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. 71 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |_|
Amendment No. 71 |X|
With Copy to: John M. Ford, Esq.
Pepper Hamilton LLP
3000 Two Logan Square
Philadelphia, PA 19103
Approximate Date of Proposed Public Offering:
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, 2009
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, 2009
Touchstone Investments
Symbol by Share Class
A B C
Touchstone Diversified Small Cap Growth Fund TDSAX TDSCX
Touchstone Growth Opportunities Fund TGVFX TGVCX
Touchstone Large Cap Core Equity Fund TENAX TENCX
Touchstone Large Cap Growth Fund TEQAX TEQBX TEQCX
Touchstone Large Cap Value Fund TLCAX TVCCX
Touchstone Mid Cap Growth Fund TEGAX TBEGX TOECX
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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, 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 Investments 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 or a market capitalization represented within the range of the Russell 2000 Index (between $78 million and $1.68 billion as of the latest reconstitution on May 31, 2009). 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 2008
16.84% -42.67%
Best Quarter:
2nd Quarter 2007 +9.45
Worst Quarter:
4th Quarter 2008 -28.14
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The year-to-date return for the Fund's Class A shares as of June 30, 2009 is 9.72%.
This table compares the Fund's average annual total returns (before and after taxes) for the period ended December 31, 2008, 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 and depend on your tax situation. The after-tax 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, 2008
Since Class
1 Year Started(1)
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DIVERSIFIED SMALL CAP GROWTH FUND-CLASS A
Return Before Taxes -45.96% -14.56%
Return After Taxes on Distributions -45.96% -15.62%
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Return After Taxes on Distributions and Sale of Fund Shares(2) -29.87% -12.44%
Russell 2000 Growth Index(3) -38.54% -13.57%
DIVERSIFIED SMALL CAP GROWTH FUND-CLASS C
Return Before Taxes -42.99% -12.93%
Russell 2000 Growth Index(3) -38.54% -13.57%
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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) 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 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
-------------------------------------------------------------------------------
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)
-------------------------------------------------------------------------------
Management Fees 1.05% 1.05%
Distribution (12b-1) Fees 0.25% 1.00%
Other Expenses 1.00% 1.49%
Total Annual Fund Operating Expenses 2.25% 3.54%
Less Fee Waiver and/or Expense Reimbursement(4) 0.85% 1.39%
Net Expenses 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 fees and/or reimburse certain Fund expenses in order to limit annual fund operating expenses (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, the cost of "Acquired Fund Fees and Expenses," if any, amounts payable pursuant to a plan adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940 and other extraordinary expenses not incurred in the ordinary course of Touchstone's business). This expense limitation will remain in effect until at least July 31, 2010. Touchstone Advisors, Inc. has no ability to recoup amounts waived or reimbursed. Pursuant to this agreement, "Net Expenses" for Class A shares and Class C shares (including Rule 12b-1 fees) will not exceed 1.40% and 2.15%, respectively.
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 $ 1,161 $ 957 $ 957
5 Years $ 1,638 $ 1,717 $ 1,717
10 Years $ 2,949 $ 3,718 $ 3,718
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The above example is for comparison purposes only and is not a representation of a Fund's actual expenses and returns, either past or future.
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 up to 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 To the extent a fund focuses its investments in a particular market sector or industry, it may be more sensitive to adverse changes within that sector or industry than a fund that does not focus 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 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 and Institutional shares of the Fund, offered in separate prospectuses, will differ from the Class A returns shown below, depending on the expenses of those classes. 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
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
68.25% -2.56% -28.47% -35.76% 39.74% 8.52% 9.07% 0.10% 17.15% -39.32%
Best Quarter: 4th Quarter 1999 +47.98% Worst Quarter: 3rd Quarter 2001 -26.71% |
The year-to-date return for the Fund's Class A shares as of June 30, 2009 is 8.75%.
This table compares the Fund's average annual total returns (before and after taxes) for the period ended December 31, 2008, 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 and depend on your tax situation. The after-tax 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, 2008
1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND-CLASS A
Return Before Taxes -42.81% -4.51% -1.78%
Return After Taxes on Distributions -42.81% -4.51% -2.12%
Return After Taxes on Distributions
and Sale of Fund Shares(1) -27.82% -3.78% -1.55%
Russell 3000 Growth Index(2) -38.44% -3.33% -4.01%
GROWTH OPPORTUNITIES FUND-CLASS C(3)
Return Before Taxes -39.77% -3.81% -1.83%
Russell 3000 Growth Index(2) -38.44% -3.33% -4.01%
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(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 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.
(3) 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.
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(4) 0.83% 0.83%
Distribution (12b-1) Fees 0.25% 1.00%
Other Expenses 0.68% 1.68%
Total Annual Fund Operating Expenses 1.76% 3.51%
Less Fee Waiver and/or Expense Reimbursement(5) 0.52% 1.52%
Net Expenses(6) 1.24% 1.99%
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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) "Management Fees" have been restated to reflect that the Board of Trustees approved a change to the Fund's advisory fee schedule effective February 2, 2009. Under the previous fee schedule, the Fund paid 1.00% of the first $50 million of average net assets, 0.90% of the next $50 million of average net assets, 0.80% of the next $900 million of average net assets and 0.75% on assets over $1 billion. Under the amended fee schedule, the Fund pays a fee of 0.83% of the first $500 million of average net assets, 0.80% of the next $500 million of average net assets and 0.75% on assets over $1 billion.
(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 fees and/or reimburse certain Fund expenses in order to limit annual fund operating expenses (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, the cost of "Acquired Fund Fees and Expenses," if any, other extraordinary expenses not incurred in the ordinary course of Touchstone's business and amounts, if any, payable pursuant to a plan adopted in accordance with Rule 12b-1 under the 1940 Act). This expense limitation will remain in effect until at least July 31, 2010. Touchstone Advisors, Inc. has no ability to recoup amounts waived or reimbursed. Pursuant to this agreement, "Net Expenses" for Class A shares and Class C shares (including Rule 12b-1 fees) will not exceed 1.24% and 1.99%, respectively.
(6) "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, 2009. The actual "Net Expenses" for the Fund's Class A shares and Class C shares for the fiscal year ended March 31, 2009 were 1.51% and 2.27%, respectively.
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). 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 $ 694 $ 302 $ 202
3 Years $ 1,050 $ 936 $ 936
5 Years $ 1,428 $ 1,692 $ 1,692
10 Years $ 2,488 $ 3,683 $ 3,683
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The above example is for comparison purposes only and is not a representation of a Fund's actual expenses and returns, either past or future.
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 found within the Russell 1000 Index (between $829 million and $338 billion at the time of its most recent reconstitution on May 31, 2009) at the time of purchase. 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, Todd/Veredus Asset Management LLC ("Todd/Veredus"), selects stocks that it believes are priced at a discount to their intrinsic value. Todd/Veredus 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. The Fund will generally hold 40 to 60 stocks.
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 that of 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 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 2008
-8.95% -21.66% 30.86% 8.36% 3.27% 17.12% 4.58% -35.77%
Best Quarter: 2nd Quarter 2003 +18.81% Worst Quarter: 4th Quarter 2008 -23.04% |
The year-to-date return for the Fund's Class A shares as of June 30, 2009 is 3.57%.
This table compares the Fund's average annual total returns (before and after taxes) for the period ended December 31, 2008, 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 and depend on your tax situation. The after-tax 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, 2008
Since Class
1 Year 5 Years Started(1)
--------------------------------------------------------------------------------
LARGE CAP CORE EQUITY FUND-CLASS A
Return Before Taxes -39.47% -3.66% -3.12%
Return After Taxes on Distributions -40.39% -4.15% -3.50%
Return After Taxes on Distributions
and Sale of Fund Shares(2) -24.51% -3.01% -2.61%
Russell 1000 Index(3) -37.60% -2.04% -3.45%
LARGE CAP CORE EQUITY FUND-CLASS C
Return Before Taxes -36.22% -3.25% -3.10%
Russell 1000 Index(3) -37.60% -2.04% -3.45%
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(1) Class A shares began operations on May 1, 2000 and Class C shares began
operations on May 16, 2000.
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(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
--------------------------------------------------------------------------------
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)
Class A Class C
--------------------------------------------------------------------------------
Management Fees 0.65% 0.65%
Distribution (12b-1) Fees 0.25% 1.00%
Other Expenses 0.38% 0.91%
Total Annual Fund Operating Expenses 1.28% 2.56%
Less Fee Waiver and/or Expense Reimbursement(4) 0.13% 0.66%
Net Expenses 1.15% 1.90%
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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 fees and/or reimburse certain Fund expenses in order to limit annual fund operating expenses (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, the cost of "Acquired Fund Fees and Expenses," if any, other extraordinary expenses not incurred in the ordinary course of Touchstone's business and amounts, if any, payable pursuant to a plan adopted in accordance with Rule 12b-1 under the 1940 Act). This expense limitation will remain in effect until at least July 31, 2010. Touchstone Advisors, Inc. has no ability to recoup amounts waived or reimbursed. Pursuant to this agreement, "Net Expenses" for Class A shares and Class C shares (including Rule 12b-1 fees) will not exceed 1.15% and 1.90%, respectively.
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 $ 945 $ 734 $ 734
5 Years $ 1,225 $ 1,301 $ 1,301
10 Years $ 2,021 $ 2,846 $ 2,846
--------------------------------------------------------------------------------
|
The above example is for comparison purposes only and is not a representation of a Fund's actual expenses and returns, either past or future.
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 found within the Russell 1000 Index (between $829 million and $338 billion at the time of its most recent reconstitution on May 31, 2009) at the time of purchase..
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
o To the extent a fund focuses its investments in a particular market sector or industry, it may be more sensitive to adverse changes within that sector or industry than a fund that does not focus its 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 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*
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
63.03% -7.66% -23.47% -26.70% 35.60% 17.12% 16.37% -3.91% 26.42% -41.64%
Best Quarter: 4th Quarter 1999 +40.00% Worst Quarter: 1st Quarter 2001 -27.98% |
* 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.
The year-to-date return for the Fund's Class A shares as of June 30, 2009 is 3.32%.
This table compares the Fund's average annual total returns (before and after taxes) for the period ended December 31, 2008, 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 and depend on your tax situation. The after-tax 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, 2008
1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
LARGE CAP GROWTH FUND CLASS A
Return Before Taxes -45.00% -1.85% 0.42%
Return After Taxes on Distributions -45.01% -1.86% 0.41%
Return After Taxes on Distributions
and Sale of Fund Shares(1) -29.24% -1.57% 0.35%
Russell 1000 Growth Index(2) -38.44% -3.42% -4.27%
LARGE CAP GROWTH FUND CLASS C(3)
Return Before Taxes -42.02% -1.27% 0.34%
Russell 1000 Growth Index(2) -38.44% -3.42% -4.27%
--------------------------------------------------------------------------------
Since Class
1 Year 5 Years Started(4)
--------------------------------------------------------------------------------
LARGE CAP GROWTH FUND CLASS B
Return Before Taxes -44.36% -1.52% -0.20%
Russell 1000 Growth Index(2) -38.44% -3.42% -2.11%
--------------------------------------------------------------------------------
|
(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 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.
(3) 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.
(4) 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
-------------------------------------------------------------------------------------
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Class A Class B Class C
-------------------------------------------------------------------------------------
Management Fees 0.70% 0.70% 0.70%
Distribution (12b-1) Fees 0.25% 1.00% 1.00%
Other Expenses 0.38% 0.50% 0.41%
Total Annual Fund Operating Expenses 1.33% 2.20% 2.11%
Less Fee Waiver and/or Expense Reimbursement(5) 0.08% 0.20% 0.11%
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 fees and/or reimburse certain Fund expenses in order to limit annual fund operating expenses (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, the cost of "Acquired Fund Fees and Expenses," if any, other extraordinary expenses not incurred in the ordinary course of Touchstone's business and amounts, if any, payable pursuant to a plan adopted in accordance with Rule 12b-1 under the 1940 Act). This expense limitation will remain in effect until at least July 31, 2010. Touchstone Advisors, Inc. has no ability to recoup amounts waived or reimbursed. Pursuant to this agreement, "Net Expenses" for Class A shares, Class B shares and Class C shares (including Rule 12b-1 fees) will not exceed 1.25%, 2.00% and 2.00%, respectively.
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 $ 869 $ 650 $ 669 $ 650
5 Years $ 1,255 $ 1,261 $ 1,124 $ 1,161 $ 1,124
10 Years $ 2,078 $ 2,298 $ 2,433 $ 2,298 $ 2,433
--------------------------------------------------------------------------------
|
The above example is for comparison purposes only and is not a representation of a Fund's actual expenses and returns, either past or future.
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 ($2.9 billion at the time of its most recent reconstitution on May 31, 2009). 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
o To the extent a fund focuses its investments in a particular market sector or industry, it may be more sensitive to adverse changes within that sector or industry than a fund that does not focus its 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 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 2008
-27.01% -73.79%
Best Quarter:
2nd Quarter 2007 +7.35
|
Worst Quarter:
4th Quarter 2008 -41.94
The year-to-date return for the Fund's Class A shares as of June 30, 2009 is 35.98%.
This table compares the Fund's average annual total returns (before and after taxes) for the period ended December 31, 2008, 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 and depend on your tax situation. The after-tax 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, 2008
Since Fund
1 Year Started(1)
--------------------------------------------------------------------------------
LARGE CAP VALUE FUND-CLASS A
Return Before Taxes -75.31% -42.75%
Return After Taxes on Distributions -75.51% -43.55%
Return After Taxes on Distributions
and Sale of Fund Shares(2) -48.81% -32.42%
Russell 1000 Value Index(3) -36.85% -10.37%
LARGE CAP VALUE FUND-CLASS C
Return Before Taxes -74.09% -42.04%
Russell 1000 Value Index(3) -36.85% -10.37%
--------------------------------------------------------------------------------
|
(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 0.84% 1.11%
Total Annual Fund Operating Expenses 1.84% 2.86%
Less Fee Waiver and/or Expense Reimbursement(4) 0.49% 0.76%
Net Expenses 1.35% 2.10%
--------------------------------------------------------------------------------
|
(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 fees and/or reimburse certain Fund expenses in order to limit annual fund operating expenses (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, the cost of "Acquired Fund Fees and Expenses," if any, other extraordinary expenses not incurred in the ordinary course of Touchstone's business and amounts, if any, payable pursuant to a plan adopted in accordance with Rule 12b-1 under the 1940 Act). This expense limitation will remain in effect until at least July 31, 2010. Touchstone Advisors, Inc. has no ability to recoup amounts waived or reimbursed. Pursuant to this agreement, "Net Expenses" for Class A shares and Class C shares (including Rule 12b-1 fees) will not exceed 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 $ 705 $ 313 $ 213
3 Years $ 1,076 $ 814 $ 814
5 Years $ 1,470 $ 1,442 $ 1,442
10 Years $ 2,572 $ 3,131 $ 3,131
--------------------------------------------------------------------------------
|
The above example is for comparison purposes only and is not a representation of a Fund's actual expenses and returns, either past or future.
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 or within the range of market capitalizations represented in the Russell Midcap Index (between $829 million and $12.2 billion at the time of its most recent reconstitution on May 31, 2009) at the time of purchase. 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 will grow faster than the U.S. economy 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 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.
Mid Cap Growth Fund - Class A Total Returns
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
45.85% 25.92% 7.06% -23.51% 43.35% 10.58% 10.74% 14.26% 12.09% -39.41%
Best Quarter: 4th Quarter 1999 +26.84% Worst Quarter: 4th Quarter 2008 -26.51% |
The year-to-date return for the Fund's Class A shares as of June 30, 2009 is 10.51%.
This table compares the Fund's average annual total returns (before and after taxes) for the period ended December 31, 2008, 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 and depend on your tax situation. The after-tax 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, 2008
1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
MID CAP GROWTH FUND CLASS A
Return Before Taxes -42.89% -2.18% 6.80%
Return After Taxes on Distributions -43.04% -3.34% 4.99%
Return After Taxes on Distributions
and Sale of Fund Shares(1) -27.69% -1.68% 5.31%
Russell Midcap Growth Index(2) -44.32% -2.33% -0.19%
MID CAP GROWTH FUND CLASS C(3)
Return Before Taxes -39.89% -1.77% 6.66%
Russell Midcap Growth Index(2) -44.32% -2.33% -0.19%
--------------------------------------------------------------------------------
MID CAP GROWTH FUND CLASS B 1 Year 5 Years Since Class
Started(4)
--------------------------------------------------------------------------------
Return Before Taxes -42.23% -1.89% 1.04%
Russell Midcap Growth Index(2) -44.32% -2.33% -2.23%
--------------------------------------------------------------------------------
|
(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 0.48% 0.54% 0.51%
Total Annual Fund Operating Expenses 1.53% 2.34% 2.31%
Less Fee Waiver and/or Expense Reimbursement (5) 0.03% 0.09% 0.06%
Net Expenses 1.50% 2.25% 2.25%
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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 fees and/or reimburse certain Fund expenses in order to limit annual fund operating expenses (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, the cost of "Acquired Fund Fees and Expenses," if any, other extraordinary expenses not incurred in the ordinary course of Touchstone's business and amounts, if any, payable pursuant to a plan adopted in accordance with Rule 12b-1 under the 1940 Act). This expense limitation will remain in effect until at least July 31, 2010. Touchstone Advisors, Inc. has no ability to recoup amounts waived or reimbursed. Pursuant to this agreement, "Net Expenses" for Class A shares, Class B shares and Class C shares (including Rule 12b-1 fees) will not exceed 1.50%, 2.25% and 2.25%, respectively.
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 $ 719 $ 628 $ 328 $ 228 $ 228
3 Years $ 1,028 $ 922 $ 716 $ 722 $ 716
5 Years $ 1,359 $ 1,342 $ 1,230 $ 1,242 $ 1,230
10 Years $ 2,291 $ 2,467 $ 2,641 $ 2,467 $ 2,641
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The above example is for comparison purposes only and is not a representation of a Fund's actual expenses and returns, either past or future.
Can a Fund Depart From its Normal Investment Strategies?
Each Fund from time to time 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, repurchase agreements, commercial paper, U.S. Government 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 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 issuers, including ADRs, ADSs and other depositary receipts (up to 10% of total assets)
o Securities of foreign issuers in emerging market countries (up to 10% 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 Securities of foreign issuers, including ADRs, ADSs and other depositary receipts (up to 15% of total assets)
o Securities of foreign issuers in emerging market countries (up to 15% of total assets)
o Investment grade debt securities, cash or cash equivalents
o Initial public offerings
o Other investment companies
MID CAP GROWTH FUND. The Fund may also invest in:
o Securities of foreign issuers, including ADRs, ADSs and other depositary receipts (up to 20% of total assets)
o Securities of foreign issuers 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 (or Issuers) 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.
MARKET CAPITALIZATIONS. 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, but are not limited to:
o Price relative to earnings
o Price relative to cash flow
o Price relative to financial strength
EMERGING MARKET COUNTRIES are generally countries that are not included in the MSCI World Index. As of June 30, 2009, the countries in the MSCI World Index included: 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. The country composition of the MSCI World Index can change over time. 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 Baa3 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 a higher percentage of 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, LARGE CAP GROWTH 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, GROWTH OPPORTUNITIES FUND, LARGE 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, LARGE 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"). More information on securities lending is available in the Statement of Additional Information ("SAI").
MARKET DISRUPTION RISK (ALL FUNDS). The United States has recently experienced significant disruption to its financial markets impacting the liquidity and volatility of securities generally, including securities in which the Funds may invest. During periods of extreme market volatility, prices of securities held by the Funds may be negatively impacted due to imbalances between market participants seeking to sell the same or similar securities and market participants willing or able to buy such securities. As a result, the market prices of securities held by the Funds could go down, at times without regard to the financial condition of or specific events impacting the issuer of the security.
The recent instability in the financial markets has led the U.S. Government to take a number of unprecedented actions designed to support certain financial institutions and segments of the financial markets that have experienced extreme volatility, and in some cases a lack of liquidity. Federal, state, and other governments, their regulatory agencies, or self regulatory organizations may take actions that affect the regulation of the instruments in which the Fund invests, or the issuers of such instruments, in ways that are unforeseeable. Legislation or regulation may also change the way in which the Funds themselves are regulated. Such legislation or regulation could limit or preclude the Funds' ability to achieve their investment goal.
Governments or their agencies may also acquire distressed assets from financial institutions and acquire ownership interests in those institutions. The implications of government ownership and disposition of these assets are unclear, and such a program may have positive or negative effects on the liquidity, valuation and performance of the Funds' portfolio holdings. Furthermore, volatile financial markets can expose the Funds to greater market and liquidity risk and potential difficulty in valuing portfolio instruments held by the Funds. The Funds have established procedures to assess the liquidity of portfolio holdings and to value instruments for which market prices may not be readily available. The Advisor and Sub-Advisors will monitor developments and seek to manage the Funds in a manner consistent with achieving the Funds' investment goals, but there can be no assurance that it will be successful in doing so.
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 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, 2009, Touchstone Advisors had approximately $5.3 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. [The Mid Cap Growth Fund will obtain shareholder approval to select or change sub-advisors, enter into new sub-advisory agreements or amend existing sub-advisory agreements.]
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 (the fee to be paid by the Growth Opportunities Fund during the current fiscal year is shown in the table below). The advisory fees below are net of advisory fees waived by Touchstone Advisors, if any.
Name of Fund Annual Fee Rate Diversified Small Cap Growth Fund 0.70% Growth Opportunities Fund* 0.83% Large Cap Core Equity Fund 0.65% Large Cap Growth Fund 0.70% Large Cap Value Fund 0.75% Mid Cap Growth Fund 0.80% -------------------------------------------------------------------------------- |
* The Board of Trustees approved a change to the Fund's advisory fee schedule effective February 2, 2009. Under the previous fee schedule, the Fund paid 1.00% of the first $50 million of average net assets, 0.90% of the next $50 million of average net assets, 0.80% of the next $900 million of average net assets and 0.75% on assets over $1 billion. Under the amended fee schedule, the Fund pays a fee of 0.83% of the first $500 million of average net assets, 0.80% of the next $500 million of average net assets and 0.75% on assets over $1 billion. The fee paid by the Fund to Touchstone Advisors during the Fund's most recent fiscal year was 1.00%.
Contractual Fee Waiver Agreement
Touchstone Advisors has contractually agreed to waive fees and reimburse expenses in order to keep the Funds' total operating expenses (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, the cost of "Acquired Fund Fees and Expenses," if any, other extraordinary expenses not incurred in the ordinary course of Touchstone's business and amounts, if any, payable pursuant to a plan adopted in accordance with Rule 12b-1 under the 1940 Act) limited. The contractual limits set forth below have been adjusted to include the effect of Rule 12b-1 fees. 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, 2010.
CONTRACTUAL
NAME OF FUND LIMIT
Diversified Small Cap Growth Fund Class A 1.40%
Diversified Small Cap Growth Fund Class C 2.15%
Growth Opportunities Fund Class A 1.24%
Growth Opportunities Fund Class C 1.99%
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 performance is shown net of the expenses charged by FWIA to its clients included in the account. It has not been adjusted to reflect the higher expenses of the Fund. If the Fund's higher expenses were reflected, the account performance presented would be lower. 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. Results include the reinvestment of dividends and capital gains.
This method of calculating performance of the account 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
Small Cap Growth
Style-Account(1) Russell 2000
(net of fees) Growth Index(2)
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12-month period ended
March 31, 2009 -35.08% -36.36%
Since inception of account
January 1, 2005 through
March 31, 2009 -5.32% -8.02%
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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, 2009, the account totaled approximately $390.56 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, L.P. ("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. Coverage of industry sectors is divided among the investment committee members.
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. He covers the healthcare and energy sectors, as well as provides overall market strategy. Mr. Muggia has worked at Westfield since 1994. Arthur J. Bauernfeind is the Chairman and has worked at Westfield since 1990. He is Westfield's economist. Ethan J. Meyers, Partner, has worked at Westfield since 1999. He covers the consumer services, industrials and information technology sectors. Scott R. Emerman, Partner, has worked at Westfield since 2002. He covers the consumer discretionary and consumer staples sectors. Matthew W. Strobeck, Partner, has worked at Westfield since 2003. He covers the healthcare sector. Mr. Bauernfeind, Mr. Meyers, Mr. Emerman and Mr. Strobeck will discuss cash flow situations with Mr. Muggia and are able to perform the same duties in Mr. Muggia's absence. 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/Veredus Asset Management, LLC ("Todd/Veredus") 101 South Fifth Street, Suite 3160, Louisville, KY 40202
Todd/Veredus (whose predecessor firm is Todd Investment Advisors, Inc. (the "Predecessor Firm")) 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 the Predecessor Firm in 1996 and is the President and CIO of Todd/Veredus. Mr. Scott is supported by John J. White, CFA. John J. White is a Portfolio Manager and Director of Todd/Veredus and joined the Predecessor Firm in 2002. Mr. White worked as a Director of Equity Research and Investment Strategy at Wachovia Securities from 1994 until 2002. Mr. Scott has managed the Fund since its inception. Mr. White has managed the Fund since 2002.
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. During the time of Mr. Schneider's management of the PIMCO Value Fund, the PIMCO Value Fund had 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 and collaborate on all investment decisions with respect to the Fund. Ms. Suvall has been a portfolio manager of the Fund since May 2001 and Mr. Gibbons has been a portfolio manager of the Fund since April 2008. Prior to April 2008, Mr. Gibbons was an analyst for the Fund covering a variety of sectors including chemicals, energy, health care, industrials and materials. Ms. Suvall is a Group 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, L.P. ("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. Coverage of industry sectors is divided among the investment committee members.
William A. Muggia is the lead portfolio manager and is the President, Chief Executive Officer, Chief Investment Officer and Partner of Westfield. Mr. Muggia covers the healthcare and energy sectors, as well as provides overall market strategy. He has worked at Westfield since 1994 and has managed the Fund since 1999. Arthur J. Bauernfeind, Chairman, is Westfield's economist. He has worked at Westfield since 1990 and has managed the Fund since its inception. Ethan J. Meyers, Partner, covers the consumer services, industrials and information technology sectors. He has worked at Westfield since 1999 and has managed the Fund since 1999. Scott R. Emerman, Partner, covers the consumer discretionary and consumer staples sectors. He has worked at Westfield since 2002 and has managed the Fund since 2002. Matthew W. Strobeck, Partner, covers the healthcare sector. He has worked at Westfield since 2003 and has managed the Fund since August 2008. Mr. Bauernfeind, Mr. Meyers, Mr. Emerman and Mr. Strobeck will discuss cash flow situations with Mr. Muggia and are able to perform the same duties in Mr. Muggia's absence.
Sub-Advisory Fees
Touchstone Advisors pays sub-advisory fees to each Sub-Advisor from its advisory fee. The fees that each sub-advisor receives are included in the advisory fee.
Additional Information
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, 2009 Annual Report.
SHARE CLASS OFFERINGS. Each Fund currently offers the classes of shares listed below. The Funds' Class Y shares and Institutional shares are offered in separate prospectuses. For information about the Class Y shares or Institutional 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 Institutional
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Diversified Small Cap Growth Fund X X X
Growth Opportunities Fund X 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 X
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* Class B shares of the Mid Cap Growth Fund and Large Cap Growth Fund are no longer offered for purchase.
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 selling 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 a selling agreement with Touchstone.
o Purchases by a trust department of any financial institution in its capacity as trustee to any trust.
o Purchases through authorized 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 ARE CLOSED TO ALL PURCHASES.
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 will 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 completely verify your identity through our verification process, 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 completely 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 the Touchstone Funds to receive purchase and sales orders on their behalf. If the processing organization is not authorized, then your purchase order could be rejected which could subject your investment to market risk. When shares are purchased with an Authorized Processing Organization, there may be various differences compared to investing directly with Touchstone. 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
Touchstone considers a purchase or sales order as received when an authorized processing organization, or its authorized designee, receives the order in proper form. These orders will be priced based on the Fund's NAV (or offering price, if applicable) next computed after such order is received in proper form.
Shares held through an Authorized Processing Organization may be transferred into your name following procedures established by your Authorized Processing Organization and Touchstone. Certain Authorized Processing Organizations may receive compensation from the Funds, Touchstone, Touchstone Advisors or their affiliates.
It is the responsibility of an Authorized 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.
SPECIAL TAX CONSIDERATION
You should consult with your tax advisor as to the federal income tax consequences to you upon your transfer of securities to a Fund in exchange for Fund shares.
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 Authorized Processing Organization
o You may also sell shares by contacting your financial advisor or Authorized 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 Authorized Processing Organization.
o Your financial advisor or Authorized 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 exchange limits and excessive
trading policies generally do not apply to purchases and redemptions of money
market funds (except in situations where excessive trading may have a
detrimental or disruptive effect on share prices or portfolio management of
these funds), 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 AUTHORIZED PROCESSING ORGANIZATIONS. Proceeds that are sent to your financial advisor or Authorized Processing Organization will not usually be reinvested for you unless you provide specific instructions to do so. Therefore, the financial advisor or Authorized 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 (see "Minimum Investment Requirements"), 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 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 including federal income tax on the amount by which the fair market value of the securities sold exceeds the basis of the Fund shares redeemed. Until such time as the shareholder sells the securities they receive in kind, the securities are subject to market risk.
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 readily 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 which the Board of Trustees has determined as fair value.
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, but before the close of regular trading on the NYSE, 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. 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. 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. The Fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that the Fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available. 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 and the impact an investment in the Fund will have on 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 distribution record date, you will be entitled to receive the distribution.
You will receive income dividends and distributions of capital gains 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
GENERAL. The Funds intend to qualify annually to be treated as regulated investment companies under the Code. As such, the Funds will not be subject to federal income taxes on the earnings it distributes to shareholders provided it satisfies certain requirements and restrictions of the Code. If for any taxable year a Fund fails to qualify as a regulated investment company, it will be subject to tax in the same manner as an ordinary corporation and thus will be subject to tax on a graduated basis with a maximum tax rate of 35%. Also, all distributions from earnings and profits (as determined under federal income tax principles) to you will be taxable as ordinary dividend income eligible for the 15% non-corporate shareholder rate (for taxable years beginning prior to January 1, 2011) and the dividends-received deduction for corporate shareholders.
DISTRIBUTIONS. The Funds will make distributions to you that may be taxed as ordinary income or capital gains (which 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. Net investment income, except for qualified dividends, and short-term capital gains that are distributed to you are taxable as ordinary income for federal income tax purposes regardless of how long you have held your Fund shares. Certain dividends distributed to noncorporate shareholders in taxable years beginning before January 1, 2011 and designated by a Fund as "qualified dividend income" are eligible for the long-term capital gain rate of 15% (0% for individuals in lower tax brackets). 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.
NET CAPITAL GAINS. Net capital gains (i.e., the excess of net long-term capital gains over net short-term capital losses) distributed to you, if any, 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%.
SALE OF SHARES. It is a taxable event for you if you sell shares of the Fund. Depending on the purchase price and the sale price of the shares you sell, you may have a taxable gain or loss on the transaction.
SPECIAL TAX CONSIDERATION
For federal income tax purposes, an exchange of shares in one Fund for shares of another Fund 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.
This section is only a summary of some important income tax considerations that may affect your investment in the Fund. More information regarding these considerations is included in our SAI. You are urged to consult your tax advisor regarding the effects of an investment in the Fund on your tax situation.
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 each of the 5 years in the period ended March 31, 2009 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 2009 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 A
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
-----------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD
MARCH 31, ENDED
------------------------ MARCH 31,
2009 2008 2007(A)
-----------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 9.80 $ 11.64 $ 10.00
-----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.02) 0.50 (0.07)
Net realized and unrealized gains (losses) on investments (3.51) (1.15) 1.71
-----------------------------------------------------------------------------------------------------------
Total from investment operations (3.53) (0.65) 1.64
-----------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (1.19) --
-----------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 6.27 $ 9.80 $ 11.64
-----------------------------------------------------------------------------------------------------------
Total return(B) (36.02%) (7.28%) 16.40%(C)
===========================================================================================================
Net assets at end of period (000's) $ 9,054 $ 22,955 $ 5,846
===========================================================================================================
Ratio of net expenses to average net assets 1.40% 1.40% 1.40%(D)
Ratio of net investment income (loss) to average net assets (0.22%) 0.33% (1.15%)(D)
Portfolio turnover rate 113% 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
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
-----------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2009 2008(A)
-----------------------------------------------------------------------------------
Net asset value at beginning of period $ 9.75 $ 12.44
-----------------------------------------------------------------------------------
Loss from investment operations:
Net investment loss (0.08) (0.22)
Net realized and unrealized losses on investments (3.47) (1.28)
-----------------------------------------------------------------------------------
Total from investment operations (3.55) (1.50)
-----------------------------------------------------------------------------------
Distributions from net realized gains -- (1.19)
-----------------------------------------------------------------------------------
Net asset value at end of period $ 6.20 $ 9.75
===================================================================================
Total return(B) (36.41%) (13.66%)(C)
===================================================================================
Net assets at end of period (000's) $ 2,267 $ 4,228
===================================================================================
Ratio of net expenses to average net assets 2.15% 0.84%(D)
Ratio of net investment loss to average net assets (0.98%) (17.70%)(D)
Portfolio turnover rate 113% 99%
|
(A) Represents the period from commencement of operations (August 1, 2007)
through March 31, 2008.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
GROWTH OPPORTUNITIES FUND--CLASS A
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------------------------
2009 2008 2007 2006 2005
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 21.68 $ 20.75 $ 21.57 $ 17.92 $ 18.06
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.15) (0.24) (0.35) (0.21) (0.24)
Net realized and unrealized gains (losses) on investments (7.12) 1.17 (0.47) 3.86 0.10
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (7.27) 0.93 (0.82) 3.65 (0.14)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 14.41 $ 21.68 $ 20.75 $ 21.57 $ 17.92
====================================================================================================================================
Total return(A) (33.53%) 4.48% (3.80%) 20.37% (0.78%)
====================================================================================================================================
Net assets at end of year (000's) $ 17,973 $ 26,349 $ 35,723 $ 98,004 $ 81,313
====================================================================================================================================
Ratio of net expenses to average net assets 1.51% 1.55% 1.79% 1.64% 1.68%
Ratio of net investment loss to average net assets (0.70%) (0.89%) (1.12%) (1.09%) (1.14%)
Portfolio turnover rate 60% 82% 161% 80% 35%
|
(A) Total returns shown exclude the effect of applicable sales loads.
