall survive any termination of this Agreement.
16.1 NOTICE AND EFFECT. This Agreement may be terminated by either party by written notice effective no sooner than sixty 60) consecutive calendar days following the date that notice to such effect shall be delivered to other party at its address set forth in paragraph 13.5 hereof.
16.2 SUCCESSOR CUSTODIAN. In the event of the appointment of a successor custodian, it is agreed that the Investments of the fund held by the Custodian or any Subcustodian shall be delivered to the successor custodian in accordance with reasonable Instructions. The Custodian agrees to cooperate with the Fund in the execution of documents and performance of other actions necessary or desirable in order to facilitate the succession of the new custodian. If no successor custodian shall be appointed, the Custodian shall in like manner transfer the Fund's Investments in accordance with Instructions.
16.3 DELAYED SUCCESSION. If no Instruction has been given as of the effective date of termination, Custodian may at any time on or after such termination date and upon ten (10) consecutive calendar days written notice to the Fund either (a) deliver the Investments of the Fund held hereunder to the Fund at the address designated for receipt of notices hereunder; or (b) deliver any investments held hereunder to a bank or trust company having a capitalization of $2,000,000 USD equivalent and operating under the Applicable law of the jurisdiction where such Investments are located, such delivery to be at the risk of the Fund. In the event that Investments or moneys of the Fund remain in the custody of the Custodian or its Subcustodians after the date of termination owing to the failure of the Fund to issue Instructions with respect to their disposition or owing to the fact that such disposition could not be accomplished in accordance with such Instructions despite diligent efforts of the Custodian, the Custodian shall be entitled to compensation for its services with respect to such Investments and moneys during such period as the Custodian or its Subcustodians retain possession of such items and the provisions of this Agreement shall remain in full force and effect until disposition in accordance with this Section is accomplished.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as of the date first above written.
BROWN BROTHERS HARRIMAN & CO. TOUCHSTONE INVESTMENT TRUST
TOUCHSTONE VARIABLE SERIES TRUST
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE TAX-FREE TRUST
TOUCHSTONE FUNDS GROUP TRUST
TOUCHSTONE INSTITUTIONAL FUNDSTRUST
By: __/s James R. Kent_________ By: /s/ James H. Grifo_______________
Name: Name: James H. Grifo
Title: Managing Director Title: Vice President
Date: February 29, 2008 Date: 2-21-08
|
BBH&Co. is a limited partnership organized under the laws of the United States of America ("US") and is subject to the US Treasury Regulations set forth under 31 CFR 500, et seq. BBH&Co. may not establish any relationship with any Prohibited Person or Entity as such term is defined under the regulations. No customer of BBH&Co. may be owned or controlled by an entity or person: (i) that is listed in the Annex to, or is otherwise subject to the provisions of Executive Order 13224, issued on September 24, 2001 ("EO13224") {www.treasury.gov/offices/enforcement/ofac/programs/terror/terror.pdf}; (ii) whose name appears on the United States Treasury Department's Office of Foreign Assets Control ("OFAC") most current list of "Specifically Designated National and Blocked Persons" (which list may be published from time to time in various mediums including, but not limited to, the OFAC website); (iii) who commits, threatens to commit or supports "terrorism", as such term is defined in EO13224; or (iv) who is otherwise affiliated with any entity or person listed above (any and all parties or persons described in clauses (i) through (iv) above are herein referred to as a "Prohibited Person").
FUNDS TRANSFER SERVICES SCHEDULE TO CUSTODIAN AGREEMENT
1. Execution of Payment Orders. Brown Brothers Harriman & Co. (the CUSTODIAN) is hereby instructed by Touchstone Tax-Free Trust, Touchstone Funds Group Trust, Touchstone Institutional Funds Trust, each a business trust organized under the laws of the Commonwealth of Massachusetts and registered with the Securities and Exchange Commission under the 1940 Act acting with respect to each series of each Trust (individually, a Fund and collectively, the Funds) to execute each payment order, whether denominated in United States dollars or other applicable currencies, received by the Custodian in the Fund's name as sender and authorized and confirmed by an Authorized Person as defined in a Custodian Agreement dated as of February 25, 2008 by and between the Custodian and the Fund, as amended or restated from time thereafter (the AGREEMENT), provided that the Fund has sufficient available funds on deposit in a Principal Account as defined in the Agreement and provided that the order (i) is received by the Custodian in the manner specified in this Funds Transfer Services Schedule or any amendment hereafter; (ii) complies with any written instructions and restrictions of the Fund as set forth in this Funds Transfer Services Schedule or any amendment hereafter; (iii) is authorized by the Fund or is verified by the Custodian in compliance with a security procedure set forth in Paragraph 2 below for verifying the authenticity of a funds transfer communication sent to the Custodian in the name of the Fund or for the detection of errors set forth in any such communication; and (iv) contains sufficient data to enable the Custodian to process such transfer.
2. Security Procedure. The Fund hereby elects to use the procedure selected below as its security procedure (the SECURITY PROCEDURE). The Security Procedure will be used by the Custodian to verify the authenticity of a payment order or a communication amending or canceling a payment order. The Custodian will act on instructions received provided the instruction is authenticated by the Security Procedure. The Fund agrees and acknowledges in connection with (i) the size, type and frequency of payment orders normally issued or expected to be issued by the Fund to the Custodian, (ii) all of the security procedures offered to the Fund by the Custodian, and (iii) the usual security procedures used by customers and receiving banks similarly situated, that authentication through the Security Procedure shall be deemed commercially reasonable for the authentication of all payment orders submitted to the Custodian. The Fund hereby elects (PLEASE CHOOSE ONE) the following Security Procedure as described below:
[ ] BIDS and BIDS Worldview Payment Products. BIDS and BIDS Worldview Payment Products, are on-line payment order authorization facilities with built-in authentication procedures. The Custodian and the Fund shall each be responsible for maintaining the confidentiality of passwords or other codes to be used by them in connection with BIDS. The Custodian will act on instructions received through BIDS without duty of further confirmation unless the Fund notifies the Custodian that its password is not secure.
[ ] SWIFT. The Custodian and the Fund shall comply with SWIFT's authentication procedures. The Custodian will act on instructions received via SWIFT provided the instruction is authenticated by the SWIFT system.
[ ] Tested Telex. The Custodian will accept payment orders sent by tested telex, provided the test key matches the algorithmic key the Custodian and Fund have agreed to use.
[ ] Computer Transmission. The Custodian is able to accept transmissions sent from the Fund's computer facilities to the Custodian's computer facilities provided such transmissions are encrypted and digitally certified or are otherwise authenticated in a reasonable manner based on available technology. Such procedures shall be established in an operating protocol between the Custodian and the Fund.
[ ] Telefax Instructions. A payment order transmitted to the Custodian by telefax transmission shall transmitted by the Fund to a telephone number specified from time to time by the Custodian for such purposes. If it detects no discrepancies, the Custodian will then either:
1. If the telefax requests a repetitive payment order, the Custodian may call the Fund at its last known telephone number, request to speak to the Fund or Authorized Person, and confirm the authorization and the details of the payment order (a CALLBACK); or
2. If the telefax requests a non-repetitive order, the Custodian will perform a Callback.
All faxes must be accompanied by a fax cover sheet which indicates the sender's name, company name, telephone number, fax number, number of pages, and number of transactions or instructions attached.
[ ] Telephonic. A telephonic payment order shall be called into the Custodian at the telephone number designated from time to time by the Custodian for that purpose. The caller shall identify herself/himself as an Authorized Person. The Custodian shall obtain the payment order data from the caller. The Custodian shall then:
1. If a telephonic repetitive payment order, the Custodian may perform a Callback; or
2. If a telephonic non-repetitive payment order, the Custodian will perform a Callback.
In the event the Fund chooses a procedure which is not a Security Procedure as described above, the Fund agrees to be bound by any payment order (whether or not authorized) issued in its name and accepted by the Custodian in compliance with the procedure selected by the Fund.
3. Rejection of Payment Orders. The Custodian shall give the Fund timely notice of the Custodian's rejection of a payment order. Such notice may be given in writing or orally by telephone, each of which is hereby deemed commercially reasonable. In the event the Custodian fails to execute a properly executable payment order and fails to give the Fund notice of the Custodian's non-execution, the Custodian shall be liable only for the Fund's actual damages and only to the extent that such damages are recoverable under UCC 4A (as defined in Paragraph 7 below). Notwithstanding anything in this Funds Transfer Services Schedule and the Agreement to the contrary, the Custodian shall in no event be liable for any consequential or special damages under this Funds Transfer Services Schedule, whether or not such damages relate to services covered by UCC 4A, even if the Custodian has been advised of the possibility of such damages. Whenever compensation in the form of interest is payable by the Custodian to the Fund pursuant to this Funds Transfer Services Schedule, such compensation will be payable in accordance with UCC 4A.
4. Cancellation of Payment Orders. The Fund may cancel a payment order but the Custodian shall have no liability for the Custodian's failure to act on a cancellation instruction unless the Custodian has received such cancellation instruction at a time and in a manner affording the Custodian reasonable opportunity to act prior to the Custodian's execution of the order. Any cancellation shall be sent and confirmed in the manner set forth in Paragraph 2 above.
5. Responsibility for the Detection of Errors and Unauthorized Payment Orders. Except as may be provided, the Custodian is not responsible for detecting any Fund error contained in any payment order sent by the Fund to the Custodian. In the event that the Fund's payment order to the Custodian either (i) identifies the beneficiary by both a name and an identifying or bank account number and the name and number identify different persons or entities, or (ii) identifies any bank by both a name and an identifying number and the number identifies a person or entity different from the bank identified by name, execution of the payment order, payment to the beneficiary, cancellation of the payment order or actions taken by any bank in respect of such payment order may be made solely on the basis of the number. The Custodian shall not be liable for interest on the amount of any payment order that was not authorized or was erroneously executed unless the Fund so notifies the Custodian within thirty (30) business days following the Fund's receipt of notice that such payment order had been processed. If a payment order in the name of the Fund and accepted by the Custodian was not authorized by the Fund, the liability of the parties will be governed by the applicable provisions of UCC 4A.
6. Laws and Regulations. The rights and obligations of the Custodian and the Fund with respect to any payment order executed pursuant to this Funds Transfer Services Schedule will be governed by any applicable laws, regulations, circulars and funds transfer system rules, the laws and regulations of the United States of America and of other relevant countries including exchange control regulations and limitations on dealings or other sanctions, and including without limitation those sanctions imposed under the law of the United States of America by the Office of Foreign Assets Control. Any taxes, fines, costs, charges or fees imposed by relevant authorities on such transactions shall be for the account of the Fund.
7. Miscellaneous. All accounts opened by the Fund or its authorized agents at the Custodian subsequent to the date hereof shall be governed by this Funds Transfer Schedule. All terms used in this Funds Transfer Services Schedule shall have the meaning set forth in Article 4A of the Uniform Commercial Code as currently in effect in the State of New York (UCC 4A) unless otherwise set forth herein. The terms and conditions of this Funds Transfer Services Schedule are in addition to, and do not modify or otherwise affect, the terms and conditions of the Agreement and any other agreement or arrangement between the parties hereto.
8. Indemnification. The Custodian does not recommend the sending of instructions by telefax or telephonic means as provided in Paragraph 2. BY ELECTING TO SEND INSTRUCTIONS BY TELEFAX OR TELEPHONIC MEANS, THE FUND AGREES TO INDEMNIFY THE CUSTODIAN AND ITS PARTNERS, OFFICERS AND EMPLOYEES FOR ALL LOSSES THEREFROM.
OPTIONAL: The Custodian will perform a Callback if instructions are sent by telefax or telephonic means as provided in Paragraph 2. THE FUND MAY, AT ITS OWN RISK AND BY HEREBY AGREEING TO INDEMNIFY THE CUSTODIAN AND ITS PARTNERS, OFFICERS AND EMPLOYEES FOR ALL LOSSES THEREFROM, ELECT TO WAIVE A CALLBACK BY THE CUSTODIAN BY INITIALLING HERE:____
Accepted and agreed:
BROWN BROTHERS HARRIMAN & CO. TOUCHSTONE INVESTMENT TRUST
TOUCHSTONE VARIABLE SERIES TRUST
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE TAX-FREE TRUST
TOUCHSTONE FUNDS GROUP TRUST
TOUCHSTONE INSTITUTIONAL FUNDS TRUST
By: __/s/ James R. Kent_________ By: _James H. Grifo____________________
Name: Name:
Title: Managing Director Title:VP
Date: February 29, 2008 Date: 2-21-08
|
ELECTRONIC AND ON-LINE SERVICES
SCHEDULE
This Electronic and On-Line Services Schedule (this SCHEDULE) to a Custodian Agreement dated as of February 25, 2008 (as amended from time to time hereafter, the AGREEMENT) by and between Brown Brothers Harriman & Co. (WE, US OUR) and Touchstone Tax-Free Trust, Touchstone Funds Group Trust, Touchstone Institutional Funds Trust, each a business trust organized under the laws of the Commonwealth of Massachusetts and registered with the Securities and Exchange Commission under the 1940 Act acting with respect to each series of each Trust (individually, a Fund and collectively, the Funds) (YOU, YOUR), provides general provisions governing your use of and access to the Services (as hereinafter defined) provided to you by us via the Internet (at www.bbhco.com or such other URL as we may instruct you to use to access our products) and via a direct dial-up connection between your computer and our computers, as of February 25, 2008 (the EFFECTIVE DATE). Use of the Services constitutes acceptance of the terms and conditions of this Schedule, any Appendices hereto, the Terms and Conditions posted on our web site, and any terms and conditions specifically governing a particular Service or our other products, which may be set forth in the Agreement or in a separate related agreement (collectively, the RELATED AGREEMENTS).
1. GENERAL TERMS.
You will be granted access to our suite of online products, which may include, but shall not be limited to the following services via the Internet or dial-up connection (each separate service is a SERVICE; collectively referred to as the SERVICES):
1.1. BIDS(R) and BIDS WorldView, a system for effectuating securities and fund trade instruction and execution, processing and handling instructions, and for the input and retrieval of other information;
1.2. F/X WorldView, a system for executing foreign exchange trades;
1.3. Fund WorldView, a system for receiving fund and prospectus information;
1.4. BBHCOnnect, a system for placing securities trade instructions and following the status and detail of trades;
1.5. ActionViewSM, a system for receiving certain corporate action information;
1.6. Risk View, an interactive portfolio risk analysis tool; and
1.7. Such other services as we shall from time to time offer.
2. SECURITY / PASSWORDS.
2.1. A digital certificate and/or an encryption key may be required to access certain Services. You may apply for a digital certificate and/or an encryption key by following the procedures set forth at http://www.bbh.com/certs/. You also will need an identification code (ID) and password(s) (PASSWORD) to access the Services.
2.2. You agree to safeguard your digital certificate and/or encryption key, ID, and Password and not to give or make available, intentionally or otherwise, your digital certificate, ID, and/or Password to any unauthorized person. You must immediately notify us in writing if you believe that your digital certificate and/or encryption key, Password, or ID has been compromised or if you suspect unauthorized access to your account by means of the Services or otherwise, or when a person to whom a digital certificate and/or an encryption key, Password, or ID has been assigned leaves or is no longer permitted to access the Services.
2.3. We will not be responsible for any breach of security, or for any unauthorized trading or theft by any third party, caused by your failure (be it intentional, unintentional, or negligent) to maintain the confidentiality of your ID and/or Password and/or the security of your digital certificate and/or encryption key.
3. INSTRUCTIONS.
3.1. Proper instructions under this Schedule shall be provided as designated in the Related Agreements (INSTRUCTIONS).
3.2. The following additional provisions apply to Instructions provided via the Services:
a. Instructions sent by electronic mail will not be accepted or acted upon.
b. You authorize us to act upon Instructions received through the Services utilizing your digital certificate, ID, and/or Password as though they were duly authorized written instructions, without any duty of verification or inquiry on our part, and agree to hold us harmless for any losses you experience as a result.
c. From time to time, the temporary unavailability of third party telecommunications or computer systems required by the Services may result in a delay in processing Instructions. In such an event, we shall not be liable to you or any third party for any liabilities, losses, claims, costs, damages, penalties, fines, obligations, or expenses of any kind (including without limitation, reasonable attorneys', accountants', consultants', or experts' fees and disbursements) that you experience due to such a delay.
4. ELECTRONIC DOCUMENTS.
We may make periodic statements, disclosures, notices, and other documents available to you electronically, and, subject to any delivery and receipt verification procedures required by law, you agree to receive such documents electronically and to check the statements for accuracy. If you believe any such statement contains incorrect information, you must follow the procedures set forth in the Related Agreement(s).
5. MALICIOUS CODE.
You understand and agree that you will be responsible for the introduction
(by you, your employees, agents, or representatives) into the Services,
whether intentional or unintentional, of (i) any virus or other code,
program, or sub-program that damages or interferes with the operation of
the computer system containing the code, program or sub-program, or halts,
disables, or interferes with the operation of the Services themselves; or
(ii) any device, method, or token whose knowing or intended purpose is to
permit any person to circumvent the normal security of the Services or the
system containing the software code for the Services (MALICIOUS CODE). You
agree to take all necessary actions and precautions to prevent the
introduction and proliferation of any Malicious Code into those systems
that interact with the Services.
6. INDEMNIFICATION.
For avoidance of doubt, you hereby agree that the provisions in the Related Agreement(s) related to your indemnification of us and any limitations on our liability and responsibilities to you shall be applicable to this Agreement, and are hereby expressly incorporated herein. You agree that the Services are comprised of telecommunications and computer systems, and that it is possible that Instructions, information, transactions, or account reports might be added to, changed, or omitted by electronic or programming malfunction, unauthorized access, or other failure of the systems which comprise the Services, despite the security features that have been designed into the Services. You agree that we will not be liable for any action taken or not taken in complying with the terms of this Schedule, except for our willful misconduct or gross negligence. The provisions of this paragraph shall survive the termination of this Schedule and the Related Agreements.
7. PAYMENT.
You may be charged for services hereunder as set forth in a fee schedule from time to time agreed by us.
8. TERM/TERMINATION.
8.1. This Schedule is effective as of the date you sign it or first use the Services, whichever is first, and continues in effect until such time as either you or we terminate the Schedule in accordance with this Section 8 and/or until your off-line use of the Services is terminated.
8.2. We may terminate your access to the Services at any time, for any reason, with five (5) business days prior notice; provided that we may terminate your access to the Services with no prior notice (i) if your account with us is closed, (ii) if you fail to comply with any of the terms of this Agreement, (iii) if we believe that your continued access to the Services poses a security risk, or (iv) if we believe that you are violating or have violated applicable laws, and we will not be liable for any loss you may experience as a result of such termination. You may terminate your access to the Services at any time by giving us ten (10) business days notice. Upon termination, we will cancel all your Passwords and IDs and any in-process or pending Instructions will be carried out or cancelled, at our sole discretion.
9. MISCELLANEOUS.
9.1. NOTICES. All notices, requests, and demands (other than routine operational communications, such as Instructions) shall be in such form and effect as provided in the Related Agreement(s).
9.2. INCONSISTENT PROVISIONS. Each Service may be governed by separate terms and conditions in addition to this Schedule and the Related Agreement(s). Except where specifically provided to the contrary in this Schedule, in the event that such separate terms and conditions conflict with this Schedule and the Related Agreement(s), the provisions of this Schedule shall prevail to the extent this Schedule applies to the transaction in question.
9.3. BINDING EFFECT; ASSIGNMENT; SEVERABILITY. This Schedule shall be binding on you, your employees, officers and agents. We may assign or delegate our rights and duties under this Schedule at any time without notice to you. Your rights under this Schedule may not be assigned without our prior written consent. In the event that any provision of this Schedule conflicts with the law under which this Schedule is to be construed or if any such provision is held invalid or unenforceable by a court with jurisdiction over you and us, such provision shall be deemed to be restated to effectuate as nearly as possible the purposes of the Schedule in accordance with applicable law. The remaining provisions of this Schedule and the application of the challenged provision to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each such provision shall be valid and enforceable to the full extent permitted by law.
9.4. CHOICE OF LAW; JURY TRIAL. This Schedule shall be governed by and construed, and the legal relations between the parties shall be determined, in accordance with the laws of the State of New York, without giving effect to the principles of conflicts of laws. Each party agrees to waive its right to trial by jury in any action or proceeding based upon or related to this Agreement. The parties agree that all actions and proceedings based upon or relating to this Schedule shall be litigated exclusively in the federal and state courts located within New York City, New York.
TOUCHSTONE INVESTMENT TRUST
TOUCHSTONE VARIABLE SERIES TRUST
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE TAX-FREE TRUST
TOUCHSTONE FUNDS GROUP TRUST
TOUCHSTONE INSTITUTIONAL FUNDS TRUST
BY: /S JAMES H. GRIFO______________
TITLE: /S/ VP_________________________ DATE: 2-21-08_______________________ |
17F-5 DELEGATION SCHEDULE
By its execution of this Delegation Schedule dated as of February 25, 2008, Touchstone Tax-Free Trust, Touchstone Funds Group Trust, Touchstone Institutional Funds Trust, each a business trust organized under the laws of the Commonwealth of Massachusetts and registered with the Securities and Exchange Commission under the 1940 Act acting with respect to each series of each Trust (individually, a Fund and collectively, the Funds acting through its Board of Directors/Trustees or its duly appointed representative (the FUND), hereby appoints BROWN BROTHERS HARRIMAN & CO., a New York limited partnership with an office in Boston, Massachusetts (the DELEGATE) as its delegate to perform certain functions with respect to the custody of Fund's Assets outside the United States.