GROWTH OPPORTUNITIES FUND--CLASS C
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
-----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------------------
2009 2008 2007 2006 2005
-----------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 20.42 $ 19.63 $ 20.60 $ 17.11 $ 17.39
-----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.29) (0.35) (0.54) (0.40) (0.40)
Net realized and unrealized gains (losses) on investments (6.58) 1.14 (0.43) 3.89 0.12
-----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (6.87) 0.79 (0.97) 3.49 (0.28)
-----------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 13.55 $ 20.42 $ 19.63 $ 20.60 $ 17.11
===================================================================================================================================
Total return(A) (33.64%) 4.02% (4.71%) 20.40% (1.61%)
===================================================================================================================================
Net assets at end of year (000's) $ 6,262 $ 11,115 $ 11,957 $ 22,412 $ 21,789
===================================================================================================================================
Ratio of net expenses to average net assets 2.27% 2.30% 2.71% 2.57% 2.61%
Ratio of net investment loss to average net assets (1.46%) (1.60%) (2.00%) (2.01%) (2.04%)
Portfolio turnover rate 60% 82% 161% 80% 35%
|
(A) Total returns shown exclude the effect of applicable sales loads.
LARGE CAP CORE EQUITY FUND--CLASS A
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------------------------
2009 2008 2007 2006 2005
----------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 10.36 $ 11.36 $ 10.49 $ 9.48 $ 9.10
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.12 0.10 0.11 0.06 0.11
Net realized and unrealized gains (losses) on investments (3.77) (0.62) 0.91 0.96 0.38
----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (3.65) (0.52) 1.02 1.02 0.49
----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.11) (0.10) (0.15) (0.01) (0.11)
Distributions from net realized gains (0.60) (0.38) -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.71) (0.48) (0.15) (0.01) (0.11)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 6.00 $ 10.36 $ 11.36 $ 10.49 $ 9.48
==================================================================================================================================
Total return(A) (35.73%) (5.03%) 9.83% 10.74% 5.32%
==================================================================================================================================
Net assets at end of year (000's) $ 45,073 $ 84,611 $ 95,175 $ 25,693 $ 9,328
==================================================================================================================================
Ratio of net expenses to average net assets 1.15% 1.15% 1.15% 1.00% 1.00%
Ratio of net investment income to average net assets 1.38% 0.89% 0.97% 1.03% 1.18%
Portfolio turnover rate 51% 52% 54% 6% 7%
|
(A) Total returns shown exclude the effect of applicable sales loads.
LARGE CAP CORE EQUITY FUND--CLASS C
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------------------------
2009 2008 2007 2006 2005
----------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 10.29 $ 11.29 $ 10.39 $ 9.46 $ 9.08
----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.04 0.01 (0.02) 0.03 0.04
Net realized and unrealized gains (losses) on investments (3.72) (0.61) 0.96 0.91 0.37
----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (3.68) (0.60) 0.94 0.94 0.41
----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.06) (0.02) (0.04) (0.01) (0.03)
Distributions from net realized gains (0.60) (0.38) -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.66) (0.40) (0.04) (0.01) (0.03)
----------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 5.95 $ 10.29 $ 11.29 $ 10.39 $ 9.46
==================================================================================================================================
Total return(A) (36.23%) (5.72%) 9.09% 9.91% 4.52%
==================================================================================================================================
Net assets at end of year (000's) $ 1,858 $ 2,913 $ 4,231 $ 1,399 $ 1,675
==================================================================================================================================
Ratio of net expenses to average net assets 1.90% 1.90% 1.90% 1.75% 1.75%
Ratio of net investment income (loss) to average net assets 0.70% 0.13% (0.26%) 0.26% 0.41%
Portfolio turnover rate 51% 52% 54% 6% 7%
|
(A) Total returns shown exclude the effect of applicable sales loads.
LARGE CAP GROWTH FUND--CLASS A
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------------------------
2009 2008 2007 2006 2005
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 24.45 $ 22.06 $ 23.26 $ 19.84 $ 17.31
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.09 0.02 (0.04) (0.02) (0.02)
Net realized and unrealized gains (losses) on investments (9.80) 2.37 (1.16) 3.44 2.55
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (9.71) 2.39 (1.20) 3.42 2.53
------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.01) -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 14.73 $ 24.45 $ 22.06 $ 23.26 $ 19.84
====================================================================================================================================
Total return(A) (39.71%) 10.83% (5.16%) 17.24% 14.62%
====================================================================================================================================
Net assets at end of year (000's) $ 418,808 $ 719,488 $ 656,582 $ 838,120 $ 274,121
====================================================================================================================================
Ratio of net expenses to average net assets 1.25% 1.25% 1.16% 1.17% 1.26%
Ratio of net investment income (loss) to average net assets 0.41% 0.06% (0.16%) (0.13%) (0.23%)
Portfolio turnover 126% 72% 115% 104% 127%
|
(A) Total returns shown exclude the effect of applicable sales loads.
LARGE CAP GROWTH FUND--CLASS B
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------------------------
2009 2008 2007 2006 2005
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 23.68 $ 21.46 $ 22.83 $ 19.60 $ 17.24
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.08) (0.15) (0.21) (0.15) (0.12)
Net realized and unrealized gains (losses) on investments (9.38) 2.37 (1.16) 3.38 2.48
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (9.46) 2.22 (1.37) 3.23 2.36
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 14.22 $ 23.68 $ 21.46 $ 22.83 $ 19.60
====================================================================================================================================
Total return(A) (39.95%) 10.34% (6.00%) 16.48% 13.69%
====================================================================================================================================
Net assets at end of year (000's) $ 14,186 $ 29,829 $ 26,669 $ 27,781 $ 10,579
====================================================================================================================================
Ratio of net expenses to average net assets 2.00% 2.00% 2.02% 2.08% 2.25%
Ratio of net investment loss to average net assets (0.35%) (0.65%) (0.98%) (1.02%) (1.23%)
Portfolio turnover rate 126% 72% 115% 104% 127%
|
(A) Total returns shown exclude the effect of applicable sales loads.
LARGE CAP GROWTH FUND--CLASS C
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------------------------
2009 2008 2007 2006 2005
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 23.74 $ 21.52 $ 22.88 $ 19.62 $ 17.24
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.07) (0.14) (0.20) (0.11) (0.08)
Net realized and unrealized gains (losses) on investments (9.42) 2.36 (1.16) 3.37 2.46
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (9.49) 2.22 (1.36) 3.26 2.38
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 14.25 $ 23.74 $ 21.52 $ 22.88 $ 19.62
====================================================================================================================================
Total return(A) (39.97%) 10.32% (5.94%) 16.62% 13.81%
====================================================================================================================================
Net assets at end of year (000's) $ 137,641 $ 236,582 $ 190,261 $ 188,810 $ 48,446
====================================================================================================================================
Ratio of net expenses to average net assets 2.00% 2.00% 1.95% 1.98% 2.03%
Ratio of net investment loss to average net assets (0.33%) (0.66%) (0.92%) (0.93%) (0.97%)
Portfolio turnover rate 126% 72% 115% 104% 127%
|
(A) Total returns shown exclude the effect of applicable sales loads.
LARGE CAP VALUE FUND--CLASS A
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
-------------------------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED MARCH 31, ENDED
--------------------------------------- MARCH 31,
2009 2008 2007 2006(A)
-------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 6.41 $ 11.15 $ 10.19 $ 10.00
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.06 0.10 0.04 0.01
Net realized and unrealized gains (losses) on investments (4.58) (4.15) 1.19 0.18
-------------------------------------------------------------------------------------------------------------------------
Total from investment operations (4.52) (4.05) 1.23 0.19
-------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.08) (0.09) (0.04) --
Distributions from net realized gains -- (0.60) (0.23) --
-------------------------------------------------------------------------------------------------------------------------
Total distributions (0.08) (0.69) (0.27) --
-------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 1.81 $ 6.41 $ 11.15 $ 10.19
=========================================================================================================================
Total return(B) (70.60%) (37.31%) 12.12% 1.90%(C)
=========================================================================================================================
Net assets at end of period (000's) $ 5,321 $ 23,609 $ 29,609 $ 11,684
=========================================================================================================================
Ratio of net expenses to average net assets 1.35% 1.35% 1.35% 1.30%(D)
Ratio of net investment income to average net assets 1.30% 1.06% 0.55% 1.34%(D)
Portfolio turnover rate 100% 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
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
-------------------------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED MARCH 31, ENDED
--------------------------------------- MARCH 31,
2009 2008 2007 2006(A)
-------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 6.38 $ 11.09 $ 10.18 $ 10.00
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.03 0.03 (0.01) 0.00(B)
Net realized and unrealized gains (losses) on investments (4.56) (4.14) 1.17 0.18
-------------------------------------------------------------------------------------------------------------------------
Total from investment operations (4.53) (4.11) 1.16 0.18
-------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.06) (0.00)(B) (0.01) --
Distributions from net realized gains -- (0.60) (0.24) --
-------------------------------------------------------------------------------------------------------------------------
Total distributions (0.06) (0.60) (0.25) --
-------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 1.79 $ 6.38 $ 11.09 $ 10.18
=========================================================================================================================
Total return(C) (71.00%) (37.89%) 11.37% 1.80%(D)
=========================================================================================================================
Net assets at end of period (000's) $ 1,764 $ 9,639 $ 15,220 $ 561
=========================================================================================================================
Ratio of net expenses to average net assets 2.10% 2.10% 2.10% 1.89%(E)
Ratio of net investment income (loss) to average net assets 0.55% 0.30% (0.27%) 0.25%(E)
Portfolio turnover rate 100% 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
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------------------------
2009 2008 2007 2006 2005
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 21.16 $ 24.17 $ 24.02 $ 21.42 $ 21.73
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.01) (0.12) (0.14) (0.12) (0.16)
Net realized and unrealized gains (losses) on investments (7.96) 0.01 2.20 4.70 1.03
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (7.97) (0.11) 2.06 4.58 0.87
------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.24) (2.90) (1.91) (1.98) (1.18)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 12.95 $ 21.16 $ 24.17 $ 24.02 $ 21.42
====================================================================================================================================
Total return(A) (37.67%) (1.53%) 8.84% 22.21% 4.13%
====================================================================================================================================
Net assets at end of year (000's) $ 397,756 $ 649,891 $ 713,666 $ 639,501 $ 574,855
====================================================================================================================================
Ratio of net expenses to average net assets 1.50% 1.47% 1.50% 1.50% 1.50%
Ratio of net investment loss to average net assets (0.07%) (0.53%) (0.66%) (0.57%) (0.84%)
Portfolio turnover 71% 64% 58% 69% 85%
|
(A) Total returns shown exclude the effect of applicable sales loads.
MID CAP GROWTH FUND--CLASS B
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------------------------
2009 2008 2007 2006 2005
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 18.13 $ 21.25 $ 21.49 $ 19.50 $ 20.03
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.15) (0.28) (0.30) (0.26) (0.29)
Net realized and unrealized gains (losses) on investments (6.76) 0.06 1.97 4.23 0.94
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (6.91) (0.22) 1.67 3.97 0.65
------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.24) (2.90) (1.91) (1.98) (1.18)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 10.98 $ 18.13 $ 21.25 $ 21.49 $ 19.50
====================================================================================================================================
Total return(A) (38.12%) (2.29%) 8.04% 21.24% 3.37%
====================================================================================================================================
Net assets at end of year (000's) $ 29,521 $ 61,977 $ 74,935 $ 79,552 $ 71,879
====================================================================================================================================
Ratio of net expenses to average net assets 2.25% 2.25% 2.25% 2.25% 2.25%
Ratio of net investment loss to average net assets (0.85%) (1.31%) (1.42%) (1.32%) (1.60%)
Portfolio turnover rate 71% 64% 58% 69% 85%
|
(A) Total returns shown exclude the effect of applicable sales loads.
MID CAP GROWTH FUND--CLASS C
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
---------------------------------------------------------------------
2009 2008 2007 2006 2005
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year $ 18.15 $ 21.27 $ 21.51 $ 19.51 $ 20.04
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.14) (0.27) (0.28) (0.25) (0.30)
Net realized and unrealized gains (losses) on investments (6.78) 0.05 1.95 4.23 0.95
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (6.92) (0.22) 1.67 3.98 0.65
------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.24) (2.90) (1.91) (1.98) (1.18)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of year $ 10.99 $ 18.15 $ 21.27 $ 21.51 $ 19.51
====================================================================================================================================
Total return(A) (38.14%) (2.28%) 8.04% 21.28% 3.36%
====================================================================================================================================
Net assets at end of year (000's) $ 158,782 $ 302,422 $ 345,997 $ 327,867 $ 284,966
====================================================================================================================================
Ratio of net expenses to average net assets 2.25% 2.24% 2.25% 2.25% 2.25%
Ratio of net investment loss to average net assets (0.84%) (1.30%) (1.41%) (1.32%) (1.60%)
Portfolio turnover 71% 64% 58% 69% 85%
|
(A) Total returns shown exclude the effect of applicable sales loads.
Touchstone Investments
DISTRIBUTOR
Touchstone Securities, Inc.*
303 Broadway, Suite 1100
Cincinnati, OH 45202-4203
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
The following are federal trademark registrations and applications owned by IFS
Financial Services, Inc., a member of Western & Southern Financial Group:
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 by contacting Touchstone Investments at 1.800.543.0407.
The SAI and Financial Reports are also available on the Touchstone Investments website at www.touchstoneinvestments.com/home/formslit/ Information about the Funds (including the SAI) can be reviewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, D.C. You can receive information about the operation of the Public Reference Room by calling the SEC at 1.202.942.8090.
Reports and other information about the Funds are available on the 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, 2009
Prospectus
TOUCHSTONE STRATEGIC TRUST - INSTITUTIONAL SHARES
Touchstone Growth Opportunities 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, 2009
Touchstone Investments Institutional Shares
Symbol
Touchstone Growth Opportunities Fund TGVVX
|
The Touchstone Growth Opportunities 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, 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 Investments at 1.800.543.0407.
The Fund is managed by Touchstone Advisors, Inc. ("Touchstone Advisors" or the "Advisor"). Touchstone Advisors has selected Westfield Capital Management Company, L.P. ("Westfield" or the "Sub-Advisor") to manage the Fund's investments on a daily basis.
Table of Contents
Page
Growth Opportunities Fund
Investment Strategies and Risks
The Fund's Management
Investing With Touchstone
Distributions and Taxes
Financial Highlights
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 up to 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 To the extent a fund focuses 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 focus 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 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. Since the Fund's Institutional shares have not operated for a full calendar year, the 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 table compares the Fund's Class A average annual total returns (before and after taxes) for the period ended December 31, 2008 to those of the Russell 3000 Growth Index. The returns for the Institutional shares offered by the Fund will differ from the Class A returns. 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 and depend on your tax situation. The after-tax 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.*
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*
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
68.25% -2.56% -28.47% -35.76% 39.74% 8.52% 9.07% 0.10% 17.15% -39.32%
Best Quarter:
4th Quarter 1999 +47.98%
Worst Quarter:
3rd Quarter 2001 -26.71%
|
* These returns are for a class of shares that are not offered in this Prospectus, but that would have substantially similar annual returns because the shares are invested in the same portfolio of securities and the annual returns would differ only to the extent that the classes do not have the same expenses.
The year-to-date return for the Fund's Class A shares as of June 30, 2009 is 8.75%.
Average Annual Total Returns
For the period ended December 31, 2008
1 Year 5 Years 10 Years
--------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND-CLASS A
Return Before Taxes -42.81% -4.51% -1.78%
Return After Taxes on Distributions -42.81% -4.51% -2.12%
Return After Taxes on Distributions and Sale of -27.82% -3.78% -1.55%
Fund Shares(1)
Russell 3000 Growth Index(2) -38.44% -3.33% -4.01%
--------------------------------------------------------------------------------
|
(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 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.
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
Institutional shares of the Fund:
Shareholder Fees
(fees paid directly from your investment)
--------------------------------------------------------------------------------
None
--------------------------------------------------------------------------------
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
--------------------------------------------------------------------------------
Management Fees(1) 0.83%
Other Expenses(2) 0.88%
Total Annual Fund Operating Expenses 1.71%
Less Fee Waiver and/or Expense Reimbursement(3) 0.87%
Net Expenses(4) 0.84%
--------------------------------------------------------------------------------
|
(1) "Management Fees" have been restated to reflect that the Board of Trustees approved a change to the Fund's advisory fee schedule effective February 2, 2009. Under the previous fee schedule, the Fund paid 1.00% of the first $50 million of average net assets, 0.90% of the next $50 million of average net assets, 0.80% of the next $900 million of average net assets and 0.75% on assets over $1 billion. Under the amended fee schedule, the Fund pays a fee of 0.83% of the first $500 million of average net assets, 0.80% of the next $500 million of average net assets and 0.75% on assets over $1 billion.
(2) "Other Expenses" are based on estimated amounts for the current fiscal year.
(3) Touchstone Advisors and the Trust have entered into an expense limitation agreement whereby Touchstone Advisors has contractually agreed to waive a portion of its fees and/or reimburse certain Fund expenses in order to limit annual fund operating expenses (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, the cost of "Acquired Fund Fees and Expenses," if any, and other extraordinary expenses not incurred in the ordinary course of Touchstone's business). This expense limitation will remain in effect until at least July 31, 2010. Touchstone Advisors, Inc. has no ability to recoup amounts waived or reimbursed. Pursuant to this agreement, "Net Expenses" will not exceed 0.84%.
(4) "Net Expenses" shown above will differ from the "Net Expenses" reflected in the Fund's Annual Report for the fiscal year ended March 31, 2009. The actual "Net Expenses" for the fiscal year ended March 31, 2009 were 0.82%.
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). Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 Year $86 3 Years $275 5 Years $479 10 Years $1,070 -------------------------------------------------------------------------------- |
The above example is for comparison purposes only and is not a representation of a Fund's actual expenses and returns, either past or future.
Can a 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 goal.
Does the Fund Engage in Active Trading of Securities?
The Fund may engage in active trading to achieve its investment goal. 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 Goal Without Shareholder Approval?
The 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.
Does the Fund Have Other Investment Strategies, in Addition to its Principal
Investment Strategy?
GROWTH OPPORTUNITIES FUND. The Fund may also invest in:
o Securities of foreign issuers, including American depositary receipts ("ADRs"), American depositary shares ("ADSs") and other depositary receipts (up to 10% of total assets)
o Securities of foreign issuers in emerging market countries (up to 10% of total assets)
o Initial public offerings (up to 10% of total assets)
o Other investment companies (up to 10% of total assets)
Additional Information About Fund Investments
FOREIGN COMPANIES (or Issuers) 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.
Market Capitalizations. 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, but are not limited to:
o Price relative to earnings
o Price relative to cash flow
o Price relative to financial strength
EMERGING MARKET COUNTRIES are generally countries that are not included in the MSCI World Index. As of June 30, 2009, the countries in the MSCI World Index included: 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. The country composition of the MSCI World Index can change over time. 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 Baa3 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 TECHNOLOGY SECURITIES. The value of technology securities may fluctuate dramatically and technology securities may be subject to greater than average financial and market risk. Investments in the high technology sector include the risk that certain products may be subject to competitive pressures and aggressive pricing and may become obsolete and the risk that new products will not meet expectations or even reach the market.
NON-DIVERSIFICATION RISK. Subject to federal income tax restrictions relating to the Fund's qualification as a RIC, a non-diversified fund may invest a significant percentage of its assets in the securities of a single company. Because a higher percentage of 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. 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. 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 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"). More information on securities lending is available in the Statement of Additional Information ("SAI").
Market Disruption Risk. The United States has recently experienced significant disruption to its financial markets impacting the liquidity and volatility of securities generally, including securities in which the Fund may invest. During periods of extreme market volatility, prices of securities held by the Fund may be negatively impacted due to imbalances between market participants seeking to sell the same or similar securities and market participants willing or able to buy such securities. As a result, the market prices of securities held by the Fund could go down, at times without regard to the financial condition of or specific events impacting the issuer of the security.
The recent instability in the financial markets has led the U.S. Government to take a number of unprecedented actions designed to support certain financial institutions and segments of the financial markets that have experienced extreme volatility, and in some cases a lack of liquidity. Federal, state, and other governments, their regulatory agencies, or self regulatory organizations may take actions that affect the regulation of the instruments in which the Fund invests, or the issuers of such instruments, in ways that are unforeseeable. Legislation or regulation may also change the way in which the Fund itself is regulated. Such legislation or regulation could limit or preclude the Fund's ability to achieve its investment goal.
Governments or their agencies may also acquire distressed assets from financial institutions and acquire ownership interests in those institutions. The implications of government ownership and disposition of these assets are unclear, and such a program may have positive or negative effects on the liquidity, valuation and performance of the Fund's portfolio holdings. Furthermore, volatile financial markets can expose the Fund to greater market and liquidity risk and potential difficulty in valuing portfolio instruments held by the Fund. The Fund has established procedures to assess the liquidity of portfolio holdings and to value instruments for which market prices may not be readily available. The Advisor and Sub-Advisor will monitor developments and seek to manage the Fund in a manner consistent with achieving the Fund's investment goal, but there can be no assurance that it will be successful in doing so.
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 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, 2009, Touchstone Advisors had approximately $5.3 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(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 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(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 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 to be paid by the Fund to Touchstone Advisors during the Fund's current fiscal year, based on the average daily net assets of the Fund at an annualized rate, is 0.83%.*
* The Board of Trustees approved a change to the Fund's advisory fee schedule effective February 2, 2009. Under the previous fee schedule, the Fund paid 1.00% of the first $50 million of average net assets, 0.90% of the next $50 million of average net assets, 0.80% of the next $900 million of average net assets and 0.75% on assets over $1 billion. Under the amended fee schedule, the Fund pays a fee of 0.83% of the first $500 million of average net assets, 0.80% of the next $500 million of average net assets and 0.75% on assets over $1 billion. The fee paid by the Fund to Touchstone Advisors during the Fund's most recent fiscal year was 1.00%.
Contractual Fee Waiver Agreement
Touchstone Advisors has contractually agreed to waive fees and reimburse expenses in order to keep the Fund's total operating expenses (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, the cost of "Acquired Fund Fees and Expenses," if any, and other extraordinary expenses not incurred in the ordinary course of Touchstone's business) limited. As a result, the Fund's total operating expenses will not exceed 0.84%. 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, 2010.
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 goal and strategies.
Westfield Capital Management Company, L.P. ("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. Coverage of industry sectors is divided among the investment committee members.
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. He covers the Healthcare and Energy sectors, as well as provides overall market strategy. Mr. Muggia has worked at Westfield since 1994. Arthur J. Bauernfeind is the Chairman and has worked at Westfield since 1990. He is Westfield's economist. Ethan J. Meyers, Partner, has worked at Westfield since 1999. He covers the consumer services, industrials and information technology sectors. Scott R. Emerman, Partner, has worked at Westfield since 2002. He covers the Consumer Discretionary and Consumer Staples sectors. Matthew W. Strobeck, Partner, has worked at Westfield since 2003. He covers the Healthcare sector. Mr. Bauernfeind, Mr. Meyers, Mr. Emerman and Mr. Strobeck will discuss cash flow situations with Mr. Muggia and are able to perform the same duties in Mr. Muggia's absence. 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-Advisory Fees
Touchstone Advisors pays sub-advisory fees to the Sub-Advisor from its advisory fee. The fees that the Sub-Advisor receives are included in the advisory fee.
Additional Information
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 can be found in the Trust's March 31, 2009 Annual Report.
SHARE CLASS OFFERINGS. The Fund currently offers Class A, Class C, Class Y and Institutional shares. The Fund's Class A, Class C and Class Y shares are offered in separate prospectuses. For information about the Class A shares, Class C shares and 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.
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 www.touchstoneinvestments.com.
MINIMUM INVESTMENT REQUIREMENTS. The minimum initial investment in Institutional shares of the Fund is $500,000. There is no minimum for additional purchases of Institutional 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 will 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 completely verify your identity through our verification process, 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 completely 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 Institutional 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 Institutional 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 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 the Touchstone Funds to receive purchase and sales orders on their behalf. If the processing organization is not authorized, then your purchase order could be rejected which could subject your investment to market risk. When shares are purchased with an Authorized Processing Organization, there may be various differences compared to investing directly with Touchstone. 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 an Authorized Processing Organization may be transferred into your name following procedures established by your Authorized Processing Organization and Touchstone. Certain Authorized Processing Organization may receive compensation from the Fund, Touchstone, Touchstone Advisors or their affiliates.
It is the responsibility of an Authorized 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.
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
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 Institutional 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 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 an Authorized Processing Organization
o You may also sell shares by contacting your financial institution or an Authorized 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 Authorized Processing Organization.
o Your financial institution or Authorized 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 During any other time when the SEC, by order, permits
LOW ACCOUNT BALANCES. If your balance falls below the minimum amount of $500,000 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 including federal income tax on the amount by which the fair market value of the securities sold exceeds the basis of the Fund shares redeemed. Until such time as the shareholder sells the securities they receive in kind, the securities are subject to market risk.
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 exchange limits and excessive
trading policies generally do not apply to purchases and redemptions of money
market funds (except in situations where excessive trading may have a
detrimental or disruptive effect on share prices or portfolio management of
these funds), 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 readily 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 which the Board of Trustees has determined as fair value.
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, but before the close of regular trading on the NYSE, 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. Any debt securities held by the 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. 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. The Fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that the Fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available. 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 and the impact an investment in the Fund will have on 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 distribution record date, you will be entitled to receive the distribution.
You will receive income dividends and distributions of capital gains 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
GENERAL. The Fund intends to qualify annually to be treated as regulated investment company under the Code. As such, the Fund will not be subject to federal income taxes on the earnings it distributes to shareholders provided it satisfies certain requirements and restrictions of the Code. If for any taxable year the Fund fails to qualify as a regulated investment company, it will be subject to tax in the same manner as an ordinary corporation and thus will be subject to tax on a graduated basis with a maximum tax rate of 35%. Also, all distributions from earnings and profits (as determined under federal income tax principles) to you will be taxable as ordinary dividend income eligible for the 15% non-corporate shareholder rate (for taxable years beginning prior to January 1, 2011) and the dividends-received deduction for corporate shareholders.
DISTRIBUTIONS. The Fund will make distributions to you that may be taxed as ordinary income or capital gains (which 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. Net investment income, except for qualified dividends, and short-term capital gains that are distributed to you are taxable as ordinary income for federal income tax purposes regardless of how long you have held your Fund shares. Certain dividends distributed to noncorporate shareholders in taxable years beginning before January 1, 2011 and designated by a Fund as "qualified dividend income" are eligible for the long-term capital gain rate 15% (0% for individuals in lower tax brackets). 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.
NET CAPITAL GAINS. Net capital gains (i.e., the excess of net long-term capital gains over net short-term capital losses) distributed to you, if any, 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%.
Sale of Shares. It is a taxable event for you if you sell shares of the Fund. Depending on the purchase price and the sale price of the shares you sell, you may have a taxable gain or loss on the transaction.
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.
This section is only a summary of some important income tax considerations that may affect your investment in the Fund. More information regarding these considerations is included in our SAI. You are urged to consult your tax advisor regarding the effects of an investment in the Fund on your tax situation.
The financial highlights table is intended to help you understand the Fund's
financial performance for the past 5 years, or if shorter, the period of the
Fund's operation. Some of this information reflects financial information for a
single Fund share. The total returns in the table represent the rate an investor
would have earned (or lost) on an investment in the Fund, assuming reinvestment
of all dividends and distributions. The financial highlights for the Fund for
each of the 5 years in the period ended March 31, 2009 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 2009 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.
GROWTH OPPORTUNITIES FUND--INSTITUTIONAL CLASS
2009(A)
--------------------------------------------------------------------------------
Net asset value at beginning of period $ 14.37
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.00)(B)
Net realized and unrealized gains on investments 0.05
--------------------------------------------------------------------------------
Total from investment operations 0.05
--------------------------------------------------------------------------------
Net asset value at end of period $ 14.42
================================================================================
Total return 0.35%(C)
================================================================================
Net assets at end of period (000's) $ 3
================================================================================
Ratio of net expenses to average net assets 0.82%(D)
Ratio of net investment income to average net assets 0.36%(D)
Portfolio turnover rate 60%
(A) Represents the period from commencement of operations (February 2, 2009)
through March 31, 2009.
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(B) Amount rounds to less than $0.01.
(C) Not annualized.
(D) Annualized.
Touchstone Investments
DISTRIBUTOR
Touchstone Securities, Inc.*
303 Broadway, Suite 1100
Cincinnati, OH 45202-4203
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
The following are federal trademark registrations and applications owned by IFS
Financial Services, Inc., a member of Western & Southern Financial Group:
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 by contacting Touchstone Investments at 1.800.543.0407.
The SAI and Financial Reports are also available on the Touchstone Investments website at www.touchstoneinvestments.com/home/formslit/
Information about the Fund (including the SAI) can be reviewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, D.C. You can receive information about the operation of the Public Reference Room by calling the SEC at 1.202.942.8090.
Reports and other information about the Fund are available on the 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, 2009
Prospectus
TOUCHSTONE STRATEGIC TRUST - CLASS Y SHARES
Touchstone Diversified Small Cap Growth Fund
Touchstone Large Cap Growth Fund
Touchstone Growth Opportunities 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.
Prospectus August 1, 2009
Touchstone Investments Class Y Shares
Symbol
Touchstone Diversified Small Cap Growth Fund TDSIX
Touchstone Large Cap Growth Fund TIQIX
Touchstone Growth Opportunities Fund TGVYX
Touchstone Mid Cap Growth Fund TEGYX
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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, 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 Investments 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
Growth Opportunities Fund
Mid 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 or a market capitalization represented within the range of the Russell 2000 Index (between $78 million and $1.68 billion as of the latest reconstitution on May 31, 2009). 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, 2008 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 and depend on your tax situation. The after-tax 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 2008
17.19% -42.58%
Best Quarter:
2nd Quarter 2007 +9.43%
Worst Quarter:
4th Quarter 2008 -28.02%
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The year-to-date return for the Fund's Class Y shares as of June 30, 2009 is 9.66%.
Average Annual Total Returns
For the period ended December 31, 2008
Since Class
1 Year Started(1)
DIVERSIFIED SMALL CAP GROWTH FUND - CLASS Y
-------------------------------------------------------------------------------------------------------------------
Return Before Taxes -42.58% -12.13%
Return After Taxes on Distributions -42.58% -13.22%
Return After Taxes on Distributions and Sale of Fund Shares(2) -27.68% -10.45%
Russell 2000 Growth Index(3) -38.54% -13.57%
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(1) Class Y shares began operations on September 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 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 0.61%
Total Annual Fund Operating Expenses 1.66%
Less Fee Waiver and/or Expense Reimbursement(1) 0.51%
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 fees and/or reimburse certain Fund expenses in order to limit annual fund operating expenses (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, the cost of "Acquired Fund Fees and Expenses," if any, and other extraordinary expenses not incurred in the ordinary course of Touchstone's business). This expense limitation will remain in effect until at least July 31, 2010. Touchstone Advisors, Inc. has no ability to recoup amounts waived or reimbursed. Pursuant to this agreement, "Net Expenses" will not exceed 1.15%.
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 $474 5 Years $854 10 Years $1,923 -------------------------------------------------------------------------------- |
The above example is for comparison purposes only and is not a representation of a Fund's actual expenses and returns, either past or future.
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 found within the Russell 1000 Index (between $829 million and $338 billion at the time of its most recent reconstitution on May 31, 2009) at the time of purchase..
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, 2008 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 and depend on your tax situation. The after-tax 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*
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
63.03% -7.66% -23.47% -26.70% 35.60% 17.18% 16.57% -3.59% 26.50% -41.47%
Best Quarter:
4th Quarter 1999 40.00%
Worst Quarter:
1st Quarter 2001 -27.98%
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* 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 for the Fund's Class Y shares as of June 30, 2009 is 3.42%.
Average Annual Total Returns
For the period ended December 31, 2008
1 Year 5 Years 10 Years
LARGE CAP GROWTH FUND - CLASS Y(1)
-------------------------------------------------------------------------------------------------------------------
Return Before Taxes -41.47% -0.50% 1.11%
Return After Taxes on Distributions -41.50% -0.51% 1.09%
Return After Taxes on Distributions and Sale of Fund Shares(2) -26.92% -0.43% 0.94%
Russell 1000 Growth Index(3) -38.44% -3.42% -4.27%
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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.
(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 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 0.70%
Other Expenses 0.36%
Total Annual Fund Operating Expenses 1.06%
Less Fee Waiver and/or Expense Reimbursement(1) 0.07%
Net Expenses 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 fees and/or reimburse certain Fund expenses in order to limit annual fund operating expenses (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, the cost of "Acquired Fund Fees and Expenses," if any, and other extraordinary expenses not incurred in the ordinary course of Touchstone's business). This expense limitation will remain in effect until at least July 31, 2010. Touchstone Advisors, Inc. has no ability to recoup amounts waived or reimbursed. Pursuant to this agreement, "Net Expenses" will not exceed 0.99%.
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 $330 5 Years $578 10 Years $1,288 -------------------------------------------------------------------------------- |
The above example is for comparison purposes only and is not a representation of a Fund's actual expenses and returns, either past or future.
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 up to 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 To the extent a fund focuses its investments in a particular market sector or industry, it may be more sensitive to adverse changes within that sector or industry than a fund that does not focus 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.
Performance Note
The bar chart and performance table below illustrate some indication of the risks of investing in the Fund. Since the Fund's Class Y shares have not operated for a full calendar year, the 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 table compares the Fund's Class A average annual total returns (before and after taxes) for the period ended December 31, 2008 to those of the Russell 3000 Growth Index. The returns for Class Y shares offered by the Fund will differ from the Class A returns. 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 and depend on your tax situation. The after-tax 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.*
In July 2006 the Fund replaced its previous sub-advisor with Westfield Capital Management Company, L.P. The performance shown below prior to July 2006 represents the performance of the previous sub-advisor.
Growth Opportunities Fund - Class A Total Returns*
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
68.25% -2.56% -28.47% -35.76% 39.74% 8.52% 9.07% 0.10% 17.15% -39.32%
Best Quarter:
4th Quarter 1999 +47.98%
Worst Quarter:
3rd Quarter 2001 -26.71%
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* These returns are for a class of shares that are not offered in this Prospectus, but that would have substantially similar annual returns because the shares are invested in the same portfolio of securities and the annual returns would differ only to the extent that the classes do not have the same expenses.
The year-to-date return for the Fund's Class A shares as of June 30, 2009 is 8.75%.
Average Annual Total Returns
For the period ended December 31, 2008
1 Year 5 Years 10 Years
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GROWTH OPPORTUNITIES FUND-CLASS A
Return Before Taxes -42.81% -4.51% -1.78%
Return After Taxes on Distributions -42.81% -4.51% -2.12%
Return After Taxes on Distributions and Sale of Fund Shares(1) -27.82% -3.78% -1.55%
Russell 3000 Growth Index(2) -38.44% -3.33% -4.01%
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(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 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.
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)
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Management Fees(1) 0.83%
Other Expenses(2) 0.78%
Total Annual Fund Operating Expenses 1.61%
Less Fee Waiver and/or Expense Reimbursement(3) 0.62%
Net Expenses(4) 0.99%
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(1) "Management Fees" have been restated to reflect that the Board of Trustees approved a change to the Fund's advisory fee schedule effective February 2, 2009. Under the previous fee schedule, the Fund paid 1.00% of the first $50 million of average net assets, 0.90% of the next $50 million of average net assets, 0.80% of the next $900 million of average net assets and 0.75% on assets over $1 billion. Under the amended fee schedule, the Fund pays a fee of 0.83% of the first $500 million of average net assets, 0.80% of the next $500 million of average net assets and 0.75% on assets over $1 billion.
(2) "Other Expenses" are based on estimated amounts for the current fiscal year.
(3) Touchstone Advisors and the Trust have entered into an expense limitation agreement whereby Touchstone Advisors has contractually agreed to waive a portion of its fees and/or reimburse certain Fund expenses in order to limit annual fund operating expenses (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, the cost of "Acquired Fund Fees and Expenses," if any, and other extraordinary expenses not incurred in the ordinary course of Touchstone's business). This expense limitation will remain in effect until at least July 31, 2010. Touchstone Advisors, Inc. has no ability to recoup amounts waived or reimbursed. Pursuant to this agreement, "Net Expenses" will not exceed 0.99%.
(4) "Net Expenses" shown above will differ from the "Net Expenses" reflected in the Fund's Annual Report for the fiscal year ended March 31, 2009. The actual "Net Expenses" for the fiscal year ended March 31, 2009 were 0.97%.
EXAMPLE. This example is intended to help you compare the cost of investing in the 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 $447 5 Years $818 10 Years $1,859 -------------------------------------------------------------------------------- |
The above example is for comparison purposes only and is not a representation of a Fund's actual expenses and returns, either past or future.
The Fund's Investment Goal
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 or within the range of market capitalizations represented in the Russell Midcap Index (between $829 million and $12.2 billion at the time of its most recent reconstitution on May 31, 2009) at the time of purchase. 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, L.P. ("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 will grow faster than the U.S. economy 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 Fund. Since the Fund's Class Y shares have not operated for a full calendar year, the 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 table compares the Fund's Class A average annual total returns (before and after taxes) for the period ended December 31, 2008 to those of the Russell Midcap Growth Index. The returns for Class Y shares offered by the Fund will differ from the Class A returns. 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 and depend on your tax situation. The after-tax 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.*
Mid Cap Growth Fund - Class A Total Return*
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
45.85% 25.92% 7.06% -23.51% 43.35% 10.58% 10.74% 14.26% 12.09% -39.41%
Best Quarter:
4th Quarter 1999 +26.84%
Worst Quarter:
4th Quarter 2008 -26.51%
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* These returns are for a class of shares that are not offered in this Prospectus, but that would have substantially similar annual returns because the shares are invested in the same portfolio of securities and the annual returns would differ only to the extent that the classes do not have the same expenses.
The year-to-date return for the Fund's Class A shares as of June 30, 2009 is 10.51%.
Average Annual Total Returns
For the period ended December 31, 2008
1 Year 5 Years 10 Years
MID CAP GROWTH FUND - CLASS A
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Return Before Taxes -42.89% -2.18% 6.80%
Return After Taxes on Distributions -43.04% -3.34% 4.99%
Return After Taxes on Distributions and Sale of Fund Shares(1) -27.69% -1.68% 5.31%
Russell Midcap Growth Index(2) -44.32% -2.33% -0.19%
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(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.
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 0.80%
Other Expenses(1) 0.71%
Total Annual Fund Operating Expenses 1.51%
Less Fee Waiver and/or Expense Reimbursement(2) 0.26%
Net Expenses 1.25%
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(1) "Other Expenses" are based on estimated amounts for the current fiscal year.
(2) Touchstone Advisors and the Trust have entered into an expense limitation agreement whereby Touchstone Advisors has contractually agreed to waive a portion of its fees and/or reimburse certain Fund expenses in order to limit annual fund operating expenses (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, the cost of "Acquired Fund Fees and Expenses," if any, and other extraordinary expenses not incurred in the ordinary course of Touchstone's business). This expense limitation will remain in effect until at least July 31, 2010. Touchstone Advisors, Inc. has no ability to recoup amounts waived or reimbursed. Pursuant to this agreement, "Net Expenses" will not exceed 1.25%.
EXAMPLE. This example is intended to help you compare the cost of investing in the 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 $127 3 Years $452 5 Years $799 10 Years $1,779 |
The above example is for comparison purposes only and is not a representation of a Fund's actual expenses and returns, either past or future.
Can a Fund Depart From its Normal Investment Strategies?
Each Fund from time to time 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 Securities of foreign issuers, including ADRs, ADSs and other depositary receipts (up to 15% of total assets)
o Securities of foreign issuers in emerging market countries (up to 15% of total assets)
o Investment grade debt securities, cash or cash equivalents
o Initial public offerings
o Other investment companies
GROWTH OPPORTUNITIES FUND. The Fund may also invest in:
o Securities of foreign issuers, including ADRs, ADSs and other depositary receipts (up to 10% of total assets)
o Securities of foreign issuers in emerging market countries (up to 10% of total assets)
o Initial public offerings (up to 10% of total assets)
o Other investment companies (up to 10% of total assets)
MID CAP GROWTH FUND. The Fund may also invest in:
o Securities of foreign issuers, including ADRs, ADSs and other depositary receipts (up to 20% of total assets)
o Securities of foreign issuers 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
Additional Information About Fund Investments
FOREIGN COMPANIES (or Issuers) 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.
Market Capitalizations. 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, but are not limited to:
o Price relative to earnings
o Price relative to cash flow
o Price relative to financial strength
EMERGING MARKET COUNTRIES are generally countries that are not included in the MSCI World Index. As of June 30, 2009, the countries in the MSCI World Index included: 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. The country composition of the MSCI World Index can change over time. 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 Baa3 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 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 (LARGE CAP GROWTH FUND AND GROWTH OPPORTUNITIES FUND). A non-diversified fund may invest a significant percentage of its assets in the securities of a single company. Because a higher percentage of 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 AND GROWTH OPPORTUNITIES 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.
What are Some of the Other Risks of Investing in the Funds?
FOREIGN RISK (ALL FUNDS). 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 (ALL FUNDS). 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 (ALL FUNDS). 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"). More information on securities lending is available in the Statement of Additional Information ("SAI").
Market Disruption Risk (All Funds). The United States has recently experienced significant disruption to its financial markets impacting the liquidity and volatility of securities generally, including securities in which the Funds may invest. During periods of extreme market volatility, prices of securities held by the Funds may be negatively impacted due to imbalances between market participants seeking to sell the same or similar securities and market participants willing or able to buy such securities. As a result, the market prices of securities held by the Funds could go down, at times without regard to the financial condition of or specific events impacting the issuer of the security.
The recent instability in the financial markets has led the U.S. Government to take a number of unprecedented actions designed to support certain financial institutions and segments of the financial markets that have experienced extreme volatility, and in some cases a lack of liquidity. Federal, state, and other governments, their regulatory agencies, or self regulatory organizations may take actions that affect the regulation of the instruments in which the Fund invests, or the issuers of such instruments, in ways that are unforeseeable. Legislation or regulation may also change the way in which the Funds themselves are regulated. Such legislation or regulation could limit or preclude the Funds' ability to achieve their investment goal.
Governments or their agencies may also acquire distressed assets from financial institutions and acquire ownership interests in those institutions. The implications of government ownership and disposition of these assets are unclear, and such a program may have positive or negative effects on the liquidity, valuation and performance of the Funds' portfolio holdings. Furthermore, volatile financial markets can expose the Funds to greater market and liquidity risk and potential difficulty in valuing portfolio instruments held by the Funds. The Funds have established procedures to assess the liquidity of portfolio holdings and to value instruments for which market prices may not be readily available. The Advisor and Sub-Advisors will monitor developments and seek to manage the Funds in a manner consistent with achieving the Funds' investment goals, but there can be no assurance that it will be successful in doing so.
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 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, 2009, Touchstone Advisors had approximately $5.3 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). [The Mid Cap Growth Fund will obtain shareholder approval to select or change sub-advisors, enter into new sub-advisory agreements or amend existing sub-advisory agreements.]
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 (the fee to be paid by the Growth Opportunities Fund during the current fiscal year is shown in the table below). The advisory fees below are net of advisory fees waived by Touchstone Advisors, if any.
Name of Fund Annual Fee Rate Diversified Small Cap Growth Fund 0.70% Large Cap Growth Fund 0.70% Growth Opportunities Fund* 0.83% Mid Cap Growth Fund 0.80% -------------------------------------------------------------------------------- |
* The Board of Trustees approved a change to the Fund's advisory fee schedule effective February 2, 2009. Under the previous fee schedule, the Fund paid 1.00% of the first $50 million of average net assets, 0.90% of the next $50 million of average net assets, 0.80% of the next $900 million of average net assets and 0.75% on assets over $1 billion. Under the amended fee schedule, the Fund pays a fee of 0.83% of the first $500 million of average net assets, 0.80% of the next $500 million of average net assets and 0.75% on assets over $1 billion. The fee paid by the Fund to Touchstone Advisors during the Fund's most recent fiscal year was 1.00%..
Contractual Fee Waiver Agreement
Touchstone Advisors has contractually agreed to waive fees and reimburse expenses in order to keep the Funds' total operating expenses (excluding interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance with generally accepted accounting principles, the cost of "Acquired Fund Fees and Expenses," if any, and other extraordinary expenses not incurred in the ordinary course of Touchstone's business) from exceeding the levels set forth below. Fee waivers and/or expense reimbursements are calculated and applied monthly, based on each Fund's average net assets during such month. The fee waivers and expense reimbursements will remain in effect until July 31, 2010.
CONTRACTUAL
NAME OF FUND LIMIT
Diversified Small Cap Growth Fund 1.15%
Large Cap Growth Fund 0.99%
Growth Opportunities Fund 0.99%
Mid Cap Growth Fund 1.25%
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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 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 performance is shown net of the expenses charged by FWIA to its clients included in the account. It has not been adjusted to reflect the higher expenses of the Fund. If the Fund's higher expenses were reflected, the account performance presented would be lower. 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. Results include the reinvestment of dividends and capital gains.
This method of calculating performance of the account 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
Small Cap Growth
Style-Account(1) Russell 2000
(net of fees) Growth Index(2)
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12-month period ended
March 31, 2009 -35.08% -36.36%
Since inception of account
January 1, 2005 through
March 31, 2009 -5.32% -8.02%
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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, 2009, the account totaled approximately $390.56 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-Advisor to the Growth Opportunities Fund
Westfield Capital Management Company, L.P. ("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. Coverage of industry sectors is divided among the investment committee members.
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. He covers the healthcare and energy sectors, as well as provides overall market strategy. Mr. Muggia has worked at Westfield since 1994. Arthur J. Bauernfeind is the Chairman and has worked at Westfield since 1990. He is Westfield's economist. Ethan J. Meyers, Partner, has worked at Westfield since 1999. He covers the consumer services, industrials and information technology sectors. Scott R. Emerman, Partner, has worked at Westfield since 2002. He covers the consumer discretionary and consumer staples sectors. Matthew W. Strobeck, Partner, has worked at Westfield since 2003. He covers the healthcare sector. Mr. Bauernfeind, Mr. Meyers, Mr. Emerman and Mr. Strobeck will discuss cash flow situations with Mr. Muggia and are able to perform the same duties in Mr. Muggia's absence. 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-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 and collaborate on all investment decisions with respect to the Fund. Ms. Suvall has been a portfolio manager of the Fund since May 2001 and Mr. Gibbons has been a portfolio manager of the Fund since April 2008. Prior to April 2008, Mr. Gibbons was an analyst for the Fund covering a variety of sectors including chemicals, energy, health care, industrials and materials. Ms. Suvall is a Group 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, L.P. ("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. Coverage of industry sectors is divided among the investment committee members.
William A. Muggia is the lead portfolio manager and is the President, Chief Executive Officer, Chief Investment Officer and Partner of Westfield. Mr. Muggia covers the healthcare and energy sectors, as well as provides overall market strategy. He has worked at Westfield since 1994 and has managed the Fund since 1999. Arthur J. Bauernfeind, Chairman, is Westfield's economist. He has worked at Westfield since 1990 and has managed the Fund since its inception. Ethan J. Meyers, Partner, covers the consumer services, industrials and information technology sectors. He has worked at Westfield since 1999 and has managed the Fund since 1999. Scott R. Emerman, Partner, covers the consumer discretionary and consumer staples sectors. He has worked at Westfield since 2002 and has managed the Fund since 2002. Matthew W. Strobeck, Partner, covers the healthcare sector. He has worked at Westfield since 2003 and has managed the Fund since August 2008. Mr. Bauernfeind, Mr. Meyers, Mr. Emerman and Mr. Strobeck will discuss cash flow situations with Mr. Muggia and are able to perform the same duties in Mr. Muggia's absence.
SUB-ADVISORY FEES
Touchstone Advisors pays sub-advisory fees to each Sub-Advisor from its advisory fee. The fees that each sub-advisor receives are included in the advisory fee.
ADDITIONAL INFORMATION
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, 2009 Annual Report.
SHARE CLASS OFFERINGS. Each Fund currently offers the classes of shares listed below. The Funds' Class A, Class B, Class C and Institutional shares are offered in separate prospectuses. For information about the Class A shares, Class B shares, Class C shares and Institutional 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 Institutional
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Diversified Small Cap Growth Fund X X X
Large Cap Growth Fund X X* X X
Growth Opportunities Fund X X X X
Mid Cap Growth Fund X X* X X
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*Class B shares are no longer offered for purchase.
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 each Fund through your financial institution. You can obtain an investment application from your financial institution. New purchases of Class Y shares are not available directly from Touchstone. Also, new purchases of Class Y shares may not be available through certain financial intermediaries who do not have appropriate selling agreements in place with Touchstone.
MINIMUM INVESTMENT REQUIREMENTS. The minimum initial investment in Class Y shares of the Funds is $2,500. 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 or contact your financial institution.
- 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 will 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 completely verify your identity through our verification process, 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 completely 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 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 the Touchstone Funds to receive purchase and sales orders on their behalf. If the processing organization is not authorized, then your purchase order could be rejected which could subject your investment to market risk. 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 an Authorized Processing Organization may be transferred into your name following procedures established by the Authorized Processing Organization and Touchstone. Certain Authorized Processing Organization may receive compensation from the Funds, Touchstone, Touchstone Advisors or their affiliates.
It is the responsibility of an Authorized Processing Organization to transmit properly completed orders so that they will be received by Touchstone in a timely manner.
CLASS Y SHARES "GRANDFATHER" CLAUSE. New purchases of the Class Y shares are no longer available directly through Touchstone. Those shareholders who owned Class Y shares purchased directly through Touchstone prior to February 2, 2009 may continue to hold Class Y shares of the corresponding Fund(s). In addition, those shareholders may continue to make subsequent purchases into existing accounts of Class Y shares of the Fund(s) they owned prior to February 2, 2009.
Processing Purchase Orders
Touchstone considers a purchase order as received when an authorized financial institution or Authorized Processing Organization, 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.
Purchase orders received by Touchstone's 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's 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 or 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 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 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 your financial institution for further instructions.
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.
SPECIAL TAX CONSIDERATION
You should consult with your tax advisor as to the federal income tax consequences to you upon your transfer of securities to a Fund in exchange for Fund shares.
Automatic Investment Options
Please contact your financial institution or Authorized Processing Organization for further details on automatic investment options.
Selling Your Shares
You may sell some or all of your shares through your financial institution or an Authorized Processing Organization on any day that the Funds calculate their NAV. If your request is received by your financial institution 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.
o Your financial institution or Authorized 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 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.
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 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 including federal income tax on the amount by which the fair market value of the securities sold exceeds the basis of the Fund shares redeemed. Until such time as the shareholder sells the securities they receive in kind, the securities are subject to market risk.
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 exchange limits and excessive
trading policies generally do not apply to purchases and redemptions of money
market funds (except in situations where excessive trading may have a
detrimental or disruptive effect on share prices or portfolio management of
these funds), 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.
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 your financial institution or an Authorized Processing Organization.
The Funds' equity investments are valued based on market value or, if no market value is readily 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 which the Board of Trustees has determined as fair value.
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, but before the close of regular trading on the NYSE, 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. Any debt securities held by the Funds 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. 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. The Fund's determination of a security's fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value that the Fund assigns to a security may be higher or lower than the security's value would be if a reliable market quotation for the security was readily available. 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 and the impact an investment in a Fund will have on 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 distribution record date, you will be entitled to receive the distribution.
You will receive income dividends and distributions of capital gains in the form of additional Fund shares unless you elect to receive payment in cash. To elect cash payment, you must contact your financial institution.
Tax Information
GENERAL. The Funds intend to qualify annually to be treated as regulated investment companies under the Code. As such, the Funds will not be subject to federal income taxes on the earnings it distributes to shareholders provided it satisfies certain requirements and restrictions of the Code. If for any taxable year a Fund fails to qualify as a regulated investment company, it will be subject to tax in the same manner as an ordinary corporation and thus will be subject to tax on a graduated basis with a maximum tax rate of 35%. Also, all distributions from earnings and profits (as determined under federal income tax principles) to you will be taxable as ordinary dividend income eligible for the 15% non-corporate shareholder rate (for taxable years beginning prior to January 1, 2011) and the dividends-received deduction for corporate shareholders.
DISTRIBUTIONS. The Funds will make distributions to you that may be taxed as ordinary income or capital gains (which 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. Net investment income, except for qualified dividends, and short-term capital gains that are distributed to you are taxable as ordinary income for federal income tax purposes regardless of how long you have held your Fund shares. Certain dividends distributed to noncorporate shareholders in taxable years beginning before January 1, 2011 and designated by a Fund as "qualified dividend income" are eligible for the long-term capital gain rate of 15% (0% for individuals in lower tax brackets). 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.
NET CAPITAL GAINS. Net capital gains (i.e., the excess of net long-term capital gains over net short-term capital losses) distributed to you, if any, 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%.
Sale of Shares. It is a taxable event for you if you sell shares of a Fund. Depending on the purchase price and the sale price of the shares you sell, you may have a taxable gain or loss on the transaction.
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.
This section is only a summary of some important income tax considerations that may affect your investment in the Funds. More information regarding these considerations is included in our SAI. You are urged to consult your tax advisor regarding the effects of an investment in the Funds on your tax situation.
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 for each of the 5 years in the period ended March 31, 2009 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 2009 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
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
-------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD
MARCH 31, ENDED
-------------------------- MARCH 31,
2009 2008 2007(A)
-------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 9.84 $ 11.66 $ 10.00
-------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.00(B) 0.04 (0.05)
Net realized and unrealized gains (losses) on investments (3.54) (0.67) 1.71
-------------------------------------------------------------------------------------------------------------
Total from investment operations (3.54) (0.63) 1.66
-------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (1.19) --
-------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 6.30 $ 9.84 $ 11.66
=============================================================================================================
Total return (35.98%) (7.09%) 16.60%(C)
=============================================================================================================
Net assets at end of period (000's) $ 8,808 $ 14,509 $ 6,128
=============================================================================================================
Ratio of net expenses to average net assets 1.15% 1.15% 1.15%(D)
Ratio of net investment income (loss) to average net assets 0.02% (0.52%) (0.90%)(D)
Portfolio turnover rate 113% 99% 86%(D)
|
(A) Represents the period from commencement of operations (September 6, 2006)
through March 31, 2007.
(B) Amount rounds to less than $0.01 per share.
(C) Not annualized.
(D) Annualized.
LARGE CAP GROWTH FUND--CLASS Y
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
------------------------------------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED MARCH 31, ENDED
---------------------------------------------------- MARCH 31,
2009 2008 2007 2006 2005(A)
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 24.64 $ 22.19 $ 23.33 $ 19.86 $ 18.34
------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.10 0.05 0.06 0.03 0.01
Net realized and unrealized gains (losses) on investments (9.85) 2.40 (1.20) 3.44 1.51
------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (9.75) 2.45 (1.14) 3.47 1.52
------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.05) -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Net asset value at end of period $ 14.84 $ 24.64 $ 22.19 $ 23.33 $ 19.86
====================================================================================================================================
Total return (39.58%) 11.04% (4.89%) 17.47% 8.29%(B)
====================================================================================================================================
Net assets at end of period (000's) $ 206,369 $ 31,679 $ 40,044 $ 66,655 $ 43,279
====================================================================================================================================
Ratio of net expenses to average net assets 0.97% 1.00% 0.90% 0.93% 1.01%(C)
Ratio of net investment income to average net assets 0.95% 0.21% 0.13% 0.12% 0.21%(C)
Portfolio turnover 126% 72% 115% 104% 127%
|
(A) Represents the period from commencement of operations (November 10, 2004)
through March 31, 2005.
(B) Not annualized.
(C) Annualized.
GROWTH OPPORTUNITIES FUND--CLASS Y
2009(A)
--------------------------------------------------------------------------------
Net asset value at beginning of period $ 14.37
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (0.00)(B)
Net realized and unrealized gains on investments 0.04
--------------------------------------------------------------------------------
Total from investment operations 0.04
--------------------------------------------------------------------------------
Net asset value at end of period $ 14.41
================================================================================
Total return 0.28%(C)
================================================================================
Net assets at end of period (000's) $ 3
================================================================================
Ratio of net expenses to average net assets 0.97%(D)
Ratio of net investment income to average net assets 0.21%(D)
Portfolio turnover rate 60%
(A) Represents the period from commencement of operations (February 2, 2009)
through March 31, 2009.
|
(B) Amount rounds to less than $0.01.
(C) Not annualized.
(D) Annualized.
MID CAP GROWTH FUND--CLASS Y
2009(A)
--------------------------------------------------------------------------------
Net asset value at beginning of period $ 13.20
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.02
Net realized and unrealized losses on investments (0.26)
--------------------------------------------------------------------------------
Total from investment operations (0.24)
--------------------------------------------------------------------------------
Net asset value at end of period $ 12.96
================================================================================
Total return (1.82%)(B)
================================================================================
Net assets at end of period (000's) $ 3
================================================================================
Ratio of net expenses to average net assets 1.25%(C)
Ratio of net investment income to average net assets 1.11%(C)
Portfolio turnover 71%
(A) Represents the period from commencement of operations (February 2, 2009)
through March 31, 2009.
|
(B) Not annualized.
(C) Annualized.
Touchstone Investments
DISTRIBUTOR
Touchstone Securities, Inc.*
303 Broadway, Suite 1100
Cincinnati, OH 45202-4203
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
The following are federal trademark registrations and applications owned by IFS
Financial Services, Inc., a member of Western & Southern Financial Group:
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 by contacting Touchstone Investments at1.800.543.0407.
The SAI and Financial Reports are also available on the Touchstone Investments website at www.touchstoneinvestments.com/home/formslit/
Information about the Funds (including the SAI) can be reviewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, D.C. You can receive information about the operation of the Public Reference Room by calling the SEC at 1.202.942.8090.
Reports and other information about the Funds are available on the 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, 2009
DIVERSIFIED SMALL CAP GROWTH FUND
GROWTH OPPORTUNITIES FUND
LARGE CAP CORE EQUITY FUND
LARGE CAP GROWTH FUND
LARGE CAP VALUE 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, 2009. 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 or by visiting our website at www.touchstoneinvestments.com.
STATEMENT OF ADDITIONAL INFORMATION
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.................................. LEGAL COUNSEL.................................................................. TRANSFER AND SUB-ADMINISTRATIVE AGENT.......................................... FINANCIAL STATEMENTS...........................................................
APPENDIX.......................................................................
Touchstone Strategic Trust (the "Trust"), an open-end management investment company, was organized as a Massachusetts business trust on November 18, 1982. The Trust currently offers six series of shares to investors: the 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 and the Mid Cap Growth Fund (referred to individually as a "Fund" and collectively as the "Funds"). Each of the Growth Opportunities Fund, the Large Cap Growth Fund and the Large Cap Value Fund is a non-diversified open-end management investment company. Each of the Diversified Small Cap Growth Fund, the Large Cap Core Equity Fund and the Mid Cap Growth Fund is a diversified open-end management investment company. 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, Class Y shares (formerly Class I shares) and Institutional 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. 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.
U.S. Government securities also include securities guaranteed by the Federal Deposit Insurance Corporation ("FDIC") under its Temporary Liquidity Guarantee Program. Under the Temporary Liquidity Guarantee Program, the FDIC guarantees, with the full faith and credit of the U.S. government, the payment of principal and interest on the debt issued by private entities through the earlier of the maturity date of the debt or June 30, 2012.
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.
In September 2008, FNMA was placed into conservatorship overseen by the Federal Housing Finance Agency ("FHFA"). In addition to placing the company in conservatorship, the U.S. Treasury announced three additional steps that it intended to take with respect to FNMA. First, the U.S. Treasury has entered into Senior Preferred Stock Purchase Agreements under which, if the FHFA determines that FNMA's liabilities have exceeded its assets under generally accepted accounting principles, the U.S. Treasury will contribute up to $100 billion in funds to that company in an amount equal to the difference between such liabilities and assets. Second, the U.S. Treasury established a new secured lending credit facility that is available to FNMA until December 2009. Third, the U.S. Treasury initiated a temporary program to purchase FNMA mortgage-backed securities, which is expected to continue until December 2009. No assurance can be given that the U.S. Treasury initiatives discussed above with respect to the debt and mortgage-backed securities issued by FNMA will be successful.
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 at the time of purchase in securities of foreign issuers. The Large Cap Growth Fund may invest up to 15% of its total assets at the time of purchase in securities of foreign issuers. The Large Cap Value Fund may invest in securities of foreign issuers.
EMERGING MARKET COUNTRIES. Emerging market countries are generally countries that are not included in the MSCI World Index. As of June 30, 2009, the countries in the MSCI World Index included: 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. The country composition of the MSCI World Index can change over time. 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 at the time of purchase in emerging market countries. The Growth Opportunities Fund may invest up to 10% of its total assets at the time of purchase in emerging market countries. The Large Cap Growth Fund may invest up to 15% of its total assets at the time of purchase in securities of emerging market countries. 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 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, GDRS, 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"), and Global Depositary Receipts ("GDRs") may also be purchased by the Funds. EDRs, CDRs and GDRs are generally issued by foreign banks and evidence ownership of either foreign or domestic securities. Certain institutions issuing ADRs, ADSs, GDRs 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. 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. A Fund will not make any borrowing that would cause its outstanding borrowings to exceed one-third of the value of its total assets. 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.
Certain of the Funds have adopted nonfundamental limitations which restrict circumstances in which and degree to which the Funds can engage in borrowing. The Large Cap Core Equity 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 Large Cap Core Equity Fund may borrow for temporary or emergency purposes up to 10% of its total assets; provided, however, the Large Cap Core Equity Fund may not purchase any security while outstanding borrowings exceed 5%. The Mid Cap Growth Fund intends to borrow money only as a temporary measure for extraordinary or emergency purposes. In addition, the Mid Cap Growth 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. As a matter of current operating policy, the Diversified Small Cap Growth Fund and the Large Cap Growth Fund intend 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. Further, certain tax considerations may limit a Fund's ability to use swap agreements. See the section "Taxes" for more information.
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. Tax considerations may limit a Fund's ability to invest in certain derivatives.
INITIAL PUBLIC OFFERINGS ("IPOS"). The Mid 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 Diversified Small 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. Such investments are subject to limitations prescribed by the 1940 Act unless a SEC exemption is applicable or as may be permitted by rules under the 1940 Act or SEC staff interpretations thereof. The 1940 Act limitations currently provide, in part, that a Fund may not purchase shares of an investment company if (a) such a purchase would cause the Fund to own in the aggregate more than 3% of the total outstanding voting stock of the investment company or (b) such a purchase would cause the Fund to have more than 5% of its total assets invested in the investment company or (c) more than 10% of the Fund's total assets would be invested in the aggregate in all investment companies. These investment companies typically incur fees that are separate from those fees incurred directly by the Fund. A Fund's purchase of such investment company securities results in the layering of expenses, such that shareholders would indirectly bear a proportionate share of the operating expenses of such investment companies, including advisory fees, in addition to paying Fund expenses.
The Advisor has received an exemptive order from the Securities and Exchange Commission ("SEC") that permits the funds it manages to invest their uninvested cash or cash collateral in one or more affiliated money market funds. Each Fund (subject to its investment limitations) may invest up to 25% of its total assets in affiliated money market funds.
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. DIVERSIFICATION. For each diversified fund only, the Funds may not purchase securities of an issuer that would cause the Funds to fail to satisfy the diversification requirement for a diversified management company under the 1940 Act, the rules or regulations thereunder or any exemption therefrom, as such statute, rules or regulations may be amended or interpreted from time to time.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
The following descriptions of certain provisions of the 1940 Act may assist investors in understanding the above policies and restrictions:
1. Diversification. Under the 1940 Act, a diversified investment management company, as to 75% of its total assets, may not purchase securities of any issuer (other than securities issued or guaranteed by the U.S. Government, its agents or instrumentalities or securities of other investment companies) if, as a result, more than 5% of its total assets would be invested in the securities of such issuer, or more than 10% of the issuer's outstanding voting securities would be held by the fund.
2. Borrowing. The 1940 Act allows a fund to borrow from any bank (including pledging, mortgaging or hypothecating assets) in an amount up to 33 1/3% of its total assets (not including temporary borrowings not in excess of 5% of its total assets).
3. Underwriting. Under the 1940 Act, underwriting securities involves a fund purchasing securities directly from an issuer for the purpose of selling (distributing) them or participating in any such activity either directly or indirectly. Under the 1940 Act, a diversified fund may not make any commitment as underwriter, if immediately thereafter the amount of its outstanding underwriting commitments, plus the value of its investments in securities of issuers (other than investment companies) of which it owns more than 10% of the outstanding voting securities, exceeds 25% of the value of its total assets.
4. Lending. Under the 1940 Act, a fund may only make loans if expressly permitted by its investment policies. The Fund's current investment policy on lending is as follows: the Fund may not make loans if, as a result, more than 33 1/3% of its total assets would be lent to other parties, except that the Fund may: (i) purchase or hold debt instruments in accordance with its investment objective and policies; (ii) enter into repurchase agreements; and (iii) engage in securities lending as described in its Statement of Additional Information.
5. Senior Securities. Senior securities may include any obligation or instrument issued by a fund evidencing indebtedness. The 1940 Act generally prohibits funds from issuing senior securities, although it does not treat certain transactions as senior securities, such as certain borrowings, short sales, reverse repurchase agreements, firm commitment agreements and standby commitments, with appropriate earmarking or segregation of assets to cover such obligation.
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, 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. 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.
3. 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.
4. 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.
5. 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.
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. The Trustees who are not interested persons of the Trust, as defined in the 1940 Act, are referred to as "Independent Trustees."
-----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES(1):
-----------------------------------------------------------------------------------------------------------------------------------
NAME POSITION TERM OF PRINCIPAL OCCUPATION(S) NUMBER OTHER
ADDRESS HELD WITH OFFICE DURING PAST OF FUNDS DIRECTORSHIPS
YEAR OF BIRTH TRUST AND 5 YEARS OVERSEEN HELD(4)
LENGTH IN THE
OF TIME TOUCHSTONE
SERVED(2) FUND
COMPLEX(3)
-----------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder Trustee and Until President and CEO of IFS 40 Director of LaRosa's
Touchstone President retirement Financial Services, Inc. (a (a restaurant chain),
Advisors, Inc at age 75 holding company). Capital Analysts
303 Broadway or until Incorporated (an
Cincinnati, OH she resigns investment advisor and
Year of Birth: 1955 or is broker-dealer),
removed IFS Financial
Services, Inc. (a
Trustee holding company), IFS
since 1999 Fund Distributors (a
broker-dealer),
Integrity and National
Integrity Life
Insurance Co.,
Touchstone Securities
(the Trust's
distributor),
Touchstone Advisors
(the Trust's
investment advisor and
administrator), W&S
Brokerage Services (a
broker-dealer) and W&S
Financial Group
Distributors (a
distribution company.
-----------------------------------------------------------------------------------------------------------------------------------
|
---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT
TRUSTEES:
---------------------------------------------------------------------------------------------------------------------------------
NAME POSITION TERM OF PRINCIPAL OCCUPATION(S) DURING PAST 5 NUMBER OTHER
ADDRESS HELD WITH OFFICE YEARS OF FUNDS DIRECTORSHIPS
YEAR OF BIRTH TRUST AND OVERSEEN HELD(4)
LENGTH IN THE
OF TIME TOUCHSTONE
SERVED(2) FUND
COMPLEX(3)
---------------------------------------------------------------------------------------------------------------------------------
Phillip R. Cox Trustee Until President and Chief Executive Officer 40 Director of
105 East Fourth Street retirement of Cox Financial Corp. (a financial Cincinnati Bell (a
Cincinnati, OH at age 75 services company). communications
Year of Birth: 1947 or until company), Bethesda
he resigns Inc. (a hospital),
or is Timken Co. (a
removed manufacturing
company), Diebold (a
Trustee technology solutions
since 1999 company), and Ohio
Business Alliance
for Higher
Education.
---------------------------------------------------------------------------------------------------------------------------------
H. Jerome Lerner Trustee Until Principal of HJL Enterprises (a 40 None
c/o Touchstone retirement privately 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
---------------------------------------------------------------------------------------------------------------------------------
Donald C. Siekmann Trustee Until Executive for Duro Bag Manufacturing 40 None
c/o Touchstone retirement Co. (a bag manufacturer) from 2002
Advisors, Inc. at age 75 -2008. President of Shor Foundation
303 Broadway or until for Epilepsy Research (a charitable
Cincinnati, OH he resigns foundation)
Year of Birth: 1938 or is
removed
Trustee
since 2005
---------------------------------------------------------------------------------------------------------------------------------
Robert E. Stautberg Trustee Until Retired Partner of KPMG LLP (a 40 Trustee of
c/o Touchstone retirement certified public accounting firm). Tri-Health Physician
Advisors, Inc. at age 75 Vice President of St. Xavier High Enterprise
303 Broadway or until School. Corporation.
Cincinnati, OH he resigns
Year of Birth: 1934 or is
removed
Trustee
since 1999
---------------------------------------------------------------------------------------------------------------------------------
John P. Zanotti Trustee Until CEO, Chairman and Director of Avaton, 40 None
c/o Touchstone retirement Inc. (a wireless entertainment
Advisors, Inc. at age 75 company) until 2006. President of
303 Broadway or until Cincinnati Biomedical (a life science
Cincinnati, OH he resigns and economic development company)
Year of Birth: 1948 or is from 2003 - 2007. Chairman of
removed Integrated Media Technologies (a
media company)
Trustee
since 2002
---------------------------------------------------------------------------------------------------------------------------------
|
(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 6 series of the Trust, 4 series of Touchstone Tax-Free Trust, 4 series of Touchstone Investment Trust, 11 variable annuity series of Touchstone Variable Series Trust, 11 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.