1. Maintenance of Fund's Assets Abroad. The Fund, acting through its Board or
its duly authorized representative, hereby instructs Delegate pursuant to the
terms of the Custodian Agreement dated as of the date hereof executed by and
between the Fund and the Delegate (the CUSTODIAN AGREEMENT) to place and
maintain the Fund's Assets in countries outside the United States in accordance
with Instructions received from the Fund's Investment Advisor. Such instruction
shall represent an Instruction under the terms of the Custodian Agreement. The
Fund acknowledges that (a) the Delegate shall perform services hereunder only
with respect to the countries where it accepts delegation as Foreign Custody
Manager as indicated on your Global Custody Network Listing; (b) depending on
conditions in the particular country, advance notice may be required before the
Delegate shall be able to perform its duties hereunder in or with respect to
such country (such advance notice to be reasonable in light of the specific
facts and circumstances attendant to performance of duties in such country); and
(c) nothing in this Delegation Schedule shall require the Delegate to provide
delegated or custodial services in any country, and there may from time to time
be countries as to which the Delegate determines it will not provide delegation
services.
2. Delegation. Pursuant to the provisions of Rule 17f-5 under the 1940 Act as amended, the Board hereby delegates to the Delegate, and the Delegate hereby accepts such delegation and agrees to perform, only those duties set forth in this Delegation Schedule concerning the safekeeping of the Fund's Assets in each of the countries as to which it acts as the Board's delegate. The Delegate is hereby authorized to take such actions on behalf of or in the name of the Fund as are reasonably required to discharge its duties under this Delegation Schedule, including, without limitation, to cause the Fund's Assets to be placed with a particular Eligible Foreign Custodian in accordance herewith. The Fund confirms to the Delegate that the Fund or its investment adviser has considered the Sovereign Risk and prevailing Country Risk as part of its continuing investment decision process, including such factors as may be reasonably related to the systemic risk of maintaining the Fund's Assets in a particular country, including, but not limited to, financial infrastructure, prevailing custody and settlement systems and practices (including the use of any Securities Depository in the context of information provided by the Custodian in the performance of its duties as required under Rule 17f-7 and the terms of the Custodian Agreement governing such duties), and the laws relating to the safekeeping and recovery of the Fund's Assets held in custody pursuant to the terms of the Custodian Agreement.
3. Selection of Eligible Foreign Custodian and Contract Administration. The Delegate shall perform the following duties with respect to the selection of Eligible Foreign Custodians and administration of certain contracts governing the Fund's foreign custodial arrangements:
(a) Selection of Eligible Foreign Custodian. The Delegate shall place and maintain the Fund's Assets with an Eligible Foreign Custodian; provided that the Delegate shall have determined that the Fund's Assets will be subject to reasonable care based on the standards applicable to custodians in the relevant market after considering all factors relevant to the safekeeping of such assets including without limitation:
(i) The Eligible Foreign Custodian's practices, procedures, and internal controls, including, but not limited to, the physical protections available for certificated securities (if applicable), the controls and procedures for dealing with any Securities Depository, the method of keeping custodial records, and the security and data protection practices;
(ii) Whether the Eligible Foreign Custodian has the requisite financial strength to provide reasonable care for the Fund's Assets;
(iii) The Eligible Foreign Custodian's general reputation and standing; and
(iv) Whether the Fund will have jurisdiction over and be able to enforce judgments against the Eligible Foreign Custodian, such as by virtue of the existence of any offices of such Eligible Foreign Custodian in the United States or such Eligible Foreign Custodian's appointment of an agent for service of process in the United States or consent to jurisdiction in the United States.
The Delegate shall be required to make the foregoing determination to the best of its knowledge and belief based only on information reasonably available to it.
(b) Contract Administration. The Delegate shall cause that the foreign custody arrangements with an Eligible Foreign Custodian shall be governed by a written contract that the Delegate has determined will provide reasonable care for Fund assets based on the standards applicable to custodians in the relevant market. Each such contract shall, except as set forth in the last paragraph of this subsection (b), include provisions that provide:
(i) For indemnification or insurance arrangements (or any combination of the foregoing) such that the Fund will be adequately protected against the risk of loss of assets held in accordance with such contract;
(ii) That the Fund's Assets will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the Eligible Foreign Custodian or its creditors except a claim of payment for their safe custody or administration or, in the case of cash deposits, liens or rights in favor of creditors of such Custodian arising under bankruptcy, insolvency or similar laws;
(iii) That beneficial ownership of the Fund's Assets will be freely transferable without the payment of money or value other than for safe custody or administration;
(iv) That adequate records will be maintained identifying the Fund's Assets as belonging to the Fund or as being held by a third party for the benefit of the Fund;
(v) That the Fund's independent public accountants will be given access to those records described in (iv) above or confirmation of the contents of such records; and
(vi) That the Delegate will receive sufficient and timely periodic reports with respect to the safekeeping of the Fund's Assets, including, but not limited to, notification of any transfer to or from the Fund's account or a third party account containing the Fund's Assets.
Such contract may contain, in lieu of any or all of the provisions specified in this Section 3(b), such other provisions that the Delegate determines will provide, in their entirety, the same or a greater level of care and protection for the Fund's Assets as the specified provisions, in their entirety.
(c) Limitation to Delegated Selection. Notwithstanding anything in this Delegation Schedule to the contrary, the duties under this Section 3 shall apply only to Eligible Foreign Custodians selected by the Delegate and shall not apply to Securities Depositories or to any Eligible Foreign Custodian that the Delegate is directed to use pursuant to Section 7 of this Delegation Schedule.
4. Monitoring. The Delegate shall establish a system to monitor at reasonable intervals (but at least annually) the appropriateness of maintaining the Fund's Assets with each Eligible Foreign Custodian that has been selected by the Delegate pursuant to Section 3 of this Delegation Schedule. The Delegate shall monitor the continuing appropriateness of placement of the Fund's Assets in accordance with the criteria established under Section 3(a) of this Delegation Schedule. The Delegate shall monitor the continuing appropriateness of the contract governing the Fund's arrangements in accordance with the criteria established under Section 3(b) of this Delegation Schedule.
5. Reporting. At least annually and more frequently as mutually agreed between the parties, the Delegate shall provide to the Board written reports specifying placement of the Fund's Assets with each Eligible Foreign Custodian selected by the Delegate pursuant to Section 3 of this Delegation Schedule and shall promptly report as to any material changes to such foreign custody arrangements. Delegate will prepare such a report with respect to any Eligible Foreign Custodian that the Delegate has been instructed to use pursuant to Section 7 of this Delegation Schedule only to the extent specifically agreed with respect to the particular situation.
6. Withdrawal of Fund's Assets. If the Delegate determines that an arrangement
with a specific Eligible Foreign Custodian selected by the Delegate under
Section 3 of this Delegation Schedule no longer meets the requirements of said
Section, Delegate shall withdraw the Fund's Assets from the non-complying
arrangement as soon as reasonably practicable; provided, however, that if in the
reasonable judgment of the Delegate, such withdrawal would require liquidation
of any of the Fund's Assets or would materially impair the liquidity, value or
other investment characteristics of the Fund's Assets, it shall be the duty of
the Delegate to provide information regarding the particular circumstances and
to act only in accordance with Instructions of the Fund or its Investment
Advisor with respect to such liquidation or other withdrawal.
7. Direction as to Eligible Foreign Custodian. Notwithstanding this Delegation Schedule, the Fund, acting through its Board, its Investment Advisor or its other authorized representative, may direct the Delegate to place and maintain the Fund's Assets with a particular Eligible Foreign Custodian, including without limitation with respect to investment in countries as to which the Custodian will not provide delegation services. In such event, the Delegate shall be entitled to rely on any such instruction as an Instruction under the terms of the Custodian Agreement and shall have no duties under this Delegation Schedule with respect to such arrangement save those that it may undertake specifically in writing with respect to each particular instance.
8. Standard of Care. In carrying out its duties under this Delegation Schedule, the Delegate agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for safekeeping the Fund's Assets would exercise.
9. Representations. The Delegate hereby represents and warrants that it is a U.S. Bank and that this Delegation Schedule has been duly authorized, executed and delivered by the Delegate and is a legal, valid and binding agreement of the Delegate.
The Fund hereby represents and warrants that its Board of Directors has determined that it is reasonable to rely on the Delegate to perform the delegated responsibilities provided for herein and that this Delegation Schedule has been duly authorized, executed and delivered by the Fund and is a legal, valid and binding agreement of the Fund.
10. Effectiveness; termination. This Delegation Schedule shall be effective as of the date on which this Delegation Schedule shall have been accepted by the Delegate, as indicated by the date set forth below the Delegate's signature. This Delegation Schedule may be terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Such termination shall be effective on the 30th calendar day following the date on which the non-terminating party shall receive the foregoing notice. The foregoing to the contrary notwithstanding, this Delegation Schedule shall be deemed to have been terminated concurrently with the termination of the Custodian Agreement.
11. Notices. Notices and other communications under this Delegation Schedule are to be made in accordance with the arrangements designated for such purpose under the Custodian Agreement unless otherwise indicated in a writing referencing this Delegation Schedule and executed by both parties.
12. Definitions. Capitalized terms in this Delegation Schedule have the following meanings:
a. Eligible Foreign Custodian - shall have the meaning set forth in Rule 17f-5(a)(1) and shall also include a U.S. Bank.
b. Fund's Assets - shall mean any of the Fund's investments (including foreign currencies) for which the primary market is outside the United States, and such cash and cash equivalents as are reasonably necessary to effect the Fund's transactions in such investments.
c. Instructions - shall have the meaning set forth in the Custodian Agreement.
d. Securities Depository - shall have the meaning set forth in Rule 17f-7.
e. Sovereign Risk - shall have the meaning set forth in Section [6.3] of the Custodian Agreement.
f . U.S. Bank - shall mean a bank which qualifies to serve as a custodian of assets of investment companies under Section 17(f) of the Act.
13. Governing Law and Jurisdiction. This Delegation Schedule shall be construed in accordance with the laws of the State of New York. The parties hereby submit to the exclusive jurisdiction of the Federal courts sitting in the State of New York or the Commonwealth of Massachusetts or of the state courts of either such State or such Commonwealth.
14. Fees. Delegate shall perform its functions under this Delegation Schedule for the compensation determined under the Custodian Agreement.
15. Integration. This Delegation Schedule sets forth all of the Delegate's duties with respect to the selection and monitoring of Eligible Foreign Custodians, the administration of contracts with Eligible Foreign Custodians, the withdrawal of assets from Eligible Foreign Custodians and the issuance of reports in connection with such duties. The terms of the Custodian Agreement shall apply generally as to matters not expressly covered in this Delegation Schedule, including dealings with the Eligible Foreign Custodians in the course of discharge of the Delegate's obligations under the Custodian Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as of the date first above written.
BROWN BROTHERS HARRIMAN & CO. TOUCHSTONE INVESTMENT TRUST
TOUCHSTONE VARIABLE SERIES TRUST
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE TAX-FREE TRUST
TOUCHSTONE FUNDS GROUP TRUST
TOUCHSTONE INSTITUTIONAL FUNDS TRUST
By: /s/ James R. Kent__________ By: /s/ James H. Grifo______________
Name: Name:
Title: Managing Director Title: Vice President
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FIRST AMENDMENT TO SECURITIES LENDING AGENCY AGREEMENT
This First Amendment to Securities Lending Agency Agreement is dated as of December 19, 2003, by and among Touchstone Investment Trust, Touchstone Strategic Trust, and Touchstone Variable Series Trust (each a "Trust") acting on behalf of each series thereof as set forth on Exhibit A hereto (each a "Series") (each Trust on behalf of each of its respective Series thereof, each the "Fund"), as such Schedule may be amended from time to time, and Brown Brothers Harriman & Co. ("BBH").
Whereas, pursuant to the Securities Lending Agency Agreement dated as of March 27, 2003 by and among BBH and the Funds, as amended to date (the "Agreement"), BBH has been appointed the lending agent for the purpose of lending securities to approved borrowers on behalf of the Funds;
Whereas, the Funds have requested, and BBH has agreed, to make certain modifications to the terms of the Agreement to amend the list of approved borrowers;
Now, therefore, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties hereby agree to amend the Agreement as follows:
I. Amendment to the Agreement
1. The Agreement is hereby amended by deleting Schedule 2 its entirety, and substituting therefore Schedule 2 attached hereto.
II. Miscellaneous
1. Other than as amended hereby, all terms and provisions of the Agreement are hereby ratified and affirmed as of the date hereof and are hereby extended to give effect to the terms hereof.
2. By signing below where indicated, each Fund hereby ratifies and affirms each of the representations and warranties set forth in the Agreement and confirms that each representation and warranty remains true and correct as of the date hereof.
3. Upon receipt by BBH of a fully executed copy of this First Amendment, this First Amendment shall be deemed to be executed as an instrument under seal and governed by such laws as provided in Section 24 of the Agreement. This First Amendment may be executed in original counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same First Amendment.
BROWN BROTHERS HARRIMAN & CO.,
AS AGENT
By:__/s/ Bonnie L. Hammer1_______________________ Name: Bonnie L. Hammerl Title: Senior Vice President |
On behalf of the FUNDS listed on Schedule 1 hereto
By:__/s/ Michael S. Spangler_______________________ Name: Title: V.P. |
EXHIBIT A
Touchstone Investment Trust on behalf
of the following Series thereof:
Touchstone Intermediate Term U.S. Government Bond Fund
Touchstone U.S. Government Money Market Fund
Touchstone Institutional U.S. Government Money Market Fund
Touchstone Money Market Fund
Touchstone High Yield Fund
Touchstone Core Bond Fund
Touchstone Strategic Trust on behalf
of each of the following Series thereof:
Touchstone Enhanced 30 Fund
Touchstone Large Cap Growth Fund
Touchstone Growth Opportunities Fund
Touchstone International Equity Fund
Touchstone Value Plus Fund
Touchstone Small Cap Growth Fund
Touchstone Emerging Growth Fund
Touchstone Variable Series Trust on behalf of each of the following Series thereof:
Touchstone Balanced Fund
Touchstone Bond Fund
Touchstone Value Plus Fund
Touchstone Enhanced 30 Fund
Touchstone Large Cap Growth Fund
Touchstone Growth & Income Fund
Touchstone High Yield Fund
Touchstone Money Market Fund
Touchstone Third Avenue Value Fund (effective 4/28/03)
Touchstone Emerging Growth Fund
Touchstone Baron Small Cap Fund
SCHEDULE 2
ABN AMRO Incorporated
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Bear, Stearns Securities Corp.
Citigroup Global Markets Inc.
Deutsche Bank Securities Inc.
Goldman Sachs & Co.
ING Financial Markets LLC
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
MS Securities Services Inc.
SG Americas Securities, LLC
UBS Financial Services Inc.
UBS Securities LLC
SECOND AMENDMENT TO SECURITIES LENDING AGENCY AGREEMENT
This Second Amendment to Securities Lending Agency Agreement is dated as of June , 2004 by and among Touchstone Investment Trust, Touchstone Strategic Trust, and Touchstone Variable Series Trust (each a "Trust") acting on behalf of each series thereof as set forth on Exhibit A hereto (each a "Series") (each Trust on behalf of each of its respective Series thereof, each the "Fund") and Brown Brothers Harriman & Co. ("BBH").
Whereas, pursuant to the Securities Lending Agency Agreement dated as of March 27, 2003 by and among BBH and the Funds, as amended to date (the "Agreement"), BBH has been appointed the lending agent for the purpose of lending securities to approved borrowers on behalf of the Funds;
Whereas the Funds and BBH have agreed to make certain modifications in the terms of the Agreement to permit certain new Funds to appoint BBH as their lending agent and to amend the list of approved borrowers;
Now, therefore, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, the parties hereby agree to amend the Agreement as follows:
I. Amendment to the Agreement
1. The Agreement is hereby amended by deleting Exhibit A and Schedule 2 in their entirety, and substituting therefore Exhibit A and Schedule 2 attached hereto.
II. Miscellaneous
1. Other than as amended hereby, all terms and provisions of the Agreement are hereby ratified and affirmed as of the date hereof and are hereby extended to give effect to the terms hereof.
2. By signing below where indicated, each Fund hereby ratifies and affirms each of the representations and warranties set forth in the Agreement and confirms that each representation and warranty remains true and correct as of the date hereof.
3. Upon receipt by BBH of a fully executed copy of this Second Amendment, this Second Amendment shall be deemed to be executed as an instrument under seal and governed by such laws as provided in Section 24 of the Agreement. This Second Amendment may be executed in original counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Second Amendment.
BROWN BROTHERS HARRIMAN & CO.,
AS AGENT
By:__/s/ Mark H. Payson_______________________ Name: Mark H. Payson Title: Senior Vice President |
Touchstone Investment Trust for itself
and on behalf of each series thereof set forth
in Exhibit A hereto
By: __/s/ Patrick T. Bannigan_________________________ Patrick T. Bannigan, President |
Touchstone Strategic Trust for itself
and on behalf of each series thereof set forth
in Exhibit A hereto
By: __/s/ Patrick T. Bannigan _________________________ Patrick T. Bannigan, President |
Touchstone Variable Series Trust for itself and on behalf of each series thereof set forth in Exhibit A hereto
By: ___/s/ Patrick T. Bannigan ________________________ Patrick T. Bannigan, President |
EXHIBIT A
Touchstone Investment Trust on behalf
of the following Series thereof:
Touchstone Intermediate Term U.S. Government Bond Fund
Touchstone U.S. Government Money Market Fund
Touchstone Institutional U.S. Government Money Market Fund
Touchstone Money Market Fund
Touchstone High Yield Fund
Touchstone Core Bond Fund
Touchstone Strategic Trust on behalf
of each of the following Series thereof:
Touchstone Enhanced 30 Fund
Touchstone Large Cap Growth Fund
Touchstone Growth Opportunities Fund
Touchstone International Equity Fund
Touchstone Value Plus Fund
Touchstone Small Cap Growth Fund
Touchstone Emerging Growth Fund
Touchstone Micro Cap Growth Fund
Touchstone Variable Series Trust on behalf of each of the following Series thereof:
Touchstone Balanced Fund
Touchstone Bond Fund
Touchstone Value Plus Fund
Touchstone Enhanced 30 Fund
Touchstone Large Cap Growth Fund
Touchstone Growth & Income Fund
Touchstone High Yield Fund
Touchstone Money Market Fund
Touchstone Third Avenue Value Fund (effective 4/28/03)
Touchstone Emerging Growth Fund
Touchstone Baron Small Cap Fund
SCHEDULE 2
ABN AMRO Incorporated
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Bear, Stearns Securities Corp.
Citigroup Global Markets Inc.
Deutsche Bank Securities Inc.
Goldman Sachs & Co.
ING Financial Markets LLC
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
MS Securities Services Inc.
SG Americas Securities, LLC
UBS Securities LLC
THIRD AMENDMENT TO SECURITIES LENDING AGENCY AGREEMENT
This Third Amendment to Securities Lending Agency Agreement is dated as of August 3, 2005 by and among Touchstone Investment Trust, Touchstone Strategic Trust, and Touchstone Variable Series Trust (each a "Trust"), business trusts organized under the laws of Massachusetts and registered with the Securities and Exchange commission under the 1940 Act, acting with respect to each series thereof as set forth on Exhibit A hereto (each a "Series") (each Trust on behalf of each of its respective Series thereof, each the "Fund") and BROWN BROTHERS HARRIMAN & CO., a New York limited partnership with an office in Boston, Massachusetts (the "Agent").
Whereas pursuant to a Securities Lending Agency Agreement dated as of March 27, 2003 by and among the Agent and each Fund (the "Agreement"), the Agent shall from time to time make loans of securities on behalf of each such Fund to an Approved Borrower (as defined in the Agreement) and the Approved Borrower shall pledge collateral therefore from time to time to the Fund;
Whereas each Fund has requested, and the Agent has agreed, to allow each Fund's affiliated investment manager to invest cash collateral in affiliated money market mutual funds pursuant to the provisions of SEC Release No. 26907 June 14, 2005, and to make certain other modifications to the Agreement;
Whereas the Funds and BBH have agreed to make certain modifications in the terms of the Agreement to accept certain new Approved Borrowers and Approved Persons, and to remove certain series each under the Agreement;
Now therefore, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereby agree to amend the Agreement as follows:
I. Amendment to the Agreement
1. Sections 7.1 and 7.2 of the Agreement are each hereby deleted in its entirety and the following is substituted therefore:
"7.1 COLLATERAL INVESTMENT DIRECTION. The Fund hereby authorizes and directs BBH&Co. to cause to be invested, on the Fund's behalf and at the Fund's sole risk, all Collateral in the form of cash by effecting purchase and sales and/or subscriptions and redemptions of such Collateral in any Permitted Investments set forth on Schedule 5 hereto (which may from time to time be updated in writing by the Fund). Upon receipt of instructions (which may be in the form of a standing instruction) from the Fund, BBH&Co. shall, where applicable, send timely instructions to the transfer agent of a Permitted Investment with respect to any cash transfers required to be completed in conjunction with any subscription or redemption in one or more Permitted Investments.