-----------------------------------------------------------------------------------------------------------
PRINCIPAL
OFFICERS:
-----------------------------------------------------------------------------------------------------------
NAME POSITION TERM OF OFFICE PRINCIPAL OCCUPATION(S)
ADDRESS HELD WITH TRUST(1) AND LENGTH OF DURING PAST 5 YEARS
YEAR OF BIRTH TIME 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 President and
Touchstone Chief Compliance removal or Chief Compliance Officer of
Advisors, Inc. Officer disqualification IFS Financial Services, Inc.
303 Broadway
Cincinnati, OH Vice President
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
303 Broadway
Cincinnati, OH Vice President
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
------------------------------------------------------------------------------------------------------------
Terrie A. Wiedenheft Controller Until resignation, Chief Financial Officer of IFS
Touchstone and Treasurer removal or Financial Services, Inc.
Advisors, Inc. disqualification
303 Broadway
Cincinnati, OH Controller since
Year of Birth: 1962 2000
Treasurer since 2003
------------------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------
|
(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 6 series of the Trust, 4 series of Touchstone Tax-Free Trust, 4 series of Touchstone Investment Trust, 11 variable annuity series of Touchstone Variable Series Trust, 11 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, 2008.
DOLLAR RANGE OF DOLLAR RANGE OF DOLLAR RANGE OF DOLLAR RANGE OF
EQUITY SECURITIES EQUITY SECURITIES EQUITY SECURITIES EQUITY SECURITIES
IN IN IN IN
THE LARGE CAP THE LARGE CAP THE GROWTH THE MID CAP
GROWTH FUND CORE EQUITY FUND OPPORTUNITIES GROWTH FUND
FUND
----------------------------------------------------------------------------------------------
Phillip R. Cox None None None None
H. Jerome Lerner $10,001 - $50,000 None None None
Jill T. McGruder $50,001 - $100,000 $50,001 - $100,000 $1 - $10,000 $10,001 - $50,000
Donald C. Siekmann Over $100,000 None None $50,001 - $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
|
DOLLAR RANGE OF DOLLAR RANGE OF AGGREGATE DOLLAR
EQUITY SECURITIES IN EQUITY SECURITIES IN RANGE OF EQUITY
THE LARGE CAP THE DIVERSIFIED SECURITIES IN THE
VALUE FUND SMALL CAP GROWTH TOUCHSTONE FUND
FUND COMPLEX(1)
-------------------------------------------------------------------------------
Phillip R. Cox None None None
H. Jerome Lerner None None Over $100,000
Jill T. McGruder $1 - $10,000 $1 - $10,000 Over $100,000
Donald C. Siekmann None None Over $100,000
Robert E. Stautberg None None Over $100,000
John P. Zanotti None None $10,001 - $50,000
|
(1) The Touchstone Fund Complex consists of 6 series of the Trust, 4 series of Touchstone Tax-Free Trust, 4 series of Touchstone Investment Trust, 11 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, 2009.
AGGREGATE COMPENSATION
COMPENSATION FROM THE TOUCHSTONE FUND
NAME FROM TRUST(1) COMPLEX(1,2)
---- ------------- ------------
Philip R. Cox $13,833 $83,000
H. Jerome Lerner $12,333 $74,000
Jill T. McGruder None None
Donald C. Siekmann $13,083 $78,500
Robert E. Stautberg $12,166 $73,000
John P. Zanotti $12,833 $77,000
|
(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, 2009 is as follows:
Robert E. Stautberg - $20,000.
(2) The Touchstone Fund Complex consists of 6 series of the Trust, 4 series of Touchstone Tax-Free Trust, 4 series of Touchstone Investment Trust, 11 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, 2009, 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, 2009, 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%
LargeCap Core Equity Fund 0.65% on the first $100 million
0.60% from $100 million to $200 million
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 0.83% on the first $500 million
0.80% from $500 million to $1 billion
0.75% thereafter
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
--------------------------------------------------------------------------------
1.25% for Class Y shares
--------------------------------------------------------------------------------
LARGE CAP CORE EQUITY FUND 1.15% for Class A shares
--------------------------------------------------------------------------------
1.90% for Class C shares
--------------------------------------------------------------------------------
LARGE CAP VALUE FUND 1.35% for Class A shares
--------------------------------------------------------------------------------
2.10% for Class C shares
--------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND 1.24% for Class A shares
--------------------------------------------------------------------------------
1.99% for Class C shares
--------------------------------------------------------------------------------
0.99% for Class Y shares
--------------------------------------------------------------------------------
0.84% for Institutional 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, 2010.
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
03/31/09 03/31/08 03/31/07
-------------------- -------------------- ----------------------
Mid Cap Growth Fund(1) $6,821,984 $9,248,908 $8,436,781
Growth Opportunities Fund(2) $341,272 $488,853 $705,662
Large Cap Core Equity Fund(3) $432,371 $653,058 $474,047
Large Cap Value Fund(4) $133,724 $348,118 $204,009
Large Cap Growth Fund(5) $7,181,753 $7,064,421 $7,703,319
FOR THE FOR THE FOR THE
YEAR YEAR PERIOD
ENDED ENDED 09/06/06 -
03/31/09 03/31/08 03/31/07
Diversified Small Cap Growth Fund(6) $321,173 $181,305 $65,039
|
FOR THE
YEAR
SPONSOR FEES ENDED
03/31/07
--------------------
Mid Cap Growth Fund(1) $1,555,989
Large Cap Core Equity Fund(3) $95,624
Large Cap Value Fund(4) $34,389
FOR THE PERIOD
09/06/06-3/31/07
--------------------
Diversified Small Cap Growth Fund(6) $6,767
|
(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 $348,150, $18,858 and $373,593 for the fiscal years ended March 31, 2009, 2008 and 2007, respectively.
(2) Pursuant to an Expense Limitation Agreement between the Advisor and the Trust, the Advisor waived fees and/or reimbursed the Fund $201,285, $190,556 and $35,763 for the fiscal years ended March 31, 2009, 2008 and 2007, 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 $98,799, $108,062 and $170,908 for the fiscal years ended March 31, 2009, 2008 and 2007, 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 $100,984, $84,361 and $131,921 for the fiscal years ended March 31, 2009, 2008 and 2007, respectively.
(5) Pursuant to an Expense Limitation Agreement between the Advisor and the Trust, the Advisor waived fees and/or reimbursed the Fund $924,129, $848,156 and $728,209 for the fiscal years ended March 31, 2009, 2008 and 2007, respectively.
(6) 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 $239,019 for the fiscal year ended March 31, 2009, $110,734 for the fiscal year ended March 31, 2008 and $74,361 for the period from September 6, 2006 to March 31, 2007.
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. For their respective services, the Sub-Advisors receive a fee from the Advisor. As described in the Prospectus, each Sub-Advisor receives base investment sub-advisory fees with respect to each Fund that it sub-advises. Each Sub-Advisor's base fee with respect to each sub-advised Fund is accrued daily and paid monthly, based on the Fund's average net assets allocated to the Sub-Advisor during the current month.
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
03/31/09 03/31/08 03/31/07
--------------------------------------------------
Mid Cap Growth Fund - TCW $1,751,312 $2,568,921 $2,470,247
- Westfield $2,506,585 $3,210,000 $2,817,252
Large Cap Growth Fund - Navellier $4,027,547 $3,976,088 $4,321,638
Large Cap Core Equity Fund - Todd/Veredus $215,824 $326,436 $200,757
Growth Opportunities Fund - Mastrapasqua $0 $0 $160,341
- Westfield* $198,950 $292,708 $253,053
Large Cap Value Fund - JS Asset Management $71,033 $185,539 $109,162
|
FOR THE FOR THE FOR THE
FISCAL YEAR FISCAL YEAR PERIOD
ENDED ENDED 09/06/06 -
03/31/08 03/31/08 03/31/07
-------------------------------------------------
Diversified Small Cap Growth Fund - Ft. Washington $152,644 $81,860 $24,907
|
* 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. Shareholders of the Mid Cap Growth Fund have not yet approved the implementation of the order with respect to the Fund and the Mid Cap Growth Fund will obtain shareholder approval to select or change sub-advisors, enter into new sub-advisory agreements or amend existing sub-advisory agreements.
SUB-ADVISOR CONTROL. Listed below is a description of the persons or entities that control the Sub-Advisors.
WESTFIELD CAPITAL MANAGEMENT COMPANY, L.P. is a partnership jointly owned by its management team owners and by Boston Private Financial Holdings, 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/VEREDUS ASSET MANAGEMENT, LLC is a majority employee owned LLC based in Louisville, Kentucky.
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.
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, 2009 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, 2009, 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 TOTAL BENEFICIAL
OF ASSETS IN OWNERSHIP
ACCOUNTS ACCOUNTS IN FUND
----------------------------------------------------------------------------------------------------------------------
Susan Suvall Registered Investment 4 $253.3 Million None
(TCW) Companies
-----------------------------------------------------------------------------------------
Other Pooled 9 $236.7 Million
Investment Vehicles
-----------------------------------------------------------------------------------------
Other Accounts 13 $554.0 Million
----------------------------------------------------------------------------------------------------------------------
John A. Gibbons Registered Investment 4 $253.3 Million None
(TCW) Companies
-----------------------------------------------------------------------------------------
Other Pooled 9 $236.7 Million
Investment Vehicles
-----------------------------------------------------------------------------------------
Other Accounts 13 $554.0 Million
----------------------------------------------------------------------------------------------------------------------
William Muggia (Westfield) Registered Investment 9 $1,560,671,394 None
Companies
-----------------------------------------------------------------------------------------
Other Pooled 12 $589,050,730
Investment Vehicles
-----------------------------------------------------------------------------------------
Other Accounts 563 $5,691,078,116
----------------------------------------------------------------------------------------------------------------------
|
----------------------------------------------------------------------------------------------------------------------
Arthur Bauernfeind Registered Investment 9 $1,560,671,394 None
(Westfield) Companies
-----------------------------------------------------------------------------------------
Other Pooled 9 $248,311,045
Investment Vehicles
-----------------------------------------------------------------------------------------
Other Accounts 562 $5,665,747,998
----------------------------------------------------------------------------------------------------------------------
Ethan Meyers Registered Investment 9 $1,560,671,394 None
(Westfield) Companies
-----------------------------------------------------------------------------------------
Other Pooled 9 $248,311,045
Investment Vehicles
-----------------------------------------------------------------------------------------
Other Accounts 559 $5,641,005,991
----------------------------------------------------------------------------------------------------------------------
Scott Emerman Registered Investment 9 $1,560,671,394 None
(Westfield) Companies
-----------------------------------------------------------------------------------------
Other Pooled 9 $248,311,045
Investment Vehicles
-----------------------------------------------------------------------------------------
Other Accounts 560 $5,641,892,918
----------------------------------------------------------------------------------------------------------------------
Matthew Strobeck Registered Investment 9 $1,560,671,394 None
(Westfield) Companies
-----------------------------------------------------------------------------------------
Other Pooled 9 $248,311,045
Investment Vehicles
-----------------------------------------------------------------------------------------
Other Accounts 562 $5,660,056,143
----------------------------------------------------------------------------------------------------------------------
|
ACCOUNTS WHERE ADVISORY FEE IS BASED ON THE ACCOUNT'S PERFORMANCE (TCW). Mr. Gibbons and Ms. Suvall co-manage 3 "Pooled Investment Vehicles" where the advisory fee is based on the performance of the account. The total assets in the "Pooled Investment Vehicles" are $17.3 million.
ACCOUNTS WHERE ADVISORY FEE IS BASED ON THE ACCOUNT'S PERFORMANCE (WESTFIELD). The investment team manages 15 other accounts and one pooled investment vehicle (limited partnership) where the advisory fee is partially based on performance. The total assets for the 15 accounts and the pooled vehicle are $519,271,920 and $13,374,781, respectively. Additionally, Mr. Muggia is the manager of three pooled investment vehicles (limited partnerships) where the advisory fee is based either in part or fully on the performance of the account. The total assets in these vehicles are $340,739,686.
COMPENSATION STRUCTURE (TCW). The overall objective of the compensation program for portfolio managers is for TCW to attract what it considers competent and expert investment professionals and to retain them over the long-term. Compensation is comprised of several components which, in the aggregate are designed to achieve these objectives and to reward the portfolio managers for their contribution to the success of their clients and TCW and its affiliates within The TCW Group (collectively, "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.
Salary. Salary is agreed to with managers at time of employment and is reviewed from time to time. It does not change significantly and often does not constitute a significant part of the portfolio manager's compensation.
Profit Sharing. 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 certain cases, a portfolio manager may also participate in a profit sharing pool that includes revenues from products besides the strategies offered in the TCW Funds, including alternative investment products (as described below); the portfolio manger would be entitled to participate in such pool where he or she supervises, is involved in the management of, or is associated with a group, other members of which manage, such products. Profit sharing arrangements are generally the result of agreement between the portfolio manager and TCW, although in some cases they may be discretionary based on supervisor allocation.
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. The measurement of performance relative to the benchmark can be based on single year or multiple year metrics, or a combination thereof. The benchmark used is the one associated with the Fund managed by the portfolio manager as disclosed in the prospectus, except in the case of the Growth Insights Fund where profit sharing of managers is tied to the full menu of TCW-managed equity products that outperform their associated benchmarks. Benchmarks vary from strategy to strategy but, within a given strategy, the same benchmark applies to all accounts, including the Funds. In the case of the Equities and Focused Equities Funds, which have two benchmarks, the Russell 1000 Value is used.
Certain accounts of TCW (but not the Funds) have a performance (or incentive) fee in addition to or in lieu of an asset-based fee. For these accounts, the profit sharing pool from which the portfolio managers' profit sharing compensation is paid will include the performance fees. For investment strategies investing in marketable securities such as those employed in the Funds, the performance fee normally consists of an increased asset-based fee, the increased percentage of which is tied to the performance of the account relative to a benchmark (usually the benchmark associated with the strategy). In these marketable securities strategies, the profit sharing percentage applied relative to performance fees is generally the same as it is for the asset-based fees chargeable to the Fund. In the case of alternative investment strategies and TCW's "alpha" strategies" , performance fees are based on the account achieving net gains over a specified rate of return to the account or to a class of securities in the account. Profit sharing for alternative investment strategies may also include structuring or transaction fees. "Alpha strategies" are those in which the strategy seeks to provide incremental risk-adjusted return relative to a LIBOR rate of return through alpha and beta isolation techniques, that include the use of options, forwards and derivative instruments. "Alternative investment strategies" include (a) mezzanine or other forms of privately placed financing, distressed investing, private equity, project finance, real estate investments, leveraged strategies (including short sales) and other similar strategies not employed by the Funds or (b) strategies employed by the Funds that are offered in structured vehicles, such as collateralized loan obligations or collateralized debt obligations or in private funds (sometimes referred to as hedge funds). In the case of certain alternative investment products in which a portfolio manager may be entitled to profit sharing compensation, the profit sharing percentage for performance fees may be lower or higher than the percentage applicable to the asset-based fees.
Discretionary Bonus/Guaranteed Minimums. 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. Also, pursuant to contractual arrangements, some portfolio managers may be entitled to a mandatory bonus if the sum of their salary and profit sharing does not meet certain minimum thresholds.
Equity Incentives. 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. The TCW 2001 and 2005 TCW Stock Option Plans provide eligible portfolio managers the opportunity to participate in an effective economic interest in TCW, the value of which is tied to TCW's annual financial performance as a whole. Participation is generally determined in the discretion of TCW, taking into account factors relevant to the portfolio manager's contribution to the success of TCW. Portfolio managers participating in the TCW 2001 or 2005 TCW Stock Option Plan will also generally participate in Societe Generale's Stock Option Plan which grants options on its common stock, the value of which may be realized after certain vesting requirements are met. Some portfolio managers are direct stockholders of TCW and/or Societe Generale, as well.
Other Plans and Compensation Vehicles. Portfolio managers may also participate in a deferred compensation plan that is generally available to a wide-range of officers of TCW, the purpose of which is to allow the participant to defer portions of income to a later date while accruing earnings on a tax-deferred basis based on performance of TCW-managed products selected by the participant. Portfolio managers may also elect to participate in TCW's 401(k) plan, to which they may contribute a portion of their pre- and post-tax compensation to the plan for investment on a tax-deferred basis.
COMPENSATION STRUCTURE (WESTFIELD). The compensation for members of the Investment Committee is composed of various components of compensation:
o Investment Committee members receive a base salary commensurate with industry standards. This salary is reviewed annually during the employee's performance assessment.
o Investment Committee members may be 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 overall contribution to the investment performance of Westfield.
o Investment Committee members may be eligible to receive a bonus pool distribution award. This award is derived from a bonus 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 longevity at the firm.
o Investment Committee members may receive equity interests in the future profits of Westfield. The members of Westfield's management team who received equity interests in the firm entered into agreements restricting post-employment competition and solicitation of clients or employees of Westfield. This compensation was in addition to their competitive salary and performance based bonus and cliff-vests over five years.
Additionally, as manager of four limited partnerships, William 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.
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 and has adopted polices and procedures to address such potential conflicts.
The management of multiple accounts may result in allocating unequal attention and time to the management of each account if each has different objectives, benchmarks, time horizons, and fees as the investment committee must allocate their time and investment ideas across multiple accounts. All investment decisions for client accounts are made at the product level by the Investment Committee. Once a recommendation has been approved, all eligible accounts are allocated shares on a pro-rata basis until the trade order is complete.
A conflict of interest can 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 may 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.
In selecting a broker to execute a transaction for a client account, Westfield may take into account services or benefits provided to Westfield by the broker (or by any other party pursuant to an arrangement with the broker), only when ALL of the following conditions are satisfied:
1. Westfield is exercising investment discretion in the transaction.
2. The client obtains best execution.
3. The only compensation to the broker for executing the transaction is a disclosed commission. (That is, the broker is not dealing out of inventory, acting as a market maker in the security or otherwise charging an undisclosed markup or spread).
4. Westfield has determined, in good faith, that the amount of commission on the transaction is reasonable in relation to the value of the research services provided by the broker, viewed in terms of either that transaction or Westfield's overall responsibilities to its discretionary client accounts.
Westfield's Portfolio Strategist serves as the control person, with oversight by the Chief Investment Officer and Chief Compliance Officer, for commission allocation and the review, approval, and hiring of research services. The Investment Committee discusses research services quarterly to ensure we are extracting the most value from the services to which we subscribe. The IC reviews and approves research services prior to the hiring of such services.
In September 2006, Mr. Matthew Strobeck was elected to the Board of Directors of Metabolix, Inc. ("Metabolix"), a publicly traded biotech company headquartered in Cambridge, Massachusetts. Westfield will purchase or sell Metabolix securities for certain accounts only during specified time periods ("trading windows") defined by Metabolix's trading window/blackout policy. Due to the restrictions imposed by Metabolix's trading window/blackout period policy, Westfield trades Metabolix securities only in its affiliated limited partnerships. The same trading windows apply to transactions in Westfield employees' personal investment accounts, which are regulated by the firm's Code of Ethics.
LARGE CAP CORE EQUITY FUND - TODD/VEREDUS ASSET MANAGEMENT, LLC
OTHER ACCOUNTS MANAGED
-------------------------------------------------------------------------------------------------------------------
PORTFOLIO TYPE OF ACCOUNT NUMBER TOTAL BENEFICIAL
MANAGER OF ASSETS IN OWNERSHIP
ACCOUNTS ACCOUNTS IN FUND
-------------------------------------------------------------------------------------------------------------------
Curtiss Scott Registered Investment 1 $42.8 Million $100,001-
Companies $500,000
-----------------------------------------------------------------------------------------
Other Pooled Investment 0 $0
Vehicles
-----------------------------------------------------------------------------------------
Other Accounts 74 $1.5 Billion
-------------------------------------------------------------------------------------------------------------------
John White Registered Investment 5 $135.8 Million $100,001-
Companies $500,000
-----------------------------------------------------------------------------------------
Other Pooled Investment 0 $0
Vehicles
-----------------------------------------------------------------------------------------
Other Accounts 70 $1.4 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. Portfolio managers are also owners of the firm and will receive equity distributions from time to time from the LLC.
CONFLICTS OF INTEREST. Todd/Veredus 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/Veredus' flagship strategy and holds identical positions. Todd/Veredus 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 TYPE OF ACCOUNT NUMBER OF TOTAL BENEFICIAL
MANAGER ACCOUNTS ASSETS IN OWNERSHIP
ACCOUNTS IN FUND
-----------------------------------------------------------------------------------------------------------------------
Louis Navellier Registered Investment 2 $35 Million $500,001-$1,000,000
Companies
--------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0
Vehicles
--------------------------------------------------------------------------------------------
Other Accounts 6,455 $2.37 Billion
-----------------------------------------------------------------------------------------------------------------------
Shawn Price Registered Investment 1 $6 Million $100,001-$500,000
Companies
--------------------------------------------------------------------------------------------
Other Pooled Investment 0 $0
Vehicles
--------------------------------------------------------------------------------------------
Other Accounts 5,710 $2.24 Billion
-----------------------------------------------------------------------------------------------------------------------
|
ACCOUNTS WHERE ADVISORY FEE IS BASED ON THE ACCOUNT'S PERFORMANCE. Mr. Navellier manages 107 other accounts where the advisory fee is based on the performance of the account. The total assets in these accounts are $22.92 million. Mr. Price manages 31 other accounts where the advisory fee is based on the performance of the account. The total assets in these accounts are $5.80 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 TYPE OF ACCOUNT NUMBER TOTAL BENEFICIAL
MANAGER OF ASSETS IN OWNERSHIP
ACCOUNTS ACCOUNTS IN FUND
----------------------------------------------------------------------------------------------------------------------
William Muggia Registered Investment 9 $1,883,280,955 None
Companies
-------------------------------------------------------------------------------------------
Other Pooled 12 $589,050,730
Investment Vehicles
-------------------------------------------------------------------------------------------
Other Accounts 563 $5,691,078,116
----------------------------------------------------------------------------------------------------------------------
Arthur Bauernfeind Registered Investment 9 $1,883,280,955 None
Companies
-------------------------------------------------------------------------------------------
Other Pooled 9 $248,311,045
Investment Vehicles
-------------------------------------------------------------------------------------------
Other Accounts 562 $5,665,747,998
----------------------------------------------------------------------------------------------------------------------
Ethan Meyers Registered Investment 9 $1,883,280,955 None
Companies
-------------------------------------------------------------------------------------------
Other Pooled 9 $248,311,045
Investment Vehicles
-------------------------------------------------------------------------------------------
Other Accounts 559 $5,641,005,991
----------------------------------------------------------------------------------------------------------------------
Scott Emerman Registered Investment 9 $1,883,280,955 None
Companies
-------------------------------------------------------------------------------------------
|
-------------------------------------------------------------------------------------------
Other Pooled 9 $248,311,045
Investment Vehicles
-------------------------------------------------------------------------------------------
Other Accounts 560 $5,641,892,918
----------------------------------------------------------------------------------------------------------------------
Matthew Strobeck Registered Investment 9 $1,883,280,955 None
Companies
-------------------------------------------------------------------------------------------
Other Pooled 9 $248,311,045
Investment Vehicles
-------------------------------------------------------------------------------------------
Other Accounts 562 $5,660,056,143
----------------------------------------------------------------------------------------------------------------------
|
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)."
LARGE CAP VALUE FUND - JS ASSET MANAGEMENT, LLC
OTHER ACCOUNTS MANAGED
----------------------------------------------------------------------------------------------------------------------
PORTFOLIO MANAGER TYPE OF ACCOUNT NUMBER TOTAL BENEFICIAL
OF ASSETS IN OWNERSHIP
ACCOUNTS ACCOUNTS IN FUND
----------------------------------------------------------------------------------------------------------------------
John Schneider Registered Investment 4 $40.4 Million None
Companies
-------------------------------------------------------------------------------------------
Other Pooled Investment 2 $14.0 Million
Vehicles
-------------------------------------------------------------------------------------------
Other Accounts 6 $84.6 Million
----------------------------------------------------------------------------------------------------------------------
|
ACCOUNTS WHERE ADVISORY FEE IS BASED ON THE ACCOUNT'S PERFORMANCE. Mr. Schneider manages 1 "Pooled Investment Vehicle" where the advisory fee is based on the performance of the account. The total assets in this account are $2.0 million.
COMPENSATION STRUCTURE. Mr. Schneider is entitled to receive 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 one account that is 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
-------------------------------------------------------------------------------------------------------------------------
TYPE OF ACCOUNT NUMBER TOTAL BENEFICIAL
PORTFOLIO OF ASSETS IN OWNERSHIP
MANAGER ACCOUNTS ACCOUNTS IN FUND
-------------------------------------------------------------------------------------------------------------------------
Richard R. Registered Investment 1 $119.2 Million $100,001-$500,000
Jandrain III Companies
-----------------------------------------------------------------------------------------------
Other Pooled Investment 0 0
Vehicles
-----------------------------------------------------------------------------------------------
Other Accounts 10 $251.7 Million
-------------------------------------------------------------------------------------------------------------------------
Daniel J. Registered Investment 1 $119.2 Million $50,001 - $100,000
Kapusta Companies
-----------------------------------------------------------------------------------------------
Other Pooled Investment 0 0
Vehicles
-----------------------------------------------------------------------------------------------
Other Accounts 10 $251.7 Million
-------------------------------------------------------------------------------------------------------------------------
David K. Registered Investment 1 $119.2 Million $10,001 - $50,000
Robinson Companies
-----------------------------------------------------------------------------------------------
Other Pooled Investment 0 0
Vehicles
-----------------------------------------------------------------------------------------------
Other Accounts 10 $251.7 Million
-------------------------------------------------------------------------------------------------------------------------
Bihag Patel Registered Investment 1 $119.2 Million $10,001 - $50,000
Companies
-----------------------------------------------------------------------------------------------
Other Pooled Investment 0 0
Vehicles
-----------------------------------------------------------------------------------------------
Other Accounts 10 $251.7 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 established a proxy voting committee (the "Proxy Committee") and adopted proxy voting guidelines and procedures (the "Guidelines"). The Proxy Committee generally meets at least quarterly to review the Guidelines and to address other proxy voting issues. In addition to the Proxy Committee, TCW has a Proxy Specialist who administers the proxy voting program and reports to the Director of Research. TCW also uses one or more outside proxy voting services (each an "Outside Service") to help manage the proxy voting process. The Outside Service facilitates TCW's voting according to the Guidelines (or, if applicable, according to guidelines submitted by TCW's clients) and helps maintain TCW's proxy voting records.
When voting proxies, the utmost concern is that decisions be made solely in the interests of the client and with the goal of maximizing the value of the client's investments. Among the types of decisions covered by the Guidelines are governance, capital structure, mergers and restructuring, board of directors, anti-takeover provisions and compensation. Individual portfolio managers, in the exercise of their best judgment and discretion, may from time to time override the Guidelines and vote proxies in a manner that they believe will enhance the economic value of clients' assets, keeping in mind the best interests of the beneficial owners. There are specified override procedures that include required documentation.
A process is specified for dealing with any significant conflict of interest, although such conflicts would be uncommon because TCW does not engage in investment banking or the managing or advising of public companies.
WESTFIELD CAPITAL MANAGEMENT COMPANY, L.P. (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, as well as to provide 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 Funds' best interests, 2) for clients with plan assets subject to ERISA, Westfield will accept instructions to vote proxies in accordance with AFL-CIO proxy voting guidelines and 3) for clients who support social responsible issues, Westfield will 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/VEREDUS ASSET MANAGEMENT, LLC. (LARGE CAP CORE EQUITY FUND) Todd/Veredus will vote proxies solely in the best long-term interests of the Fund. Todd/Veredus 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/Veredus employs Risk Metrics Group to help it analyze particular issues. The following are examples of Todd/Veredus' position on specific matters.
Todd/Veredus will generally vote for proposals seeking to end the staggered election of directors and prefers that all directors be elected annually.
o Todd/Veredus will generally support proposals requiring a majority of independent directors on the board.
o Todd/Veredus prefers to see the separation of Chairman and CEO positions.
o Todd/Veredus prefers that all incumbent directors own company stock.
o Todd/Veredus 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/Veredus supports proposals requiring the expensing of options.
If a conflict of interest should arise, Todd/Veredus will inform its Executive Committee of the conflict and notify the Fund why Todd/Veredus' vote may differ from the Fund's request. Todd/Veredus will consider a Fund's request but will vote only for what it believes will best advance the long-term interests of the Fund.
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 Risk Metrics 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 views the fiduciary act of managing assets to include the voting of proxies pertaining to shares held by a client. As a rule, JSAM strives to ensure that all proxies are received from the custodian in a timely manner and then exercises its right to vote all proxies. In keeping with the ERISA definition of fiduciary responsibility and the Department of Labor directives, all proxy voting decisions are made "solely in the best interest of the client's plan participants and beneficiaries."
The proxy policy contains guidelines for reviewing all proxy proposals in a way that is consistent and that facilitates voting solely in the interests of plan participants and beneficiaries, and for the exclusive purpose of providing economic benefits to them. These guidelines provide a general framework for voting recurring proposals while unique proposals are reviewed case-by-case.
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 reduce management's accountability to shareholders are typically voted "AGAINST." JSAM has retained third party vendor RiskMetrics Group to vote proxies. JSAM has adopted the RiskMetrics Group proxy voting policies.
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 RiskMetrics to assist it in the proxy voting process and will use RiskMetrics' 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, 2009, the aggregate underwriting commissions on sales of the Trust's shares were $1,342,012 of which the Distributor paid $1,017,131 to unaffiliated broker-dealers in the selling network, earned $127,120 as a broker-dealer in the selling network and retained $197,761 in underwriting commissions.
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.
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, 2009, the Distributor collected $2,559, $212, $96,767, $2,013, $99,146 and $71 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, Mid Cap Growth Fund and Diversified Small Cap Growth Fund, respectively.
For the fiscal year ended March 31, 2008, the Distributor collected $4,542, $389, $79,995, $7,859, $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, 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 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, and Mid 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, 2009, 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 Large Cap Value Fund and the Diversified Small Cap Growth Fund under the Class A Plan were $60,617, $1,395,691, $1,583,213, $160,384, $31,846 and $41,105, 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, Diversified Small Cap Growth Fund, Growth Opportunities 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, 2009, 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 $14,832, $485,509 and $238,441, respectively. Payments were to broker-dealers and others for advertising, printing and mailing, asset growth and retention and other expenses. The Class B shares of the Growth Opportunities Fund were converted to A shares on February 2, 2009. The Class B shares of the Mid Cap Growth and Large Cap Growth Fund were closed to all purchases on February 2, 2009.
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, 2009, 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 Large Cap Value Fund and the Diversified Small Cap Growth Fund under the Class C Plan were $90,603, $2,459,209, $2,069,328, $23,649, $50,914 and $30,628, 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 4-1-08 - 3-31-09 $68,924 -------------------------------------------------------------------------------- Growth Opportunities Fund 4-1-07 - 3-31-08 $105,373 -------------------------------------------------------------------------------- Growth Opportunities Fund 4-1-06 - 3-31-07 $315,965 -------------------------------------------------------------------------------- Large Cap Core Equity Fund 4-1-08 - 3-31-09 $103,981 -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- Mid Cap Growth Fund 4-1-08 - 3-31-09 $2,330,956 -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- Large Cap Growth Fund 4-1-08 - 3-31-09 $1,101,097 -------------------------------------------------------------------------------- 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 Value Fund 4-1-08 - 3-31-09 $108,518 -------------------------------------------------------------------------------- Large Cap Value Fund 4-1-07 - 3-31-08 $120,095 -------------------------------------------------------------------------------- Large Cap Value Fund 4-1-06 - 3-31-07 $132,470 -------------------------------------------------------------------------------- Diversified Small Cap Growth Fund 4-1-08 - 3-31-09 $150,276 -------------------------------------------------------------------------------- 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 increased trading based on the volatility of the stock market. The Large Cap Growth Fund's brokerage commissions increased significantly from the previous year due to an increase in the portfolio turnover.
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, 2009, the amount of brokerage transactions and related commissions for the Funds directed to brokers due to research services provided were as follows:
BROKERAGE BROKERAGE
FUND TRANSACTIONS DIRECTED COMMISSIONS FROM
TO RESEARCH RESEARCH
--------------------------------------------------------------------------------
Growth Opportunities Fund $3,108,277 $7,377
Mid Cap Growth Fund $474,706,567 $883,296
Large Cap Growth Fund $271,354,888 $244,352
Large Cap Value Fund $18,628,593 $31,328
Large Cap Core Equity Fund $81,118,278 $36,587
Diversified Small Cap Growth Fund $7,712,733 $22,402
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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 Frank Russell Securities, Inc.
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, 2009, the Funds acquired common stock of the Trust's regular broker-dealers as follows:
NUMBER OF SHARES MARKET VALUE
FUND BROKER-DEALER ON 3-31-09 ON 3-31-09
--------------------------------------------------------------------------------------------------------------------------
Large Cap Value Fund J.P. Morgan Securities, Inc. 10,600 $281,748
Bank of America Securities Inc. 58,292 $397,552
Large Cap Core Equity Fund J.P. Morgan Securities, Inc. 28,826 $766,196
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SG Cowen Securities Corporation may be deemed to be an affiliate of the Mid Cap Growth Fund because it is an affiliate of TCW, a sub-advisor for the Fund. Stifel Nicolaus & Co. Inc. may be deemed to be an affiliate of the Mid Cap Growth Fund because it is an affiliate of the Advisor. Listed below is information about the brokerage commissions paid to these affiliated brokers during the stated fiscal years.
MARCH 31, 2009 FISCAL YEAR
Amount Percentage of Percentage of
of Aggregate Aggregate
Broker Fund Commissions Commissions Paid Transactions Effected
------ ---- ----------- ---------------- ---------------------
S.G. Cowen Mid Cap Growth Fund $21,388 0.92% 0.90%
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MARCH 31, 2008 FISCAL YEAR
Amount Percentage of Percentage of
of Aggregate Aggregate
Broker Fund Commissions Commissions Paid Transactions Effected
------ ---- ----------- ---------------- ---------------------
Stifel, Nicolaus & Co. Inc. Mid Cap Growth Fund $1,143 0.06% 0.03%
S.G. Cowen Mid Cap Growth Fund $7,720 0.38% 0.31%
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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** INSTITUTIONAL
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Diversified Small Cap Growth Fund X X X
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Growth Opportunities Fund X 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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Mid Cap Growth Fund X X X X
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*The Class B shares were closed to all purchases on February 2, 2009.
**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 C shares over the term of the investment. As an alternative, Class C shares are sold without an initial sales charge so the entire purchase price is immediately invested in 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 Growth Opportunities Fund is $500,000 or more, you may find Institutional shares attractive since Institutional shares are sold without a sales charge or 12b-1 distribution fee. However, if you purchased your Institutional 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
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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
Institutional 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. Effective February 2, 2009, Class B shares are no longer offered
for purchase. 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. 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.
INSTITUTIONAL SHARES. Institutional 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. Institutional 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. Institutional 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 Institutional shares of the Funds.
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.
CLASS Y SHARES "GRANDFATHER" CLAUSE. New purchases of the Class Y shares are no longer available directly through Touchstone. Those shareholders who owned Class Y shares purchased directly through Touchstone prior to February 2, 2009 may continue to hold Class Y shares of the corresponding Fund(s). In addition, those shareholders may continue to make subsequent purchases into existing accounts of Class Y shares of the Fund(s) they owned prior to February 2, 2009.
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 costs upon converting such securities to cash including brokerage costs and federal income tax on the amount by which the fair market value of the securities converted into cash exceeds the basis of the Fund shares redeemed. 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.
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.
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.
DIVIDENDS
Each Fund intends to distribute substantially all of its net investment income, if any. Dividends from a Fund's net investment income are declared and paid annually. Distributions, if any, of net short-term capital gain and net capital gain (the excess of net long-term capital gain over the short-term capital loss) realized by a Fund, after deducting any available capital loss carryovers are declared and paid to its shareholders annually.
A Fund's dividends and other distributions are taxable to shareholders (other than retirement plans and other tax-exempt investors) whether received in cash or reinvested in additional shares of the Fund. A dividend or distribution paid by a Fund has the effect of reducing the NAV per share on the ex-dividend date by the amount of the dividend distribution. A dividend or distribution declared shortly after a purchase of shares by an investor would, therefore, represent, in substance, a return of capital to the shareholder with respect to such shares even though it would be subject to federal income taxes.
A statement will be sent to you within 60 days after the end of each year detailing the tax status of your distributions. Please see "Taxes" below for more information on the federal income tax consequences of dividends and other distributions made by a Fund.
The following discussion summarizes certain U.S. federal income tax considerations affecting the Funds and their shareholders. This discussion is for general information only and does not purport to consider all aspects of U.S. federal income taxation that might be relevant to beneficial owners of shares of a Fund. The summary is based upon current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable U.S. Treasury Regulations promulgated thereunder (the "Regulations"), and administrative and judicial interpretations thereof, all of which are subject to change, which change could be retroactive, and may affect the conclusions expressed herein. The summary applies only to beneficial owners of a Fund's shares in whose hands such shares are capital assets within the meaning of Section 1221 of the Code, and may not apply to certain types of beneficial owners of a Fund's shares, including, but not limited to insurance companies, tax-exempt organizations, shareholders holding a Fund's shares through tax-advantaged accounts (such as an individual retirement account (an "IRA"), a 401(k) plan account, or other qualified retirement account), financial institutions, pass-through entities, broker-dealers, entities that are not organized under the laws of the United States or a political subdivision thereof, persons who are neither a citizen nor resident of the United States, shareholders holding a Fund's shares as part of a hedge, straddle or conversion transaction, and shareholders who are subject to the alternative minimum tax. Persons who may be subject to tax in more than one country should consult the provisions of any applicable tax treaty to determine the potential tax consequences to them.
No Fund has requested nor will any Fund request an advance ruling from the Internal Revenue Service (the "IRS") as to the federal income tax matters described below. The IRS could adopt positions contrary to those discussed below and such positions could be sustained. In addition, the following discussion applicable to each shareholder of a Fund addresses only some of the federal income tax considerations generally affecting investments in such Fund. Each shareholder is urged and advised to consult such shareholder's own tax advisor with respect to the tax consequences of the ownership, purchase and disposition of an investment in the Fund including, but not limited to, the applicability of state, local, foreign and other tax laws affecting the particular shareholder of such Fund's shares and to possible effects of changes in federal or other tax laws.
GENERAL. For federal tax purposes, each Fund is treated as a separate corporation. Each Fund has elected, and intends to continue to qualify for, taxation as a regulated investment company ("RIC") under the Code. By qualifying as a RIC, a Fund (but not the shareholders) will not be subject to federal income tax on that portion of its investment company taxable income and net realized capital gains that it distributes to its shareholders.
Shareholders should be aware that investments made by a Fund, some of which are described below, may involve complex tax rules some of which may result in income or gain recognition by it without the concurrent receipt of cash. Although each Fund seeks to avoid significant noncash income, such noncash income could be recognized by a Fund, in which case it may distribute cash derived from other sources in order to meet the minimum distribution requirements described below. Cash to make the required minimum distributions may be obtained from sales proceeds of securities held by a Fund (even if such sales are not advantageous) or, if permitted by its governing documents, through borrowing the amounts required.
QUALIFICATION AS REGULATED INVESTMENT COMPANY. Qualification as a RIC under the Code requires, among other things, that: (a) each Fund derive at least 90% of its gross income for each taxable year 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 (including but not limited to gains from options, futures and forward contracts) derived with respect to its business of investing in such stock, securities or currencies (the "Qualifying Income Requirement"), and net income from certain qualified publicly traded partnerships; (b) each Fund diversify its holdings so that, at the close of each quarter of the taxable year: (i) at least 50% of the value of its assets is comprised of cash, cash items (including receivables), U.S. government securities, securities of other RICs and other securities, with those other securities limited, in respect of any one issuer, to an amount that does not exceed 5% of the value of its total assets and that does not represent more than 10% of the outstanding voting securities of such issuer; and (ii) not more than 25% of the value of its assets is invested in the securities (other than U.S. government securities or securities of other RICs) of any one issuer or the securities (other than the securities of other RICs) of two or more issuers controlled by it and engaged in the same, similar or related trades or businesses, or one or more "qualified publicly traded partnerships"; and (c) each Fund distribute for each taxable year the sum of (i) at least 90% of its investment company taxable income (which includes dividends, taxable interest, taxable original issue discount income, market discount income, income from securities lending, net short-term capital gain in excess of net long-term capital loss, certain net realized foreign currency exchange gains, and any other taxable income other than "net capital gain" as defined below and is reduced by deductible expenses all determined without regard to any deduction for dividend paid); and (ii) 90% of its tax-exempt interest, if any, net of expenses allocable thereto.
The Treasury Department is authorized to promulgate regulations under which gains from foreign currencies (and options, futures, and forward contracts on foreign currency) would constitute qualifying income for purposes of the qualifying income requirement only if such gains are directly related to the principal business of a Fund in investing in stock or securities or options and futures with respect to stock or securities. To date, no such regulations have been issued.
As a RIC, a Fund generally will not be subject to U.S. federal income tax on the portion of its income and capital gains that it distributes to its shareholders in any taxable year for which it distributes, in compliance with the Code's timing and other requirements at least 90% of its investment company taxable income and at least 90% of the excess of its gross tax-exempt interest income, if any, over certain disallowed deductions ("net tax-exempt interest"). Each Fund may retain for investment all or a portion of its net capital gain (i.e., the excess of its net long-term capital gain over its net short-term capital loss). If a Fund retains any investment company taxable income or net capital gain, it will be subject to tax at regular corporate rates on the amount retained. If a Fund retains any net capital gain, it may designate the retained amount as undistributed net capital gain in a notice to its shareholders, who will be (i) required to include in income for federal income tax purposes, as long-term capital gain, their shares of such undistributed amount; and (ii) entitled to credit their proportionate shares of tax paid by such Fund against their federal income tax liabilities, if any, and to claim refunds to the extent the credit exceeds such liabilities. For federal income tax purposes, the tax basis of the shares owned by a shareholder of a Fund will be increased by the amount of undistributed net capital gain included in the shareholder's gross income and decreased by the federal income tax paid by such Fund on that amount of capital gain.
If for any taxable year a Fund fails to qualify as a RIC, it will be subject to tax in the same manner as an ordinary corporation subject to tax on a graduated basis with a maximum tax rate of 35% and all distributions from earnings and profits (as determined under the U.S. federal income tax principles) to its shareholders will be taxable as ordinary dividend income eligible for the 15% non-corporate shareholder rate (for taxable years beginning prior to January 1, 2011) and the dividends-received deduction for corporation shareholders.
EXCISE TAX. If a Fund fails to distribute by December 31 of each calendar year an amount equal to the sum of (1) at least 98% of its taxable ordinary income (excluding capital gains and losses) for such year, (2) at least 98% of the excess of its capital gains over its capital losses (as adjusted for certain ordinary losses) for the twelve month period ending on October 31 of such year), and (3) all taxable ordinary income and the excess of capital gains over capital losses for the prior year that were not distributed during such year and on which it did not pay federal income tax, such Fund will be subject to a nondeductible 4% excise tax (the "Excise Tax") on the undistributed amounts. A distribution will be treated as paid on December 31 of the calendar year if it is declared by a Fund in October, November, or December of that year to shareholders of record on a date in such month and paid by it during January of the following year. Such distributions will be taxable to shareholders (other than those not subject to federal income tax) in the calendar year in which the distributions are declared, rather than the calendar year in which the distributions are received. Each Fund generally intends to actually distribute or be deemed to have distributed substantially all of its net income and gain, if any, by the end of each calendar year in compliance with these requirements so that it will generally not be required to pay the Excise Tax. A Fund may in certain circumstances be required to liquidate its investments in order to make sufficient distributions to avoid Excise Tax liability at a time when an investment adviser might not otherwise have chosen to do so, and liquidation of investments in such circumstances may affect the ability of a Fund to satisfy the requirements for qualification as a RIC. No assurances can be given that a Fund will not be subject to the Excise Tax and, in fact, in certain instances if warranted, a Fund may choose to pay the Excise Tax as opposed to making an additional distribution.
CAPITAL LOSS CARRYFORWARDS. A Fund is permitted to carry forward a net capital loss from any year to offset its capital gains, if any, realized during the eight years following the year of the loss. A Fund's capital loss carryforward is treated as a short-term capital loss in the year to which it is carried. If future capital gains are offset by carried forward capital losses, such future capital gains are not subject to Fund-level federal income taxation, regardless of whether they are distributed to shareholders. As of March 31, 2009, the following Funds had the following capital loss carryforwards for federal income tax purposes.
AMOUNT EXPIRATION DATE
Diversified Small Cap Growth Fund $11,436,443 March 31, 2015
$3,627,106 March 31, 2017
Growth Opportunities Fund $21,887,780 March 31, 2011
$17,098,132 March 31, 2012
$1,976,702 March 31, 2013
$3,131,509 March 31, 2017
Large Cap Growth Fund $26,177,120 March 31, 2015
$41,526,594 March 31, 2017
Large Cap Core Equity Fund $1,053,666 March 31, 2017
Large Cap Value Fund $22,453,637 March 31, 2017
Mid Cap Growth Fund $55,424,720 March 31, 2017
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A Fund cannot carry back or carry forward any net operating losses.
ORIGINAL ISSUE DISCOUNT AND MARKET DISCOUNT. A Fund may make investments in STRIPS, TRs, TIGRs, LYONs, CATS and other Zero Coupon securities which are treated as having acquisition discount, or original issue discount ("OID") (generally a debt obligation with a purchase price less than its principal amount). Generally, a Fund will be required to include the acquisition discount, or OID, in income over the term of the debt security, even though it will not receive cash payments for such discount until a later time, usually when the debt security matures. A Fund may make one or more of the elections applicable to debt securities having acquisition discount, or OID, which could affect the character and timing of recognition of income. Inflation-protected bonds generally can be expected to produce OID income as their principal amounts are adjusted upward for inflation. A portion of the OID includible in income with respect to certain high-yield corporate debt securities may be treated as a dividend for federal income tax purposes.
A debt security acquired in the secondary market by a Fund may be treated as having market discount if acquired at a price below redemption value or adjusted issue price if issued with original issue discount. Market discount generally is accrued ratably, on a daily basis, over the period from the date of acquisition to the date of maturity even though no cash will be received. Absent an election by a Fund to include the market discount in income as it accrues, gain on its disposition of such an obligation will be treated as ordinary income rather than capital gain to the extent of the accrued market discount.
In addition, pay-in-kind securities will give rise to income which is required to be distributed and is taxable even though a Fund holding such securities receives no interest payments in cash on such securities during the year.
Each Fund generally will be required to distribute dividends to shareholders representing the income accruing on the debt securities, described above, that is currently includable in income, even though cash representing such income may not have been received by such Fund. Cash to pay these dividends may be obtained from sales proceeds of securities held by a Fund (even if such sales are not advantageous) or, if permitted by such Fund's governing documents, through borrowing the amounts required. In the event a Fund realizes net capital gains from such transactions, its shareholders may receive a larger capital gain distribution, if any, than they would have in the absence of such transactions. Borrowing to fund any distribution also has tax implications, such as potentially creating unrelated business taxable income.
OPTIONS, FUTURES AND FORWARD CONTRACTS. The writing (selling) and purchasing of options and futures contracts and entering into forward currency contracts, involves complex rules that will determine for income tax purposes the amount, character and timing of recognition of the gains and losses a Fund realizes in connection with such transactions.
Gains and losses on the sale, lapse, or other termination of options and futures contracts, options thereon and certain forward contracts (except certain foreign currency options, forward contracts and futures contracts) will generally be treated as capital gains and losses. Some regulated futures contracts, certain foreign currency contracts, and certain non-equity options (such as certain listed options or options on broad based securities indexes) held by a Fund ("Section 1256 contracts"), other than contracts on which it has made a "mixed-straddle election", will be required to be "marked-to-market" for federal income tax purposes, that is, treated as having been sold at their market value on the last day of such Fund's taxable year. These provisions may require a Fund to recognize income or gains without a concurrent receipt of cash. Any gain or loss recognized on actual or deemed sales of Section 1256 contracts will be treated as 60% long-term capital gain or loss and 40% short-term capital gain or loss, although certain foreign currency gains and losses from such contracts may be treated as ordinary income or loss as described below. Transactions that qualify as designated hedges are exempt from the mark-to-market rule, but may require a Fund to defer the recognition of losses on futures contracts, foreign currency contracts and certain options to the extent of any unrecognized gains on related positions held by it.
The tax provisions described above applicable to options, futures and forward contracts may affect the amount, timing, and character of a Fund's distributions to its shareholders. For example, the Section 1256 rules described above may operate to increase the amount a Fund must distribute to satisfy the minimum distribution requirement for the portion treated as short-term capital gain which will be taxable to its shareholders as ordinary income, and to increase the net capital gain it recognizes, without, in either case, increasing the cash available to it. A Fund may elect to exclude certain transactions from the operation of Section 1256, although doing so may have the effect of increasing the relative proportion of net short-term capital gain (taxable as ordinary income) and thus increasing the amount of dividends it must distribute. Section 1256 contracts also may be marked-to-market for purposes of the Excise Tax.
When a covered call option written (sold) by a Fund expires such Fund will realize a short-term capital gain equal to the amount of the premium it received for writing the option. When a Fund terminates its obligations under such an option by entering into a closing transaction, it will realize a short-term capital gain (or loss), depending on whether the cost of the closing transaction is less than (or exceeds) the premium received when it wrote the option. When a covered call option written by a Fund is exercised, such Fund will be treated as having sold the underlying security, producing long-term or short-term capital gain or loss, depending upon the holding period of the underlying security and whether the sum of the option price received upon the exercise plus the premium received when it wrote the option is more or less than the basis of the underlying security.
STRADDLES. Section 1092 deals with the taxation of straddles which also may affect the taxation of options in which a Fund may invest. Offsetting positions held by a Fund involving certain derivative instruments, such as options, futures and forward currency contracts, may be considered, for federal income tax purposes, to constitute "straddles." Straddles are defined to include offsetting positions in actively traded personal property. In certain circumstances, the rules governing straddles override or modify the provisions of Section 1256, described above. If a Fund is treated as entering into a straddle and at least one (but not all) of its positions in derivative contracts comprising a part of such straddles is governed by Section 1256, then such straddle could be characterized as a "mixed straddle." A Fund may make one or more elections with respect to mixed straddles. Depending on which election is made, if any, the results with respect to a Fund may differ. Generally, to the extent the straddle rules apply to positions established by a Fund, losses realized by it may be deferred to the extent of unrealized gain in any offsetting positions. Moreover, as a result of the straddle rules, short-term capital loss on straddle positions may be characterized as long-term capital loss, and long-term capital gain may be characterized as short-term capital gain. In addition, the existence of a straddle may affect the holding period of the offsetting positions and cause such sales to be subject to the "wash sale" and "short sale" rules. As a result, the straddle rules could cause distributions that would otherwise constitute "qualified dividend income" to fail to satisfy the applicable holding period requirements, described below, and therefore to be taxed as ordinary income. Further, a Fund may be required to capitalize, rather than deduct currently, any interest expense and carrying charges applicable to a position that is part of a straddle. Because the application of the straddle rules may affect the character and timing of gains and losses from affected straddle positions, the amount which must be distributed to shareholders, and which will be taxed to shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to the situation where a Fund had not engaged in such transactions.
In circumstances where a Fund has invested in certain pass-through entities, the amount of long-term capital gain that it may recognize from certain derivative transactions with respect to interests in such pass-through entities is limited under the Code's constructive ownership rules. The amount of long-term capital gain is limited to the amount of such gain a Fund would have had if it directly invested in the pass-through entity during the term of the derivative contract. Any gain in excess of this amount is treated as ordinary income. An interest charge is imposed on the amount of gain that is treated as ordinary income.
SWAPS. As a result of entering into swap agreements, a Fund may make or receive periodic net payments. A Fund may also make or receive a payment when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments will generally constitute ordinary income or deductions, while termination of a swap will generally result in capital gain or loss (which will be a long-term capital gain or loss if the Fund has been a party to a swap for more than one year). With respect to certain types of swaps, a Fund may be required to currently recognize income or loss with respect to future payments on such swaps or may elect under certain circumstances to mark such swaps to market annually for tax purposes as ordinary income or loss.
Rules governing the tax aspects of swap agreements are not entirely clear in certain respects. Accordingly, while each Fund intends to account for such transactions in a manner it deems appropriate, the IRS might not accept such treatment. If it did not, the status of the Fund as a RIC might be affected. The Funds intend to monitor developments in this area. Certain requirements that must be met under the Code in order for each Fund to qualify as a RIC may limit the extent to which a Fund will be able to engage in swap agreements and certain derivatives."
CONSTRUCTIVE SALES. Certain rules may affect the timing and character of gain if a Fund engages in transactions that reduce or eliminate its risk of loss with respect to appreciated financial positions. If a Fund enters into certain transactions (including a short sale, an offsetting notional principal contract, a futures or forward contract, or other transactions identified in Treasury regulations) in property while holding an appreciated financial position in substantially identical property, it will be treated as if it had sold and immediately repurchased the appreciated financial position and will be taxed on any gain (but not loss) from the constructive sale. The character of gain from a constructive sale will depend upon a Fund's holding period in the appreciated financial position. Loss from a constructive sale would be recognized when the position was subsequently disposed of, and its character would depend on a Fund's holding period and the application of various loss deferral provisions of the Code.
In addition, if the appreciated financial position is itself a short sale or such a contract, acquisition of the underlying property or substantially identical property by a Fund will be deemed a constructive sale. The foregoing will not apply, however, to a Fund's transaction during any taxable year that otherwise would be treated as a constructive sale if the transaction is closed within 30 days after the end of that year and such Fund holds the appreciated financial position unhedged for 60 days after that closing (i.e., at no time during that 60-day period is such Fund's risk of loss regarding the position reduced by reason of certain specified transactions with respect to substantially identical or related property, such as having an option to sell, being contractually obligated to sell, making a short sale or granting an option to buy substantially identical stock or securities).
WASH SALES. A Fund may in certain circumstances be impacted by special rules relating to "wash sales." In general, the wash sale rules prevent the recognition of a loss by a Fund from the disposition of stock or securities at a loss in a case in which identical or substantially identical stock or securities (or an option to acquire such property) is or has been acquired by it within 30 days before or 30 days after the sale.
SHORT SALES. A Fund may make short sales of securities. Short sales may increase the amount of short-term capital gain realized by a Fund, which is taxed as ordinary income when distributed to its shareholders. Short sales also may be subject to the "Constructive Sales" rules, discussed above.
PASSIVE FOREIGN INVESTMENT COMPANIES. A Fund may invest in a non-U.S. corporation, which could be treated as a passive foreign investment company ("PFIC") or become a PFIC under the Code. A PFIC is generally defined as a foreign corporation that meets either of the following tests: (1) at least 75% of its gross income for its taxable year is income from passive sources (such as interest, dividends, certain rents and royalties, or capital gains); or (2) an average of at least 50% of its assets produce, or are held for the production of, such passive income. If a Fund acquires any equity interest in a PFIC, such Fund could be subject to federal income tax and interest charges on "excess distributions" received from the stock of the PFIC held by it or on any gain from the sale of such equity interest in the PFIC (collectively "PFIC income"), plus interest thereon even if such Fund distributes the PFIC income as a taxable dividend to its shareholders. The balance of the PFIC income will be included in such Fund's investment company taxable income and, accordingly, will not be taxable to it to the extent it distributes that income to its shareholders. A Funds distributions of PFIC income will be taxable as ordinary income even though, absent the application of the PFIC rules, some portion of the distributions may have been classified as capital gain.
A Fund will not be permitted to pass through to its shareholders any credit or deduction for taxes and interest charges incurred with respect to a PFIC. Payment of this tax would therefore reduce a Fund's economic return from its investment in PFIC shares. To the extent a Fund invests in a PFIC, it may elect to treat the PFIC as a "qualified electing fund" ("QEF"), then instead of the tax and interest obligation described above on excess distributions, such Fund would be required to include in income each taxable year its pro rata share of the QEF's annual ordinary earnings and net capital gain. As a result of a QEF election, a Fund would likely have to distribute to its shareholders an amount equal to the QEF's annual ordinary earnings and net capital gain to satisfy the Code's minimum distribution requirement described herein and avoid imposition of the Excise Tax even if the QEF did not distribute those earnings and gain to such Fund. In most instances it will be very difficult, if not impossible, to make this election because of certain requirements in making the election.
A Fund may elect to "mark-to-market" its stock in any PFIC. "Marking-to-market," in this context, means including in ordinary income each taxable year the excess, if any, of the fair market value of the PFIC stock over such Fund's adjusted basis therein as of the end of that year. Pursuant to the election, a Fund also may deduct (as an ordinary, not capital, loss) the excess, if any, of its adjusted basis in the PFIC stock over the fair market value thereof as of the taxable year-end, but only to the extent of any net mark-to-market gains with respect to that stock it included in income for prior taxable years under the election. A Fund's adjusted basis in its PFIC stock subject to the election would be adjusted to reflect the amounts of income included and deductions taken thereunder. In either case, a Fund may be required to recognize taxable income or gain without the concurrent receipt of cash.
FOREIGN CURRENCY TRANSACTIONS. Foreign currency gains and losses realized by a Fund in connection with certain transactions involving foreign currency-denominated debt instruments, certain options, futures contracts, forward contracts, and similar instruments relating to foreign currency, foreign currencies, and foreign currency-denominated payables and receivables are subject to Section 988 of the Code, which causes such gains and losses to be treated as ordinary income or loss and may affect the amount and timing of recognition of such Fund's income. In some cases elections may be available that would alter this treatment, but such elections could be detrimental to a Fund by creating current recognition of income without the concurrent recognition of cash. If a foreign currency loss treated as an ordinary loss under Section 988 were to exceed a Fund's investment company taxable income (computed without regard to such loss) for a taxable year the resulting loss would not be deductible by it or its shareholders in future years. The foreign currency income or loss will also increase or decrease a Fund's investment company income distributable to its shareholders.
FOREIGN TAXATION. Income received by a Fund from sources within foreign countries may be subject to foreign withholding and other taxes. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. If more than 50% of a Fund's total assets at the close of any taxable year consist of stock or securities of foreign corporations and it meets the distribution requirements described above, such Fund may file an election (the "pass-through election") with the IRS pursuant to which shareholders of it would be required to (i) include in gross income (in addition to taxable dividends actually received) their pro rata shares of foreign income taxes paid by it even though not actually received by such shareholders; and (ii) treat such respective pro rata portions as foreign income taxes paid by them. Each shareholder will be notified within 60 days after the close of each Fund's taxable year whether the foreign taxes paid by it will "pass-through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that it may not exceed the shareholder's U.S. tax attributable to his or her total foreign source taxable income. For this purpose, if the pass-through election is made, the source of a Fund's income will flow through to shareholders. The limitation on the foreign tax credit is applied separately to foreign source passive income, and to certain other types of income. Shareholders may be unable to claim a credit for the full amount of their proportionate share of the foreign taxes paid by a Fund. Various limitations, including a minimum holding period requirement, apply to limit the credit and deduction for foreign taxes for purposes of regular federal tax and alternative minimum tax.
DISTRIBUTIONS. Distributions paid out of a Fund's current and accumulated earnings and profits (as determined at the end of the year), whether reinvested in additional shares or paid in cash, are generally taxable and must be reported by each shareholder who is required to file a federal income tax return. Distributions in excess of a Fund's current and accumulated earnings and profits, as computed for federal income tax purposes, will first be treated as a return of capital up to the amount of a shareholder's tax basis in his or her Fund shares and then as capital gain.
For federal income tax purposes, distributions of investment company taxable income are generally taxable as ordinary income, and distributions of gains from the sale of investments that a Fund owned for one year or less will be taxable as ordinary income. Distributions designated by a Fund as "capital gain dividends" (distributions from the excess of net long-term capital gain over short-term capital losses) will be taxable to shareholders as long-term capital gain regardless of the length of time they have held their shares of such Fund. Such dividends do not qualify as dividends for purposes of the dividends received deduction described below.
Noncorporate shareholders of a Fund may be eligible for the 15% long-term capital gain rate applicable to distributions of "qualified dividend income" received by such noncorporate shareholders in taxable years beginning before January 1, 2011. A Fund's distribution will be treated as qualified dividend income and therefore eligible for the 15% rate to the extent that it receives dividend income from taxable domestic corporations and certain qualified foreign corporations, provided that certain holding periods and other requirements are met. A corporate shareholder of a Fund may be eligible for the dividends received deduction on such Fund's distributions attributable to dividends received by such Fund from domestic corporations, which, if received directly by the corporate shareholder, would qualify for such a deduction. For eligible corporate shareholders, the dividends received deduction may be subject to certain reductions, and a distribution by a Fund attributable to dividends of a domestic corporation will be eligible for the deduction only if certain holding period and other requirements are met.
Not later than 60 days after the close of each calendar year, each Fund will inform shareholders of the federal income tax status of its dividends and distributions including the portion of such dividends, if any, that qualifies as long-term capital gain.
Different tax treatment, including penalties on certain excess contributions and deferrals, certain pre-retirement and post-retirement distributions, and certain prohibited transactions, is accorded to accounts maintained as qualified retirement plans. Shareholders should consult their tax advisors for more information.
PURCHASES OF FUND SHARES. Prior to purchasing shares in a Fund, the impact of dividends or distributions which are expected to be or have been declared, but not paid, should be carefully considered. Any dividend or distribution declared shortly after a purchase of shares of a Fund prior to the record date will have the effect of reducing the per share net asset value by the per share amount of the dividend or distribution, and to the extent the distribution consists of the Fund's taxable income, the purchasing shareholder will be taxed on the taxable portion of the dividend or distribution received even though some or all of the amount distributed is effectively a return of capital.
SALES, EXCHANGES OR REDEMPTIONS. Upon the disposition of shares of a Fund (whether by redemption, sale or exchange), a shareholder may realize a capital gain or loss. Such capital gain or loss will be long-term or short-term depending upon the shareholder's holding period for the shares. The capital gain will be long-term if the shares were held for more than 12 months and short-term if held for 12 months or less. Any loss realized on a disposition will be disallowed under the "wash sale" rules to the extent that the shares disposed of by the shareholder are replaced by the shareholder within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition. 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 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 capital gain dividends received by the shareholder and disallowed to the extent of any distributions of exempt-interest dividends received by the shareholder with respect to such shares. Capital losses are generally deductible only against capital gains except that individuals may deduct up to $3,000 of capital losses against ordinary income.
A shareholder is also subject to the wash sale rules described above upon a sale or redemption of shares in a Fund if within 30 days before or after the sale or redemption such shareholder purchases other shares in the Fund (through reinvestment of dividends or otherwise). Any loss disallowed under the wash sale rules will be allocated to the shareholder's basis in the newly purchased shares.
BACKUP WITHHOLDING. Each Fund generally is required to withhold, and remit to the U.S. Treasury, subject to certain exemptions, an amount equal to 28% of all distributions and redemption proceeds paid or credited to a shareholder of such Fund if (i) the shareholder fails to furnish such Fund with the correct taxpayer identification ("TIN") certified under penalties of perjury, (ii) the shareholder fails to provide a certified statement that the shareholder is not subject to backup withholding, or (iii) the IRS or a broker has notified such Fund that the number furnished by the shareholder is incorrect or that the shareholder is subject to backup withholding as a result of failure to report interest or dividend income. If the backup withholding provisions are applicable, any such distributions or proceeds, whether taken in cash or reinvested in shares, will be reduced by the amounts required to be withheld. Backup withholding is not an additional tax. Any amounts withheld may be credited against a shareholder's U.S. federal income tax liability.
STATE AND LOCAL TAXES. No Fund that qualifies as a RIC for federal income tax purposes is liable for any income or franchise tax in Delaware. State and local laws often differ from federal income tax laws with respect to the treatment of specific items of income, gain, loss, deduction and credit.
Shareholders are urged to consult their tax advisors as to the state and local tax rules affecting investments in the Funds.
NON-U.S. SHAREHOLDERS. Distributions made to non-U.S. shareholders attributable to net investment income generally are subject to U.S. federal income tax withholding at a 30% rate (or such lower rate provided under an applicable income tax treaty). Notwithstanding the foregoing, if a distribution described above is effectively connected with the conduct of a trade or business carried on by a non-U.S. shareholder within the United States (or, if an income tax treaty applies, is attributable to a permanent establishment in the United States), federal income tax withholding and exemptions attributable to foreign persons will not apply and such distribution will be subject to the federal income tax, reporting and withholding requirements generally applicable to U.S. persons described above.
Under U.S. federal tax law, a non-U.S. shareholder is not, in general, subject to federal income tax or withholding tax on capital gains (and is not allowed a deduction for losses) realized on the sale of shares of a Fund and capital gain dividends, provided that such Fund obtains a properly completed and signed certificate of foreign status, unless (i) such gains or distributions are effectively connected with the conduct of a trade or business carried on by the non-U.S. shareholder within the United States (or, if an income tax treaty applies, are attributable to a permanent establishment in the United States of the non-U.S. shareholder); (ii) in the case of an individual non-U.S. shareholder, the shareholder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale and certain other conditions are met; or (iii) the shares of such Fund constitute U.S. real property interests (USRPIs), as described below.
For taxable years beginning before January 1, 2010, non-U.S. shareholders are also exempt from federal income tax withholding on distributions designated by a Fund as interest-related dividends. Interest-related dividends are generally attributable to a RIC's net interest income earned on certain debt obligations and paid to non-U.S. shareholders. In order to qualify as an interest-related dividend a Fund must designate a distribution as such in a written notice mailed to its shareholders not later than 60 days after the close of its taxable year.
Distributions of a Fund when at least 50% of its assets are USRPIs, as defined in the Code and Treasury regulations, to the extent the distributions are attributable to gains from sales or exchanges of USRPIs (including gains on the sale or exchange of shares in certain "U.S. real property holding corporations") generally will cause a non-U.S. shareholder to treat such gain as income effectively connected to a trade or business within the United States, subject to tax at the graduated rates applicable to U.S. shareholders. Such distributions may be subject to U.S. withholding tax and may require the non-U.S. shareholder to file a U.S. federal income tax return.
The federal income tax withholding rate may be reduced (and, in some cases, eliminated) under an applicable tax treaty between the United States and the non-U.S. shareholder's country of residence or incorporation. In order to qualify for treaty benefits, a non-U.S. shareholder must comply with applicable certification requirements relating to its foreign status (generally by providing a Fund with a properly completed Form W-8BEN). All non-U.S. shareholders are urged to consult their tax advisors as to the tax consequences of an investment in a Fund.
TAX-EXEMPT SHAREHOLDERS. A tax-exempt shareholder could realize unrelated
business taxable income ("UBTI") by virtue of its investment in a Fund due to
such Fund's investments and if shares in such Fund constitute debt financed
property in the hands of the tax-exempt shareholder within the meaning of Code
Section 514(b).
Any investment in a residual interest of a CMO that has elected to be treated as a REMIC can create complex tax consequences, especially if a Fund has state or local governments or other tax-exempt organizations as shareholders.
All tax-exempt shareholders are urged to consult their tax advisors as to the tax consequences of an investment in a Fund.
TAX SHELTER REPORTING REGULATIONS. Under Treasury regulations, if a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form 8886. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Shareholders should consult their own tax advisors to determine the applicability of these regulations in light of their individual circumstances.
Each shareholder is urged and advised to consult such shareholder's own tax advisor with respect to the tax consequences of an investment in a Fund including, but not limited to, the applicability of state, local, foreign and other tax laws affecting the particular shareholder and to possible effects of changes in federal or other tax laws.