7.2 COLLATERAL INVESTMENT RISK. Any such investment shall be at the sole direction and risk of the Fund. Any income or gains and losses from investing and reinvesting any cash Collateral delivered by an Approved Borrower pursuant to an SLA as instructed by the Fund shall be at the Fund's risk, and the Fund agrees that to the extent any such losses reduce the amount of cash below the amount required to be returned to the Approved Borrower upon the termination of any loan (including any Cash Collateral Fee), the Fund will, on demand of BBH&Co., immediately pay or cause to be paid to such Approved Borrower an equivalent amount in cash."
2. The following new Section 7.3 is hereby added to the Agreement:
"7.3 NO INVESTMENT ADVICE. The Fund understands and agrees that (i) BBH&Co. shall not provide investment advice or exercise any decision-making authority or control with respect to the investment of cash Collateral, (ii) any investment of cash Collateral in one or more Permitted Investments may only be effected upon the Fund's instruction to BBH&Co. (which may be in the form of a standing instruction), and (iii) BBH&Co. shall not be responsible for ensuring that the reinvestment of cash Collateral in Permitted Investments and the management of cash Collateral by the Fund and/or its affiliates is in compliance with SEC Release No. 26907 June 14, 2005. "
3. The following new Subsection 16.1 is hereby added to the Agreement:
"16.1 REPRESENTATIONS. The Fund hereby represents and warrants that
(a) the reinvestment of cash Collateral in each Permitted Investment
is consistent with the Fund's investment policy and guidelines, and
(b) the reinvestment of cash Collateral in each Permitted Investment
and management of cash Collateral by the Fund and/or its affiliate
is, and will at all times remain in compliance with SEC Release No.
26907 June 14, 2005."
4. Schedule 1 (Exhibit A) of the Agreement is hereby deleted in its entirety, and Schedule 1 attached hereto is substituted therefore.
5. Schedule 2 (Approved Borrowers) of the Agreement is hereby deleted in its entirety, and Schedule 2 attached hereto is substituted therefore.
6. Schedule 5 (Permitted Investments) of the Agreement is hereby deleted in its entirety, and Schedule 5 attached hereto is substituted therefore.
7. Schedule 6 (Approved Persons) of the Agreement is hereby deleted in its entirety, and Schedule 6 attached hereto is substituted therefore.
II. Miscellaneous
1. As amended hereby, all terms and provisions of the Agreement are hereby ratified and affirmed as of the date hereof and are hereby extended to give effect to the terms hereof.
2. By signing below where indicated, each of the Agent and each Fund hereby ratifies and affirms each of the respective representations and warranties set forth in the Agreement and confirms that each such respective representation and warranty remains true and correct as of the date hereof.
3. Upon receipt by the Agent of a fully executed copy of this Third Amendment, this Third Amendment shall be deemed to be executed as an instrument under seal and governed by such laws as provided in Section 24 of the Agreement. This Third Amendment may be executed in original counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Third Amendment.
BROWN BROTHERS HARRIMAN & CO.
By:__/s/ Mark H. Payson Jr. ___________________ Name: Title: SVP |
Touchstone Investment Trust for itself
and on behalf of each series thereof set forth
in Exhibit A hereto
By: _/s/ James Grifo__________________________ Name: James Grifo Title: |
Touchstone Strategic Trust for itself
and on behalf of each series thereof set forth
in Exhibit A hereto
By: _/s/ James Grifo ______________ Name: James Grifo Title: |
Touchstone Variable Series Trust for itself and on behalf of each series thereof set forth in Exhibit A hereto
By: _/s/ James Grifo _____________ Name: James Grifo Title: |
SCHEDULE 1
All Securities held in each series set forth on Exhibit A hereto of Touchstone Investment Trust, Touchstone Strategic Trust, and Touchstone Variable Series Trust held in custody at BBH.
EXHIBIT A
Touchstone Investment Trust on behalf
of the following Series thereof:
Touchstone High Yield Fund
Touchstone Core Bond Fund
Touchstone Strategic Trust on behalf
of each of the following Series thereof:
Touchstone Enhanced 30 Fund
Touchstone Large Cap Growth Fund
Touchstone Growth Opportunities Fund
Touchstone International Equity Fund
Touchstone Value Plus Fund
Touchstone Small Cap Growth Fund
Touchstone Emerging Growth Fund
Touchstone Micro Cap Growth Fund
Touchstone Variable Series Trust on behalf of each of the following Series thereof:
Touchstone Balanced Fund
Touchstone Core Bond Fund
Touchstone Value Plus Fund
Touchstone Enhanced Dividend 30 Fund
Touchstone Eagle Capital Appreciation Fund
Touchstone Growth & Income Fund
Touchstone High Yield Fund
Touchstone Third Avenue Value Fund
Touchstone Emerging Growth Fund
Touchstone Baron Small Cap Fund
SCHEDULE 2
Approved U.S. Borrowers
ABN AMRO Incorporated
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Bear, Stearns Securities Corp.
Citigroup Global Markets Inc.
Deutsche Bank Securities Inc.
Fortis Securities LLC
Goldman Sachs & Co.
ING Financial Markets LLC
Lehman Brothers Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
MS Securities Services Inc.
SG Americas Securities, LLC
UBS Securities LLC
SCHEDULE 5
PERMITTED INVESTMENTS
FOR CASH COLLATERAL
Touchstone Institutional Money Market Fund
Securities Lending Investment Fund, a series of the Brown Brothers Investment Trust
SCHEDULE 6
LIST OF APPROVED PERSONS
For the Fund: For the Agent:
Lisa M. Lambert
Mark H. Payson
Elizabeth A. Seidel
Patricia R. Fallon
Donald F. Jursek
Eruch A. Mody
Pearse D. McDowell
William E. Locke
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This Novation and Amendment Agreement is dated as of February 25, 2008. Reference is hereby made to the Securities Lending Agency Agreement dated as of March 17, 2003, as amended to date (the "Agreement") by and among Touchstone Investment Trust, Touchstone Strategic Trust, and Touchstone Variable Series Trust (each a "Trust") acting with respect to each series thereof as set forth on Exhibit A hereto (each a "Series") (each Trust on behalf of each of its respective Series thereof, each the "Fund"), and Brown Brothers Harriman & Co., a limited partnership organized under the laws of the State of New York (the "Lending Agent").
W I T N E S S E T H:
WHEREAS, pursuant to the terms and conditions of the Agreement the Lending Agent acts as securities lending agent on behalf of each Fund.
WHEREAS, the Lending Agent and each Fund wish to add the Touchstone Tax Free Trust, the Touchstone Institutional Funds Trust, and the Touchstone Funds Group Trust and certain series thereof (each a "Novated Party") as additional parties to the Agreement for the purpose of each Novated Party receiving securities lending services from the Lending Agent, and certain Trusts wish to add new Series to the Agreement.
NOW THEREFORE, the Lending Agent, each Trust and each Novated Party hereby agree by execution of this Novation Agreement that (i) the Lending Agent is hereby appointed as Lending Agent of the Novated Party and each series thereof designated series thereof set forth on Exhibit A and Schedule 1 hereto, (ii) each Novated Party and each series thereof shall hence forth be known as a "Trust" and a "Series", respectively, as such terms are defined in the Agreement and shall be fully bound by the terms and conditions of the Agreement effective immediately upon execution of this Novation Agreement as if such Novated Party were an original party to the Agreement, (iii) certain new Series have been added to Exhibit A and Schedules 1 of the Agreement as per the request of the respective Trust, (iv) the Agreement is amended by deleting Schedules 5 and 7 therefrom and substituting Schedules 5 and 7 attached hereto therefore, and (v) the Agreement is further amended by adding the following new Section 26 thereto:
"26. BORROWER DEFAULT. In the event of default by an Approved Borrower with respect to any loan entered into pursuant to a SLA, BBH&Co. will take such actions as are set forth in the applicable SLA. In addition, the following provisions shall apply.
26.1 REPLACEMENT OF LOANED SECURITIES. If a borrower fails, pursuant to the SLA with BBH&Co., to return loaned securities with respect to a loan when due ("Default Event"), then BBH&Co. shall be responsible to the Fund as follows: BBH&Co. shall use the Collateral or the proceeds of the liquidation of such Collateral to purchase for the affected Fund's account, for settlement in the normal course, replacement securities of the same issue, type, class and series as that of the loaned securities ("Buy-In"). If the value of the Collateral is less than the purchase cost of replacement securities (or liquidated damages calculated under Section 26.2), BBH&Co. shall be responsible for satisfying such shortfall but only to the extent that such shortfall is not due to any diminution in the Collateral Value (as defined in this Section) which is due to the reinvestment risk borne by the Fund pursuant to this Agreement. For purposes of this Section, "Collateral Value" shall be calculated in accordance with the following terms:
26.1.1 VALUE OF CASH COLLATERAL. In the case of loans
collateralized solely by cash Collateral, the greater of:
(i) the amount of the cash Collateral pledged by a borrower
with respect to a loan, or (ii) the market value of the
investment of such cash Collateral.
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NOVATION AGREEMENT
26.1.2 VALUE OF SECURITIES COLLATERAL. In the case of loans
collateralized solely by securities Collateral, the market
value of such Collateral.
26.1.3 VALUE OF LETTERS OF CREDIT. In the case of loans
collateralized solely by letters of credit, the respective
available undrawn amounts.
26.1.4 VALUATION DATE. Collateral Value shall be determined on the
date of the Buy-In (or the payment made pursuant to Section
26.2 below).
26.1.5 MARKET VALUE. Market value shall be determined by BBH&Co.,
where applicable, based upon prices obtained from
recognized pricing services or dealer price quotations.
26.1.6 MULTIPLE FORMS OF COLLATERAL. Where a loan is
collateralized by more than one type of Collateral, the
aggregate market value of Collateral securing such loan
(for the purpose of computing the indemnity) shall be the
sum of the market values for each relevant type of
Collateral.
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26.2 IMPOSSIBILITY OF REPLACEMENT/LIQUIDATED DAMAGES. If BBH&Co. determines that a Buy-In is commercially impracticable, BBH&Co. shall, in lieu of effecting a Buy-In, pay to the affected Fund an amount equal to the market value of the loaned securities determined at the close of business on the date of the Default Event to be reduced by any shortfall in the Collateral Value that is due to the reinvestment risk borne by the Fund pursuant to this Agreement.
26.3 REPLACEMENT OF DISTRIBUTIONS. In addition to making the purchases or payments required above, BBH&Co. shall pay to the Fund the value of all distributions on the loaned securities, the record dates for which occur before the date that BBH&Co. executes a Buy-In or makes the payments to the Fund required pursuant to Section 26.2 and that have not otherwise been credited to the Fund's Custody Account. For purposes of this Section, the value of such distributions shall be calculated net of taxes, expenses or other deductions that would normally accrue to such distributions. BBH&Co. shall use Collateral or the proceeds of such Collateral to the extent available to make such payments of distributions and BBH&Co. shall be responsible for satisfying any shortfall, but only to the extent that such shortfall in the Collateral Value is not due to the reinvestment risk borne by the Fund pursuant to the Agreement.
26.4 COLLATERAL NOT IN POSSESSION OR CONTROL OF BBH&CO. If, on the date of the Default Event by reason of the Fund's request or actions, BBH&Co. is not in possession or control of the Collateral allocated to the defaulted Loan, the Fund shall cause such Collateral to be transferred to BBH&Co. by the close of business on the day BBH&Co. requests such a transfer. Upon BBH&Co.'s timely receipt such Collateral shall be applied by BBH&Co. against the cost of any Buy-In or replacement payment in accordance with Section 26.2. In the event that such Collateral is not timely transferred to BBH&Co., the Buy-In or replacement provisions of Section 8.2 shall not apply and the compensation to the Fund shall be limited to the shortfall, if any, between the Collateral Value and the market value of the loaned securities as determined at the close of business on (i) the date of the Default Event or (ii) the date such Collateral is so transferred, but only to the extent that any such shortfall in the Collateral Value is not due to the reinvestment risk borne by the Fund pursuant to this Agreement. The date of the valuation of the loaned securities pursuant to (i) or (ii) of this Section 26.4 shall be determined by BBH&Co. in its sole discretion.
NOVATION AGREEMENT
26.5 SUBROGATION AND ASSIGNMENT OF RIGHTS IN COLLATERAL. In the event that BBH&Co. is required to perform a Buy-In, make any payment of distributions, and/or make any payment of liquidated damages under this Section, the Fund agrees that, to the extent of such performance or payment, each of them shall be subrogated to, and the Fund shall assign, and be deemed to have assigned, to them all of such Fund's rights in, to and against the Borrower in respect of the related loan, any Collateral pledged by the Borrower in respect of such loan (including any letters of credit and the issuers thereof) and all proceeds of such Collateral. In the event that the Fund receives or is credited with any payment, benefit or value from or on behalf of the Borrower in respect of rights to which BBH&Co. is subrogated as provided herein, the Fund shall promptly remit or pay to BBH&Co. the same (or, where applicable, its United States dollar equivalent)."
This Novation and Amendment Agreement together with the Agreement represents the entire agreement and understanding of the parties hereto and shall be governed by the laws of the State of New York.
The undersigned acknowledges that (I/we) have received a copy of this document .
BROWN BROTHERS HARRIMAN & CO.
By:_/s/ James R. Kent_______________________ Name: Title: Managing Director |
TOUCHSTONE INVESTMENT TRUST FOR ITSELF AND ON BEHALF OF EACH SERIES THEREOF SET FORTH IN EXHIBIT A HERETO
By: _/s/ William Dent___________________ Name: William Dent Title: V.P. |
TOUCHSTONE STRATEGIC TRUST FOR ITSELF AND ON BEHALF OF EACH SERIES THEREOF SET FORTH IN EXHIBIT A HERETO
By: _/s/ William Dent_________________ Name: William Dent Title: V.P. |
NOVATION AGREEMENT
TOUCHSTONE VARIABLE SERIES TRUST FOR ITSELF AND ON BEHALF OF EACH SERIES THEREOF SET FORTH IN EXHIBIT A HERETO
By: _/s/ William Dent__________________ Name: William Dent Title: V.P. |
TOUCHSTONE FUNDS GROUP TRUST FOR ITSELF AND ON BEHALF OF EACH SERIES THEREOF SET FORTH IN EXHIBIT A HERETO
By: _/s/ William Dent___________________ Name: Title: V.P. |
TOUCHSTONE TAX FREE TRUST FOR ITSELF AND ON BEHALF OF EACH SERIES THEREOF SET FORTH IN EXHIBIT A HERETO
By: _/s/ William Dent_________________ Name: Title: V.P. |
TOUCHSTONE INSTITUTIONAL FUNDS TRUST FOR ITSELF AND ON BEHALF OF EACH SERIES THEREOF SET FORTH IN EXHIBIT A HERETO
By: __/s/ William Dent__________________ Name: Title: V.P. |
NOVATION AGREEMENT
EXHIBIT A
Touchstone Investment Trust on behalf
of the following Series thereof:
Touchstone High Yield Fund
Touchstone Core Bond Fund
Touchstone US Government Money Market Fund
Touchstone Institutional Money Market Fund
Touchstone Money Market Fund
Touchstone Strategic Trust on behalf
of each of the following Series thereof:
Touchstone Large Cap Growth Fund
Touchstone Growth Opportunities Fund
Touchstone Small Cap Growth Fund
Touchstone Micro Cap Growth Fund
Touchstone Large Cap Value Fund
Touchstone Mid Cap Growth Fund
Touchstone Diversified Small Cap Growth Fund
Touchstone Large Cap Core Equity Fund
Touchstone Variable Series Trust on behalf of each of the following Series thereof:
Touchstone Balanced Fund
Touchstone Value Plus Fund
Touchstone Enhanced Dividend 30 Fund
Touchstone Eagle Capital Appreciation Fund
Touchstone Growth & Income Fund
Touchstone High Yield Fund
Touchstone Third Avenue Value Fund
Touchstone Mid Cap Growth Fund
Touchstone Baron Small Cap Fund
Touchstone Bond Fund
Touchstone Money Market
Touchstone Conservative ETF
Touchstone Moderate ETF
Touchstone Aggressive ETF
Touchstone Enhanced ETF
Touchstone Tax Free Trust on behalf
of each of the following Series thereof:
Touchstone Florida Tax Free Money Market Fund
Touchstone Ohio Insured Tax Free Fund
Touchstone Ohio Tax Free Money Market Fund
Touchstone Tax Free Money Market Fund
NOVATION AGREEMENT
Touchstone Institutional Funds Trust on behalf of each of the following Series thereof:
Touchstone Sands Capital Institutional Growth Fund Touchstone JSAM Institutional Large Cap Value Fund Touchstone JSAM Institutional Value Fund Touchstone Mazama Institutional Growth Fund
Touchstone Funds Group Trust on behalf
of each of the following Series thereof:
Touchstone Value Opportunities Fund
Touchstone Health Care and Biotechnology Fund
Touchstone Ultra Short Duration Fixed Income Fund
Touchstone Sands Capital Select Growth Fund
Touchstone International Equity Fund
Touchstone Mid Cap Fund
Touchstone Strategic Value and High Income Fund
Touchstone Clover Core Fixed Income Fund
Touchstone Short Duration Fixed Income Fund
Touchstone Small Cap Value Opportunities Fund
Touchstone Small Cap Value Opportunities Fund
Touchstone Small Cap Value Opportunities Fund
Touchstone Diversified Small Cap Value Fund
Touchstone Diversified Small Cap Value Fund
NOVATION AGREEMENT
SCHEDULE 1
All Securities held in each series set forth on Exhibit A hereto of Touchstone Investment Trust, Touchstone Strategic Trust, Touchstone Variable Series Trust, Touchstone Tax Free Trust, Touchstone Institutional Funds Trust, and Touchstone Institutional Funds Group Trust held in custody at BBH.
NOVATION AGREEMENT
SCHEDULE 5
PERMITTED INVESTMENTS
FOR CASH COLLATERAL
o Securities Lending Investment Fund, a Series of the Brown Brothers Investment Trust
o Touchstone Institutional Money Market Fund
SCHEDULE 7
FEES
For each cash collateralized loans effected hereunder, 20% of the difference between (i) the income earned on the investment of cash Collateral held with respect to such loan (after deduction of any custody, investment, management or related fees) and (ii) the Cash Collateral Fee (as defined in the applicable SLA) paid to the borrower in respect of such loan.
For each non-cash collateralized loan effected hereunder, 20% of the Loan Fee (as defined in the applicable SLA) paid by the borrower with respect to such loan.
SUB-ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 1st day of March, 2006 (the "Effective Date") by and between Touchstone Advisors, Inc., an Ohio corporation (the "Administrator") and JPMorgan Chase Bank, N.A. (f/k/a Integrated Fund Services, Inc.), having its principal place of business in Ohio (the "Sub-Administrator").
THIS AGREEMENT has been amended as of September 17, 2007 to (i) reflect
that the Administrator will provide administrative services to Touchstone
Institutional Funds Trust (f/k/a Constellation Institutional Portfolios) and the
Administrator desires to retain the Sub-Administrator to assist in performing
certain administrative services to this Trust, (ii) amend Schedules A and B,
(iii) reflect the acquisition of Integrated Investment Services, Inc. by
JPMorgan Chase Bank, N.A., and (iv) amend Article 4 of this Agreement.
WHEREAS, the Administrator and Touchstone Institutional Funds Trust, Touchstone Funds Group Trust, Touchstone Strategic Trust, Touchstone Tax-Free Trust, Touchstone Investment Trust and Touchstone Variable Series Trust (individually a "Trust" and collectively the "Trusts") have entered into an Administration Agreement, as amended (the "Administration Agreement") pursuant to which the Administrator will provide administrative services to the Trusts; and
WHEREAS, the Administrator desires to retain the Sub-Administrator to assist in performing certain administrative services to each series of the Trust (individually a "Fund" and collectively the "Funds") and the Sub-Administrator is willing to perform such services on the terms and conditions hereinafter set forth herein;
NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, Administrator and the Sub-Administrator hereby agree as follows:
ARTICLE 1. Retention of the Sub-Administrator. Administrator hereby retains the Sub-Administrator to furnish the Funds with administrative services as set forth in Article 2 below. The Sub-Administrator hereby accepts such employment to perform the duties set forth below. The Sub-Administrator shall, for all purposes herein, be deemed to be an independent contractor.
ARTICLE 2. Sub-Administrative and Accounting Services. The Sub-Administrator shall perform or supervise the performance by others of the administrative services set forth in Schedule B hereto, including activities related to the Funds' fiscal year-end financial statement preparation, and made a part of this Agreement. The Sub-Administrator may sub-contract with third parties to perform certain of the services to be performed by the Sub-Administrator hereunder; provided, however, that the Sub-Administrator shall remain principally responsible to Administrator for the acts and omissions of such other entities. In meeting its duties hereunder, the Sub-Administrator shall have the general authority to do all acts deemed in the Sub-Administrator's good faith belief to be necessary and proper to perform its obligations under this Agreement.