As of July 7, 2009, 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
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Large Cap Growth Fund - Charles Schwab & Company, Inc. 24.07%
Class A Cust SPL Custody Bnft
101 Montgomery Street San Francisco, CA
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Large Cap Growth Fund - Merrill Lynch, Pierce Fenner & Smith Incorporated 17.15%
Class A For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
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Large Cap Growth Fund - Prudential Investment Management 9.90%
Class A 100 Mulberry Street
Newark, NJ 07102
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Large Cap Growth Fund - Fifth Third Bank - Trustee 5.58%
Class A FBO Various Fascorp Record Kept Plans
8515 E. Orchard 2T2 Centennial, CO
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Large Cap Growth Fund - Merrill Lynch, Pierce Fenner & Smith Incorporated** 34.68%
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** 48.45%
Class C For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
-----------------------------------------------------------------------------------------------------------------
Large Cap Growth Fund - The Western & Southern Life Insurance Co.* 14.99%
Class Y 400 Broadway Cincinnati, OH
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Large Cap Growth Fund - Prudential Investment Mutual Fund** 64.81%
Class Y 100 Mulberry Street
Newark, NJ
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Growth Opportunities Fund - Charles Schwab & Company, Inc. 11.97%
Class A Mutual Funds - Special Custody
101 Montgomery Street San Francisco, CA
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Growth Opportunities Fund- Merrill Lynch, Pierce Fenner & Smith Incorporated 12.62%
Class C For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
-----------------------------------------------------------------------------------------------------------------
Growth Opportunities Fund- Touchstone Advisors Seed Account*,** 100.00%
Class Y 303 Broadway Suite 1100
Cincinnati, OH 45202
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Growth Opportunities Fund- Morgan Keegan Co. Inc.** 78.11%
Institutional Shares 50 North Front Street
Memphis, TN 38103
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Growth Opportunities Fund- Strafe Co FAO 21.82%
Institutional Shares Daywood Foundation
PO Box 160
Westerville, OH 43086
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Mid Cap Growth Fund-Class A Merrill Lynch, Pierce Fenner & Smith Incorporated 5.52%
For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
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Mid Cap Growth Fund-Class A Charles Schwab & Company, Inc. 6.70%
Mutual Funds - Special Custody
101 Montgomery Street San Francisco, CA
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Mid Cap Growth Fund-Class A Fifth Third Bank - Trustee 5.09%
FBO Various Fascorp Record Kept Plans
8515 E. Orchard 2T2 Centennial, CO
-----------------------------------------------------------------------------------------------------------------
Mid Cap Growth Fund-Class B Merrill Lynch, Pierce Fenner & Smith Incorporated 16.53%
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** 29.09%
For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
-----------------------------------------------------------------------------------------------------------------
Mid Cap Growth Fund-Class Y National Financial Services LLC** 93.84%
200 Liberty St 1 World Financial
New York, NY 10281
-----------------------------------------------------------------------------------------------------------------
Large Cap Core Equity Fund- Fifth Third Bank - Trustee 16.45%
Class A FBO Various Fascorp Record Kept Plans
8515 E. Orchard 2T2 Centennial, CO
-----------------------------------------------------------------------------------------------------------------
Large Cap Core Equity Fund- The Western & Southern Life Insurance Co.*,** 29.53%
Class A 400 Broadway Cincinnati, OH
-----------------------------------------------------------------------------------------------------------------
Large Cap Core Equity Fund- The Western & Southern Financial Group*,** 33.32%
Class A 400 Broadway Cincinnati, OH
-----------------------------------------------------------------------------------------------------------------
Large Cap Core Equity Fund - Merrill Lynch, Pierce Fenner & Smith Incorporated 14.68%
Class C For the Sole Benefit of its Customers
4800 Deer Lake Drive East Jacksonville, FL
-----------------------------------------------------------------------------------------------------------------
Large Cap Core Equity Fund - The Western & Southern Financial Group* 9.01%
Class C 400 Broadway Cincinnati, OH
-----------------------------------------------------------------------------------------------------------------
Large Cap Value Fund-Class A National Financial Services FBO John Swanson 12.61%
-----------------------------------------------------------------------------------------------------------------
Large Cap Value Fund-Class A Western & Southern Life Insurance Co.* 22.78%
400 Broadway Cincinnati, OH
-----------------------------------------------------------------------------------------------------------------
Large Cap Value Fund-Class A Fifth Third Bank - Trustee 13.62%
FBO Various Fascorp Record Kept Plans
8515 E. Orchard 2T2 Centennial, CO
-----------------------------------------------------------------------------------------------------------------
Large Cap Value Fund -Class C Ameritrade Inc. Co. 9.83%
P.O. Box 2226
Omaha, NE 68103
-----------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Fifth Third Bank - Trustee 23.63%
Fund -Class A FBO Various Fascorp Record Kept Plans
8515 E. Orchard 2T2 Centennial, CO
-----------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Western & Southern Financial Group*,** 32.06%
Fund -Class Y 400 Broadway Cincinnati, OH
-----------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Prudential Investment Mutual Fund 23.40%
Fund -Class Y 100 Mulberry Street
Newark, NJ
-----------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Charles Schwab & Co. 14.80%
Fund -Class Y 101 Montgomery St
San Francisco, CA 94104
-----------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Dingle & Co 7.75%
Fund -Class Y PO Box 75000
Detroit, MI 48275
-----------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Wachovia Bank 12.80%
Fund -Class Y FBO Retirement
1525 West WT Harris Blvd
Charlotte, NC 28288
-----------------------------------------------------------------------------------------------------------------
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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, 2009. As a result, those persons or organizations could have the ability to take action with respect to a Fund without the consent or approval of other shareholders.
As of July 7, 2009, 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, 312 Walnut Street, Cincinnati, OH 45202, has been selected as the independent registered public accounting firm for the Trust for the fiscal year ending March 31, 2010. 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.
Pepper Hamilton LLP, 3000 Two Logan Square, 18th and Arch Streets, Philadelphia, PA 19103, serves as counsel to the Trust.
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 FOR THE FISCAL FOR THE PERIOD
YEAR ENDED YEAR ENDED 01/01/07 -
03/31/09 03/31/08 03/31/07
-------- -------- --------
Mid Cap Growth Fund $648,529 $920,499 $224,619
Large Cap Core Equity Fund $53,126 $80,161 $20,306
Growth Opportunities Fund $26,526 $39,007 $11,486
Large Cap Value Fund $14,207 $36,924 $8,146
Large Cap Growth Fund $813,606 $794,217 $201,123
Diversified Small Cap Growth Fund $24,423 $13,830 $2,284
|
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 -
12-31-06
--------
Mid Cap Growth Fund $51,750
Large Cap Core Equity Fund $29,125
Growth Opportunities Fund $34,750
Large Cap Value Fund $23,625
Large Cap Growth Fund $57,375
09-06-06
12-31-06
--------
Diversified Small Cap Growth Fund $10,347
|
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
12-31-06
--------
Mid Cap Growth Fund $309,976
Large Cap Core Equity Fund $26,311
Growth Opportunities Fund $32,169
Large Cap Value Fund $9,534
Large Cap Growth Fund $332,190
9-06-06
12-31-06
--------
Diversified Small Cap Growth Fund $1,870
|
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 FOR THE FISCAL FOR THE PERIOD
YEAR ENDED YEAR ENDED 01/01/07 -
03/31/09 03/31/08 03/31/07
-------- -------- --------
Mid Cap Growth Fund $1,705,505 $2,312,246 $553,216
Large Cap Core Equity Fund $133,037 $201,368 $32,721
Growth Opportunities Fund $69,589 $98,026 $28,499
Large Cap Value Fund $35,660 $92,832 $19,937
Large Cap Growth Fund $2,035,336 $1,993,889 $497,624
Diversified Small Cap Growth Fund $61,176 $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 FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED YEAR ENDED
03/31/09 03/31/08 03/31/07
-------- -------- --------
Mid Cap Growth Fund $5,387 $4,400 $4,714
Large Cap Core Equity Fund $1,296 $1,754 $1,514
Growth Opportunities Fund $1,319 $1,016 $657
Large Cap Value Fund $1,606 $968 $700
Large Cap Growth Fund $6,177 $4,195 $5,093
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FOR THE FISCAL FOR THE FISCAL FOR THE PERIOD
YEAR ENDED YEAR ENDED 09/06/06 -
03/31/09 03/31/08 03/31/07
-------- -------- --------
Diversified Small Cap Growth Fund $1,115 $480 $600
|
The Funds' annual financial statements as of March 31, 2009 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, 2008 appear in the Trust's Semiannual Report, which is incorporated by reference into this SAI. The Trust's semiannual financial statements are unaudited. The Annual Report or Semi-Annual Report may be obtained free of charge by calling the Trust at 1-800-543-0407 or by writing to the Trust at P.O. Box 5354, Cincinnati, OH 45201-5354. You may also obtain the Annual Report or Semi-Annual Report, as well as other information about the Trust, from the EDGAR Database on the SEC's website at http://www.sec.gov.
APPENDIX
DESCRIPTION OF SECURITIES RATINGS
Moody's Investors Service, Inc. ("Moody's"), Standard &Poor's(R) ("S&P") and Fitch Ratings, Inc. ("Fitch") are private services that provide ratings of the credit quality of debt obligations. A description of the ratings assigned by Moody's, S&P(R) and Fitch are provided below. These ratings represent the opinions of these rating services as to the quality of the securities that they undertake to rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. The Advisor and/or Sub-Advisor attempts to discern variations in credit rankings of the rating services and to anticipate changes in credit ranking. However, subsequent to purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced below the minimum rating required for purchase by the Fund. In that event, the Advisor and/or Sub-Advisor will consider whether it is in the best interest of the Fund to continue to hold the securities.
Moody's credit ratings must be construed solely as statements of opinion and not as statements of fact or recommendations to purchase, sell or hold any securities.
An S&P issue credit rating is a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). The opinion evaluates the obligor's capacity and willingness to meet its financial commitments as they come due, and may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default. It takes into consideration the creditworthiness of guarantors, insurers or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The issue credit rating is not a recommendation to purchase, sell or hold a financial obligation inasmuch as it does not comment as to market price or suitability for a particular investor.
Fitch credit ratings are an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, and repayment of principal, insurance claims or counterparty obligations. Fitch credit ratings are used by investors as indications of the likelihood of receiving their money back in accordance with the terms on which they invested. Fitch's credit-ratings cover the global spectrum of corporate, sovereign (including supra-national and sub-national), financial, bank, insurance, municipal and other public finance entities and the securities or other obligations they issue, as well as structured finance securities backed by receivables or other financial assets.
SHORT-TERM CREDIT RATINGS
Moody's short-term ratings are opinions of the ability of issuers to honor short-term financial obligations. Ratings may be assigned to issuers, short-term programs or to individual short-term debt instruments. Such obligations generally have an original maturity not exceeding thirteen months, unless explicitly noted.
Moody's employs the following:
"P-1" - Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
"P-2" - Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
"P-3" - Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
"NP" - Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
Note: Canadian issuers rated P-1 or P-2 have their short-term ratings enhanced by the senior-most long-term rating of the issuer, its guarantor or support-provider.
An S&P short-term issue credit rating is a current opinion of the creditworthiness of an obligor with respect to a specific financial obligation having an original maturity of no more than 365 days, including commercial paper. The following summarizes the rating categories used by S&P for short-term issues:
"A-1" - Obligations are rated in the highest category and indicate that the obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong.
"A-2" - Obligations are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory.
"A-3" - Obligations exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
"B" - Obligations are regarded as having significant speculative characteristics. Ratings of "B-1," "B-2," and "B-3" may be assigned to indicate finer distinctions within the "B" category. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
"B-1" - Obligations are regarded as having significant speculative characteristics, but the obligor has a relatively stronger capacity to meet its financial commitments over the short-term compared to other speculative - grade obligors.
"B-2" - Obligations are regarded as having significant speculative
characteristics and the obligor has an average speculative - grade capacity to
meet its financial commitments over the short-term compared to other speculative
- grade obligors.
"B-3" - Obligations are regarded as having significant speculative characteristics, and the obligor has a relatively weaker capacity to meet its financial commitments over the short-term compared to other speculative - grade obligors.
"C" - Obligations are currently vulnerable to nonpayment and are dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation.
"D" - Obligations are in payment default. The "D" rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The "D" rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Local Currency and Foreign Currency Risks - Country risk considerations are a standard part of S&P's analysis for credit ratings on any issuer or issue. Currency of repayment is a key factor in this analysis. An obligor's capacity to repay foreign currency obligations may be lower than its capacity to repay obligations in its local currency due to the sovereign government's own relatively lower capacity to repay external versus domestic debt. These sovereign risk considerations are incorporated in the debt ratings assigned to specific issues. Foreign currency issuer ratings are also distinguished from local currency issuer ratings to identify those instances where sovereign risks make them different for the same issuer.
A short-term issuer or obligation rating is based in all cases on the short-term vulnerability to default of the rated entity or security stream, and relates to the capacity to meet financial obligations in accordance with the documentation governing the relevant obligation. Short-Term Ratings are assigned to obligations whose initial maturity is viewed as "short term" based on market convention. Typically, this means up to 13 months for corporate, structured and sovereign obligations, and up to 36 months for obligations in U.S. public finance markets. The following summarizes the rating categories used by Fitch for short-term obligations:
"F1" - Securities possess the highest short-term credit quality. This designation indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added "+" to denote any exceptionally strong credit feature.
"F2" - Securities possess good short-term credit quality. This designation indicates good intrinsic capacity for timely payment of financial commitments.
"F3" - Securities possess fair short-term credit quality. This designation indicates that the intrinsic capacity for timely payment of financial commitments is adequate.
"B" - Securities possess speculative short-term credit quality. This designation indicates minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic conditions.
"C" - Securities possess high short-term default risk. This designation indicates that default is a real possibility.
"RD" (Restricted default) - This designation indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Applicable to entity ratings only.
"D" (Default) - This designation indicates a broad-based default event for an entity, or the default of a specific short-term obligation.
Specific limitations relevant to the Short-Term Ratings scale include:
o The ratings do not predict a specific percentage of default likelihood over any given time period.
o The ratings do not opine on the market value of any issuer's securities or stock, or the likelihood that this value may change.
o The ratings do not opine on the liquidity of the issuer's securities or stock.
o The ratings do not opine on the possible loss severity on an obligation should an obligation default.
o The ratings do not opine on any quality related to an issuer or transaction's profile other than the agency's opinion on the relative vulnerability to default of the rated issuer or obligation.
LONG-TERM CREDIT RATINGS
Moody's long-term obligation ratings are opinions of the relative credit risk of fixed-income obligations with an original maturity of one year or more. They address the possibility that a financial obligation will not be honored as promised. Such ratings use Moody's Global Scale and reflect both the likelihood of default and any financial loss suffered in the event of default.
The following summarizes the ratings used by Moody's for long-term debt:
"Aaa" - Obligations rated "Aaa" are judged to be of the highest quality, with minimal credit risk.
"Aa" - Obligations rated "Aa" are judged to be of high quality and are subject to very low credit risk.
"A" - Obligations rated "A" are considered upper-medium grade and are subject to low credit risk.
"Baa" - Obligations rated "Baa" are subject to moderate credit risk. They are considered medium-grade and as such may possess certain speculative characteristics.
"Ba" - Obligations rated "Ba" are judged to have speculative elements and are subject to substantial credit risk.
"B" - Obligations rated "B" are considered speculative and are subject to high credit risk.
"Caa" - Obligations rated "Caa" are judged to be of poor standing and are subject to very high credit risk.
"Ca" - Obligations rated "Ca" are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
"C" - Obligations rated "C" are the lowest rated class of bonds and are typically in default, with little prospect for recovery of principal or interest.
Note: Moody's appends numerical modifiers 1, 2, and 3 to each generic rating classification from "Aa" through "Caa." The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
Issue credit ratings are based, in varying degrees, on the following considerations:
o Likelihood of payment--capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
o Nature of and provisions of the obligation;
o Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.
Issue ratings are an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)
The following summarizes the ratings used by S&P for long-term issues:
"AAA" - An obligation rated "AAA" has the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
"AA" - An obligation rated "AA" differs from the highest-rated obligations only to a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
"A" - An obligation rated "A" is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
"BBB" - An obligation rated "BBB" exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
Obligations rated "BB," "B," "CCC," "CC," and "C" are regarded as having significant speculative characteristics. "BB" indicates the least degree of speculation and "C" the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
"BB" - An obligation rated "BB" is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
"B" - An obligation rated "B" is more vulnerable to nonpayment than obligations rated "BB," but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
"CCC" - An obligation rated "CCC" is currently vulnerable to nonpayment, and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
"CC" - An obligation rated "CC" is currently highly vulnerable to nonpayment.
"C" - A "C" rating is assigned to obligations that are currently highly vulnerable to nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an issuer that is the subject of a bankruptcy petition or similar action which have not experienced a payment default. Among others, the "C" rating may be assigned to subordinated debt, preferred stock or other obligations on which cash payments have been suspended in accordance with the instrument's terms.
"D" - An obligation rated "D" is in payment default. The "D" rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payment will be made during such grace period. The "D" rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus (-) - The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
"N.R." - This indicates that no rating has been requested, that there is insufficient information on which to base a rating or that S&P does not rate a particular obligation as a matter of policy.
Local Currency and Foreign Currency Risks - Country risk considerations are a standard part of S&P's analysis for credit ratings on any issuer or issue. Currency of repayment is a key factor in this analysis. An obligor's capacity to repay foreign currency obligations may be lower than its capacity to repay obligations in its local currency due to the sovereign government's own relatively lower capacity to repay external versus domestic debt. These sovereign risk considerations are incorporated in the debt ratings assigned to specific issues. Foreign currency issuer ratings are also distinguished from local currency issuer ratings to identify those instances where sovereign risks make them different for the same issuer.
Ratings of individual securities or financial obligations of a corporate issuer address relative vulnerability to default on an ordinal scale. In addition, for financial obligations in corporate finance, a measure of recovery given default on that liability is also included in the rating assessment.
The following summarizes long-term ratings used by Fitch:
"AAA" - Securities considered to be highest credit quality. "AAA" ratings denote the lowest expectation of credit risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
"AA" - Securities considered to be very high credit quality. "AA" ratings denote expectations of very low credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
"A" - Securities considered to be high credit quality. "A" ratings denote expectations of low credit risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
"BBB" - Securities considered to be good credit quality. "BBB" ratings indicate that expectations of credit risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.
"BB" - Securities considered to be speculative. "BB" ratings indicate an elevated vulnerability to credit risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial alternatives may be available to allow financial commitments to be met.
"B" - Securities considered to be highly speculative. "B" ratings indicate that material credit risk is present.
"CCC" - Securities have substantial credit risk. "CCC" ratings indicate that substantial credit risk is present.
"CC" - Securities have very high levels of credit risk. "CC" ratings indicate very high levels of credit risk.
"C" - Securities have exceptionally high levels of credit risk. "C" indicates exceptionally high levels of credit risk.
Defaulted obligations typically are not assigned "D" ratings, but are instead rated in the "B" to "C" rating categories, depending upon their recovery prospects and other relevant characteristics. This approach better aligns obligations that have comparable overall expected loss but varying vulnerability to default and loss.
Note: The modifiers "+" or "-" may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the "AAA" obligation rating category, or to corporate or public finance obligation ratings in the categories below "B."
Specific limitations relevant to the corporate obligation rating scale include:
o The ratings do not predict a specific percentage of default likelihood or expected loss over any given time period.
o The ratings do not opine on the market value of any issuer's securities or stock, or the likelihood that this value may change.
o The ratings do not opine on the liquidity of the issuer's securities or stock.
o The ratings do not opine on the suitability of an issuer as a counterparty to trade credit.
o The ratings do not opine on any quality related to an issuer's business, operational or financial profile other than the agency's opinion on its relative vulnerability to default and relative recovery should a default occur.
NOTES TO SHORT-TERM AND LONG-TERM CREDIT RATINGS
Watchlist: Moody's uses the Watchlist to indicate that a rating is under review for possible change in the short-term. A rating can be placed on review for possible upgrade ("UPG"), on review for possible downgrade ("DNG"), or more rarely with direction uncertain ("UNC"). A credit is removed from the Watchlist when the rating is upgraded, downgraded or confirmed.
Rating Outlooks: A Moody's rating outlook is an opinion regarding the likely direction of a rating over the medium term. Where assigned, rating outlooks fall into the following four categories: Positive ("POS"), Negative ("NEG"), Stable ("STA") and Developing ("DEV" -- contingent upon an event). In the few instances where an issuer has multiple outlooks of differing directions, an "(m)" modifier (indicating multiple, differing outlooks) will be displayed, and Moody's written research will describe any differences and provide the rationale for these differences. A "RUR" (Rating(s) Under Review) designation indicates that the issuer has one or more ratings under review for possible change, and thus overrides the outlook designation. When an outlook has not been assigned to an eligible entity, "NOO" (No Outlook) may be displayed.
Creditwatch: CreditWatch highlights the potential direction of a short- or long-term rating. It focuses on identifiable events and short-term trends that cause ratings to be placed under special surveillance by S&P's analytical staff. These may include mergers, recapitalizations, voter referendums, regulatory action or anticipated operating developments. Ratings appear on CreditWatch when such an event or a deviation from an expected trend occurs and additional information is necessary to evaluate the current rating. A listing, however, does not mean a rating change is inevitable, and whenever possible, a range of alternative ratings will be shown. CreditWatch is not intended to include all ratings under review, and rating changes may occur without the ratings having first appeared on CreditWatch. The "positive" designation means that a rating may be raised; "negative" means a rating may be lowered; and "developing" means that a rating may be raised, lowered or affirmed.
Rating Outlook: An S&P rating outlook assesses the potential direction of a long-term credit rating over the intermediate term (typically six months to two years). In determining a rating outlook, consideration is given to any changes in the economic and/or fundamental business conditions. An outlook is not necessarily a precursor of a rating change or future CreditWatch action.
o "Positive" means that a rating may be raised.
o "Negative" means that a rating may be lowered.
o "Stable" means that a rating is not likely to change.
o "Developing" means a rating may be raised or lowered.
Rating Watch: Rating Watches indicate that there is a heightened probability of a rating change and the likely direction of such a change. These are designated as "Positive," indicating a potential upgrade, "Negative," for a potential downgrade, or "Evolving," if ratings may be raised, lowered or affirmed. However, ratings that are not on Rating Watch can be raised or lowered without being placed on Rating Watch first if circumstances warrant such an action.
A Rating Watch is typically event-driven and, as such, it is generally resolved over a relatively short period. The event driving the Watch may be either anticipated or have already occurred, but in both cases, the exact rating implications remain undetermined. The Watch period is typically used to gather further information and/or subject the information to further analysis. Additionally, a Watch may be used where the rating implications are already clear, but where a triggering event (e.g. shareholder or regulatory approval) exists. The Watch will typically extend to cover the period until the triggering event is resolved, or its outcome is predictable with a high enough degree of certainty to permit resolution of the Watch.
Rating Watches can be employed by all analytical groups and are applied to the ratings of individual entities and/or individual instruments. At the lowest categories of speculative grade ("CCC", "CC" and "C") the high volatility of credit profiles may imply that almost all ratings should carry a Watch. Watches are nonetheless only applied selectively in these categories, where a committee decides that particular events or threats are best communicated by the addition of the Watch designation.
Rating Outlook: Timing is informative but not critical to the choice of a Watch rather than an Outlook. A discrete event that is largely clear and the terms of which are defined, but which will not happen for more than six months - such as a lengthy regulatory approval process - would nonetheless likely see ratings placed on Watch rather than a revision to the Outlook.
An Outlook revision may, however, be deemed more appropriate where a series of potential event risks has been identified, none of which individually warrants a Watch but which cumulatively indicate heightened probability of a rating change over the following one to two years.
A revision to the Outlook may also be appropriate where a specific event has been identified, but where the conditions and implications of that event are largely unclear and subject to high execution risk over an extended period - for example a proposed, but politically controversial, privatization.
MUNICIPAL NOTE RATINGS
Moody's uses three rating categories for short-term municipal obligations that are considered investment grade. These ratings are designated as Municipal Investment Grade ("MIG") and are divided into three levels - "MIG-1" through "MIG-3". In addition, those short-term obligations that are of speculative quality are designated "SG", or speculative grade. MIG ratings expire at the maturity of the obligation. The following summarizes the ratings used by Moody's for these short-term obligations:
"MIG-1" - This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support or demonstrated broad-based access to the market for refinancing.
"MIG-2" - This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group.
"MIG-3" - This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for refinancing is likely to be less well-established.
"SG" - This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
In the case of variable rate demand obligations ("VRDOs"), a two-component rating is assigned; a long- or short-term debt rating and a demand obligation rating. The first element represents Moody's evaluation of the degree of risk associated with scheduled principal and interest payments. The second element represents Moody's evaluation of the degree of risk associated with the ability to receive purchase price upon demand ("demand feature"), using a variation of the MIG rating scale, the Variable Municipal Investment Grade or "VMIG" rating.
When either the long- or short-term aspect of a VRDO is not rated, that piece is designated "NR", e.g., "Aaa/NR" or "NR/VMIG-1".
VMIG rating expirations are a function of each issue's specific structural or credit features.
"VMIG-1" - This designation denotes superior credit quality. Excellent protection is afforded by the superior short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
"VMIG-2" - This designation denotes strong credit quality. Good protection is afforded by the strong short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
"VMIG-3" - This designation denotes acceptable credit quality. Adequate protection is afforded by the satisfactory short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
"SG" - This designation denotes speculative-grade credit quality. Demand features rated in this category may be supported by a liquidity provider that does not have an investment grade short-term rating or may lack the structural and/or legal protections necessary to ensure the timely payment of purchase price upon demand.
An S&P U.S. municipal note rating reflects the liquidity factors and market access risks unique to notes. Notes due in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment:
o Amortization schedule--the larger the final maturity relative to other maturities, the more likely it will be treated as a note; and
o Source of payment--the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note.
Note rating symbols are as follows:
"SP-1" - The issuers of these municipal notes exhibit a strong capacity to pay principal and interest. Those issues determined to possess a very strong capacity to pay debt service are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit a satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
"SP-3" - The issuers of these municipal notes exhibit speculative capacity to pay principal and interest.
Fitch uses the same ratings for municipal securities as described above for other short-term credit ratings.
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.
(a)(8) Amendment to Restated Agreement and Declaration of Trust dated
September 30, 2004 is herein incorporated by reference to Exhibit
(a)(8) of Post-Effective Amendment No. 70 to Registrant's Registration
Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with
the SEC on February 2, 2009.
(a)(9) Amendment to Restated Agreement and Declaration of Trust dated February 22, 2006 is herein incorporated by reference to Exhibit (a)(9) of Post-Effective Amendment No. 70 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on February 2, 2009.
(a)(10) Amendment to Restated Agreement and Declaration of Trust dated August 15, 2006 is herein incorporated by reference to Exhibit (a)(10) of Post-Effective Amendment No. 70 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on February 2, 2009.
(a)(11) Amendment to Restated Agreement and Declaration of Trust dated March 22, 2007 is herein incorporated by reference to Exhibit (a)(11) of Post-Effective Amendment No. 70 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on February 2, 2009.
(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 Company, L.P. with respect to the Mid Cap Growth Fund is herein incorporated by reference to Exhibit (d)(3) of Post-Effective Amendment No. 68 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2008.
(d)(4) Subadvisory Agreement between Touchstone Advisors, Inc. and Navellier & Associates, Inc. for the Large Cap Growth Fund is filed herewith.
(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/Veredus Asset Management, LLC for the Large Cap Core Equity Fund is filed herewith.
(d)(7) Sub-Advisory Agreement between Touchstone Advisors, Inc. and JS Asset Management LLC is filed herewith.
(d)(8) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Westfield
Capital Management Company, L.P. with respect to the Growth
Opportunities Fund is herein incorporated by reference to Exhibit
(d)(11) of Post-Effective Amendment No. 68 to Registrant's Registration
Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with
the SEC on August 1, 2008.
(d)(9) Sub-Advisory Agreement between Touchstone Advisors, 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)(10) Addendum to Sub-Advisory Agreement between Touchstone Advisors, 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)(11) Addendum to Sub-Advisory Agreement between Touchstone Advisors, Inc. and Fort Washington Investment Advisors, Inc. with respect to the Diversified Small Cap Growth Fund is herein incorporated by reference to Exhibit (d)(14) of Post-Effective Amendment No. 68 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2008.
(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 filed herewith.
(g) Custodian Agreement with Brown Brothers Harriman & Co. is herein incorporated by reference to Exhibit (g)(1) of Post-Effective Amendment No. 68 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2008.
(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, 2004.
(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) Integrated Fund Services Anti-Money Laundering Compliance Program Service Agreement Addendum is herein incorporated by reference to Exhibit (h)(viii) 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, 2004.
(h)(4) 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)(5) Amended Sub-Administration Agreement between Touchstone Advisors, Inc. and JPMorgan Chase Bank, N.A. dated September 17, 2007 is herein incorporated by reference to Exhibit (h)(4) of Post-Effective Amendment No. 68 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2008.
(h)(6) Addendum to Amended Sub-Administration Agreement dated December 31, 2007 is herein incorporated by reference to Exhibit (h)(5) of Post-Effective Amendment No. 68 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2008.
(h)(7) Allocation Agreement for Allocation of Fidelity Bond Proceeds is filed herewith.
(h)(8) Amended Expense Limitation Agreement with Touchstone Advisors, Inc. is filed herewith.
(h)(9) Amendment to Amended Expense Limitation Agreement with Touchstone Advisors, Inc. is filed herewith.
(h)(9) Amended i-Compliance Services Agreement with JPMorgan Chase Bank, N.A. is herein incorporated by reference to Exhibit (h)(8) of Post-Effective Amendment No. 68 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2008.
(i) Opinion and Consent of Counsel is herein incorporated by reference to Exhibit (i) of Post-Effective Amendment No. 70 to Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on February 2, 2009.
(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 is filed herewith.
(o) Reserved.
(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, L.P. is filed herewith.
(p)(4) Code of Ethics for Todd/Veredus Asset Management, LLC is filed herewith.
(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 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)(7) 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 Subadvisor) shall not be liable for any act or omission in the course of rendering services, absent willful misfeasance, bad faith or gross negligence or reckless disregard by Touchstone (or a Subadvisor) of its obligations under the Agreement.
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, the address of the corporations listed below is 303 Broadway, Cincinnati, Ohio 45202. *The address is 400 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) Senior Vice President - Western & Southern Financial Group*
(e) Senior Vice President - W&S Brokerage Services, Inc.*
(f) President - IFS Fund Distributors, Inc.
(g) Director - Western & Southern Financial Group*, Capital Analysts, Inc., IFS Financial Services, Inc., IFS Fund Distributors, 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 -Chief Compliance Officer-Touchstone Advisors, Inc.
(a) Senior Vice President-IFS Financial Services, Inc.
(b) Vice President & Chief Compliance Officer-Touchstone Fund Complex
(c) Chief Compliance Officer-W&S Brokerage Services, Inc.
(d) Senior Vice President-IFS Fund Distributors, Inc.
(3) Donald J. Wuebbling - Director -Touchstone Advisors, Inc.
(a) Director- Touchstone Securities, Inc., W&S Financial Group
Distributors, Inc.*, Insurance Profillment Solutions, LLC.*, Capital
Analysts Inc., Integrity Life Insurance Company,* National Integrity Life
Insurance Company,* WestAd Inc*, Server Vault Corp.*, Eagle Realty Group,
LLC.*, IFS Financial Services, Inc., Western & Southern Agency, Inc.*,
Fort Washington Investment Advisors, Inc., W&S Brokerage Services, Inc.*,
Western & Southern Agency Services, Inc.*
(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, Inc.*, Fort Washington Investment Advisors, Inc., Columbus Life Insurance Co.*, Western & Southern Agency Services, 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., 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.*, Western & Southern Agency, 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., W&S Financial Group Distributors, 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.*
(b) Treasurer-W&S Brokerage Services, Inc.*, Fort Washington Capital Partners, LLC, Insurance Profillment Solutions*, Tristate Ventures, LLC.*, Capital Analysts, Inc.
(6) Terrie A. Wiedenheft - Chief Financial Officer-Touchstone Advisors, Inc.
(a) Senior Vice President and Chief Financial Officer- W&S Brokerage Services, Inc.*, IFS Financial Services, IFS Fund Distributors, Inc.
(b) Treasurer & Controller-Touchstone Fund Complex
(c) Treasurer of IFS Fund Distributors, Inc.
(d) Senior Vice President- Fort Washington Investment Advisors, Inc.
(e) Chief Financial Officer-Touchstone Securities, 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.*, Touchstone Securities, Inc., W&S Financial Group Distributors, Inc.*, Capital Analysts, Inc., IFS Financial Services, Western & Southern Agency Services, Inc.*, Lafayette Life Insurance Company*, Western & Southern Agency, Inc.*
(8) William A. Dent-Senior Vice President -Touchstone Advisors, Inc.
(a) Vice President-Touchstone Fund Complex
(9) Gregory A. Harris-Vice President Fund Administration -Touchstone Advisors, Inc.
(a) Vice President -Touchstone Fund Complex
(10) Jeffrey K. Ringdahl-Vice President-Touchstone Advisors, Inc.
(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 Fund Distributors, 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, Touchstone Funds Group 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 address is 400 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
Board Memberships: Capital Analysts Incorporated, Consolidated Communications, United Way of Cincinnati, Cincy/Tech USA, Xavier University Cincinnati USA Regional Chamber 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) 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
(b) Chief Investment Officer of Tristate Ventures, LLC*
(c) 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) A Director and Chairman of Columbus Life Insurance Company, Integrity Life Insurance Company and National Integrity Life Insurance Company.
(c) A Director of Eagle Realty Group LLC, Eagle Realty Investments, Inc., Capital Analysts, Inc., 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
(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, Tri-Health, Bethesda Inc., Lafayette Life, Columbus Life and National Integrity
(b) Chief Financial Officer of The Western and Southern Life Insurance Company
(14) Richard Jandrain III - Managing Director
(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
(a) Director, Aspen Avionics, Earthstone, Exagen, Inc. and Lumidign Inc.
(20) Paul D. Cohn, Vice President of Private Equity Board Memberships: Draper Triangle II, Reservoir Venture Partners II, Early Stage Partners II, Primus VI, RiverVest Venture Partnerrs II, Fletcher Spaght Ventures II, Arboretum Ventures II, Athenian Ventures III, NCT Venture Fund I
(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, Managing Director
(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
(32) Stephen Ball, Vice President
(33) Marty Flesher, Vice President
(34) Jeff Meek, Vice President and Senior Financial Officer
(35) James E. Wilhelm, Vice President
(36) Joe Michael, Managing Director
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) Jeffrey E. Gundlach - Director, Group Managing Director & Chief Investment Officer
(2) Marc I. Stern - Interim Chief Executive Officer
(3) Thomas E. Larkin Jr. - Vice Chairman
(4) Michael E. Cahill - Executive Vice President, General Counsel & Secretary
(5) David S. Devito - Executive Vice President, Chief Administrative Officer & Assistant Secretary
(6) Hilary G. Lord - Managing Director, Chief Compliance Officer & Assistant Secretary
D. WESTFIELD CAPITAL MANAGEMENT COMPANY, L.P. ("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:
WMS Management, LLC is the sole managing member of WMS General Partner LLC, which is one of two general partners for Westfield. WMS Management is wholly-owned by Westfield's management team. An executive management committee composed of William A. Muggia, Matthew W. Strobeck, Karen A. DiGravio, and Morton L. Fearey, II oversees the day-to-day management and strategic decisions of WMS Management and Westfield. In addition to the executive management committee, Steve P. Wilner, Kimberly A. D'Agostino, and John M. Montgomery, all of who are Vice Presidents of Westfield, and Helen L. McAuley, Compliance Officer of Westfield, perform policy-making functions.
E. TODD/VEREDUS ASSET MANAGEMENT, LLC ("TODD/VEREDUS") is a registered adviser providing sub-advisory services to the Large Cap Core Equity Fund. The address of Todd/Veredus is 3160 National City Tower, Louisville, KY 40202. The following are executive officers and directors of Todd/Veredus:
(1) Curtiss M. Scott, Jr. Co-President,
(2) B. Anthony Weber- Co-President
(3) John J. White- Director and Partner
(4) John C. Holden- Director and Partner
(5) James Jenkins- Chief Compliance Officer and Partner
(6) Charles Mercer- Director and Partner
F. 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
G. 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, President and Chief Investment Officer
(2) Katina Kushner, Chief Compliance Officer
(3) 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.