ARTICLE 3. Compensation of the Sub-Administrator. The Administrator shall pay to the Sub-Administrator compensation at the annual rate specified in Schedule A to this Agreement until this Agreement is terminated in accordance with Article 5. Such compensation shall be calculated and accrued daily, and paid to the Sub-Administrator monthly. If this Agreement becomes effective subsequent to the first day of a month or terminates before the last day of a month, the Sub-Administrator's compensation for that part of the month in which this Agreement is in effect shall be prorated in a manner consistent with the calculation of the fees as set forth above. Payment of the Sub-Administrator's compensation for the preceding month shall be made within 30 days after receipt of invoice. In addition, the Administrator agrees to reimburse the Sub-Administrator for the Sub-Administrator's reasonable out of pocket expenses in providing services hereunder, so long as Sub-Administrator receives prior consent in writing from the Administrator.
ARTICLE 4. Limitation of Liability of the Sub-Administrator. The duties of the Sub-Administrator shall be confined to those expressly set forth herein, and no implied duties are assumed by or may be asserted against the Sub-Administrator hereunder. The Sub-Administrator shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in carrying out its duties hereunder, except a loss resulting from willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder. (As used in this Article 4, the term "Sub-Administrator" shall include Trustees, officers, employees and other agents of the Sub-Administrator as well as that entity itself.) Under no circumstances shall the Sub-Administrator be liable to Administrator for consequential, indirect or punitive damages.
So long as the Sub-Administrator, or its agents, acts without willful misfeasance, bad faith or gross negligence in the performance of its duties, and without reckless disregard of its obligations and duties hereunder, the Administrator assumes full responsibility and shall indemnify the Sub-Administrator and hold it harmless from and against any and all actions, suits and claims, whether groundless or otherwise, and from and against any and all losses, damages, costs, charges, reasonable counsel fees and disbursements, payments, expenses and liabilities (including reasonable investigation expenses) arising directly or indirectly out of any act or omission of the Sub-Administrator in carrying out its duties hereunder; provided, however, with respect to a damage award of a court of competent jurisdiction in connection with a third party claim that arises directly out of a negligent act or omission by the Sub-Administrator or its agents in breach of this Agreement (which act or omission did not constitute willful misfeasance, bad faith or gross negligence or willful disregard of obligations and duties hereunder), the Sub-Administrator shall be responsible for its proportionate share of such damage award (as determined by the court) up to the aggregate amount of fees paid by the Administrator to the Sub-Administrator in the twelve months immediately preceding the date on which the negligence of the Sub-Administrator occurred. The indemnity and defense provisions set forth herein shall indefinitely survive the termination of this Agreement.
The indemnification rights hereunder shall include the right to reasonable advances of defense expenses in the event of any pending or threatened litigation with respect to which indemnification hereunder may ultimately be merited. In order that the indemnification provisions contained herein shall apply, however, it is understood that if in any case the Administrator may be asked to indemnify or hold the Sub-Administrator harmless, the Administrator shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that the Sub-Administrator will use all reasonable care to identify and notify the Administrator promptly concerning any situation which presents or appears likely to present the probability of such a claim for indemnification against the Administrator, but failure to do so shall not affect the rights hereunder. In no event and under no circumstances shall either party to this Agreement be liable to anyone, including, without limitation, the other party, for special damages for any act or failure to act under any provision of this Agreement if advised of the possibility thereof.
The Administrator shall be entitled to participate at its own expense or, if it so elects, to assume the defense of any suit brought to enforce any claims subject to this indemnity provision. If Administrator elects to assume the defense of any such claim, the defense shall be conducted by counsel chosen by Administrator and satisfactory to the Sub-Administrator, whose approval shall not be unreasonably withheld. In the event that Administrator elects to assume the defense of any suit and retain counsel, the Sub-Administrator shall bear the fees and expenses of any additional counsel retained by it. If Administrator does not elect to assume the defense of a suit, it will reimburse the Sub-Administrator for the fees and expenses of any counsel retained by the Sub-Administrator.
The Sub-Administrator may apply to Administrator at any time for instructions and may consult counsel for the Administrator or its own counsel and with accountants and other experts with respect to any matter arising in connection with the Sub-Administrator's duties, and the Sub-Administrator shall not be liable or accountable for any action taken or omitted by it in good faith in accordance with such instruction or with the opinion of such counsel, accountants or other experts.
Also, the Sub-Administrator shall be protected in acting upon any document which it reasonably believes to be genuine and to have been signed or presented by the proper person or persons. Nor shall the Sub-Administrator be held to have notice of any change of authority of any officers, employee or agent of the Administrator until receipt of written notice thereof from the Administrator.
Nothing herein shall make the Sub-Administrator liable for the performance or omissions of unaffiliated third parties not under the Sub-Administrator's reasonable control such as, by way of example and not limitation, transfer agents, custodians, investment advisers or sub-advisers, postal or delivery services, telecommunications providers and processing and settlement services.
ARTICLE 5. Duration and Termination of this Agreement. This Agreement
shall be in full force and effect upon the Effective Date. The initial term of
this Agreement will end one (1) year after the Effective Date. ("Initial Term").
Upon conclusion of the Initial Term, this Agreement will automatically remain in
full force and effect for a one (1) year renewable term, and for succeeding one
(1) year renewable terms thereafter, unless the Agreement is terminated as
provided below. The Administrator or the Sub-Administrator may elect to
terminate this Agreement as of the last day of the Initial Term or any renewal
term by notifying the other in writing not less than ninety (90) days prior to
the end of the then current term.
This Agreement may be terminated only: (a) by either party hereto on such date as is specified in written notice given by the terminating party, in the event of a material breach of this Agreement by the other party, provided the terminating party has notified the other party of such material breach at least 45 days prior to the specified date of termination and the breaching party has not remedied such breach by the specified date; or (b) as to any Fund or any Trust, effective upon the liquidation of such Fund or Trust, as the case may be. For purposes of this paragraph, the term "liquidation" shall mean a transaction in which the assets of the Trust or a Fund are sold or otherwise disposed of and proceeds there from are distributed in cash to the shareholders in complete liquidation of the interests of such shareholders in the entity. After termination of this Agreement for so long as the Sub-Administrator in fact continues to perform any one or more services contemplated by this Agreement, the provisions of this Agreement, including without limitation the provisions regarding limitation of liability and indemnification, shall continue in full force and effect.
Notwithstanding the foregoing, this Agreement shall terminate automatically upon termination of the Administration Agreement; provided, however, that no such termination of this Agreement shall occur if and to the extent the Administrator or any control affiliate thereof is named as, or otherwise becomes, the successor administrator to a Trust. If this Agreement is terminated pursuant to this paragraph, and the Administrator proposes or causes, directly or indirectly, a Trust to retain a third party other than the Sub-Administrator to serve as successor administrator or sub-administrator to the Trust, the Sub-Administrator will be entitled to a one time cash payment equal to the net present value of the profits the Sub-Administrator would have earned during the remainder of the then-current term of the contract based on the fee rate set forth in Schedule A hereto applied to the average daily net assets of the Trust during the six month period immediately preceding such termination.
ARTICLE 6. Activities of the Sub-Administrator. The services of the Sub-Administrator rendered to the Administrator are not to be deemed to be exclusive. The Sub-Administrator is free to render such services to others and to have other businesses and interests.
ARTICLE 7. Confidentiality. The Sub-Administrator agrees on behalf of itself and its employees to treat confidentially all records and other information relative to the Administrator and each Trust and its shareholders received by the Sub-Administrator in connection with this Agreement, including any non-public personal information as defined in Regulation S-P, and that it shall not use or disclose any such information except for the purpose of carrying out the terms of this Agreement; provided, however, that the Sub-Administrator may disclose such information as required by law or after prior notification to and approval in writing by the Administrator or a Trust, which approval may not be withheld where the Sub-Administrator may be exposed to civil or criminal contempt proceedings or penalties for failure to comply.
ARTICLE 8. Certain Records. The Sub-Administrator shall maintain customary records in connection with its duties as specified in this Agreement. Any records required to be maintained and preserved pursuant to Rules 31a-1 and 31a-2 under the 1940 Act which are prepared or maintained by the Sub-Administrator on behalf of the Trusts shall be prepared and maintained at the expense of the Sub-Administrator, but shall be the property of the Trusts and will be made available to or surrendered promptly to the Administrator or the Trusts on request.
In case of any request or demand for the inspection of such records by another party, the Sub-Administrator shall notify the Administrator and follow the Administrator's instructions as to permitting or refusing such inspection; provided that the Sub-Administrator may exhibit such records to any person in any case where it is advised by its counsel that it may be held liable for failure to do so, unless (in cases involving potential exposure only to civil liability) the Administrator has agreed to indemnify the Sub-Administrator against such liability.
ARTICLE 9. Compliance With Governmental Rules and Regulations. The Sub-Administrator undertakes to comply in all material respects with applicable requirements of the 1933 Act, the 1934 Act, the 1940 Act and any laws, rules and regulations of governmental authorities having jurisdiction with respect to the duties to be performed by the Sub-Administrator hereunder.
ARTICLE 10. Representations of the Administrator. The Administrator certifies to the Sub-Administrator that this Agreement has been duly authorized by the Administrator and, when executed and delivered by the Administrator, will constitute a legal, valid and binding obligation of the Administrator, enforceable against the Administrator in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the rights and remedies of creditors and secured parties.
ARTICLE 11. Entire Agreement; Amendments. This Agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement, draft or proposal with respect to the subject matter hereof. This Agreement or any part hereof may be changed or waived only by an instrument in writing signed by the party against which enforcement of such change or waiver is sought.
ARTICLE 12. Assignment. This Agreement shall not be assignable by either party without the prior written consent of the other party.
ARTICLE 13. Waiver. Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by written instrument executed by such party. No failure of either party hereto to exercise any power or right granted hereunder, or to insist upon strict compliance with any obligation hereunder, and no custom or practice of the parties with regard to the terms of performance hereof, will constitute a waiver of the rights of such party to demand full and exact compliance with the terms of this Agreement.
ARTICLE 14. Notice. Any notice required or permitted to be given by either party to the other shall be deemed sufficient if sent by registered or certified mail, federal express (or substantially similar delivery service), postage prepaid, addressed by the party giving notice to the other party at the last address furnished by the other party to the party giving notice: if to Administrator, at 303 Broadway, Suite 1100, Cincinnati, Ohio 45202; and if to the Sub-Administrator at 303 Broadway, Suite 1100, Cincinnati, Ohio 45202.
ARTICLE 15. Force Majeure. No breach of any obligation of a party to this Agreement will constitute an event of default or breach to the extent it arises out of a cause, existing or future, that is beyond the control and without negligence of the party otherwise chargeable with breach or default, including without limitation: work action or strike; lockout or other labor dispute; flood; war; riot; theft; earthquake or natural disaster. Either party desiring to rely upon any of the foregoing as an excuse for default or breach will, when the cause arises, give to the other party prompt notice of the facts which constitute such cause; and, when the cause ceases to exist, give prompt notice thereof to the other party.
ARTICLE 16. Equipment Failures. In the event of equipment failures beyond the Sub-Administrator's control, the Sub-Administrator shall, at no additional expense to the Administrator, take reasonable and prompt steps to minimize service interruptions but shall have no liability with respect thereto. The Administrator shall develop and maintain a plan for recovery from equipment failures which may include contractual arrangements with appropriate parties making reasonable provision for emergency use of electronic data processing equipment to the extent appropriate equipment is available.
ARTICLE 17. Definitions of Certain Terms. The terms "interested person" and "affiliated person," when used in this Agreement, shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission.
ARTICLE 18. Headings. All Article headings contained in this Agreement are for convenience of reference only, do not form a part of this Agreement and will not affect in any way the meaning or interpretation of this Agreement. Words used herein, regardless of the number and gender specifically used, will be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine, or neuter, as the contract requires.
ARTICLE 19. Governing Law. This Agreement shall be construed in accordance with the laws of the State of Ohio and the applicable provisions of the 1940 Act. To the extent that the applicable laws of the State of Ohio, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control.
ARTICLE 20. Multiple Originals. This Agreement may be executed in two or more counterparts, each of which when so executed shall be deemed to be an original, but such counterparts shall together constitute but one and the same instrument.
ARTICLE 21. Binding Agreement. This Agreement, and the rights and obligations of the parties hereunder, shall be binding on, and inure to the benefit of, the parties and their respective successors and assigns.
ARTICLE 22. Severability. If any part, term or provision of this Agreement is held to be illegal, in conflict with any law or otherwise invalid, the remaining portion or portions shall be considered severable and not be affected, and the rights and obligations of the parties shall be construed and enforced as if the Agreement did not contain the particular part, term or provision held to be illegal or invalid.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the Effective Date.
TOUCHSTONE ADVISORS, INC.
By: _/s/ William A. Dent______ Name: William A. Dent Title: Vice President |
JPMORGAN CHASE BANK, N.A.
By: __/s/ Roy E. Rogers__________ Name: Roy E. Rogers Title: Senior Vice President |
SCHEDULE A
TO THE SUB-ADMINISTRATION AGREEMENT
DATED SEPTEMBER 17, 2007
BETWEEN
TOUCHSTONE ADVISORS, INC.
AND
JPMORGAN CHASE BANK, N.A.
FEES: Pursuant to Article 3, the Administrator shall pay the Sub-Administrator an asset based fee calculated based on the daily net assets of the Trusts. The asset based fee due to the Sub-Administrator will be deducted and paid to the Sub-Administrator from the Administrator's monthly fee. The daily net asset fee is at the following annual rates:
TOUCHSTONE FUNDS GROUP TRUST, TOUCHSTONE STRATEGIC TRUST, TOUCHSTONE TAX-FREE TRUST, TOUCHSTONE INVESTMENT TRUST (EXCLUDING INSTITUTIONAL MONEY MARKET FUND)
0.08% of the average daily net assets of the aggregate of Touchstone Funds Group Trust, Touchstone Strategic Trust, Touchstone Tax-Free Trust, and Touchstone Investment Trust (excluding the Institutional Money Market Fund) up to and including $6 billion; 0.0575% of the next $4 billion of average daily net assets and 0.0350% of all such assets in excess of $10 billion.
INSTITUTIONAL MONEY MARKET FUND.
0.02% of the Fund's average daily net assets for sub-administrative services. For fund accounting services, an annual fee based on average daily net assets as follows:
Asset Size Annual Fee
---------- ----------
0 - $100,000,000 $24,000
$100,000,000 - $200,000,000 $30,000
$200,000,000 - $300,000,000 $36,000
$300,000,000 - $400,000,000 $42,000
Over $400,000,000 $54,000
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TOUCHSTONE INSTITUTIONAL FUNDS TRUST.
0.05% of the average daily net assets of the Trust up to and including $2.5 billion; 0.04% of the next $2.5 billion of average daily net assets; 0.0350% of the next $2.5 billion of average daily net assets; 0.03% of the next $2.5 billion of average daily net assets and 0.0250% of all such assets in excess of $10 billion.
TOUCHSTONE VARIABLE SERIES TRUST
0.08% of the average daily net assets of Touchstone Variable Series Trust up to and including $1 billion; 0.0575% of the next $1 billion of average daily net assets and 0.035% of all such assets in excess of $2 billion.
TERM: This amended Schedule shall become effective on September 17, 2007 and shall be subject to the provisions under Article 5.
SCHEDULE B
TO THE SUB-ADMINISTRATION AGREEMENT
DATED SEPTEMBER 17, 2007
BETWEEN
TOUCHSTONE ADVISORS, INC.
AND
JPMORGAN CHASE BANK, N.A.
LIST OF SERVICES
ADMINISTRATIVE SERVICES
1. Prepare and file pre- and post-effective amendments to the registration statements and other documents on behalf of the Funds with the Securities and Exchange Commission and other federal and state regulatory authorities as required by law.
2. Coordinate the scheduling of Board of Trustees' meetings, prepare the appropriate reports to the trustees and record and maintain the minutes.
3. Maintain all books and records of each Fund as required by federal and state laws.
4. Coordinate the preparation, filing and distribution of proxy materials and periodic reports as required by law.
5. Coordinate and monitor third-party services.
6. Establish and maintain procedures for the Trusts' compliance with federal and state rules and regulations.
7. Provide reports necessary for the Trusts' investment adviser to monitor compliance with federal and state rules and regulations.
8. Provide officers for the Trusts, if desired.
9. Prepare financial statements and supporting statements, footnotes, per share information and schedule of investments for inclusion in the semiannual and annual reports.
10. Conduct portfolio compliance training for Fund management and the investment adviser.
ACCOUNTING SERVICES
1. Calculate net asset value and per share net asset value in accordance with the 1940 Act and the Trusts' prospectuses.
2. Record all security transactions including appropriate gains and losses from the sale of portfolio securities.
3. Record interest income and dividend income.
4. Record each Fund's capital share activities based upon purchase and redemption transactions received by the transfer agent.
5. Calculate a daily cash figure for investment purposes.
6. Monitor and seek authorization for payment of expenses of each Fund.
7. Periodically report to each Trust or its authorized agents share purchases and redemptions and trial balances of each Fund.
8. Prepare the necessary supporting computations on a book and tax basis to ensure each Fund complies with the requirements of Section 851 of the Internal Revenue Code.
9. Facilitate and perform tax planning and administration.
10. Monitor all tax compliance calculations to ensure that each Fund qualifies as a regulated investment company pursuant to Subchapter M of the Internal Revenue Code.
11. Assist independent accountants with the annual audit by preparing necessary annual audit work papers.
12. Generate fund performance calculations (including after-tax returns) and automated report dissemination.
13. Maintain complete, accurate and current all records with respect to the Trusts required to be maintained by the Trusts under the Internal Revenue Code of 1986, as amended (the "Code"), and under the rules and regulations of the 1940 Act, and preserve said records in the manner and for the periods prescribed in the Code and the 1940 Act.
ADDENDUM TO SUB-ADMINISTRATION AGREEMENT
This Agreement is entered into as of December 31, 2007 by and between JPMorgan Chase Bank, N.A. ("JPMorgan") and Touchstone Advisors, Inc. ("Touchstone").
WHEREAS, JPMorgan entered into a Sub-Administration Agreement with Touchstone dated as of September 17, 2007 with an initial term of one year (the "Sub-Administration Agreement"); and
WHEREAS, JPMorgan and Touchstone wish to enter into this Addendum to the Sub-Administration Agreement to extend the initial term;
NOW, THEREFORE, it is agreed by and between the parties hereto as follows:
1. The Sub-Administration Agreement shall continue through December 31, 2008, and thereafter shall automatically be renewed for successive one year periods as set forth in the Sub-Administration Agreement unless it is terminated pursuant to its terms.
2. Except for the provisions of this Addendum, the Sub-Administration Agreement shall continue in full force and effect and be binding upon the parties notwithstanding the execution and delivery of this Addendum.
3. This Addendum shall be binding upon the parties and, to the extent permitted by the Sub-Administration Agreement, their respective successors and assigns.
IN WITNESS WHEREOF, each of the parties hereto has caused this Addendum to be duly executed and delivered in its name and on its behalf by their respective officers thereunto duly authorized, all as of the day and year first above written.
JPMORGAN CHASE BANK, N.A. TOUCHSTONE ADVISORS, INC.
By: Roy E. Rogers By: William Dent
----------------------------- ------------------------
Print Name: Print Name:
----------------------------- ------------------------
Print Title: SVP Print Title: Senior Vice President
----------------------------- ------------------------
Date: 11-29-07 Date: December 31, 2007
----------------------------- ------------------------
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ALLOCATION AGREEMENT
AGREEMENT made as of this 1st day of April 2008, by and among Touchstone Investment Trust, Touchstone Tax-Free Trust, Touchstone Strategic Trust, Touchstone Variable Series Trust, Touchstone Funds Group Trust and Touchstone Institutional Funds Trust (collectively, the "Funds"), all open-end investment companies registered under the Investment Company Act of 1940.
WHEREAS, pursuant to the requirements of Rule 17g-1 under the Investment Company Act of 1940 ("Rule 17g-1"), the Funds are required to maintain a fidelity bond against larceny and embezzlement, covering certain of their officers and employees; and
WHEREAS, Rule 17g-1 provides that where the shares of two or more investment companies are distributed by the same person, such investment companies may enter into a joint fidelity bond with each other (a "Joint Insured Bond"); and
WHEREAS, the Funds have entered into such a Joint Insured Bond with St. Paul Fire and Marine Insurance Company in accordance with Rule 17g-1 (such Joint Insured Bond as it is currently constituted and as it may be amended from time to time being hereinafter referred to as the "Bond"); and
WHEREAS, Rule 17g-1 provides that the amount of insurance coverage under a Joint Insured Bond shall be at least equal to the sum of the total amount of coverage which each party to such bond would have been required under Rule 17g-1 to provide and maintain individually; and
WHEREAS, the Funds desire to provide for: (1) the method by which the amount of coverage provided under the Bond will be determined from time to time and (2) an equitable and proportionate allocation of any proceeds received under the Bond in the event that two or more of the Funds suffer loss and consequently are entitled to recover under the Bond;
NOW THEREFORE, in consideration of the mutual covenants and agreements herein set forth, the Funds agree as follows:
I. Definitions
A. Minimum Coverage Requirement - the minimum amount of insurance coverage required to be maintained on a current basis by each of the Funds, such amount being based upon their respective gross assets and being determined as of the close of the most recent fiscal quarter in accordance with the table set forth in paragraph (d) of Rule 17g-1 as it may from time to time be amended by the Securities and Exchange Commission.
B. Fidelity Coverage - the total amount of coverage provided under the Bond.
C. Actual Loss - the total amount of pecuniary loss suffered by a Fund under circumstances covered by the terms of the Bond without regard to whether the amount of Fidelity Coverage is sufficient to enable such Fund to recover the total amount of such pecuniary loss.
D. Excess Coverage - the amount by which the Fidelity Coverage exceeds the amount of the combined Minimum Coverage Requirements of the Funds suffering Actual Loss.
II. The Amount of the Bond
It shall be the intent of the Funds that the amount of the Fidelity Coverage at all times shall be at least equal to the amount of the combined Minimum Coverage Requirements of the Funds.
III. Allocation of Recovery Under the Bond
In the event Actual Loss is suffered by any two or more of the Funds, any recovery under the Bond will be allocated among such Funds in the following manner:
a. If the Fidelity Coverage exceeds or is equal to the amount of the combined Actual Losses of the Funds suffering Actual Loss, then each such Fund shall be entitled to recover the amount of its Actual Loss.
b. If the amount of Actual Loss of each Fund suffering Actual Loss exceeds its Minimum Coverage Requirement and the amount of the Funds' combined Actual Losses exceeds the Fidelity Coverage, then each Fund shall be entitled to recover (i) its Minimum Coverage Requirement, and (ii) to the extent there exists Excess Coverage, the proportion of the Excess Coverage which its Minimum Coverage Requirement bears to the amount of the combined Minimum Coverage Requirements of the Funds suffering Actual Loss; provided, however, that if the Actual Loss of any of such Funds is less than the sum of (i) and (ii) of this subpart (b), then such difference shall be recoverable by the other Funds in proportion to their relative Minimum Coverage Requirements.
c. If (i) the amount of Actual Loss suffered by any Fund is less
than or equal to its Minimum Coverage Requirement, (ii) the amount of Actual
Loss of the other Funds exceeds its or their Minimum Coverage Requirement(s) and
(iii) the amount of the combined Actual Losses of the Funds exceeds the Fidelity
Coverage, then any Fund which has suffered an amount of Actual Loss less than or
equal to its Minimum Coverage Requirement shall be entitled to recover its
Actual Loss. If only one other Fund has suffered Actual Loss, it shall be
entitled to recover the amount of the Fidelity Coverage remaining. If more than
one other Fund has suffered Actual Loss in excess of the remaining coverage,
they shall allocate such remaining coverage in accordance with Section III(b) of
this Agreement.
IN WITNESS WHEREOF, the Funds have executed this Agreement on the date above mentioned.
TOUCHSTONE INVESTMENT TRUST TOUCHSTONE TAX-FREE TRUST By: __________________________ By: __________________________ TOUCHSTONE STRATEGIC TRUST TOUCHSTONE VARIABLE SERIES TRUST |
By: __________________________ By: __________________________
TOUCHSTONE FUNDS GROUP TRUST TOUCHSTONE INSTITUTIONAL
FUNDS TRUST
By: __________________________ By: __________________________
EXPENSE LIMITATION AGREEMENT
TOUCHSTONE STRATEGIC TRUST
EXPENSE LIMITATION AGREEMENT, effective as of May 1, 2000 by and between Touchstone Advisors, Inc. (the "Advisor") and Touchstone Strategic Trust (the "Trust"), on behalf of certain series of the Trust set forth in Schedule A attached hereto (each a "Fund," and collectively, the "Funds").
WHEREAS, the Trust is a Massachusetts business trust organized under a Declaration of Trust ("Declaration of Trust"), and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management company of the series type, and each Fund is a series of the Trust; and
WHEREAS, the Trust and the Advisor have entered into an Investment Advisory Agreement dated May 1, 2000 (the "Advisory Agreement"), pursuant to which the Advisor provides investment advisory and other management services to each series of the Trust for compensation based on the value of the average daily net assets of each series; and
WHEREAS, the Trust and the Advisor have determined that it is appropriate and in the best interests of shareholders to maintain the expenses of the Funds, and, therefore, have entered into this Expense Limitation Agreement (the "Agreement"), in order to maintain the expense ratios of the Funds at the levels specified in Schedule A attached hereto; and
NOW THEREFORE, the parties hereto agree that the Agreement provides as follows:
1. Expense Limitation.
1.1 Applicable Expense Limit. To the extent that the aggregate expenses of every character incurred by a Fund in any fiscal year, including but not limited to advisory fees of the Advisor (but excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, other extraordinary expenses not incurred in the ordinary course of such Fund's business, and amounts, if any, payable pursuant to a plan adopted in accordance with Rule 12b-1 under the 1940 Act, if any) ("Fund Operating Expenses"), exceed the Operating Expense Limit, as defined in Section 1.2 below, such excess amount (the "Excess Amount") shall be the liability of the Advisor.
1.2 Operating Expense Limit. The maximum Operating Expense Limit in any year with respect to a Fund shall be the amount specified in Schedule A based on a percentage of the average daily net assets of the Fund.
1.3 Method of Computation. To determine the Advisor's liability with respect to the Excess Amount, each month the Fund Operating Expenses for each Fund shall be annualized as of the last day of the month. If, for any month, a Fund's annualized Fund Operating Expenses exceed the Operating Expense Limit of such Fund, the Advisor shall waive or reduce its advisory fee for such month by an amount, or remit an amount to the appropriate Fund, sufficient to reduce the annualized Fund Operating Expenses to an amount no higher than the Operating Expense Limit; provided, however, that any waiver or reduction of the advisory fee is applied equally across the classes, if any, of the Fund.
1.4 Year-End Adjustment. If necessary, on or before the last day of the first month of each fiscal year, an adjustment payment shall be made by the appropriate party in order that the amount of the advisory fees waived or reduced and other payments remitted by the Advisor to the Fund or Funds with respect to the previous fiscal year shall equal the Excess Amount.
2. Term and Termination of Agreement.
This Agreement shall continue in effect through March 31, 2001, and from year to year thereafter provided each such continuance is specifically approved by a majority of the Trustees of the Trust. This Agreement shall terminate automatically upon the termination of the Investment Advisory Agreement with respect to the applicable Fund.
3. Miscellaneous.
3.1 Captions. The captions in this Agreement are included for convenience of reference only and in no other way define or delineate any of the provisions hereof or otherwise affect their construction or effect.
3.2 Interpretation. Nothing herein contained shall be deemed to require the Trust or the Funds to take any action contrary to the Trust's Declaration of Trust or Bylaws, or any applicable statutory or regulatory requirement to which it is subject or by which it is bound, or to relieve or deprive the Trust's Board of Trustees of its responsibility for and control of the conduct of the affairs of the Trust or the Funds.
3.3 Definitions. Any question of interpretation of any term or provision of this Agreement, including but not limited to the advisory fee, the computations of net asset values, and the allocation of expenses, having a counterpart in or otherwise derived from the terms and provisions of the Investment Advisory Agreement or the 1940 Act, shall have the same meaning as and be resolved by reference to such Investment Advisory Agreement or the 1940 Act.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective officers thereunto duly, as of the day and year first above written.
TOUCHSTONE STRATEGIC TRUST
By:_______________________________
Tina D. Hosking
Secretary
TOUCHSTONE ADVISORS, INC.
By:_______________________________
Jill T. McGruder
President
SCHEDULE A
OPERATING EXPENSE LIMITS
This Agreement relates to the following Funds of the Trust:
Maximum Operating
Expense Limit
Aggressive Growth Fund - Class A 1.95%
Utility Fund - Class A 1.34%
Utility Fund - Class C 2.50%
Enhanced 30 Fund - Class A 1.00%
Enhanced 30 Fund - Class C 1.75%
|
SCHEDULE A
OPERATING EXPENSE LIMITS
AMENDED MAY 1, 2001
This Agreement relates to the following Funds of the Trust:
Maximum Operating
Expense Limit
Aggressive Growth Fund - Class A 1.95%
Aggressive Growth Fund - Class B 2.70%
Aggressive Growth Fund - Class C 2.70%
Utility Fund - Class A 1.34%
Utility Fund - Class B 2.46%
Utility Fund - Class C 2.50%
|
SCHEDULE A
OPERATING EXPENSE LIMITS
AMENDED MAY 1, 2002
This Agreement relates to the following Funds of the Trust:
Maximum Operating
Expense Limit
Equity Fund - Class A 1.30%
Equity Fund - Class B 2.43%
Equity Fund - Class C 2.51%
|
SCHEDULE A
OPERATING EXPENSE LIMITS
AMENDED OCTOBER 6, 2003
This Agreement relates to the following Fund of the Trust and will continue in effect until October 6, 2005:
Maximum Operating
Expense Limit
Large Cap Growth Fund - Class A 1.30%
Large Cap Growth Fund - Class B 2.25%
Large Cap Growth Fund - Class C 2.25%
|
SCHEDULE A
OPERATING EXPENSE LIMITS
AMENDED NOVEMBER 9, 2004
This Agreement relates to the following Fund of the Trust and will continue in effect until October 6, 2005 for Class A, Class B and Class C shares and until November 9, 2005 for Class I shares.
Maximum Operating
Expense Limit
Large Cap Growth Fund - Class A 1.30%
Large Cap Growth Fund - Class B 2.25%
Large Cap Growth Fund - Class C 2.25%
Large Cap Growth Fund - Class I 1.05%
|
SCHEDULE A
OPERATING EXPENSE LIMITS
AMENDED APRIL 1, 2005
This Agreement relates to the following Fund of the Trust and will continue in effect until March 31, 2006.
Maximum Operating
Expense Limit
Large Cap Growth Fund - Class A 1.30%
Large Cap Growth Fund - Class B 2.25%
Large Cap Growth Fund - Class C 2.25%
Large Cap Growth Fund - Class I 1.05%
|
SCHEDULE A
OPERATING EXPENSE LIMITS
AMENDED APRIL 1, 2006
This Agreement relates to the following Fund of the Trust and will continue in effect until March 31, 2007.
Maximum Operating
Expense Limit
Large Cap Growth Fund - Class A 1.30%
Large Cap Growth Fund - Class B 2.25%
Large Cap Growth Fund - Class C 2.25%
Large Cap Growth Fund - Class I 1.05%
|
SCHEDULE A
OPERATING EXPENSE LIMITS
AMENDED JANUARY 1, 2007
This Agreement relates to the following Funds of the Trust and will continue in effect until January 1, 2008.
--------------------------------------------------------------------------------
FUND MAXIMUM OPERATING EXPENSE LIMIT
--------------------------------------------------------------------------------
LARGE CAP GROWTH FUND 1.25% for Class A shares
--------------------------------------------------------------------------------
2.00% for Class B shares
--------------------------------------------------------------------------------
2.00% for Class C shares
--------------------------------------------------------------------------------
1.00% for Class Y shares
--------------------------------------------------------------------------------
MID CAP GROWTH FUND 1.50% for Class A shares
--------------------------------------------------------------------------------
2.25% for Class B shares
--------------------------------------------------------------------------------
2.25% for Class C shares
--------------------------------------------------------------------------------
LARGE CAP CORE EQUITY FUND 1.15% for Class A shares
--------------------------------------------------------------------------------
1.90% for Class C shares
--------------------------------------------------------------------------------
SMALL CAP GROWTH FUND 1.70% for Class A shares
--------------------------------------------------------------------------------
2.45% for Class B shares
--------------------------------------------------------------------------------
2.45% for Class C shares
--------------------------------------------------------------------------------
1.30% for Class Y shares
--------------------------------------------------------------------------------
MICRO CAP GROWTH FUND 1.95% for Class A shares
--------------------------------------------------------------------------------
2.70% for Class C shares
--------------------------------------------------------------------------------
1.70% for Class Y shares
--------------------------------------------------------------------------------
LARGE CAP VALUE FUND 1.35% for Class A shares
--------------------------------------------------------------------------------
2.10% for Class C shares
--------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND 1.55% for Class A shares
--------------------------------------------------------------------------------
2.30% for Class B shares
--------------------------------------------------------------------------------
2.30% for Class C shares
--------------------------------------------------------------------------------
DIVERSIFIED SMALL CAP GROWTH FUND 1.40% for Class A shares
--------------------------------------------------------------------------------
1.15% for Class Y shares
--------------------------------------------------------------------------------
|
SCHEDULE A
OPERATING EXPENSE LIMITS
AMENDED AUGUST 1, 2007
------------------------------------------------------------------------------------------------
FUND LENGTH/TYPE OF MAXIMUM OPERATING EXPENSE LIMIT
LIMITATION
------------------------------------------------------------------------------------------------
LARGE CAP GROWTH FUND Contractual waiver 1.25% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.00% for Class B shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.00% for Class C shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 1.00% for Class Y shares
through 3/31/2008
------------------------------------------------------------------------------------------------
MID CAP GROWTH FUND Contractual waiver 1.50% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.25% for Class B shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.25% for Class C shares
through 3/31/2008
------------------------------------------------------------------------------------------------
LARGE CAP CORE EQUITY FUND Contractual waiver 1.15% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 1.90% for Class C shares
through 3/31/2008
------------------------------------------------------------------------------------------------
SMALL CAP GROWTH FUND Contractual waiver 1.70% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.45% for Class B shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.45% for Class C shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 1.30% for Class Y shares
through 3/31/2008
------------------------------------------------------------------------------------------------
MICRO CAP GROWTH FUND Contractual waiver 1.95% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.70% for Class C shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 1.70% for Class Y shares
through 3/31/2008
------------------------------------------------------------------------------------------------
LARGE CAP VALUE FUND Contractual waiver 1.35% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.10% for Class C shares
through 3/31/2008
------------------------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND Contractual waiver 1.55% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
|
------------------------------------------------------------------------------------------------
Contractual waiver 2.30% for Class B shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.30% for Class C shares
through 3/31/2008
------------------------------------------------------------------------------------------------
DIVERSIFIED SMALL CAP GROWTH FUND Contractual waiver 1.40% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 1.15% for Class Y shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.15% for Class C shares
through 8/1/2008
------------------------------------------------------------------------------------------------
|
SCHEDULE A
OPERATING EXPENSE LIMITS
AMENDED NOVEMBER 16, 2007
------------------------------------------------------------------------------------------------
FUND LENGTH/TYPE OF MAXIMUM OPERATING EXPENSE LIMIT
LIMITATION
------------------------------------------------------------------------------------------------
LARGE CAP GROWTH FUND Contractual waiver 1.25% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.00% for Class B shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.00% for Class C shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 1.00% for Class Y shares
through 3/31/2008
------------------------------------------------------------------------------------------------
MID CAP GROWTH FUND Contractual waiver 1.50% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.25% for Class B shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.25% for Class C shares
through 3/31/2008
------------------------------------------------------------------------------------------------
LARGE CAP CORE EQUITY FUND Contractual waiver 1.15% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 1.90% for Class C shares
through 3/31/2008
------------------------------------------------------------------------------------------------
SMALL CAP GROWTH FUND Contractual waiver 1.70% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.45% for Class B shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.45% for Class C shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 1.30% for Class Y shares
through 3/31/2008
------------------------------------------------------------------------------------------------
MICRO CAP GROWTH FUND Contractual waiver 1.58% for Class A shares
through 11/16/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.33% for Class C shares
through 11/16/2008
------------------------------------------------------------------------------------------------
Contractual waiver 1.33% for Class Y shares
through 11/16/2008
------------------------------------------------------------------------------------------------
LARGE CAP VALUE FUND Contractual waiver 1.35% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.10% for Class C shares
through 3/31/2008
------------------------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND Contractual waiver 1.55% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
|
------------------------------------------------------------------------------------------------
Contractual waiver 2.30% for Class B shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.30% for Class C shares
through 3/31/2008
------------------------------------------------------------------------------------------------
DIVERSIFIED SMALL CAP GROWTH FUND Contractual waiver 1.40% for Class A shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 1.15% for Class Y shares
through 3/31/2008
------------------------------------------------------------------------------------------------
Contractual waiver 2.15% for Class C shares
through 8/1/2008
------------------------------------------------------------------------------------------------
|
SCHEDULE A
OPERATING EXPENSE LIMITS
AMENDED APRIL 1, 2008
------------------------------------------------------------------------------------------------
FUND LENGTH/TYPE OF MAXIMUM OPERATING EXPENSE LIMIT
LIMITATION
------------------------------------------------------------------------------------------------
LARGE CAP GROWTH FUND Contractual waiver 1.25% for Class A shares
through 7/31/2009
------------------------------------------------------------------------------------------------
Contractual waiver 2.00% for Class B shares
through 7/31/2009
------------------------------------------------------------------------------------------------
Contractual waiver 2.00% for Class C shares
through 7/31/2009
------------------------------------------------------------------------------------------------
Contractual waiver 0.99% for Class Y shares
through 7/31/2009
------------------------------------------------------------------------------------------------
MID CAP GROWTH FUND Contractual waiver 1.50% for Class A shares
through 7/31/2009
------------------------------------------------------------------------------------------------
Contractual waiver 2.25% for Class B shares
through 7/31/2009
------------------------------------------------------------------------------------------------
Contractual waiver 2.25% for Class C shares
through 7/31/2009
------------------------------------------------------------------------------------------------
LARGE CAP CORE EQUITY FUND Contractual waiver 1.15% for Class A shares
through 7/31/2009
------------------------------------------------------------------------------------------------
Contractual waiver 1.90% for Class C shares
through 7/31/2009
------------------------------------------------------------------------------------------------
MICRO CAP GROWTH FUND Contractual waiver 1.58% for Class A shares
through 3/31/2009
------------------------------------------------------------------------------------------------
Contractual waiver 2.33% for Class C shares
through 3/31/2009
------------------------------------------------------------------------------------------------
Contractual waiver 1.33% for Class Y shares
through 3/31/2009
------------------------------------------------------------------------------------------------
LARGE CAP VALUE FUND Contractual waiver 1.35% for Class A shares
through 7/31/2009
------------------------------------------------------------------------------------------------
Contractual waiver 2.10% for Class C shares
through 7/31/2009
------------------------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND Contractual waiver 1.55% for Class A shares
through 7/31/2009
------------------------------------------------------------------------------------------------
Contractual waiver 2.30% for Class B shares
through 7/31/2009
------------------------------------------------------------------------------------------------
Contractual waiver 2.30% for Class C shares
through 7/31/2009
------------------------------------------------------------------------------------------------
DIVERSIFIED SMALL CAP GROWTH FUND Contractual waiver 1.40% for Class A shares
through 7/31/2009
------------------------------------------------------------------------------------------------
Contractual waiver 1.15% for Class Y shares
through 7/31/2009
------------------------------------------------------------------------------------------------
Contractual waiver 2.15% for Class C shares
through 7/31/2009
------------------------------------------------------------------------------------------------
|
COMPLIANCE SERVICES AGREEMENT
AGREEMENT dated as of October 5, 2004, amended January 1, 2007, among Touchstone Strategic Trust, Touchstone Investment Trust, Touchstone Tax-Free Trust, each a Massachusetts business trust, and Touchstone Funds Group Trust, a Delaware business Trust, (each a "Trust", and collectively, the "Trusts") and JP Morgan Chase Bank, N.A. (f/k/a Integrated Investment Services, Inc.) ("JPMorgan"), having its principal place of business in Ohio. This Agreement has been amended as of January 1, 2008 to (i) reflect the acquisition of Integrated Investment Services, Inc. by JPMorgan, and (ii) add Touchstone Variable Series Trust, a Massachusetts business trust, and Touchstone Institutional Funds Trust, a Delaware business Trust, as named parties to the Agreement.
WHEREAS, the Trusts are each management investment companies registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, shares of beneficial interest in the Trusts are divided into separate series (each, along with any series which may in the future be established, a "Fund," collectively, the "Funds"); and
WHEREAS, the Trusts wish to employ JPMorgan to provide certain compliance services on behalf of the Trusts; and
WHEREAS, JPMorgan wishes to provide such services to the Trusts under the conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained in this Agreement, the Trusts and JPMorgan agree as follows:
1. APPOINTMENT
The Trusts hereby employ JPMorgan to perform those compliance services described in this Agreement and the Exhibits attached hereto for the Trusts. JPMorgan shall act under such appointment and perform the obligations thereof in accordance with the Trusts' current registration statements and as required by applicable federal laws and regulations upon the terms and conditions hereinafter set forth. The appointment shall begin at a time mutually agreed upon by the parties.
2. COMPLIANCE SERVICES
Subject to the direction and control of the Trustees of the Trusts, JPMorgan shall perform the compliance services for the Trusts detailed in Exhibits A-B. JPMorgan shall perform such other services for the Trusts and the Funds that are mutually agreed upon by the parties from time to time, for which the Trusts will pay JPMorgan the amounts agreed upon between them.
3. ASSUMPTIONS
The Trusts are ultimately responsible for each Fund's compliance program and its compliance with applicable federal securities laws, including Rule 38a-1 under the 1940 Act. In addition, the management of each Fund and the management of the Funds' service providers are responsible for implementation and execution of their compliance programs.
4. CONFIDENTIALITY
A. Without the prior consent of the other party, no party shall disclose Confidential Information (as defined below) of any other party received in connection with the services provided under this Agreement. The receiving party shall use the same degree of care as it uses to protect its own confidential information of like nature, but no less than a reasonable degree of care, to maintain in confidence the confidential information of the disclosing party. The foregoing provisions shall not apply to any information that (i) is, at the time of disclosure, or thereafter becomes, part of the public domain through a source other than the receiving party, (ii) is subsequently learned from a third party that, to the knowledge of the receiving party, is not under an obligation of confidentiality to the disclosing party, (iii) was known to the receiving party at the time of disclosure, or (iv) is generated independently by the receiving party, or (v) is disclosed pursuant to applicable law, subpoena, applicable professional standards or other process.