(b) Unless otherwise noted, the address of the persons named below is 303 Broadway, Cincinnati, Ohio 45202. *The address is 400 Broadway, Cincinnati, Ohio 45202.
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 at 303 Broadway, Cincinnati, Ohio, 45202.
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.
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. 71 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 29th day of July, 2009.
TOUCHSTONE STRATEGIC TRUST
By: /s/ Jill T. McGruder
------------------------
Jill T. McGruder
President
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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 July 29, 2009
/s/ Terrie A. Wiedenheft
-----------------------------
Terrie A. Wiedenheft Controller, Treasurer July 29, 2009
and Principal Financial
Officer
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*
-----------------------------
Phillip R. Cox Trustee July 29, 2009
*
-----------------------------
H. Jerome Lerner Trustee July 29, 2009
*
-----------------------------
Donald C. Siekmann Trustee July 29, 2009
*
-----------------------------
Robert E. Stautberg Trustee July 29, 2009
*
-----------------------------
John P. Zanotti Trustee July 29, 2009
By: /s/ Jay S. Fitton
------------------------
Jay S. Fitton
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*Attorney-in-Fact
July 29, 2009
EXHIBITS
(d)(4) Subadvisory Agreement between Touchstone Advisors, Inc. and Navellier & Associates, Inc. for the Large Cap Growth Fund is filed herewith.
(d)(6) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Todd/Veredus Asset Management, LLC for the Large Cap Core Equity Fund is filed herewith.
(d)(7) Sub-Advisory Agreement between Touchstone Advisors, Inc. and JS Asset Management LLC is filed herewith.
(f) Touchstone Trustee Deferred Compensation Plan is filed herewith.
(h)(7) Allocation Agreement for Allocation of Fidelity Bond Proceeds is filed herewith.
(h)(8) Amended Expense Limitation Agreement with Touchstone Advisors, Inc. is filed herewith.
(h)(9) Amendment to Amended Expense Limitation Agreement with Touchstone Advisors, Inc. is filed herewith.
(j) Auditor's Consent is filed herewith.
(n) Amended Rule 18f-3 Plan is filed herewith.
(p)(3) Code of Ethics for Westfield Capital Management Company, L.P. is filed herewith.
(p)(4) Code of Ethics for Todd/Veredus Asset Management, LLC is filed herewith.
SUB-ADVISORY AGREEMENT
LARGE CAP GROWTH FUND
TOUCHSTONE STRATEGIC TRUST
This SUB-ADVISORY AGREEMENT is made August 1, 2004, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and NAVELLIER & ASSOCIATES, INC., a Delaware corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the Investment Advisers Act of 1940, as amended, and has been retained by Touchstone Strategic Trust (the "Trust"), a Massachusetts business trust organized pursuant to an Agreement and Declaration of Trust dated November 18, 1982 and registered as an open-end diversified management investment company under the Investment Company Act of 1940 (the "1940 Act"), to provide investment advisory services to the Large Cap Growth Fund (the "Fund"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it with portfolio management services in connection with the Advisor's investment advisory activities on behalf of the Fund, and the Sub-Advisor is willing to furnish such services to the Advisor and the Fund;
NOW THEREFORE, in consideration of the terms and conditions hereinafter set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the Investment Advisory Agreement between the Trust and the Advisor, attached hereto as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the Sub-Advisor to manage the investment and reinvestment of those assets of the Fund allocated to it by the Advisor (the "Fund Assets"), subject to the control and direction of the Advisor and the Trust's Board of Trustees, for the period and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such employment and agrees during such period to render the services and to perform the duties called for by this Agreement for the compensation herein provided. The Sub-Advisor shall at all times maintain its registration as an investment advisor under the Investment Advisers Act of 1940 and shall otherwise comply in all material respects with all applicable laws and regulations, both state and federal. The Sub-Advisor shall for all purposes herein be deemed an independent contractor and shall, except as expressly provided or authorized (whether herein or otherwise), have no authority to act for or represent the Trust in any way or otherwise be deemed an agent of the Trust or the Fund.
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the following services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of the assets of the Fund, subject to and in accordance with the investment objectives, policies and restrictions of the Fund and any directions which the Advisor or the Trust's Board of Trustees may give from time to time with respect to the Fund. In furtherance of the foregoing, the Sub-Advisor will make all determinations with respect to the investment of the assets of the Fund and the purchase and sale of portfolio securities and shall take such steps as may be necessary or advisable to implement the same. The Sub-Advisor also will determine the manner in which voting rights, rights to consent to corporate action and any other rights pertaining to the portfolio securities will be exercised. The Sub-Advisor will render regular reports to the Trust's Board of Trustees and to the Advisor (or such other advisor or advisors as the Advisor shall engage to assist it in the evaluation of the performance and activities of the Sub-Advisor). Such reports shall be made in such form and manner and with respect to such matters regarding the Fund and the Sub-Advisor as the Trust or the Advisor shall from time to time request.
b. The Sub-Advisor shall provide support to the Advisor with respect to the marketing of the Fund, including but not limited to: (i) permission to use the Sub-Advisor's name as provided in Section 5, (ii) permission to use the past performance and investment history of the Sub-Advisor as the same is applicable to the Fund, (iii) access to the individual(s) responsible for day-to-day management of the Fund for marketing conferences, teleconferences and other activities involving the promotion of the Fund, subject to the reasonable request of the Advisor, (iv) permission to use biographical and historical data of the Sub-Advisor and individual manager(s), and (v) permission to use the names of clients to which the Sub-Advisor provides investment management services, subject to any restrictions imposed by clients on the use of such names.
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. Consistent with the
Conduct Rules of the National Association of Securities Dealers, Inc.,
and subject to seeking the most favorable price and execution, the
Sub-Advisor may give consideration to sales of shares of the Fund as a
factor in the selection of brokers and dealers to execute portfolio
transactions of the Fund. The Sub-Advisor is specifically authorized,
to the extent authorized by law (including, without limitation, Section
28(e) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), to pay a broker or dealer who provides research services to the
Sub-Advisor an amount of commission for effecting a portfolio
transaction in excess of the amount of commission another broker or
dealer would have charged for effecting such transaction, in
recognition of such additional research services rendered by the broker
or dealer, but only if the Sub-Advisor determines in good faith that
the excess commission is reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer
viewed in terms of the particular transaction or the Sub-Advisor's
overall responsibilities with respect to discretionary accounts that it
manages, and that the Fund derives or will derive a reasonably
significant benefit from such research services. The Sub-Advisor will
present a written report to the Board of Trustees of the Trust, at
least quarterly, indicating total brokerage expenses, actual or
imputed, as well as the services obtained in consideration for such
expenses, broken down by broker-dealer and containing such information
as the Board of Trustees reasonably shall request.
d. In the event of any reorganization or other change in the Sub-Advisor, its investment principals, supervisors or members of its investment (or comparable) committee, the Sub-Advisor shall give the Advisor and the Trust's Board of Trustees written notice of such reorganization or change within a reasonable time (but not later than 30 days) after such reorganization or change.
e. The Sub-Advisor will bear its expenses of providing services to the Fund pursuant to this Agreement except such expenses as are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the investment and reinvestment of such assets so as to comply with the provisions of the 1940 Act and with Subchapter M of the Internal Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties undertaken hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor a monthly fee equal on an annual basis to _____________. Such fee shall be computed and accrued daily. If the Sub-Advisor serves in such capacity for less than the whole of any period specified in this Section 3a, the compensation to the Sub-Advisor shall be prorated. For purposes of calculating the Sub-Advisor's fee, the daily value of the Fund's net assets shall be computed by the same method as the Trust uses to compute the net asset value of the Fund for purposes of purchases and redemptions of shares thereof.
b. The Sub-Advisor reserves the right to waive all or a part of its fees hereunder.
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor may perform investment advisory services for various other clients, including other investment companies. The Sub-Advisor will report to the Board of Trustees of the Trust (at regular quarterly meetings and at such other times as such Board of Trustees reasonably shall request) (i) the financial condition and prospects of the Sub-Advisor, (ii) the nature and amount of transactions affecting the Fund that involve the Sub-Advisor and affiliates of the Sub-Advisor, (iii) information regarding any potential conflicts of interest arising by reason of its continuing provision of advisory services to the Fund and to its other accounts, and (iv) such other information as the Board of Trustees shall reasonably request regarding the Fund, the Fund's performance, the services provided by the Sub-Advisor to the Fund as compared to its other accounts and the plans of, and the capability of, the Sub-Advisor with respect to providing future services to the Fund and its other accounts. At least annually, the Sub-Advisor shall report to the Trustees the total number and type of such other accounts and the approximate total asset value thereof (but not the identities of the beneficial owners of such accounts). The Sub-Advisor agrees to submit to the Trust a statement defining its policies with respect to the allocation of business among the Fund and its other clients.
It is understood that the Sub-Advisor may become interested in the Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's statement of financial condition) and will hereafter supply to the Advisor, promptly upon the preparation thereof, copies of all amendments or restatements of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name of the Sub-Advisor in any prospectus, sales literature or other material relating to the Advisor or the Trust in any manner not approved in advance by the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses of its name which merely refer in accurate terms to its appointment hereunder or which are required by the SEC or a state securities commission; and provided further, that in no event shall such approval be unreasonably withheld. The Sub-Advisor shall not use the name of the Advisor or the Trust in any material relating to the Sub-Advisor in any manner not approved in advance by the Advisor or the Trust, as the case may be; provided, however, that the Advisor and the Trust shall each approve all uses of their respective names which merely refer in accurate terms to the appointment of the Sub-Advisor hereunder or which are required by the SEC or a state securities commission; and, provided further, that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful misfeasance, bad faith, gross negligence, or reckless disregard of obligations or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be subject to liability to the Advisor, the Trust or to any shareholder in the Fund for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. As used in this Section 6, the term "Sub-Advisor" shall include the Sub-Advisor and/or any of its affiliates and the directors, officers and employees of the Sub-Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that it has received notice of and accepts the limitations upon the Trust's liability set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under the Advisory Agreement) shall be limited in any event to the assets of the Fund and (ii) the Sub-Advisor shall not seek satisfaction of any such obligation from the holders of shares of the Fund nor from any Trustee, officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or errors occurring by reason of circumstances beyond its control, including but not limited to acts of civil or military authority, national emergencies, work stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or failure of communication or power supply. In the event of equipment breakdowns beyond its control, the Sub-Advisor shall take reasonable steps to minimize service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner terminated as hereinafter provided for a period of one year from the date hereof and it shall continue thereafter provided that such continuance is specifically approved by the parties and, in addition, at least annually by (i) the vote of the holders of a majority of the outstanding voting securities (as herein defined) of the Fund or by vote of a majority of the Trust's Board of Trustees and (ii) by the vote of a majority of the Trustees who are not parties to this Agreement or interested persons of either the Advisor or the Sub-Advisor, cast in person at a meeting called for the purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a vote of the majority of the outstanding voting securities of the Fund, in any such case upon not less than 60 days' prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60 days' prior written notice to the Advisor and the Trust. This Agreement shall terminate automatically in the event of its assignment.
c. This Agreement may be amended at any time by the parties hereto, subject to approval by the Trust's Board of Trustees and, if required by applicable SEC rules and regulations, a vote of the majority of the outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the outstanding voting securities" shall have the meaning set forth for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or shall be found to be invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing addressed and delivered personally (or by telecopy) or mailed postage-paid, to the other party at such address as such other party may designate in accordance with this paragraph for the receipt of such notice. Until further notice to the other party, it is agreed that the address of the Trust and that of the Advisor for this purpose shall be 221 East Fourth Street, Cincinnati, Ohio 45202 and that the address of the Sub-Advisor shall be One East Liberty, Third Floor, Reno, Nevada 89501.
12. MISCELLANEOUS. Each party agrees to perform such further actions and execute such further documents as are necessary to effectuate the purposes hereof. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Ohio. The captions in this Agreement are included for convenience only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
NAVELLIER & ASSOCIATES, INC.
SUB-ADVISORY AGREEMENT
TOUCHSTONE LARGE CAP CORE EQUITY FUND
TOUCHSTONE STRATEGIC TRUST
This SUB-ADVISORY AGREEMENT is made as of May 1, 2009, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and TODDO VEREDUS ASSET MANAGEMENT LLC, a Kentucky limited liability corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the Investment Advisers Act of 1940, as amended, and has been retained by Touchstone Strategic Trust (the "Trust"), a Massachusetts business trust organized pursuant to an Agreement and Declaration of Trust dated November 18, 1982 and registered as an open-end diversified management investment company under the Investment Company Act of 1940 (the "1940 Act"), to provide investment advisory services with respect to certain assets of the Touchstone Large Cap Core Equity 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. 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 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-Adviser'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 the 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 Adviser's policies, guidelines or procedures as described in the Fund's Registration Statement or as applicable to the Sub-Advisor's obligations under this Agreement. In addition, the Sub-Advisor shall provide a quarterly report regarding the Fund's compliance with its 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, as reasonably requested, 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) 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 Securities Act of 1933, 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 Financial Industry Regulatory Authority (FINRA), 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-Adviser 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 _____________, 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 inappropriately 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 the 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 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 written investment policies, restrictions,
guidelines or instructions set forth in the Fund's Registration Statement or
provided by the Trust's Board of Trustees from time to time with reasonable
advance notice to the Sub-Advisor, 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 instructions made to the Sub-Advisor by an officer
of the Trust. 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. LIABILITY OF THE ADVISOR. The Advisor agrees to hold harmless and indemnify the Sub-Advisor from and against any loss or damages arising out of the Advisor's breach of this Agreement or arising out of the willful misfeasance, bad faith or gross negligence on the Advisor's part in the performance of its duties, or from reckless disregard of its obligations and duties, under this Agreement.
8. 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.
9. 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.
10. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner terminated as hereinafter provided, until April 30, 2011; 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.
11. 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.
12. 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 101 South 5th Street, Suite 3160, Louisville, KY 40202.
13. 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.
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
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Jill T. McGruder
Name: Chief Executive Officer
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Title:
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TODDoVEREDUS ASSET MANAGENT LLC
Attest:
BY
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Name: Name:
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Title: Title:
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SUB-ADVISORY AGREEMENT
TOUCHSTONE LARGE CAP VALUE FUND
TOUCHSTONE STRATEGIC TRUST
This SUB-ADVISORY AGREEMENT is made as of March 6, 2006, by and between TOUCHSTONE ADVISORS, INC., an Ohio corporation (the "Advisor"), and JS Asset Management, LLC, a Pennsylvania corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the Investment Advisers Act of 1940, as amended, and has been retained by Touchstone Strategic Trust (the "Trust"), a Massachusetts business trust organized pursuant to a Declaration of Trust dated May 19, 1993 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 Large Cap Value 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 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 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.
c. The Sub-Advisor will, in the name of the Fund, place orders
for the execution of all portfolio transactions in accordance with the
policies with respect thereto set forth in the Trust's registration
statements under the 1940 Act and the Securities Act of 1933, as such
registration statements may be in effect from time to time. In
connection with the placement of orders for the execution of portfolio
transactions, the Sub-Advisor will create and maintain all necessary
brokerage records of the Fund in accordance with all applicable laws,
rules and regulations, including but not limited to records required by
Section 31(a) of the 1940 Act. All records shall be the property of the
Trust and shall be available for inspection and use by the Securities
and Exchange Commission (the "SEC"), the Trust or any person retained
by the Trust. Where applicable, such records shall be maintained by the
Advisor for the periods and in the places required by Rule 31a-2 under
the 1940 Act. When placing orders with brokers and dealers, the
Sub-Advisor's primary objective shall be to obtain the most favorable
price and execution available for the Fund, and in placing such orders
the Sub-Advisor may consider a number of factors, including, without
limitation, the overall direct net economic result to the Fund
(including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing
competitive range), the financial strength and stability of the broker,
the efficiency with which the transaction will be effected, the ability
to effect the transaction at all where a large block is involved and
the availability of the broker or dealer to stand ready to execute
possibly difficult transactions in the future. Consistent with the
Conduct Rules of the National Association of Securities Dealers, Inc.,
and subject to seeking 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 Securities Exchange Act of
1934, as amended (the "Exchange Act")), to pay a broker or dealer who
provides research services to the Sub-Advisor an amount of commission
for effecting a portfolio transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
such transaction, in recognition of such additional research services
rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided
by such broker or dealer viewed in terms of the particular transaction
or the Sub-Advisor's overall responsibilities with respect to
discretionary accounts that it manages, and that the Fund derives or
will derive a 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.
d. In the event of any reorganization or other change in the Sub-Advisor, its investment principals, supervisors or members of its investment (or comparable) committee, the Sub-Advisor shall give the Advisor and the Trust's Board of Trustees written notice of such reorganization or change within a reasonable time (but not later than 30 days) after such reorganization or change.
e. The Sub-Advisor will bear its expenses of providing services to the Fund pursuant to this Agreement except such expenses as are undertaken by the Advisor or the Trust.
f. The Sub-Advisor will manage the Fund Assets and the investment and reinvestment of such assets so as to comply with the provisions of the 1940 Act and with Subchapter M of the Internal Revenue Code of 1986, as amended.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties undertaken hereunder by the Sub-Advisor, the Advisor will pay to the Sub-Advisor a monthly fee equal on an annual basis to ______________ 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 form or serve as an investment advisor or sub-advisor to future funds, which have the same, similar, or overlapping investment objectives.
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 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.
It is understood that the Sub-Advisor may become interested in the Trust as a shareholder or otherwise.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's statement of financial condition) and will hereafter supply to the Advisor, promptly upon the preparation thereof, copies of all amendments or restatements of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name of the Sub-Advisor in any prospectus, sales literature or other material relating to the Advisor or the Trust in any manner not approved in advance by the Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses of its name which merely refer in accurate terms to its appointment hereunder or which are required by the SEC or a state securities commission; and provided further, that in no event shall such approval be unreasonably withheld. The Sub-Advisor shall not use the name of the Advisor or the Trust in any material relating to the Sub-Advisor in any manner not approved in advance by the Advisor or the Trust, as the case may be; provided, however, that the Advisor and the Trust shall each approve all uses of their respective names which merely refer in accurate terms to the appointment of the Sub-Advisor hereunder or which are required by the SEC or a state securities commission; and, provided further, that in no event shall such approval be unreasonably withheld.
6. LIMITATION OF LIABILITY OF THE SUB-ADVISOR. Absent willful misfeasance, bad faith, gross negligence, or reckless disregard of obligations or duties hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be subject to liability to the Advisor, the Trust, its agents, officers, trustees, employees or affiliates or to any shareholder in the Fund for any act or omission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. As used in this Section 6, the term "Sub-Advisor" shall include the Sub-Advisor and/or any of its affiliates and the directors, officers and employees of the Sub-Advisor and/or any of its affiliates.
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that
it has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the 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 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 March 31, 2008; and it shall continue thereafter provided that such continuance is specifically approved by the parties and, in addition, at least annually by (i) the vote of the holders of a majority of the outstanding voting securities (as herein defined) of the Fund or by vote of a majority of the Trust's Board of Trustees and (ii) by the vote of a majority of the Trustees who are not parties to this Agreement or interested persons of either the Advisor or the Sub-Advisor, cast in person at a meeting called for the purpose of voting on such approval.
b. This Agreement may be terminated at any time, without payment of any penalty, (i) by the Advisor, by the Trust's Board of Trustees or by a vote of the majority of the outstanding voting securities of the Fund, in any such case upon not less than 60 days' prior written notice to the Sub-Advisor and (ii) by the Sub-Advisor upon not less than 60 days' prior written notice to the Advisor and the Trust. This Agreement shall terminate automatically in the event of its assignment.
c. This Agreement may be amended at any time by the parties hereto, subject to approval by the Trust's Board of Trustees and, if required by applicable SEC rules and regulations, a vote of the majority of the outstanding voting securities of the Fund affected by such change.
d. The terms "assignment," "interested persons" and "majority of the outstanding voting securities" shall have the meaning set forth for such terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or shall be found to be invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing addressed and delivered personally (or by telecopy) or mailed postage-paid, to the other party at such address as such other party may designate in accordance with this paragraph for the receipt of such notice. Until further notice to the other party, it is agreed that the address of the Trust and that of the Advisor for this purpose shall be 303 Broadway, Suite 1100, Cincinnati, Ohio 45202 and that the address of the Sub-Advisor shall be One Tower Bridge, 100 Front Street, Suite 501, West Conshohocken, Pennsylvania 19428.
12. MISCELLANEOUS. Each party agrees to perform such further actions and execute such further documents as are necessary to effectuate the purposes hereof. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Ohio. The captions in this Agreement are included for convenience only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered in their names and on their behalf by the undersigned, thereunto duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
BY
--------------------------------- -------------------------------
James H. Grifo
Name: President
---------------------------
Title:
---------------------------
JS ASSET MANAGEMENT, LLC
Attest:
BY
--------------------------------- -------------------------------
Name: Name:
--------------------------- --------------------------------
Title: Title:
--------------------------- --------------------------------
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The Touchstone Trustee Deferred Compensation Plan (Plan") is an unfunded deferred compensation arrangement to provide a tax-deferred capital accumulation opportunity to trustees of the Participating Trusts through deferral of fees.
1.1 DEFINITIONS.
(a) Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context.
(1) "Account" means an account established on the books of the Participating Trust for the purpose of recording amounts credited on behalf of a Participant, including any income, expenses, gains or losses.
(2) "Beneficiary" means the person or persons entitled to receive benefits under the Plan upon the death of a Participant.
(3) "Board" means the Boards of Trustees of the Participating Trusts.
(4) "Code" means the Internal Revenue Code of 1986, as amended.
(5) "Company" means The Western and Southern Life Insurance Company and any successor company.
(6) "Compensation," for purposes of deferral under this Plan, means any annual retainer, meeting fee, committee fee or similar fee or compensation to which a Trustee is entitled to for services provided for a Participating Trust to the extent permitted by the applicable positions of the staff of the Securities and Exchange Commission.
(7) Effective Date" means the original effective date of the Plan of January 1, 2001.
(8) Entry Date" means the first day of each Plan Year or, for the first year a Participant becomes eligible to participate in the Plan, the first day of the first pay period following the filing of an election to defer Compensation with the Company.
(9) "Participant" means any Trustee who participates in the Plan in accordance with Article II hereof.
(10) "Participating Trust" or "Trust" means any Trust adopting this Plan, as set forth in Appendix A.
(11) "Plan" means the Touchstone Trustee Deferred Compensation Plan, as amended from time to time.
(12) "Plan Year" means the 12 consecutive month period beginning on January 1 and ending December 31.
(13) "Trustee" means a member of the Board of Trustees of a Participating Trust.
(14) "Unforeseeable Emergency" means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.
2.1 ELIGIBILITY. Each Trustee shall be eligible to participate in the Plan.
2.2 PARTICIPATION. An eligible Trustee (as set forth in Section 2.1 above)
shall become a Participant in the Plan on the Entry Date after which he becomes
eligible to participate in the Plan if he has filed an election pursuant to
Section 2.3. If the eligible Trustee does not file an election pursuant to
Section 2.3 prior to his first Entry Date, then the eligible Trustee will become
a Participant in the Plan as of the first day of a Plan Year for which he has
filed an election.
2.3 DEFERRAL CONTRIBUTIONS. Each Participant may elect to execute a Compensation reduction agreement with the Participating Trust to reduce his Compensation by a specified amount effective on the first day of the Plan Year as set forth in the Participant's election. Such specified amount shall not exceed the Participant's Compensation actually paid to the Participant for the Plan Year. The Participant making an election shall do so by filing with the Company on or before December 31 of any year a written election for the purpose of specifying (a) the portion of his Compensation for the succeeding Plan Year to be deferred, and (b) the date distributions are to begin and the mode of distribution. An election shall be effective as of the first day of the following Plan Year and shall apply only to Compensation payable with respect to services rendered on or after such date. The Participating Trust shall credit an amount to the Account maintained on behalf of the Participant corresponding to the amount of the Compensation reduction election. The foregoing notwithstanding, in the first year a Participant becomes eligible to participate in the Plan, the newly eligible Participant may within 30 days after the date of becoming eligible execute a Compensation reduction agreement to reduce his Compensation payable with respect to services rendered at least fifteen days subsequent to the election.
2.4 MINIMUM DEFERRAL AMOUNT. Notwithstanding anything in this Plan to the contrary, the minimum amount of Compensation reduction per quarter shall be $1,000.00.
3.1 PARTICIPANT ACCOUNTS. A Participating Trust shall establish and maintain an Account for each Participant who is a Trustee of such Trust. The amount of a Participant's Compensation which, pursuant to Section 2.3, he has elected to receive on a deferred basis shall, by appropriate bookkeeping entries, be credited to the Account. The Participating Trust shall maintain the Account for the express purpose of recording the amounts payable by the Participating Trust under the Plan to that Participant or to his Beneficiary or Beneficiaries pursuant to Article IV. Each Account shall be increased or decreased according to the changes in the indices described in Section 3.2 applicable to the Account. The Participating Trust shall establish and maintain such other accounts and records as it deems in its discretion to be reasonably required in order to discharge its duties under this Plan.
3.2 DEFERRED COMPENSATION INDEX.
(a) The indices and method to be used to increase or decrease a Participant's Account shall be the same indices and method used in The Western and Southern Life Insurance Company Deferred Compensation Plan II.
(b) Participants may choose between two or more indices to measure gains and losses, and Participants are permitted to switch from one index to one of the other available indices with respect to all or part of an existing Account. Thereafter, gains and losses on that Account or portion thereof shall be measured according to the performance of the newly chosen index. In addition, Participants are also permitted to switch indices with respect to future Compensation that is subject to any existing election to defer but which has not yet been earned. A Participant is not permitted to switch indices with respect to all or part of his Account more than once in any six-month period. When a new index is selected, the selection will take effect on the fifth business day following the day the selection is received by the Company. To select a new index, a Participant must file a written election with the Company.
4.1 DETERMINATION OF METHOD OF DISTRIBUTION. The Participant shall determine the method of distribution of benefits to himself and the method of distribution to his Beneficiary. Such determination shall be made at the time the Participant makes the first deferral election.
4.2 METHOD OF DISTRIBUTION.
The method of distribution shall be as follows:
(a) Distributions from the portion of the Participant's Account representing the total Compensation deferred and any increments thereto (the "Account Balance"), shall be made in cash (i) in one lump sum payment on the Distribution Date, as defined below, or (ii) in ten annual installments beginning on the Distribution Date; each installment being calculated by dividing the Account Balance by the number of years remaining in the ten year period. The Distribution Date shall be a single date, at least one year after the date of the election to defer Compensation, selected at the time of the first deferral election. In the event that a Trustee's service continues beyond the Distribution Date, a new Distribution Date shall be selected. The new Distribution Date shall only be used for Compensation deferred from years beginning after the selection of that date. The initial Distribution Date shall remain in effect for Compensation deferred through the year in which the new Distribution Date is chosen. Notwithstanding the above, a Participant may elect to defer the commencement of distributions beyond the latest date set forth herein provided such Participant does so in writing to the Company at least one full year prior to the date distributions are to commence as set forth above.
(b) Death Benefit. In the event of the death of a Participant before any or all distributions have been made, the then Account Balance shall be distributed to the Beneficiary or Beneficiaries designated by the Participant in the manner designated by the Participant. If no Beneficiary is designated by the Participant, distribution shall be made to the Participant's estate.
(c) Hardship Distribution. A Participant may apply to the Board of which he is a member to withdraw some or all of his Account as a result of an Unforeseeable Emergency. The circumstances that will constitute an Unforeseeable Emergency will depend upon the facts of each case, but, in any case, payment may not be made in the event that such Unforeseeable Emergency is or may be relieved:
(i) Through reimbursement or compensation by insurance or otherwise, or
(ii) By liquidation of the Participant's assets, to the extent that liquidation of such assets will not itself cause severe financial hardship.
A Participant may request a distribution due to an Unforeseeable Emergency by submitting a written request to the Board accompanied by evidence to demonstrate that the circumstances being experienced qualify as an Unforeseeable Emergency. The Board shall have the authority to require such evidence as it deems necessary to determine if a distribution is warranted. If an application for a hardship distribution due to an Unforeseeable Emergency is approved, the distribution is limited to an amount sufficient to meet the Unforeseeable Emergency. The allowed distribution shall be payable in a method determined by the Board as soon as practicable after approval of such distribution. A Board member shall not take part in any decision of the Board that affects the distribution of his Account.
A Participant who has commenced receiving installment payments under the Plan may request acceleration of such payments in the event of an Unforeseeable Emergency. The Board may permit accelerated payments to the extent such accelerated payment does not exceed the amount necessary to ameliorate the Unforeseeable Emergency.
5.1 AMENDMENT OR TERMINATION BY COMPANY. The Company reserves the right, at any time and from time to time, to amend in whole or in part any or all provisions of the Plan or terminate the Plan without restoration and without the consent of any Participant or Beneficiary. Each amendment or termination shall be in writing, and shall become effective on the date specified therein.
5.2 CESSATION OF PARTICIPATION. Upon execution of a resolution of its Board, a Participating Trust may cease its participation in the Plan. If a Participating Trust ceases its participation, each Trustee of that Trust shall be suspended under the Plan as long as he remains as trustee of a non-Participating Trust.
5.3 DISTRIBUTION UPON TERMINATION OR SUSPENSION OF THE PLAN. Upon termination of the Plan, no further deferrals shall be made under the Plan, but Participant Accounts at the time of the termination or suspension of the Plan shall continue to be governed by the terms of the Plan until paid out in accordance with the Participant's fee reduction agreement.
6.1 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, claims, or interest in any specific property or assets of a Participating Trust. Any and all of a Participating Trust's assets shall be, and remain the general unpledged, unrestricted assets of the Participating Trust. A Participating Trust's obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Participating Trust to pay money in the future, and the rights of the Participants and Beneficiaries shall be no greater than those of unsecured creditors.
6.2 RESTRICTION AGAINST ASSIGNMENT. The benefits provided hereunder will not be subject to alienation, assignment, garnishment, attachment, execution or levy of any kind, either voluntarily or involuntarily, and any attempt to cause such benefits to be so subjected will not be recognized, except to such extent as may be required by law.
6.3 GOVERNING LAW. The provisions of the Plan shall be construed, administered and governed under the laws of the State of Ohio.
6.4 ENTIRE AGREEMENT. This Plan contains all of the terms agreed upon between the parties with respect to the subject matter hereof.
6.5 WAIVER AND ESTOPPEL. No term, condition, or provision of this Plan shall be deemed to be waived, and there shall be no estoppel against enforcing any provision of the Plan, except through a writing of the party to be charged by the waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless explicitly made so, and it shall operate only with regard to the specific term or condition waived, and shall not be deemed to waive such term or condition in the future, or as to any act other than specifically waived. No Participant or Beneficiary other than as named or described by class in the waiver shall be entitled to rely on the waiver for any purpose.
6.6 BINDING EFFECT. The Plan shall be binding upon a Participating Trust, its successors and assigns, and upon each Trustee or person claiming benefits hereunder and upon their heirs, executors, administrators, successors and assign, and the obligations of this Plan are not binding upon any of the Trusts' shareholders individually, but shall bind only the Trust estate.
6.7 INVALIDITY OF TERM OR PROVISION. If any term or provision of this Plan or the application thereof to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Plan, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Plan shall be valid and enforceable to the fullest extent permitted by law.
6.8 TITLES AND HEADINGS. Titles of Articles and headings of Sections are for general information only and this Plan is not to be construed by reference thereto.
IN WITNESS WHEREOF, the Company has caused this amended and restated Plan to be executed by its duly authorized officers this 29th day of December, 2000.
TRUSTS
By: /s/ Jill McGruder
--------------------------
Jill McGruder, President
By: /s/ Tina D. Hosking
--------------------------
Tina D. Hosking, Secretary
|
APPENDIX A
PARTICIPATING TRUST EFFECTIVE DATE
------------------- --------------
Touchstone Variable Series Trust January 1, 2001
Touchstone Investment Trust January 1, 2001
Touchstone Tax-Free Trust January 1, 2001
Touchstone Strategic Trust January 1, 2001
Touchstone Funds Group Trust February 17, 2006
Touchstone Institutional Funds Trust February 17, 2006
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AMENDMENT NO. 2
TOUCHSTONE TRUSTEE
DEFERRED COMPENSATION PLAN
WHEREAS, The Western and Southern Life Insurance Company ("Company") adopted the Touchstone Trustee Deferred Compensation Plan ("Plan") effective as of January 1, 2001; and
WHEREAS, this Plan is intended to comply with Section 409A of the Internal Revenue Code and official guidance issued thereunder; and
WHEREAS, Section 5.1 of the Plan provides that the Company may amend the Plan at any time.
NOW, THEREFORE, the Touchstone Trustee Deferred Compensation Plan is hereby amended as follows:
1. Section 1.1 (a)(l 4) is amended in its entirety effective January 1, 2005 to read as follows:
"Unforeseeable Emergency" means a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant's spouse, or a dependent (as defined in Code Section 152(a)) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.
2. Section 4.2(d) is added effective as of January 1, 2005, to read as follows:
(d) Deferred Benefit Commencement. For purposes of this Section 4.2, a Participant may elect to change the method of distribution or defer the commencement of distributions beyond the latest date elected if the following conditions are met:
(i) The election is made in writing to the Benefits Department not less than 12 months before the first scheduled payment;
(ii) the election is effective no earlier than 12 months after it is made; and
(iii) except for distributions attributable to an Unforeseen Emergency, death, or disability, the first payment covered by the subsequent election must be deferred for at least five years from when it would otherwise have been paid.
Notwithstanding the above, no subsequent election to change the timing of distributions shall accelerate the time or schedule of any payment under the Plan.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized officers as of March 1, 2008.
THE WESTERN AND SOUTHERN
LIFE INSURANCE COMPANY
BY: /s/ John F. Barrett
---------------------------------------
John F. Barrett, Chairman of the Board,
President and Chief Executive Officer
BY: /s/ James N. Clark
---------------------------------------
James N. Clark, Secretary
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AMENDMENT NO. 1
TOUCHSTONE TRUSTEE
DEFERRED COMPENSATION PLAN
WHEREAS, the Touchstone Variable Series Trust, Touchstone Investment Trust, Touchstone Tax-Free Trust, and Touchstone Strategic Trust (hereinafter collectively referred to as the "Trusts") adopted the Touchstone Trustee Deferred Compensation Plan ("Plan") effective as of January 1, 2001; and
WHEREAS, the Trusts provided in the Plan that The Western and Southern Life Insurance Company ("Company") has the authority to both administer and amend the Plan at any time; and
WHEREAS, effective January l, 2005, Section 409Aof the Internal Revenue Code imposed new requirements for nonqualified deferred compensation arrangements; and
WHEREAS, the Internal Revenue Service has established certain transition rules to permit nonqualified deferred compensation plans to come into compliance with Section 409A.