B. For the purpose of this Section 4, Confidential Information shall mean Technical Elements (as defined below), or any information identified by either party as "Confidential" and/or "Proprietary" or which, under all of the circumstances, ought reasonably to be treated as confidential and/or proprietary. JPMorgan retains the right to use its knowledge, experience, and know-how, including processes, ideas, concepts and techniques developed in the course of performing the services.
C. In connection with performing its services under this Agreement, JPMorgan may use certain data, modules, components, designs, utilities, subsets, objects, program listings, tools, models, methodologies, programs, systems, analysis frameworks, leading practices, data bases, screen formats, report formats, interactive design technologies, documentation manuals and specifications ("Technical Elements"). Certain Technical Elements were owned or developed by JPMorgan prior to, or independently from, its engagement hereunder and are the sole and exclusive property of JPMorgan and JPMorgan retains all rights thereto; and certain other Technical Elements consist of third party works and products which JPMorgan has acquired the right to use. The Trusts shall have no rights in the Technical Elements. The Trusts each agree to treat all Technical Elements as Confidential Information.
5. SPECIAL SERVICES AND REPORTS
JPMorgan may provide special services and reports as may be reasonably requested by a Trust, which may result in an additional charge, the amount of which shall be mutually agreed upon by the parties.
6. SUBCONTRACTING
JPMorgan may, at its expense, and, upon prior written approval from a Trust, subcontract with any entity or person concerning the provision of the services contemplated hereunder; provided, however, that JPMorgan shall not be relieved of any of its obligations under this Agreement by the appointment of such subcontractor and provided further, that JPMorgan shall be responsible for all acts of such subcontractor as if such acts were its own.
7. COMPENSATION
For performing its services under this Agreement, the Trusts shall pay JPMorgan a fee in accordance with Exhibit D attached hereto.
8. EXPENSES
JPMorgan shall each furnish, at its expense and without cost to the Trusts, the services of its personnel to the extent that such services are required to carry out its obligations under this Agreement. All costs and expenses not expressly assumed by JPMorgan under this Paragraph shall be paid by the Trusts. A list of typical expenses is set forth in Exhibit C; this list is not all inclusive.
9. REFERENCES TO JPMORGAN OR THE TRUSTS
A. Neither the Trusts nor their agents shall circulate any printed matter which contains any reference to JPMorgan or use JPMorgan's name, or any of its trademarks, service marks or logos, including "i-Compliance", without the prior written approval of JPMorgan. The Trusts will submit printed matter requiring approval to JPMorgan in draft form, allowing sufficient time for review by JPMorgan and its counsel prior to any deadline for printing.
B. JPMorgan shall not circulate any printed matter that contains any reference to a Trust without the prior written approval of the Trust, excepting solely such printed matter as merely identifies the Trust as a client of JPMorgan. JPMorgan will submit printed matter requiring approval to the Trusts in draft form, allowing sufficient time for review by the Trust and its counsel prior to any deadline for printing.
10. INDEMNIFICATION OF JPMORGAN
A. JPMorgan may rely on information reasonably believed by it to be accurate and reliable. Except as may otherwise be required by the 1940 Act and the rules thereunder, neither JPMorgan nor its directors, officers, employees, shareholders, agents, control persons or affiliates of any thereof shall be subject to any liability for, or any damages, including consequential damages, expenses or losses incurred by a Trust in connection with, any error of judgment, mistake of law, any act or omission connected with or arising out of any services rendered under or payments made pursuant to this Agreement or any other matter to which this Agreement relates, except by reason of willful misfeasance, bad faith or gross negligence on the part of any such persons in the performance of the duties of JPMorgan under this Agreement or by reason of reckless disregard by any of such persons of the obligations and duties of JPMorgan under this Agreement. JPMorgan may apply to the Trusts at any time for instructions and may consult counsel for a Trust, or its own counsel, and with accountants and other experts with respect to any matter arising in connection with its duties hereunder, and JPMorgan shall not be liable or accountable for any action taken or omitted by it in good faith in accordance with such instruction, or with the opinion of such counsel, accountants, or other experts. JPMorgan shall not be held to have notice of any change of authority of any officers, employees, or agents of the Trusts until receipt of written notice thereof have been received by JPMorgan from the Trusts.
B. Any person, even though also a director, officer, employee, shareholder or agent of JPMorgan, or any of its affiliates, who may be or become an officer, trustee, employee or agent of a Trust, shall be deemed, when rendering services to a Trust or acting on any business of a Trust, to be rendering such services to or acting solely as an officer, trustee, employee or agent of a Trust and not as a director, officer, employee, shareholder or agent of or one under the control or direction of JPMorgan or any of its affiliates, even though paid by one of these entities.
C. Notwithstanding any other provision of this Agreement, each Trust
shall indemnify and hold harmless JPMorgan, each of its directors, officers,
employees, shareholders, agents, control persons and affiliates of any thereof
from and against any and all losses, damages, claims, suits, actions, demands,
expenses and liabilities (whether with or without basis in fact or law),
including legal fees and expenses and investigation expenses, of any and every
nature which JPMorgan may sustain or incur or which may be asserted against
JPMorgan by any person by reason of, or as a result of: (i) any action taken or
omitted to be taken by JPMorgan in good faith in reliance upon any oral or
written instructions of an authorized person of a Trust or upon the opinion of
legal counsel for a Trust or its own counsel; (ii) any action taken or omitted
to be taken by JPMorgan in connection with its appointment in good faith in
reliance upon any law, act, regulation or interpretation of the same even though
the same may thereafter have been altered, changed, amended or repealed; or
(iii) any action taken or omitted to be taken by JPMorgan on its own initiative,
in good faith and in accordance with the standard of care set forth in this
Agreement. However, indemnification under this subparagraph shall not apply to
actions or omissions of either JPMorgan or its directors, officers, employees,
shareholders, agents, control persons or affiliates in cases of its or their own
gross negligence, willful misconduct, bad faith, or reckless disregard of its or
their own duties hereunder.
D. Notwithstanding anything to the contrary in this Agreement, in no event shall JPMorgan be liable to a Trust or any third party for any special, consequential, punitive or incidental damages, or any other damages not measured by the prevailing party's actual damages even if advised of the possibility of such damages.
11. TERMINATION
A. With respect to the Compliance Program Administration Services, described in Exhibit B, the provisions of this Agreement shall be effective on the date first above written, shall continue in effect for a period of one year ("Initial Term") from that date and shall continue in force for successive one year terms thereafter ("Renewal Term"), unless otherwise terminated as provided herein. With respect to the Compliance Program Development & Implementation Services, described in Exhibit A, the provisions of this Agreement shall be effective on the date first above written and shall terminate upon completion of the services, as mutually agreed upon by the parties.
B. Any party may terminate this Agreement at the end of the Initial Term, or at the end of any subsequent Renewal Term, by giving the other parties at least one hundred eighty (180) days' prior written notice of such termination specifying the date fixed therefore. In the event this Agreement is terminated by a Trust prior to the end of the Initial Term or any subsequent Renewal Term, the Trust shall make a one-time cash payment to JPMorgan in consideration of services provided under this Agreement, and not as a penalty, equal to the remaining balance of the fees payable to JPMorgan under this Agreement through the end of the Initial Term or Renewal Term, as applicable. The Trusts shall likewise reimburse JPMorgan for any out-of-pocket expenses and disbursements ("out-of-pocket expenses") reasonably incurred by JPMorgan in connection with the services provided under this Agreement within 30 days of notification to the Trusts of such out-of-pocket expenses regardless of whether such out-of-pocket expenses were incurred before or after the termination of this Agreement.
Notwithstanding the foregoing, following any such termination, in the event that JPMorgan in fact continues to perform any one or more of the services contemplated by this Agreement (or any Schedule or Exhibit hereto) with the consent of the Trusts, the provisions of this Agreement, including without limitation the provisions dealing with compensation and indemnification, shall continue in full force and effect. Fees and out-of-pocket expenses incurred by JPMorgan but unpaid by the Trusts upon such termination shall be immediately due and payable upon and notwithstanding such termination.
C. If a party materially fails to perform its duties and obligations hereunder (a "Defaulting Party") resulting in a material loss to another party or parties, such other party or parties (the "Non-Defaulting Party") may give written notice thereof to the Defaulting Party, which such notice shall set forth with sufficient detail the nature of the breach. The Defaulting Party shall have ninety (90) days from its receipt of notice to cure the breach. If such material breach shall not have been remedied to commercially reasonable operating standards, the Non-Defaulting Party may terminate this Agreement by giving sixty (60) days' written notice of such termination to the Defaulting Party. If JPMorgan is the Non-Defaulting Party, its termination of this Agreement shall not constitute a waiver of any rights or remedies with respect to services it performed prior to such termination, or the right of JPMorgan to receive such compensation as may be due as of the date of termination or to be reimbursed for all reasonable out-of-pocket expenses. In all cases, termination by the Non-Defaulting Party shall not constitute a waiver by the Non-Defaulting Party of any other rights it might have under this Agreement or otherwise against a Defaulting Party.
D. In the case of the following transactions, not in the ordinary course of business, namely, the merger of a Trust, or a Fund, into or the consolidation of a Trust, or a Fund, with another investment company, the sale by a Trust, or a Fund, of all, or substantially all, of its assets to another investment company, or the liquidation or dissolution of a Trust, or a Fund, and distribution of its assets, or any similar transaction or any other form of business transaction involving a Trust or a Fund, this Agreement will terminate with respect to the applicable Trust or Trusts, or Fund or Funds, and JPMorgan shall be released from any and all obligations hereunder upon the payment of the fees, disbursements and expenses due to JPMorgan through the end of the then current term of this Agreement. The parties acknowledge and agree that the damages provision set forth above in paragraph B shall be applicable in those instances in which JPMorgan is not retained to provide compliance services subsequent to the transactions listed above.
E. JPMorgan will be entitled to collect from the Trusts all reasonable expenses incurred in conjunction with termination of this Agreement, including but not limited to out-of-pocket expenses, employee time, system fees and fees charged by third parties with whom JPMorgan has contracted.
12. SERVICES FOR OTHERS
Nothing in this Agreement shall prevent JPMorgan or any of its affiliates (as defined in the 1940 Act) from providing services for any other person, firm or corporation (including other investment companies); provided, however, that JPMorgan expressly represents that it will undertake no activities which, in its judgment, will adversely affect the performance of its obligations to the Trusts under this Agreement.
13. COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS
The parties hereto acknowledge and agree that nothing contained herein shall be construed to require JPMorgan to perform any services for the Trusts which services could cause JPMorgan to be deemed an "investment adviser" of a Trust within the meaning of Section 2(a)(20) of the 1940 Act or to supersede or contravene a Trust's prospectus or statement of additional information or any provisions of the 1940 Act and the rules thereunder. Except as otherwise provided in this Agreement, each Trust assumes full responsibility for complying with all applicable requirements of the 1940 Act, the Securities Act of 1933, as amended, and any other laws, rules and regulations of governmental authorities having jurisdiction.
14. LIMITATION OF LIABILITY.
A. It is expressly agreed that the obligations of the Trusts hereunder shall not be binding upon any of the Trustees, shareholders, nominees, officers, agents or employees of the Trusts, personally, but bind only the trust property of the Trusts. The execution and delivery of this Agreement have been authorized by the Trustees of the Trusts and signed by an officer of the Trusts, acting as such, and neither such authorization by such Trustees nor such execution and delivery by such officer shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the trust property of the Trusts.
B. Standard of Care; Uncontrollable Events; Limitation of Liability. JPMorgan shall use reasonable professional diligence to ensure the accuracy of all services performed under this Agreement, but shall not be liable to the Trusts for any action taken or omitted by JPMorgan in the absence of bad faith, willful misfeasance, negligence or reckless disregard by JPMorgan of its obligations and duties. The duties of JPMorgan shall be confined to those expressly set forth herein, and no implied duties are assumed by or may be asserted against JPMorgan hereunder.
JPMorgan shall provide the Trusts, at such times as each may reasonably require, copies of reports rendered by independent public accountants on the internal controls and procedures of JPMorgan relating to the services provided by JPMorgan under this Agreement.
C. Representations and Warranties of the Trusts. Each Trust represents and warrants to JPMorgan that:
(i) It is a Trust duly incorporated and validly existing under the laws of the jurisdiction of its formation, and has full capacity and authority to enter into this agreement and to carry out its obligations hereunder;
(ii) It has all necessary authorizations, licenses and permits to carry out its business as currently conducted;
(iii) It has been in, and shall continue to be in compliance in all material respects with all laws and regulations applicable to its business and operations;
(iv) This Agreement has been duly authorized by the Trust and, when executed and delivered by the Trust, will constitute a legal, valid and binding obligation of the Trust, enforceable against the Trust in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting the right and remedies of creditors and secured parties.
15. SEVERABILITY.
In the event any provision of this Agreement is determined to be void or unenforceable, such determination shall not affect the remainder of this Agreement, which shall continue to be in force.
16. QUESTIONS OF INTERPRETATION.
This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. Any question of interpretation of any term or provision of this Agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act shall be resolved by reference to such term or provision of the 1940 Act and to interpretations thereof, if any, by the United States Courts or in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission (the "SEC") issued pursuant to said 1940 Act. In addition, where the effect of a requirement of the 1940 Act, reflected in any provision of this Agreement, is revised by rule, regulation or order of the SEC, such provision shall be deemed to incorporate the effect of such rule, regulation or order.
17. CONFIDENTIALITY
A. All parties hereto agree that any nonpublic information obtained hereunder concerning another party is confidential and may not be disclosed without the consent of the other party, except as may be required by applicable law or at the request of a governmental agency. The parties further agree that a breach of this provision would irreparably damage the other party and accordingly agree that each of them is entitled, in addition to all other remedies at law or in equity to an injunction or injunctions without bond or other security to prevent breaches of this provision.
B. All parties hereto agree that nonpublic personal shareholder information shall remain the sole property of the Trusts. Such information shall not be disclosed or used for any purpose except in connection with the performance of the duties and responsibilities described herein or as required or permitted by law. The provisions of this Section shall survive the termination of this Agreement. The parties agree to comply with any and all regulations promulgated by the SEC or other applicable laws regarding the confidentiality of shareholder information.
18. NOTICES.
All notices required or permitted under this Agreement shall be in writing (including telex and telegraphic communication) and shall be (as elected by the person giving such notice) hand delivered by messenger or courier service, telecommunicated, or mailed (airmail if international) by registered or certified mail (postage prepaid), return receipt requested, addressed to:
To the Trusts: Touchstone Investments To JPMorgan: JPMorgan Chase Bank, N.A.
303 Broadway, Ste. 1100 303 Broadway, Ste 900
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
Attn: William A. Dent Attn: Roy E. Rogers
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or to such other address as any party may designate by notice complying with the terms of this Paragraph. Each such notice shall be deemed delivered (a) on the date delivered if by personal delivery; (b) on the date telecommunicated if by telegraph; (c) on the date of transmission with confirmed answer back if by telex, telefax or other telegraphic method or e-mail; and (d) on the date upon which the return receipt is signed or delivery is refused or the notice is designated by the postal authorities as not deliverable, as the case may be, if mailed.
19. AMENDMENT.
This Agreement may not be amended or modified except by a written agreement executed by all affected parties.
20. BINDING EFFECT.
Each of the undersigned expressly warrants and represents that he or she has the full power and authority to sign this Agreement on behalf of the party indicated, and that his or her signature will operate to bind the party indicated to the foregoing terms.
21. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
22. FORCE MAJEURE.
JPMorgan does not assume responsibility hereunder, and shall not be liable, for any damage, loss of data, interruption, delay or any loss whatsoever caused by events beyond its control, including and without limitation, acts of God, interruption or failure of power or other utility, transportation, mail, or communication services, equipment failure, acts of civil or military authority, sabotages, war, insurrection, riots, national emergencies, explosion, flood, accident, earthquake or other catastrophe, fire, natural disasters, strike or other labor problems, legal action, present or future law, governmental order or decree, rule or regulation, or shortages of suitable parts, materials, labor or transportation.
23. MISCELLANEOUS.
The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions hereof or otherwise affect their construction or effect.
Each party agrees to perform such further acts and execute such further documents as are necessary to effectuate the purposes hereof.
THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE INVESTMENT TRUST
TOUCHSTONE TAX-FREE TRUST
TOUCHSTONE FUNDS GROUP TRUST
TOUCHSTONE VARIABLE SERIES TRUST
TOUCHSTONE INSTITUTIONAL FUNDS TRUST
JPMORGAN CHASE BANK, N.A.
EXHIBIT A
COMPLIANCE PROGRAM DEVELOPMENT & IMPLEMENTATION SERVICES
Program development and implementation services are offered through JPMorgan . JPMorgan will undertake a project to develop and assist in implementing a compliance program for JPMorgan on behalf of the Funds. The project activities will include:
o Produce policy and procedure summaries for board review;
o Work with the Chief Compliance Officer (the "CCO") to establish the recordkeeping policies, procedures and program;
o Assist the CCO in developing the day-to-day monitoring system of the Compliance Program;
o Work with the CCO to establish standards for board reporting by the CCO.
The Compliance Program will include the following:
o Fund policies and procedures.
o Assembled reviews and documentation as requested by the board to enable them to make findings required by Rule 38a-1.
o Establishment of a Compliance Program monitoring system.
o Development of standards for service provider reports to the CCO.
o Implementation of the Compliance Program.
o Development of standard board reporting by the CCO.
EXHIBIT B
COMPLIANCE PROGRAM ADMINISTRATION SERVICES
PROJECT IDENTIFICATION & SPECIFIC DESCRIPTION OF SERVICES
JPMorgan provides program administration services. JPMorgan will provide administrative support services to the Funds' Compliance Program and Chief Compliance Officer as described below.
o Assist with the annual review of the Funds' Compliance Program;
o Facilitate the annual review of policies and procedures of the Funds' service providers;
o Assist in arranging for or conducting the annual review of program controls and procedures;
o Facilitate the development, monitoring and updating of policies and procedures;
o Provide support with review and evaluation of material compliance issues;
o Assist with the day-to-day monitoring, data collection, recordkeeping and assimilation of management reports provided by the Funds' service providers.
EXHIBIT C
EXAMPLES OF TRUST EXPENSES
Such expenses may include, but are not limited to, the costs and expenses incurred in connection with the services provided under this Agreement of:
1. Officers and employees of JPMorgan in attending meetings of the Board of Trustees of the Trust or otherwise visiting the offices of the Trusts;
2. All postage, envelopes, checks, drafts, continuous forms, bank charges, reports, communications, statements and other materials;
3. File interface expenses (e.g., FundSmith, SunGard, Expeditor and other distribution partners);
4. Telephone, telegraph and remote transmission lines;
5. Necessary outside record storage, record management and maintenance, record destruction, document shredding, media for storage of records (e.g., microfilm, microfiche, computer tapes);
6. Charges imposed by third-party service or software providers for items such as, but not limited to, regulatory updates; and
7. Any and all assessments, taxes or levies assessed on JPMorgan for services provided under this Agreement.
EXHIBIT D
FEE ARRANGEMENTS
In addition to the fees listed below, actual expenses will be billed as incurred. Should the scope, type or extent of our Services change significantly, we reserve the right to adjust our fees accordingly.
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE INVESTMENT TRUST
TOUCHSTONE TAX-FREE TRUST
TOUCHSTONE FUNDS GROUP TRUST
TOUCHSTONE VARIABLE SERIES TRUST
TOUCHSTONE INSTITUTIONAL FUNDS TRUST
Compliance Program Development and Implementation $15,000 one-time fee
(fee is waived for Touchstone
Institutional Funds Trust)
Fund Compliance Program Administration $40,000 aggregate annual fee
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the references to our firm under the captions "Financial Highlights" in each Prospectus and "Independent Registered Public Accounting Firm" and "Financial Statements" in the Statement of Additional Information and to the incorporation by reference of our report dated May 15, 2008 on the financial statements and financial highlights of the Touchstone Strategic Trust included in the Annual Report to Shareholders for the fiscal year ended March 31, 2008, in Post-Effective Amendment Number 68 to the Registration Statement (Form N-1A, No. 333-134486), filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP Cincinnati, Ohio July 28, 2008 |
WESTFIELD CAPITAL MANAGEMENT COMPANY
CODE OF ETHICS
MAY 1, 2008
SECTION 1. THE BASICS
OVERVIEW
In accordance with Rule 204A-1 of the Investment Advisers Act of 1940 and with Rule 17j-1 of the Investment Company Act of 1940, as amended, this Code of Ethics ("Code") sets forth the specialized rules for business conduct and guidelines for the personal activities that generally are required of all personnel employed by Westfield Capital Management Company ("WCM").
The Code serves many purposes. Among them are to:
1. educate personnel of WCM's expectations and the laws governing their conduct;
2. remind personnel that they are in a position of trust and must act with complete propriety at all times;
3. protect the reputation of WCM;
4. guard against violations of the securities laws;
5. protect WCM's clients by deterring misconduct; and
6. establish procedures for employees to follow so WCM can assess whether they are complying with our ethical principles.
The Chief Compliance Officer ("CCO"), or a designee, has the authority to grant written waivers of the provisions of this Code in appropriate instances. However, WCM expects that waivers, if any, will be granted only in rare instances and will be documented by Compliance for WCM's files. Typically, no waivers shall be granted on any provisions of the Code that are mandated by the rules and regulations of the Securities and Exchange Commission ("SEC").
PERSONS COVERED BY THE CODE
The Code applies to all personnel, including internal directors and officers, all of whom WCM deems to be "Access Persons." Certain provisions of the Code also apply to the members of an Access Person's family/household.
An employee typically is deemed an Access Person the day he or she begins employment at WCM. From time to time, the Compliance Department may designate additional persons, such as independent contractors, consultants, and interns, as Access Persons subject to the Code. Access Persons are expected to familiarize themselves with the information in the Code. Any questions regarding the Code should be directed to the CCO or Compliance Officer ("CO") at WCM.
While all provisions of the Code apply to Access Persons, WCM does designate a sub-set of Access Persons as "Investment Persons." Generally, Investment Persons make investment decisions for clients, provide information or advice to WCM's Investment Committee ("IC"), help execute and/or implement a the IC's decision, or have access to investment decisions relating to client accounts. Investment Persons may be required to provide additional information for certain personal activities. Typically, members of WCM's Investment, Marketing, Trading, and Compliance departments are deemed to be Investment Persons. However, Compliance also may designate, on occasion, certain persons as Investment Persons. Access Persons will be informed by Compliance whether they have been designated as an Investment Person. For the purposes of this Code, references to Access Persons include the Investment Persons sub-set.
WCM Board Members who are not employees of WCM are deemed "Non-interested Board Members". Should any non-interested Board member have access, come into possession of or obtain non-public information about client transactions, portfolio holdings or WCM's investment recommendations in the normal course of business, he or she will be considered an Access Person and be subject to the reporting requirements noted in Section 3. Any non-interested Board member who seeks access to non-public information about client transactions, portfolio holdings or WCM's investment recommendations must obtain written pre-approval from Compliance.
GENERAL PRINCIPLES
WCM is a fiduciary for our investment advisory clients. Accordingly, WCM owes our clients the utmost duty of loyalty, good faith, and fair dealing. As an employee of WCM, you are obligated to uphold these important duties. These general principles govern all conduct, whether or not the conduct is covered by more specific provisions in the Code. All personnel must comply with the following principles at all times.
1. All personnel are to place the interests of WCM's clients first;
2. All personal securities transactions must be conducted in compliance with the Code and must avoid any actual or potential conflicts of interest or abuse of any employee's position of trust and responsibility;
3. All personnel must exercise independent, unbiased judgment in the investment decision-making process;
4. WCM personnel must not use for their own benefit (or the benefit of anyone other than WCM's clients) information about WCM's trading or recommendations for client accounts;
5. WCM personnel must not take advantage of their positions or of investment opportunities that would otherwise be available for WCM's clients;
6. All personnel must avoid the appearance that the firm, its personnel or others receive any improper benefit from information about client trading or accounts, or from our relationships with our clients or with the brokerage community;
7. All personnel must treat information concerning the identity of security holdings in WCM's clients accounts and the financial circumstances of WCM's clients with strict confidentiality;
8. All personnel must act with honesty, integrity and professionalism in all aspects of our business; and
9. All personnel must comply with the spirit and letter of the Code and the specific rules contained in the Code at all times.
STANDARDS OF BUSINESS CONDUCT
As part of WCM's fiduciary obligations to its clients, all personnel must comply with applicable laws, regulations, and WCM policies. All personnel must use care to not violate any law, regulation or internal policy. All personnel are responsible for knowing, understanding, and following the laws, regulations, and internal WCM policies.
In connection with the purchase or sale, directly or indirectly, of a security held or acquired by a client, WCM personnel are not permitted to:
1. Defraud any WCM client in any manner;
2. Mislead any client, including by making a statement that omits material facts;
3. Engage in any act, practice or course of conduct which operates or would operate as a fraud or deceit upon such client;
4. Engage in any manipulative practice with respect to such client; or
5. Engage in any manipulative practice with respect to securities, including price manipulation.
CONFLICTS OF INTEREST
As a fiduciary, WCM owes an affirmative duty of care, loyalty, honesty, and good faith to act in the best interests of its clients. WCM attempts to identify and avoid conflicts of interest with any WCM client and other WCM business relation. WCM personnel must avoid actual or potential conflicts of interest and must fully disclose to the CCO or CO any material facts concerning potential or actual conflicts of interest. Such actual or potential conflicts of interest include, but are not limited to, the following:
1. Conflicts Among Client Interests: All personnel are prohibited from inappropriately favoring the interests of one client over another that would constitute a breach of fiduciary duty. In the event that any personnel identifies an actual or potential conflict of interest, such personnel should consult with the CCO or CO concerning the potential or actual conflict of interest.
2. Competing with Client Trades: All personnel are prohibited from using knowledge about pending or currently considered securities transactions for clients to profit personally (directly or indirectly) as a result of such transactions. Personal securities transactions are addressed more specifically in Section 2 of this Code.
3. Disclosure of Personal Interests: Investment Personnel are prohibited from recommending, implementing, or considering any securities transaction for a client without having disclosed any material beneficial ownership, business or personal relationship, or other material interest in the issuer or its affiliates, to the CCO or to CO. If the CCO or CO deems the disclosed interest to present a material conflict, the Investment Person may not participate in any decision-making process regarding the securities of that issuer. Should the Investment Person be a research analyst, the CCO or the CO has full discretion to request that the issuer be assigned to another analyst. This provision applies in addition to the personal securities reporting requirements described in Section 3 of this Code.
4. Referrals/Brokerage: All personnel must act in the best interest of WCM's clients regarding execution and other costs paid by clients for brokerage services. All personnel must strictly adhere to WCM's policies and procedures regarding brokerage, including those on best execution, soft dollars, and directed brokerage. See WCM's policies on Soft Dollar Practices and Best Execution.
5. Vendors and Suppliers: All personnel must disclose to the CCO or to the CO any personal investments or other interests in vendors or suppliers with respect to which the person negotiates or makes decisions on behalf of the firm. If any employee has such an interest, the CCO or the CO may prohibit the person from negotiating or making decisions regarding WCM's business with those companies.
6. No Transactions with Clients: All personnel are prohibited from knowingly selling to, or purchasing from, a client any security or other property, except those securities issued by a publicly-traded client. Transactions in publicly-traded securities are also subject to the Personal Securities Transactions provisions and procedures set forth in Section 2 of this Code.
NON-PUBLIC INFORMATION
All personnel, including non-interested Board Members, must strictly adhere to the firm's Insider Trading Policy. All personnel are prohibited from trading, either personally or on behalf of others, while in possession of material, non-public information. Additionally, personnel are prohibited from communicating material non-public information to others in violation of the law. Non-public information includes the information to which you have access at WCM (i.e., client information, investment recommendations). Violations of the firm's Insider Trading Policy may result in penalties, including termination of employment, civil injunctions, permanent bars from employment in the securities industry, civil penalties up to three times the profits made or losses avoided, criminal fines, and jail sentences. Please see WCM's Insider Trading Policy for complete details.
SECTION 2. PERSONAL ACTIVITIES
A conflict of interest occurs when the personal interests of employees interfere or could potentially interfere with their responsibilities to WCM and its clients. In this section, you will find provisions that address those conflicts that can arise from personal activities.
PERSONAL TRADING ASSISTANT (PTA)
WCM utilizes an automated personal transactions system called Protegent Personal Trading Assistant ("PTA") to track and monitor Access Persons' personal transactions. Access Persons must submit preclearance requests and required reports and certifications through PTA. Compliance will assign to each Access Person a user id and a temporary password. It is important that Access Persons not share their user ids or passwords with anyone as they are responsible for all information created, modified, and deleted from the system. If you need specific instructions on using PTA, please contact Compliance.
PERSONAL SECURITIES TRANSACTIONS
The provisions provided in this section of the Code are applicable to Access Persons and to their family/household members. Access Persons and their family/household members are required to strictly adhere to the policies and procedures regarding personal securities transactions. Failure to abide by any of these provisions, without prior approval from the CCO, or a designee, may result in sanctions such as fines, disgorgement of profits, and termination of employment. See Section 4 of this Code for specific details on non-compliance with the Code.
1. SECURITIES COVERED
The requirements and restrictions discussed in this section of the Code apply to "Covered Securities," unless otherwise noted. Covered Securities typically means any stock, bond, option, futures contract, investment contract, or any other instrument that is considered a security under the Investment Advisers Act. The term is very broad and investment interests in limited partnerships, foreign unit trusts, mutual funds, private investments and private investment funds, hedge funds, investment clubs, Exchange Traded Funds ("ETFs"), and 529 plans.
For the purposes of this Code, certain securities are EXCLUDED from the definition of a covered security. They are:
a. Direct obligations of the Government of the United States;
b. Bankers' acceptances, bank certificates of deposits, commercial paper, and high-quality short term debt instruments, including repurchase agreements;
c. Shares issued by money market funds;
d. Shares issued by open-end mutual funds that are not sub-advised or advised by WCM or any of its affiliates;
e. Shares issued by unit investment trusts ("UITs") that are invested exclusively in one or more open-end mutual funds, none of which are sub-advised or advised by WCM or any of its affiliates;
2. ACCOUNTS COVERED
The Code governs any covered security in which an Access Person has any direct or indirect beneficial interest, including interest in a trust, partnership, or retirement plan. Keep in mind , however, that the Insider Trading Policy applies regardless of whether the account is covered or not.
3. DEFINITION OF BENEFICIAL INTEREST
Beneficial interest is defined under relevant securities laws as any person who directly or indirectly, through contract, arrangement, understanding, relationship or otherwise, has or shares direct or indirect pecuniary interest (i.e., the opportunity to share or profit, directly or indirectly, in any profit derived from a transaction) in securities. You are presumed to have beneficial interest in securities or accounts held by your spouse, minor children, and family members sharing your household. This includes adult child, grandchild, parent, stepparent, grandparent, sibling, or in-laws. However, your beneficial interest in securities and accounts may extend beyond members of your household.
4. REPORTING OF PERSONAL SECURITIES TRANSACTIONS
Access Persons must report their personal securities transactions on a quarterly basis. See Reporting Requirements in Section 3 of this Code for complete details.
5. PRECLEARANCE REQUIREMENT
Unless noted as an exemption, any transaction in which an Access Person or a member of the person's family/household has or acquires a beneficial interest must be precleared with the Compliance Department.
Preclearance requests for securities transactions must be submitted through PTA; verbal approvals are not permitted. Should an Access Person wish to make a personal securities transaction but does not have access to PTA, the person must contact Compliance for preclearance of the transaction. Compliance will enter the transaction into PTA, which will send an approval or denial, via email, to the requestor. It is the Access Person's responsibility to ensure that the shares requested, broker account, and security name on the email confirmation is accurate prior to his/her execution of the transaction.
APPROVALS ARE VALID ONLY FOR THE DAY THEY WERE GRANTED. Neither Access Persons nor members of the person's family/household may place an order for a securities transaction for which preclearance authorization is required without prior receipt of written authorization of the transaction. Compliance may revoke a preclearance any time after it is granted and before the transaction has been executed. Compliance also may deny or revoke preclearance for any reason, and is not required to give an explanation, especially when the reasons are confidential in nature.
6. TRANSACTIONAL RESTRICTIONS
Due to the nature of the markets, WCM understands that personal securities trades must be placed during business hours. WCM, however, strongly discourages frequent trading ("day trading"), which could have a negative impact on an Access Person's attention to responsibilities on behalf of the firm. Unless noted, Access Persons and their family/household members must abide by the following restrictions on personal trading activities.
a. NON-PUBLIC INFORMATION. Access Persons who possess material, non-public information regarding a security or the issuer of a security may not engage in any transaction of such security or related security.
b. MARKET MANIPULATION. Access Persons may not engage in any transactions intended to raise, lower, or maintain the price of any security or to create a false appearance of active trading.
c. MARKET TIMING AND EXCESSIVE TRADING. Access Persons must not engage in excessive trading or market timing activities with respect to any fund sub-advised or advised by WCM or any of its affiliates ("reportable funds"). When placing trades in any reportable fund, whether the trade is placed directly in your personal account, 401(k) account, deferred compensation account, account held with an intermediary or any other account, you must comply with the rules set forth in the fund's prospectus and SAI regarding the frequency of trades.
d. SHORT SELLING. Short selling occurs when an investor sells a security that is not owned in his or her account. Investors typically short a security when they believe the price of the security will fall. When an Access Person short sells a security in his/her own account, and the same security is owned in the client accounts, the transaction creates a conflict because the Access Person has entered into a transaction that contradicts WCM's position on such security. To avoid any conflicts that can arise from short selling, Access Persons are not permitted to short any security which is held in client accounts or enter into any personal security transaction that contradicts WCM's position on the same security.
o ETFs: Access Persons are prohibited from short selling shares of any ETF that holds significant positions in securities that are held in client accounts.
o Options: Access Persons are prohibited from purchasing put
options on any security that is held in client accounts. See
Section 6.i below for additional restrictions on options.
o Futures: Access Persons are prohibited from taking a short position in any futures contract where the reference obligation or underlying of which includes any security held in client accounts.
e. BLACKOUT PERIODS. In addition to the prohibition on trading that may create a risk of front-running, as set forth in Section 6.f immediately below, the following blackout periods apply to any transactions in the personal account of any Access Person or any accounts maintained for any members of the Access Persons' family or household:
o Securities Recommended to the Investment Committee: Access Persons may not purchase or sell a Covered Security (or equivalent security) for an account in which they have beneficial interest for a period of seven business days if that Covered Security (or equivalent security) has been recommended for action by a member of the Investment Committee. This prohibition shall apply for so long as the Covered Security (or equivalent security) is under consideration for recommendation to the Investment Committee and for seven business days thereafter. This restriction also applies to Covered Securities (or equivalent securities) recommended for purchase but have not been approved by the Investment Committee. Access Persons are required to wait until the blackout period is over before they can purchase such Covered Security (or equivalent security).
o All Other Securities Held by Client Accounts: Access Persons may not purchase or sell any Covered Security (or equivalent security) for an account in which they have beneficial interest for a period of seven business days before and after any client account has purchased or sold the same Covered Security (or equivalent security) across a product, limited partnership, or group of accounts.
For purposes of the Code, the blackout period is 15 business days (the day of the last client trade in the recommended security, plus seven business days before and seven business days after).
From time to time, an Investment Person who is responsible for making investment recommendations or decisions may discover that a security purchased for his or her own account has been under consideration for client accounts. In this situation, the Investment Person must put the clients' interests first, and promptly make an investment recommendation or decision in the clients' interests, rather than delaying the recommendation or decision for clients to avoid conflict with the blackout provisions of this Code. If an Access or Investment Person unintentionally purchases a Covered Security ahead of client accounts, Compliance will review the transaction and circumstances, and decide whether any action is necessary by the Access or Investment Person.
f. FRONT RUNNING. An Access Person should not place an order to enter into a personal security transaction when the Access Person knows, or has reason to believe, that the security or related security may in the near future be recommended for action or acted upon by the firm for any client account.
In addition to the prohibitions and restrictions set forth in
Section 6.e immediately above, no Access Person may (a) purchase any
Covered Security (or equivalent security) for his or her personal
account within seven business days before the purchase of the same
Covered Security (or equivalent security) for any WCM client; (b)
sell any Covered Security (or equivalent security) from his or her
personal account within seven business days before the sale of the
same Covered Security (or equivalent security) for any WCM client;
or (c) purchase any Covered Security (or equivalent security) for
his or her personal account within seven business days after the
sale of the same Covered Security (or equivalent security) for any
WCM client.
From time to time, an Investment Person who is responsible for making investment recommendations or decisions may discover that a security purchased for his or her own account has been under consideration for client accounts. In this situation, the Investment Person must put the clients' interests first, and promptly make an investment recommendation or decision in the clients' interests, rather than delaying the recommendation or decision for clients to avoid conflict with the blackout provisions of this Code. If an Access or Investment Person unintentionally purchases a Covered Security ahead of client accounts, Compliance will review the transaction and circumstances, and decide whether any action is necessary by the Access or Investment Person.
g. INITIAL PUBLIC OFFERINGS AND PRIVATE PLACEMENTS. Access Persons may not acquire beneficial ownership in any initial public offering or limited offering in a private placement transaction except with the specific, advance written approval of Compliance. Compliance will make a written record of any decision to approve any such transaction and the reasons supporting such reasons.
h. SHORT-TERM TRADING. Access Persons may not realize a profit from any transaction involving the purchase and sale, or sale and purchase, of the same security (or any closely related security, such as an option or a related convertible or exchangeable security) within any period of 30 calendar days. For purposes of this rule, transactions will be reviewed on a first-in-first-out basis.
i. OPTIONS. Access Persons are not permitted to purchase options on any security held in client accounts. If an Access Person should hold or purchase options prior to the underlying security being acquired by or recommended for client accounts, the personal trade will be subject to preclearance and reporting requirements, as well as the blackout period, short-term trading, and front running restrictions.
j. OTHERS. Access Persons may not engage in any transactions deemed by Compliance to involve a conflict of interest, possible diversions of corporate opportunity, or an appearance of impropriety.
EXCEPTIONS TO BLACKOUT PERIODS
1. DISPERSION TRADES. An integral part of WCM's investment process is to ensure client product accounts are in-line with their respective model accounts. As a result, the client accounts are regularly rebalanced against their respective model accounts, also known as dispersion analysis. Dispersion analysis will often cause trades in client accounts. Since dispersion trades are not driven by the Investment Committee, WCM does not view such trades as discretionary. Therefore, when Compliance reviews preclearance requests and personal trades, Compliance will not include client account transactions executed for dispersion purposes in the blackout periods. The exception for dispersion trades shall not apply to the prohibitions set forth in Section 6.f hereinabove ("Front Running").
2. LARGE-CAP SECURITIES. Purchases and sales of large-cap securities (as defined by WCM products), including ETFs, that do not exceed a total of 1,000 shares in one issuer in a 30 day period will be exempt from the blackout period restrictions. The exception for large-cap securities shall not apply to the prohibitions set forth in Section 6.f hereinabove ("Front Running").
EXCEPTIONS TO TRANSACTIONAL RESTRICTIONS AND PRECLEARANCE REQUIREMENTS
Unless noted, the following transactions are exempt from preclearance requirements and certain transactional restrictions described above. Reporting requirements still may apply to these transactions; see Section 3 for complete details.
1. MUNICIPAL BONDS. Transactions in municipal bonds do not require preclearance nor quarterly reporting. These transactions also are exempt from the transactional restrictions stated above. However, Access Persons should be mindful that trading any security, including non-covered securities, on material non-public information is a violation of federal securities laws.
2. NO KNOWLEDGE OR CONTROL. Transactions where the Access Person has no control or knowledge are exempt from preclearance and transactional restrictions. Reporting requirements may still apply. Examples:
a. Purchases and sales over which an Access Person has no direct or indirect influence or control such as transactions in non-discretionary accounts where the assets are managed by an adviser.
b. Transactions where the Access Person has no knowledge of the transaction before it is completed. For example, transactions effected for an Access Person or family/household member by a trustee of a blind trust, or discretionary trades involving an investment partnership or investment club, in connection with which the Access Person is neither consulted nor advised of the trade before it is executed.
c. Acquisition of securities through stock dividends, dividend reinvestment, stock splits, reverse stock splits, mergers, consolidations, spin-offs, and other similar corporate reorganizations or distributions generally applicable to all holders of the same class of securities.
d. Transactions that occur by operation of law or under any other circumstance in which neither the Access Person nor any member of his or her family/household exercises any discretion to buy or sell or makes recommendations to a person who exercises such discretion.
e. Purchases pursuant to the exercise of rights issued pro rata to all holders of the class of securities held by the Access Person (or family/household member) and received by the Access Person (or family/household member) from the issuer.
3. AUTOMATIC INVESTMENT PLANS. Purchases and sales pursuant to an automatic investment plan, such as a dividend investment plan, are exempt from preclearance and transactional restrictions. Reporting requirements may still apply. Examples:
a. Purchases pursuant to the BPFH employee stock purchase plan (sales of the stock purchased through the ESPP are required to be approved before execution); BPFH stock holdings and sales of such holdings must be reported per the applicable requirements in Section 3.
b. Transactions in WCM's retirement and profit sharing plans; transactions in these plans are exempt from reporting requirements. This exemption does not apply to transactions made in the brokerage account option within the plans. Purchases and sales made in the brokerage account option are subject to preclearance and reporting requirements, as well as transactional restrictions.
4. BROAD-BASED INDICES OR INTEREST RATE INSTRUMENTS. Transactions in futures and options contracts on investment-grade government and corporate fixed income instruments or securities indices containing securities of more than one hundred issuers, and options on such derivatives and securities are exempt from preclearance and transactional restrictions. Reporting requirements still apply.
5. CERTAIN OPTIONS. Any acquisition or disposition of a security in connection with an option-related securities transaction that has been previously approved pursuant to the Code. For example, if an Access Person receives approval to purchase an option, the person does not need to obtain preclearance to later exercise the option. However, the security transaction must be reported on the person's quarterly report and on the annual holdings report if it is still held in the account. This exemption does not apply to options on any security held in client accounts.
6. OTHERS. Transactions in securities determined by Compliance to present a low potential for impropriety or the appearance of impropriety (e.g., a purchase or sale of a bond issued by a company in which WCM most likely would not invest any client assets).
GIFTS AND ENTERTAINMENT
WCM recognizes that Access Persons, because of their position with the company, may be offered, or may receive without notice, gifts and entertainment from clients, brokers, vendors or other business contacts. ALL GIFTS AND ENTERTAINMENT, REGARDLESS OF VALUE, RECEIVED OR GIVEN MUST BE REPORTED, VIA PTA, TO COMPLIANCE. See Section 3 for additional information on reporting.
Access Persons and their family/household members may not accept or give gifts, entertainment, special accommodations or other things of material value on their own or WCM's behalf that could influence decision-making, make them feel beholden to a person or a firm, or may be construed as an improper attempt to influence a person or firm. Additionally, Access Persons and their family/household members, as well as non-interested Board Members, may not accept or receive any gift or accommodation from any firm or person who does or seeks to do business with WCM that
o might create a conflict of interest or the perception of impropriety;
o might interfere with the impartial discharge of such person's responsibilities to WCM or its clients; or
o place the recipient or WCM in a difficult or embarrassing position.
The following guidelines have been provided to assist Access Persons in complying with the above provisions. Keep in mind that the following guidelines are not intended to prohibit normal business entertainment.
1. DE MINIMIS VALUE
a. Access Persons may not accept or give gifts or entertainment that exceed the value of $100 without prior approval from the CCO or CO. In circumstances where the Access Person may not be able to obtain pre-approval for the receipt of a gift or entertainment (e.g., you are at dinner with a broker), the Access Person should notify Compliance as soon as reasonably possible so they can determine whether reimbursement is appropriate.
b. The aggregate value of gifts or entertainment received outside the normal course of business may not exceed $1,000 per year.
c. Access Persons may not give gifts with an aggregate value in excess of $100 PER YEAR to persons associated with securities or financial organizations, including exchanges, broker/dealer firms, commodity firms, or news media.
2. FREQUENCY OF GIFTS/ENTERTAINMENT
a. Access Persons should be mindful of the frequency of gifts and entertainment as that may be looked upon as excessive.
3. GIFTS TO PUBLIC OR UNION OFFICIALS
a. All gifts and entertainment received from or given to any person(s) associated with the government, municipal, or similar authority must be precleared by Compliance. Access Persons need to be aware that the various jurisdictions have different prohibitions and limits on gifts, and violation of these restrictions can happen without their knowledge.
b. All gifts and entertainment received from or given to any union official (i.e., union or officer, agent, shop steward, employee or other representative of a union) must be pre-cleared by Compliance. The Department of Labor ("DOL") typically requires reporting of gifts, entertainment, and paid expenses to union officials beyond a certain de minimis. These reports are made public and posted on the DOL's website.
4. CASH OR CASH EQUIVALENTS
a. Access Persons may not accept or give cash or cash equivalent gifts (e.g., American Express gift cheques), without the prior approval of Compliance. Gift certificates to retail stores and restaurants may be accepted without prior approval, as long as it is below the de minimis.
5. REIMBURSEMENT
a. Access Persons should be prepared to reimburse the offering party for any gifts and entertainment that extend to spouses and other family/household members.
REFERRALS
Access Persons are prohibited from making referrals to clients (e.g., attorneys, accountants) if the Access Person will benefit in any way.
POLITICAL AND CHARITABLE CONTRIBUTIONS
Access Persons are prohibited from making political contributions for the purposes of obtaining or retaining advisory contracts with public clients (i.e., pay-to-play). Access Persons also are not permitted to consider WCM's current or anticipated business relationships as a factor in soliciting political or charitable donations.
SERVICE ON THE BOARD OR AS AN OFFICER OF ANOTHER COMPANY
To avoid conflicts of interest, inside information and other compliance and business issues, Access Persons generally are prohibited from serving as officers or members of the board of any other entity. Exceptions to this provision must be obtained through the CCO or CO, who may require consideration by the board of WCM. Exceptions must be provided in writing and granted only based on the best interest of WCM and its clients. The CCO or CO, can deny the exception request for any reason.
This pre-approval requirement does not apply to service as an officer or board member of any parent or subsidiary of WCM, nor does it apply to non-interested WCM Board Members; although they are required to report to the CCO on an annual basis of all positions held by them on boards or as officers of other companies.
OTHER OUTSIDE BUSINESS ACTIVITY
Access Persons must obtain pre-approval from Compliance prior to engaging in any outside business activity as this may interfere with their duties with the firm. Pre-approvals must be submitted through PTA, and will be reviewed by Compliance. Outside business activities include, but are not limited to:
o Employment with another firm/organization (e.g., part-time position at a retail store for the holiday season, working at family's or friend's store or organization on weekends)
o Consulting engagements
o Public/Charitable positions
o Fiduciary appointments other than with respect to family members
SECTION 3. COMPLIANCE WITH THE CODE
REPORTING REQUIREMENTS
As a general rule, all Covered Securities and accounts over which an Access Person or a member of his or her family/household has beneficial ownership must be reported to Compliance on a regular basis. With regards to such accounts and holdings, Access Persons are required to complete the reporting requirements described in this section. Exceptions to the reporting requirements are listed under Exceptions to Reporting Requirements. Unless the account or holding falls under the exemptions section, Access Persons must file the reports described below, even if the person has had no holdings, transactions or new accounts to list in the reports.
Reports and certifications are submitted through PTA. All submissions will remain confidential and will not be accessible by anyone other than those in Compliance, except to the extent necessary to implement and enforce the provisions of the Code or to comply with requests for information from government agencies.
PERSONAL SECURITIES ACTIVITIES REPORTS
1. Holdings Reports (Initially and Annually)
a. Initial Holdings Report. Access Persons must submit a report of all their holdings in covered/reportable securities WITHIN 10 DAYS after the day he or she has become an Access Person (typically the day the person starts employment with WCM) and on an annual basis thereafter. The holdings report should list all covered/reportable securities in which he or she has beneficial ownership.
Initial holdings information should be current as of a date no more than 45 days prior to the employee's date of becoming an Access Person. For example, if the employee starts on November 1st, his or her initial holdings information should be as of no later than September 17th. Initial holdings information should be entered into PTA. For each holding, please provide: 1)the ticker symbol or other primary identifier, 2)the account in which that the security is held, and 3)the quantity or principal amount. PTA will automatically record the date and time stamp of each holding that is submitted.
b. Annual Holdings Report. On an annual basis, you are required to report all of your covered/reportable securities as of December 31st. Annual holdings reports are available in PTA. Access Persons should review the report for completeness and accuracy prior to submission. ANNUAL HOLDINGS REPORTS MUST BE SUBMITTED BY JANUARY 30TH.
2. Brokerage and Investment Account Reports (Initially, Annually, Quarterly for Newly Opened Accounts)
a. Initial Accounts Report. Access Persons must submit a list of all brokers, dealers and banks where he or she has established an account in which any securities (not merely covered/reportable securities) are held for the direct or indirect benefit of them or a member of their family/household WITHIN 10 DAYS after the day they have become an Access Person (typically the day they start employment with WCM). Access Persons must provide the name of the account, the account number, the name of the broker, dealer or bank with whom the account is established and the date the account was established. PTA will date and time stamp each account submission automatically.
b. Quarterly Accounts Report. Access Persons are required to report all new accounts that were opened during the most recent calendar quarter. Access Persons should review the information for completeness and accuracy prior to submission. QUARTERLY ACCOUNT REPORTS ARE SUBMITTED ON OR ABOUT THE 21ST DAY AFTER THE CALENDAR QUARTER END.
o Opening an Investment Account: Access Persons must add the account to PTA and notify Compliance, who will send a letter to the broker/dealer/bank to request duplicate copies of transaction confirmations and account statements. See Section 4 below (Duplicate Statements and Confirms) for more information.
o Closing an Investment Account: Access Persons must de-activate the account in PTA and notify Compliance, who will send a letter to the broker/dealer/bank to request that they stop sending duplicate confirms and statements. See Section 4 below (Duplicate Statements and Confirms) for more information.
c. Annual Accounts Report. On an annual basis, Access Persons must report all accounts in which he or she holds any securities that could benefit him or her directly or indirectly. Access Persons should review the information for completeness and accuracy prior to submission. ANNUAL ACCOUNT REPORTS MUST BE SUBMITTED BY JANUARY 30TH.
3. Transactions Reports (Quarterly). Access Persons are required to report all covered/reportable securities transactions for the most recent calendar quarter. Access Persons should review the information for accuracy and completeness prior to submission. QUARTERLY TRANSACTION REPORTS ARE SUBMITTED ON OR ABOUT THE 21ST DAY AFTER THE CALENDAR QUARTER END.
4. Duplicate Statements and Confirms. Contemporaneous duplicate copies of personal transaction confirmations and account statements are required for any securities account in which an Access Person has direct or indirect beneficial interest. Copies of such documents should be sent directly to the Compliance Department. Although Compliance will send a request letter to the broker, dealer or bank, it is ultimately the Access Person's responsibility to provide duplicate statements and confirms. If Compliance does not receive the appropriate account statements or confirms, Compliance will request the documents from the Access Person. THIS REQUIREMENT DOES NOT SATISFY THE QUARTERLY OR ANNUAL REPORTING REQUIREMENTS OUTLINED ABOVE.
GIFTS & ENTERTAINMENT REPORTS (QUARTERLY)
Access Persons are required to disclose all gifts and entertainment they have received or given regardless of value. Keep in mind that certain regulatory entities have strict rules on the receipt and giving of gifts and entertainment. It is very possible to identify discrepancies between the recipient and the provider given reporting requirements. QUARTERLY GIFTS & ENTERTAINMENT REPORTS ARE SUBMITTED ON OR ABOUT THE 21ST DAY AFTER THE CALENDAR QUARTER END.
When completing the report, Access Persons must provide the name of the recipient/provider, description of gift or entertainment, date, and cost or value. WCM recognizes that it may be difficult to obtain an actual cost or value on some gifts and entertainment for various reasons. In these instances, Access Persons should make a reasonable estimate. Compliance has discretion to question reported values of gifts and entertainment. In some cases, Compliance may ask for back-up documentation.
The following examples and guidelines have been provided to assist with this reporting requirement.
Reportable Items
o Gifts (e.g., fruit baskets, flowers, gift certificates)
o Meals outside the normal course of business (e.g., charity dinner sponsored by broker or consultant)
o Meals that are frequent (e.g., the same broker takes you to dinner or lunch once a month)
o Tickets to sports events, concerts, shows, movies, etc. regardless of who is in attendance from WCM or another firm
o Golf and other outings such as fishing trips and sailing excursions
o Donations and sponsorships on behalf of WCM (excludes those organizations that WCM as a firm sponsors or donates to regularly such as City Year); for example, a broker asks that you sponsor a dinner table or a round of golf at an upcoming client event
Typically Not Reportable Items
o Meals that occur during the normal course of business AND the broker, client, consultant, or business contact is present (e.g., broker bringing in lunch for a meeting, broker taking you to dinner to discuss Westfield business). However, if these are excessive in nature and frequent in occurrence, they must be reported.
o Promotional items (e.g., company logo items such as pens, golf balls, key chains, note pads, mugs, hats)
o Nominal gifts that are given for a special occasion (e.g., flowers for the birth of a child)
ACKNOWLEDGEMENT OF CODE (INITIALLY AND ANNUALLY)
1. Initial Acknowledgement. As part of their initial holdings submission, Access Persons are required to acknowledge that they have received, read, understand, and will comply with the Code and all its provisions. Access Persons also will confirm that the Code applies to them and members of their family/household, and that they are an Access Person (and Investment Person, if applicable) under the Code.
2. Annual Acknowledgement. Annually, Access Persons are required to acknowledge (either as a stand-alone document or as part of the firm's Compliance Manual) that they have received, read, understand and have complied with the Code and all its provisions.
3. Interim Acknowledgement. From time to time, the Code will be amended to reflect new regulatory requirements, comments from regulatory exams or internal reviews, or to address new conflicts that have arisen. All material amendments to the Code will be distributed to Access Persons, who will be required to acknowledge that they have received, read, understood, and will comply with the amended Code. Immaterial amendments will be distributed either with material amendments or during the annual acknowledgement period.
NOTIFYING COMPLIANCE OF VIOLATIONS
If at any time an Access Person becomes aware that he or she, any members of his or her family/household or any other Access Person, has violated the Code, it is his or her fiduciary obligation to report such violation(s) to the CCO or the CO immediately. All Access Persons are required to report actual or suspected violations of the Code promptly to the CCO or the CO. In the case of an actual or suspected violation by the CCO, Access Persons are required to notify the President or the Chairman.
o Confidentiality. Any reports created to satisfy the requirements of the Code shall be treated confidentially and shall be investigated promptly as required by the particular circumstances. Violation reports can be submitted anonymously through PTA.
o Types of Reporting. Access Persons are obligated to report any: a) noncompliance with applicable laws, rules and regulations; b) fraud or illegal acts involving any aspect of the firm's business; c) material misstatements in regulatory filings, internal books and record, client records or reports; d) activity that is harmful to clients; and e) material deviations from required controls and procedures that safeguard clients and the firm.
o Guidance. Access Persons are encouraged to seek guidance from the CCO, CO or other senior manager with respect to any action or transaction that may violate the Code and to refrain from any action or transaction that might lead to the appearance of a violation.
o Retaliation. Any retaliation against an employee who reports a violation is prohibited and constitutes a further violation of the Code.
EXCEPTIONS TO CERTAIN REPORTING REQUIREMENTS
Managed Accounts - Personal Securities Activities
Access Persons are not required to submit reports on accounts and securities over which the person or the person's family/household members has no direct or indirect influence or control. While you may speak to your adviser about your financial goals and objectives, you are not permitted to consult with your adviser (or be consulted on) any specific security transactions, regardless of whether the security is covered or not covered. However, Access Persons are required to notify Compliance of these types of accounts and obtain an attestation from the adviser(s) or a copy of the investment advisory contract in order to exempt a non-discretionary account from the reporting requirements.
Automatic Investment Plans - Personal Securities Activities
Access Persons are not required to disclose on their quarterly transaction reports any securities that were purchased or sold through an automatic investment plan, including dividend reinvestment plans. Access Persons are required to disclose these holdings, if they are Covered Securities, on their initial and annual holdings reports.
Municipal Bonds - Personal Securities Activities
Access Persons are not required to report transactions or holdings in municipal bonds.
SECTION 4: ADMINISTRATION AND ENFORCEMENT
APPROVAL AND DISTRIBUTION
Compliance will distribute the Code to all Access Persons at least annually (either as a stand-alone document or as part of the firm's Compliance Manual). Material amendments or revisions made to this Code will be approved by WCM's Board of Directors. Upon approval by the Board, the Code will be distributed to all Access Persons. Access Persons are required to acknowledge that they have received, read, understood, and will comply with the Code and any amendments.
TRAINING AND EDUCATION
The CCO, or a designee, is responsible for training and educating all employees regarding the Code. All newly hired employees are required to complete a compliance overview session that includes review of the Code and WCM's Insider Trading Policy. New employees are required to acknowledge that they have received, read, understood, and will comply with the Code and the Insider Trading Policy.
Periodically, the CCO, or a designee, will provide training on the Code to all employees. Employees are required to attend any training sessions or read any applicable materials that Compliance deems appropriate. On occasion, it also may be necessary for certain departments to receive additional training. Should this be the case, the CCO, or a designee, will coordinate with the appropriate department managers to discuss particular topics and concerns to address at the training session.
ANNUAL REVIEW
In accordance with Rule 206(4)-7 of the Advisers Act and 38a-1 of the Investment Company Act, the CCO, or a designee, will review at least annually the adequacy of the Code and the effectiveness of its implementation. The CCO, or a designee, will report the results of the annual Code review to WCM's Board of Directors and will bring material violations to their attention.
PERSONAL TRANSACTIONS MONITORING
On at least a quarterly basis, the CO or a senior member of Compliance will review and monitor required reports for conformity with all applicable provisions outlined in Sections 2 and 3. Each member of the Compliance Department will review and monitor each other's reports as required by the Code.
REPORT TO BOARDS OF DIRECTORS
The CCO or CO will report to WCM's Board of Directors on a quarterly basis the results of the review of personal transaction reports, and any material violations or granted waivers of the Code and its provisions. In addition, the CCO or CO may be required to provide an annual written report to the Board of Directors of certain sub-advised clients as required by Rule 17j-1 of the Investment Company Act.
RECORDKEEPING REQUIREMENTS
Compliance will maintain the following records in the manner and to the extent set out in Rule 204-2(a)(12) and (13) of the Investment Advisers Act and Section 17j-1(f) of the Investment Company Act in a readily accessible place.
1. A copy of each Code that is in effect, or at any time within the past five years;
2. A record of any violation of the Code, and of any action taken as a result of the violation, for five years after the end of the fiscal year in which the violation occurred;
3. Copies of acknowledgements of receipt of the Code and material amendments for each person who is currently, or within the past five years was, an Access Person;
4. A copy of each report made pursuant to the Code, including any brokerage confirmation and account statements;
5. A list of names of persons, currently or within the past five years, who are or were Access Persons or Investment Persons;
6. A list of persons who are, or were, responsible for reviewing reports made pursuant to the Code during the last five years;
7. A copy of reports provided to the WCM Board of Directors regarding the Code;
8. A copy of WCM's Board of Directors Annual Acknowledgement and Certificate of Compliance with Section 17j-1(c) of the Investment Company Act for at least five years after the end of the fiscal year in which it is made;
9. A record of any decision, and the reasons supporting the decision, for approving the acquisition by Access Persons of IPOs and limited offerings for at least five years after the end of the fiscal year in which the approval was granted; and
10. A record of any granted waivers or exceptions, and supporting reasons, to any provisions of the Code.
SANCTIONS
WCM treats violations of this Code (including violations of the spirit of the Code) very seriously. If you violate either the letter or the spirit of this Code, WCM may impose one, several or all of the following: penalties or fines as outlined in this Code; a reduction of compensation, a demotion; a disgorgement of trading gains; suspension or termination of your employment; make a civil referral to the SEC; and make a criminal referral. Some examples of violations include: improper trading activity; failing to file required reports; making inaccurate or misleading reports or statements concerning trading activity or securities accounts; and inappropriate individual conduct, even if no clients are harmed. If you have any doubt or uncertainty about what this Code requires or permits, you should consult the CCO or CO.
The CCO or CO shall determine whether the policies established in this Code have been violated, and what sanctions, if any, should be imposed. The CCO or CO will notify Access Persons of any discrepancy between their personal activities and the rules outlined in this Code. If a discrepancy cannot be thoroughly explained or corrected to the CCO's or CO's satisfaction, the CCO or the CO, has full authority as granted by the WCM Board of Directors, to determine and impose a sanction upon any employee or board member who may have violated the Code or the spirit of the Code. Failure to promptly abide by a directive to reverse a trade, forfeit profits or submit a monetary fine may result in the imposition of additional sanctions.
Fines are to be paid by check, made payable to Westfield Capital Management Company. Each payment will be submitted to a charity of the CCO's or CO's unbiased choice. Reimbursements to brokers or other business contacts should be paid to the appropriate party; a copy of the reimbursement check should be given to Compliance.
Compliance will review each violation and the circumstances surrounding each violation to determine whether sanctions should be imposed. The table below are guidelines, and Compliance has full discretion to impose sanctions that are more or less than those outlined in the table.
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VIOLATION POTENTIAL SANCTIONS
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Late Reporting or Certification First Offense: $50 per day after due date per report or
certification
Second Offense: $100 per day after due date per report
or certification; possible temporary suspension of
personal securities transaction rights
Subsequent Offense: $150 per day after due date per
report or certification, plus temporary suspension of
personal securities transaction rights
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Failure to Preclear or Trading on Expired Preclearance First Offense: $150 per trade
Approval
Second Offense: $300 per transaction plus disgorgement
of any profits; possible temporary suspension of
personal securities transaction rights and possible
reversing of questionable trades
Subsequent Offense: $500 per transaction plus
disgorgement of any profits; temporary suspension of
personal securities transaction rights; possible
reversing of questionable trades
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Market Timing $500 per trade plus disgorgement of any profits;
temporary suspension of personal securities transaction
rights; possible termination of employment and civil or
criminal referral
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Providing False or Omitting Material Information on Suspension of personal securities transaction rights;
Reports or Certifications possible termination of employment and civil and
criminal referral
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Front Running or Purchasing Securities within Blackout $1,000 per trade for microcap
Periods (Market caps are defined by WCM products) $750 per trade for small cap
$500 per trade for smid cap
$250 per trade for mid cap
$100 per trade for large cap
Disgorgement of profits; temporary suspension of
personal securities transaction rights; possible
reversing of questionable trades and possible
termination of employment
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VIOLATION POTENTIAL SANCTIONS
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Short-term Trading First Offense: $100 per transaction plus disgorgement
of profits
Second Offense: $200 per transaction plus disgorgement
of profits; temporary suspension of personal
transaction rights; possible reversing of questionable
trades
Subsequent Offense: $300 per transaction plus
disgorgement of profits; temporary suspension of
personal securities transaction rights; possible
reversing of questionable trades
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Trading Securities on Restricted List $500 per trade plus disgorgement of any profits;
temporary suspension of personal securities
transactions; possible reversing of questionable trades
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Gifts & Entertainment - Failure to preclear, Acceptance or Varies
Giving of Gifts & Entertainment Above De Minimis
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