NOW, THEREFORE, the Touchstone Trustee Deferred Compensation Plan is hereby amended as follows:
Article IV is amended by adding the following section to read as follows:
409A Transition Rule - Changing the Date and Method of Distribution. In accordance with IRS Notice 2006-79 and for the period ending December 31, 2007 only, Participants may select a new Distribution Date that is before or after the Distribution Date previously elected. As with the prior Distribution Date, the new Distribution Date will apply to the entire Account Balance of the Participant except as otherwise provided in the preceding subsection. In addition, Participants may change their Method of Distribution.
In no event shall any change in the Date or Method of Distribution under this subsection apply to any portion of an Account Balance otherwise due to be paid in 2007.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed by its duly authorized officers as of October 1, 2007.
THE WESTERN AND SOUTHERN
LIFE INSURANCE COMPANY
BY: /s/ John F. Barrett
---------------------------------------
John F. Barrett, Chairman of the Board,
President and Chief Executive Officer
BY: /s/ James N. Clark
---------------------------------------
James N. Clark, Secretary
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ALLOCATION AGREEMENT
AGREEMENT made as of this 1st day of April 2009, 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:
----------------------------- -----------------------------
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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
TOUCHSTONE ADVISORS, INC.
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%
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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%
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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%
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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%
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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%
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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%
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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%
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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
------------------------------------------------------------------------------------------
|
SCHEDULE A
OPERATING EXPENSE LIMITS
AMENDED FEBRUARY 2, 2009
------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------
Contractual waiver 1.25% for Class Y shares
through 2/01/2010
------------------------------------------------------------------------------------------
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 1.24% for Class A shares
through 2/01/2010
------------------------------------------------------------------------------------------
Contractual waiver 1.99% for Class C shares
through 2/01/2010
------------------------------------------------------------------------------------------
Contractual waiver 0.99% for Class Y shares
through 2/01/2010
------------------------------------------------------------------------------------------
Contractual waiver 0.84% for Institutional shares
through 2/01/2010
------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------
|
SCHEDULE A
OPERATING EXPENSE LIMITS
AMENDED MARCH 31, 2009
------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------
Contractual waiver 1.25% for Class Y shares
through 2/01/2010
------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------
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 1.24% for Class A shares
through 2/01/2010
------------------------------------------------------------------------------------------
Contractual waiver 1.99% for Class C shares
through 2/01/2010
------------------------------------------------------------------------------------------
Contractual waiver 0.99% for Class Y shares
through 2/01/2010
------------------------------------------------------------------------------------------
Contractual waiver 0.84% for Institutional shares
through 2/01/2010
------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------
|
AMENDMENT NO. 1 TO EXPENSE LIMITATION AGREEMENT
This Amendment No. 1 to the Expense Limitation Agreement dated May 1, 2000 (the "Agreement"), by and between Touchstone Advisors, Inc. (the "Advisor") and Touchstone Strategic Trust (the "Trust"), is entered into effective the 19th day of February, 2009.
WHEREAS the Agreement provides for the maintenance of the expense ratios of certain series of the Trust at levels specified in Schedule A to the Agreement;
WHEREAS the Advisor and the Trust desire to clarify certain provisions of the Agreement;
NOW, THEREFORE, the Advisor and the Trust hereby agree that Section 1.2 of the Agreement is amended and restated in its entirety as follows:
1.2 Operating Expense Limit. The maximum expense ratio in any year with respect to a class of a Fund shall be the amount specified in Schedule A based on a percentage of the average daily net assets of the Fund (the "Maximum Operating Expense Limit"). The Maximum Operating Expense Limit reflects the Operating Expense Limit for a class of the Fund, plus amounts, if any, payable by such class of a Fund pursuant to a plan adopted in accordance with Rule 12b-1 under the 1940 Act.
* * *
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on the 19th day of February 2009.
TOUCHSTONE STRATEGIC TRUST TOUCHSTONE ADVISORS, INC.
By: By:
------------------------------ ------------------------------
Name: Gregory A. Harris Name: William A. Dent
Title: Vice President Title: Senior Vice President
|
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the references to our firm under the captions "Financial Highlights" in the Prospectuses 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 21, 2009 on the financial statements and financial highlights of the Touchstone Strategic Trust, in Post-Effective Amendment Number 71 to the Registration Statement (Form N-1A, No. 811-03651), included in the Annual Report to Shareholders for the fiscal year ended March 31, 2009, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Cincinnati, Ohio
July 27, 2009
|
Amended May 1, 2009
AMENDED RULE 18f-3 PLAN ADOPTED WITH RESPECT TO THE MULTIPLE
CLASS DISTRIBUTION SYSTEM OF TOUCHSTONE SECURITIES
Touchstone Investment Trust, Touchstone Tax-Free Trust and Touchstone Strategic Trust (the "Trusts") have each adopted this Plan pursuant to Rule 18f-3 promulgated under the Investment Company Act of 1940 (the "1940 Act"). The individual series of the Trusts that are not money market funds are referred to collectively, in whole or in part, as the context requires, as the "Funds." The individual series of the Trusts that are money market funds are referred to collectively, in whole or in part, as the context requires, as the "Money Market Funds." The Funds and the Money Market Funds are referred to collectively, in whole or in part, as the context requires, as the "Touchstone Funds."
Each Trust is an open-end management investment company registered under the 1940 Act. Touchstone Securities, Inc. (the "Distributor") acts as principal underwriter for each of the Touchstone Funds.
This Plan permits the Funds to issue and sell up to five classes of shares and the Money Market Funds to issue and sell up to four classes of shares for the purpose of establishing a multiple class distribution system (the "Multiple Class Distribution System"). The Plan further permits the Touchstone Funds to assess a contingent deferred sales charge ("CDSC") on certain redemptions of a class of shares and to waive the CDSC in certain instances. These guidelines set forth the conditions pursuant to which the Multiple Class Distribution System will operate and the duties and responsibilities of the Trustees of each Trust with respect to the Multiple Class Distribution System.
DESCRIPTION OF THE MULTIPLE CLASS DISTRIBUTION SYSTEM
MULTIPLE CLASS DISTRIBUTION SYSTEM FOR THE FUNDS. The Multiple Class
Distribution System enables each Fund to offer investors the option of
purchasing shares in one of five manners: (1) subject to a conventional
front-end sales load and a distribution fee not to exceed .35% of average net
assets (Class A shares); (2) sold without a front-end sales load and subject to
a CDSC and a distribution and service fee of up to 1% of average net assets
(Class B shares); (3) sold either without a front-end sales load or with a
front-end sales load that is smaller than the sales load on Class A shares and
subject to a CDSC and a distribution and service fee of up to 1% of average net
assets (Class C shares); (4) sold without a front-end sales load or distribution
fee, but offered only through selected intermediaries (including, but not
limited to, insurance company separate accounts and financial institutions) and
may be subject to fees by the participating intermediary (Class Y shares); or
(5) sold without a front-end sales load or distribution fee, but are subject to
higher investment minimums than other classes of shares (Institutional shares)
The actual creation and issuance of multiple classes of shares will be made on a Fund-by-Fund basis, and some Funds may not in fact create or issue any new classes of shares or may only create or issue some of the classes of shares described herein.
The five classes will each represent interests in the same portfolio of
investments of such Fund. The five classes will be identical except that (i) the
distribution fees payable by a Fund attributable to each class pursuant to the
distribution plans adopted by the Funds in accordance with Rule 12b-1 under the
1940 Act will be higher for Class B shares and Class C shares than for Class A
shares; (ii) there are no distribution fees for Class Y shares or Institutional
shares; (iii) each class may bear different Class Expenses (as defined below);
(iv) each class will vote separately as a class with respect to a Fund's Rule
12b-1 distribution plan (if adopted); (v) each class may have different exchange
privileges; (vi) each class may offer different shareholder services; and (vii)
each class may bear a different name or designation.
Investors purchasing Class A shares of a Fund will do so at net asset value plus a front-end sales load in the traditional manner. The sales load may be subject to reductions for larger purchases, under a combined purchase privilege, under a right of accumulation or under a letter of intent. The sales load may be subject to certain other reductions permitted by Section 22(d) of the 1940 Act and set forth in the registration statement of each Trust. The public offering price for the Class A shares will be computed in accordance with Rule 22c-1, Section 22(d) and other relevant provisions of the 1940 Act and the rules and regulations thereunder. Each Fund will also pay a distribution fee pursuant to the Fund's Rule 12b-1 distribution plan at an annual rate of up to .35% of the average daily net asset value of the Class A shares.
Investors purchasing Class B shares of a Fund will do so at net asset value without a front-end sales load. Each Fund will pay a distribution fee pursuant to the Fund's Rule 12b-1 distribution plan at an annual rate of up to 1% of the average daily net asset value of the Class B shares. In addition, an investor's proceeds from a redemption of Class B shares made within a specified period of time of his purchase generally will be subject to a CDSC imposed by the Distributor. The CDSC will range from 1% to 5% (but may be higher or lower) on shares redeemed during the first year after purchase and will be reduced at a rate of 1% (but may be higher or lower) per year over the CDSC period, so that redemptions of shares held after that period will not be subject to a CDSC. The CDSC will be made subject to the conditions set forth below. The Class B alternative is designed to permit the investor to purchase Class B shares without the assessment of a front-end sales load and at the same time permit the Distributor to pay financial intermediaries selling shares of each Fund a commission on the sale of the Class B shares.
Investors purchasing Class C shares of a Fund will do so at net asset value without a front-end sales load or at net asset value plus a front-end sales load which is less than the front-end sales load applicable to Class A shares of such Fund. The sales load on Class C shares, if any, may be subject to reductions for larger purchases, under a combined purchase privilege or under a letter of intent. The public offering price for the Class C shares will be computed in accordance with Rule 22c-1, Section 22(d) and other relevant provisions of the 1940 Act and the rules and regulations thereunder. Each Fund will pay a distribution fee pursuant to the distribution plan at an annual rate of up to 1% of the average daily net asset value of the Class C shares. In addition, an investor's proceeds from a redemption of Class C shares made within a specified period of time of his purchase generally will be subject to a CDSC imposed by the Distributor. The CDSC will range from 1% to 5% (but may be higher or lower) on shares redeemed during the first year after purchase and will be reduced at a rate of 1% (but may be higher or lower) per year over the CDSC period, so that redemptions of shares held after that period will not be subject to a CDSC. The CDSC will be made subject to the conditions set forth below. The Class C alternative is designed to permit the investor to purchase Class C shares without the assessment of a front-end sales load, or with a lower front-end sales load than Class A shares, subject to a CDSC for a shorter period of time than Class B shares, and at the same time permit the Distributor to pay financial intermediaries selling shares of each Fund a commission on the sale of the Class C shares.
Investors purchasing Class Y shares of a Fund will do so at net asset value without a front-end sales load or CDSC and without a distribution fee. Investors may only purchase Class Y shares by enrolling in a program offered by certain broker-dealers or financial institutions that have distribution agreements with the Distributor. Investors purchasing Class Y shares may be subject to fees by the participating broker-dealer or financial institution.
Investors purchasing Institutional shares of a Fund will do so at net asset value without a front-end sales load or CDSC and without a distribution fee. Investors may purchase Institutional shares by enrolling in a program offered by certain broker-dealers or financial institutions that have distribution agreements with the Distributor or by purchasing shares directly through the Distributor. Investors purchasing Institutional shares may be subject to fees by the participating broker-dealer or financial institution and to higher initial investment requirements than other classes of shares.
Under the Trusts' distribution plans, the Distributor will not be entitled to any specific percentage of the net asset value of each class of shares of the Funds or other specific amount. As described above, each Fund will pay a distribution fee pursuant to its distribution plan at an annual rate of up to .35% of the average daily net asset value of such Fund's Class A shares and up to 1% of the average daily net asset value of such Fund's Class B and Class C shares. Under the Trusts' distribution plans, payments will be made for expenses incurred in providing distribution-related services (including, in the case of Class B and Class C shares, commission expenses as described in more detail below). Each Fund will accrue distribution expenses at a rate (but not in excess of the applicable maximum percentage rate), which is reviewed quarterly by each Trust's Board of Trustees. Such rate is intended to provide for accrual of expenses at a rate that will not exceed the unreimbursed amounts actually expended for distribution by a Fund. If at any time the amount accrued by a Fund would exceed the amount of distribution expenses incurred with respect to such Fund during the fiscal year (plus, in the case of Class B and Class C shares, prior unreimbursed commission-related expenses), then the rate of accrual will be adjusted accordingly. In no event will the amount paid by the Funds exceed the unreimbursed expenses previously incurred in providing distribution-related services.
Proceeds from the distribution fee and, in the case of Class B and Class C shares, the CDSC, will be used to compensate financial intermediaries with a service fee based upon a percentage of the average daily net asset value of the shares maintained in the Funds by their customers and to defray the expenses of the Distributor with respect to providing distribution related services, including commissions paid on the sale of Class B and Class C shares.
MULTIPLE CLASS DISTRIBUTION SYSTEM FOR THE MONEY MARKET FUNDS. The Multiple Class Distribution System enables each Money Market Fund to offer investors the option of purchasing shares in one of four manners: (1) subject to a distribution fee not to exceed .35% of average net assets (Class A or Retail shares, collectively "Retail" shares); (2) subject to no distribution fee with a higher minimum initial investment requirement ("Institutional" shares); (3) subject to a CDSC and a distribution and service fee of up to 1% of average net assets ("Class B" shares); or (4) through a sweep vehicle and subject to a distribution and service fee of up to 1% of average net assets ("Class S" shares).
The actual creation and issuance of multiple classes of shares will be made on a fund-by-fund basis, and some Money Market Funds may not in fact create or issue any new class of shares described herein.
The four classes will each represent interests in the same portfolio of investments of such Money Market Fund. The four classes will be identical except that (i) Retail shares, Class B shares and Class S shares will be subject to distribution fees pursuant to the distribution plans adopted by the Money Market Funds in accordance with Rule 12b-1 under the 1940 Act, (ii) Class B shares may be subject to a CDSC; (iii) each class may bear different Class Expenses (as defined below); (iv) each class has exclusive voting rights with respect to matters affecting only that class; (v) each class may have different exchange privileges; (vi) each class may offer different shareholder services; and (vii) each class may bear a different name or designation.
Investors purchasing Retail shares of a Money Market Fund will do so at net asset value. Each Retail share will also pay a distribution fee pursuant to the Money Market Fund's Rule 12b-1 distribution plan at an annual rate of up to .35% of the average daily net asset value of the Retail shares.
Investors purchasing Institutional shares of a Money Market Fund will do so at net asset value. Each Institutional share will not be subject to any distribution fees.
Investors purchasing Class B shares of a Money Market Fund will do so at net asset value. Each Class B share will pay a distribution fee pursuant to the Money Market Fund's Rule 12b-1 distribution plan at an annual rate of up to 1% of the average daily net asset value of the Class B shares. Each Class B share may also be subject to a CDSC imposed by the Distributor. The CDSC will range from 1% to 5% (but may be higher or lower) on shares redeemed during the first year after purchase and will be reduced at a rate of 1% (but may be higher or lower) per year over the CDSC period, so that redemptions of shares held after that period will not be subject to a CDSC. The CDSC will be made subject to the conditions set forth below. The Class B alternative is designed to provide Class B investors with a vehicle for holding their investments in a Money Market Fund, and at the same time permit the Distributor to pay financial intermediaries selling shares of each Money Market Fund a commission on the sale of the Class B shares. The period of time an investor's shares are held in Class B shares of a Money Market Fund will count towards the holding period for purposes of determining the CDSC.
Investors purchasing Class S shares of a Money Market Fund will do so at net asset value. Each Class S share will pay a distribution fee pursuant to the Money Market Fund's Rule 12b-1 distribution plan at an annual rate of up to 1% of the average daily net asset value of the Class S shares. The Class S alternative is designed to provide Class S investors with a sweep option to invest excess cash in brokerage accounts on a daily basis, and at the same time permit the Distributor to pay financial intermediaries selling shares of each Money Market Fund a commission on the sale of the Class S shares.
Under the Trusts' distribution plans, the Distributor will not be entitled to any specific percentage of the net asset value of Retail shares, Class B shares or Class S shares or other specific amount. As described above, each Retail share will pay a distribution fee pursuant to its distribution plan at an annual rate of up to .35% of the average daily net assets of such Money Market Fund's Retail shares and each Class B and Class S share will pay a distribution and service fee of up to 1% of the average daily net asset value of such Money Market Fund's Class B or Class S shares. Under the Trusts' distribution plans, payments will be made for expenses incurred in providing distribution-related services (including, in the case of Class B and Class S shares, commission expenses as described in more detail below). Retail shares, Class B shares and Class S shares will accrue distribution expenses at a rate (but not in excess of the applicable maximum percentage rate) that is reviewed quarterly by each Trust's Board of Trustees. Such rate is intended to provide for accrual of expenses at a rate that will not exceed the unreimbursed amounts actually expended for distribution by a Money Market Fund. If at any time the amount accrued by a Money Market Fund would exceed the amount of distribution expenses incurred with respect to such Money Market Fund during the fiscal year (plus, in the case of Class B and Class S shares, prior unreimbursed commission-related expenses), then the rate of accrual will be adjusted accordingly. In no event will the amount paid by the Money Market Funds exceed the unreimbursed expenses previously incurred in providing distribution-related services.
Proceeds from the distribution fee will be used to compensate financial intermediaries with a service fee based upon a percentage of the average daily net asset value of the shares maintained in the Money Market Funds by their customers and to defray the expenses of the Distributor with respect to providing distribution related services.
GENERAL. All classes of shares of each Touchstone Fund will have identical voting, dividend, liquidation and other rights, preferences, powers, restrictions, limitations, qualifications, designations and terms and conditions, except for the differences mentioned above.
Under the Multiple Class Distribution System, the Board of Trustees could
determine that any of certain expenses attributable to the shares of a
particular class of shares will be borne by the class to which they were
attributable ("Class Expenses"). Class Expenses are limited to (a) transfer
agency fees identified by the Trusts as being attributable to a class of shares;
(b) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses and proxy statements to
current shareholders of a specific class; (c) SEC and Blue Sky registration fees
incurred by a class of shares; (d) the expenses of administrative personnel and
services as required to support the shareholders of a specific class; (e)
litigation or other legal expenses relating to a specific class of shares; (f)
Trustees' fees or expenses incurred as a result of issues relating to a specific
class of shares; (g) accounting fees and expenses relating to a specific class
of shares; and (h) additional incremental expenses not specifically identified
above that are subsequently identified and determined to be properly allocated
to one class of shares and approved by the Board of Trustees.
Under the Multiple Class Distribution System, certain expenses could be attributable to more than one Touchstone Fund ("Touchstone Fund Expenses"). All such Touchstone Fund Expenses would be first allocated among Touchstone Funds, based on the aggregate net assets of such Touchstone Funds, and then borne on such basis by each Touchstone Fund and without regard to class. Expenses that were attributable to a particular Touchstone Fund but not to a particular class thereof ("Series Expenses"), would be borne by each class on the basis of the net assets of such class in relation to the aggregate net assets of the Touchstone Fund. In addition to distribution fees, Class Expenses may be applied to the shares of a particular class. Any additional Class Expenses not specifically identified above in the preceding paragraph that are subsequently identified and determined to be properly applied to one class of shares shall not be so applied until approved by the Board of Trustees.
Subject to the approval of the Board of Trustees, certain expenses may be applied differently if their current application becomes no longer appropriate. For example, if a Class Expense is no longer attributable to a specific class, it may be charged to the applicable Touchstone Fund or Touchstone Funds, as appropriate. In addition, if application of all or a portion of a particular expense to a class is determined by the Internal Revenue Service or counsel to the Trusts to result in a preferential dividend for which, pursuant to Section 562(c) of the Internal Revenue Code of 1986, as amended (the "Code"), a Touchstone Fund would not be entitled to a dividends paid deduction, all or a portion of the expense may be treated as a Series Expense or a Touchstone Fund Expense. Similarly, if a Touchstone Fund Expense becomes attributable to a specific Touchstone Fund it may be treated as a Series Expense.
Because of the varying distribution fees and Class Expenses that may be borne by each class of shares, the net income of (and dividends payable with respect to) each class may be different from the net income of (and dividends payable with respect to) the other classes of shares of a Touchstone Fund. Dividends paid to holders of each class of shares in a Touchstone Fund would, however, be declared and paid on the same days and at the same times and, except as noted with respect to the varying distribution fees and Class Expenses, would be determined and paid in the same manner. To the extent that a Fund has undistributed net income, the net asset value per share of each class of such Fund's shares will vary.
Each Touchstone Fund will briefly describe the salient features of the Multiple Class Distribution System in its prospectus and/or statement of additional information. Each Touchstone Fund will disclose in its prospectus the respective expenses, performance data, distribution arrangements, services, fees, sales loads, deferred sales loads and exchange privileges applicable to each class of shares offered through that prospectus. The shareholder reports of each Touchstone Fund will disclose the respective expenses and performance data applicable to each class of shares. The shareholder reports will contain, in the statement of assets and liabilities and statement of operations, information related to the Touchstone Fund as a whole generally and not on a per class basis. Each Touchstone Fund's per share data, however, will be prepared on a per class basis with respect to all classes of shares of such Touchstone Fund. The information provided by the Distributor for publication in any newspaper or similar listing of the Funds' net asset values and public offering prices will separately present each class of shares.
The Class B and Class C alternatives for the Funds are designed to permit the investor to purchase shares without the assessment of a front-end sales load, or a lower front-end sales load than Class A shares, and at the same time permit the Distributor to pay financial intermediaries selling shares of the Funds a commission on the sale of the shares. Proceeds from the distribution fee and the CDSC will be used to compensate financial intermediaries with a service fee and to defray the expenses of the Distributor with respect to providing distribution related services, including commissions paid on the sale of shares of the Funds.
The Class B alternative for the Money Market Funds is designed to provide investors with an investment vehicle for Class B shares, and at the same time permit the Distributor to pay financial intermediaries selling shares of the Money Market Funds a commission on the sale of the shares. Proceeds from the distribution fee and the CDSC on Class B shares will be used to compensate financial intermediaries with a service fee and to defray the expenses of the Distributor with respect to providing distribution related services, including commissions paid on the sale of shares of the Money Market Funds.
The CDSC will not be imposed on redemptions of shares that were purchased more than a specified period, up to six years (the "CDSC Period") prior to their redemption. The CDSC will be imposed on the lesser of the aggregate net asset value of the shares being redeemed either at the time of purchase or redemption. No CDSC will be imposed on shares acquired through reinvestment of income dividends or capital gains distributions. In determining whether a CDSC is applicable, unless the shareholder otherwise specifically directs, it will be assumed that a redemption is made first of any Class B or Class C shares derived from reinvestment of distributions, second of Class B or Class C shares held for a period longer than the CDSC Period, third of any Class A shares in the shareholder's account, and fourth of Class B or Class C shares held for a period not longer than the CDSC Period.
In addition, the Touchstone Funds will waive the CDSC on redemptions following the death or disability of a shareholder as defined in Section 72(m)(7) of the Internal Revenue Code of 1986. The Distributor will require satisfactory proof of death or disability before it determines to waive the CDSC. In cases of death or disability, the CDSC may be waived where the decedent or disabled person is either an individual shareholder or owns the shares with his or her spouse as a joint tenant with rights of survivorship if the redemption is made within one year of death or initial determination of disability. The Touchstone Funds may waive the CDSC on redemptions under other conditions, as described in the prospectus or statement of additional information.
Under the Multiple Class Distribution System, Class A shares of a Touchstone Fund (including Retail shares and Institutional shares of a Money Market Fund) will be exchangeable for (a) Class A shares of the other Funds, (b) shares of the Money Market Funds and (c) shares of any Touchstone Fund which offers only one class of shares (provided such Touchstone Fund does not impose a CDSC) on the basis of relative net asset value per share, plus an amount equal to the difference, if any, between the sales charge previously paid on the exchanged shares and sales charge payable at the time of the exchange on the acquired shares.
Class B shares of a Touchstone Fund will be exchangeable for (a) Class B shares of the other Touchstone Funds, and (b) shares of any Touchstone Fund which offers only one class of shares and which imposes a CDSC on the basis of relative net asset value per share.
Class C shares of a Fund will be exchangeable for (a) Class C shares of the other Funds, (b) shares of the Money Market Funds and (c) shares of any Fund which offers only one class of shares and which imposes a CDSC on the basis of relative net asset value per share,.
Class S shares of a Money Market Fund will be exchangeable for Class S shares of the other Money Market Funds.
A Touchstone Fund will "tack" the period for which original Class B and Class C shares were held onto the holding period of the acquired shares for purposes of determining what, if any, CDSC is applicable in the event that the acquired shares are redeemed following the exchange. In the event of redemptions of shares after an exchange, an investor will be subject to the CDSC of the Fund with the longest CDSC period and/or highest CDSC schedule which may have been owned by him or her, resulting in the greatest CDSC payment. The period of time that Class B or Class C shares are held in a Money Market Fund will not count toward the CDSC holding period, unless such shares are held in Class B shares of a Money Market Fund. The Touchstone Funds will comply with Rule 11a-3 under the 1940 Act as to any exchanges.
LEGAL ANALYSIS
The Board of Trustees has determined to rely on Rule 18f-3 under the 1940
Act and to discontinue reliance on an Order previously received from the
Securities and Exchange Commission (the "SEC") exempting the Touchstone Funds
from the provisions of Sections 18(f), 18(g) and 18(i) of the 1940 Act to the
extent that the issuance and sale of multiple classes of shares representing
interests in the same Touchstone Fund might be deemed: (a) to result in a
"senior security" within the meaning of Section 18(g); (b) prohibited by Section
18(f); and (c) to violate the equal voting provisions of Section 18(i).
The Distributor believes that the Multiple Class Distribution System as described herein will better enable the Touchstone Funds to meet the competitive demands of today's financial services industry. Under the Multiple Class Distribution System, an investor will be able to choose the method of purchasing shares that is most beneficial given the amount of his or her purchase, the length of time the investor expects to hold his or her shares, and other relevant circumstances. The Multiple Class Distribution System permits the Touchstone Funds to facilitate both the distribution of their securities and provide investors with a broader choice as to the method of purchasing shares without assuming excessive accounting and bookkeeping costs or unnecessary investment risks.
The allocation of expenses and voting rights relating to the Rule 12b-1 plans in the manner described is equitable and does not discriminate against any group of shareholders. In addition, such arrangements should not give rise to any conflicts of interest because the rights and privileges of each class of shares are substantially identical.
The Distributor believes that the Multiple Class Distribution System will not increase the speculative character of the shares of the Touchstone Funds. The Multiple Class Distribution System does not involve borrowing by the Touchstone Funds, nor will it affect the Touchstone Funds' existing assets or reserves, and does not involve a complex capital structure. Nothing in the Multiple Class Distribution System suggests that it will facilitate control by holders of any class of shares.
The Distributor believes that the ability of the Touchstone Funds to implement the CDSC is appropriate in the public interest, consistent with the protection of investors, and consistent with the purposes fairly intended by the policy and provisions of the 1940 Act. The CDSC arrangement will provide investors the option of having their full payment invested for them at the time of their purchase of shares of the Funds with no deduction of a sales charge.
CONDITIONS OF OPERATING UNDER THE MULTIPLE CLASS DISTRIBUTION SYSTEM
The operation of the Multiple Class Distribution System shall at all times be in accordance with Rule 18f-3 under the 1940 Act and all other applicable laws and regulations, and in addition, shall be subject to the following conditions:
1. Each class of shares will represent interests in the same portfolio of investments of a Touchstone Fund, and be identical in all material respects, except as set forth below. The only differences among the various classes of a Touchstone Fund will relate solely to: (a) the impact of the disproportionate Rule 12b-1 distribution plan payments allocated to each of the Class A shares, Class B shares or Class C shares, but not Class Y shares or Institutional shares of a Fund; (b) the impact of the Rule 12b-1 distribution plan payments imposed on Retail shares, Class B shares or Class S shares, but not Institutional shares of a Money Market Fund; (c) Class Expenses, which are limited to (i) transfer agency fees (including the incremental cost of monitoring a CDSC applicable to a specific class of shares), (ii) printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses and proxies to current shareholders of a specific class, (iii) SEC and Blue Sky registration fees incurred by a class of shares, (iv) the expenses of administrative personnel and services as required to support the shareholders of a specific class, (v) litigation or other legal expenses relating to a specific class of shares, (vi) Trustees' fees or expenses incurred as a result of issues relating to a specific class of shares, and (vii) accounting fees and expenses relating to a specific class of shares; (d) the fact that each class will vote separately as a class with respect to the Rule 12b-1 distribution plans or any other matter affecting only that class; (e) the different exchange privileges of the various classes of shares; (f) the different shareholder services offered among the various classes of shares; and (g) the designation of each class of shares of the Touchstone Funds. Any additional incremental expenses not specifically identified above that are subsequently identified and determined to be properly allocated to one class of shares shall not be so allocated until approved by the Board of Trustees.
2. The Trustees of each Trust, including a majority of the Trustees who are not interested persons of the Trust, have approved this Plan as being in the best interests of each class individually and each Touchstone Fund as a whole. In making this finding, the Trustees evaluated the relationship among the classes, the allocation of expenses among the classes, potential conflicts of interest among classes, and the level of services provided to each class and the cost of those services.
3. Any material changes to this Plan, including but not limited to a change in the method of determining Class Expenses that will be applied to a class of shares, will be reviewed and approved by votes of the Board of Trustees of each Trust, including a majority of the Trustees who are not interested persons of the Trust.
4. On an ongoing basis, the Trustees of each of the Trusts, pursuant to their fiduciary responsibilities under the 1940 Act and otherwise, will monitor each Touchstone Fund for the existence of any material conflicts between the interests of the classes of shares. The Trustees, including a majority of the Trustees who are not interested persons of the Trust, shall take such action as is reasonably necessary to eliminate any such conflicts that may develop. The Distributor will be responsible for reporting any potential or existing conflicts to the Trustees. If a conflict arises, the Distributor at its own cost will remedy such conflict up to and including establishing a new registered management investment company.
5. The Trustees of each Trust will receive quarterly and annual Statements complying with paragraph (b)(3)(ii) of Rule 12b-1, as it may be amended from time to time. In the Statements, only distribution expenditures properly attributable to the sale of a class of shares will be used to support the Rule 12b-1 fee charged to shareholders of such class of shares. Expenditures not related to the sale of a particular class will not be presented to the Trustees to justify any fee attributable to that class. The Statements, including the allocations upon which they are based, will be subject to the review and approval of the independent Trustees in the exercise of their fiduciary duties.
6. Dividends paid by a Touchstone Fund with respect to each class of shares, to the extent any dividends are paid, will be calculated in the same manner, at the same time, on the same day, and will be in the same amount, except that distribution fee payments and Class Expenses relating to each respective class of shares will be borne exclusively by that class.
7. The Touchstone Funds have established the manner in which the net asset value of the multiple classes of shares will be determined and the manner in which dividends and distributions will be paid. Attached hereto as Exhibit A is a procedures memorandum and worksheets with respect to the methodology and procedures for calculating the net asset value and dividends and distributions of the various classes and the proper allocation of income and expenses among the classes.
8. The Distributor represents that it has in place, and will continue to maintain adequate facilities to ensure implementation of the methodology and procedures for calculating the net asset value and dividends and distributions among the various classes of shares.
9. If a Touchstone Fund offers separate classes of shares through separate prospectuses, each such prospectus will disclose (i) that the Touchstone Fund issues other classes, (ii) that those other classes may have different sales charges and other expenses, which may affect performance, (iii) a telephone number investors may call to obtain more information concerning the other classes available to them through their sales representative, and (iv) that investors may obtain information concerning those classes from their sales representative or the Distributor.
10. The Distributor has adopted compliance standards as to when Class A, Class B, Class C and Class S shares may appropriately be sold to particular investors. The Distributor will require all persons selling shares of the Touchstone Funds to agree to conform to such standards.
11. Each Touchstone Fund will briefly describe the salient features of the Multiple Class Distribution System in its prospectus and/or statement of additional information. Each Touchstone Fund will disclose in its prospectus the respective expenses, performance data, distribution arrangements, services, fees, sales loads, deferred sales loads and exchange privileges applicable to each class of shares offered through that prospectus. Each Touchstone Fund will disclose the respective expenses and performance data applicable to each class of shares in every shareholder report. The shareholder reports will contain, in the statement of assets and liabilities and statement of operations, information related to the Touchstone Fund as a whole generally and not on a per class basis. Each Touchstone Fund's per share data, however, will be prepared on a per class basis with respect to all classes of shares of such Touchstone Fund. The information provided by the Trusts for publication in any newspaper or similar listing of the Funds' net asset values and public offering prices will separately present each class of shares.
12. The Trusts will comply with the provisions of Rule 6c-10 under the 1940 Act, IC-20916 (February 23, 1995), as such rule is currently adopted and as it may be amended.
EXHIBIT A
TOUCHSTONE INVESTMENT TRUST
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE TAX-FREE TRUST
MULTIPLE-CLASS FUNDS
METHODOLOGY, PROCEDURES
AND
INTERNAL ACCOUNTING CONTROLS
INTRODUCTION
Touchstone Investment Trust, Touchstone Tax-Free Trust and Touchstone Strategic Trust (the "Trusts") are Massachusetts business trusts registered under the Investment Company Act of 1940 as open-end management investment companies. Touchstone Securities, Inc. (the "Distributor") serves as each Touchstone Fund's principal underwriter. The Distributor is a subsidiary of IFS Financial Services, Inc. The Trusts presently offer the following series of shares (collectively, the "Funds") representing interests in separate investment portfolios:
* Periodic (non-daily) dividend Funds
Each Fund may offer multiple classes of shares as more fully described in
the Trusts' Rule 18f-3 Plan. The Multiple Class Distribution System would enable
each Fund to offer investors the option of purchasing shares in one of five
manners: (1) subject to a conventional front-end sales load and a distribution
fee not to exceed .35% of average net assets (Class A shares); (2) sold without
a front-end sales load and subject to a contingent deferred sales charge and a
distribution and service fee of up to 1% of average net assets (Class B shares);
(3) sold either without a front-end sales load or with a front-end sales load
that is smaller than the sales load on Class A shares and subject to a
contingent deferred sales charge and a distribution and service fee of up to 1%
of average net assets (Class C shares); (4) sold without a front-end sales load,
contingent deferred sales charge or distribution fee, but offered only through
selected brokers and may be subject to fees by the participating broker and to
higher initial investment requirements than other classes of shares (Class Y
shares) or (5) sold without a front-end sales load, contingent deferred sales
charge or distribution fee, but subject to higher initial investment
requirements than other classes of shares (Institutional shares). Each Fund
which invests primarily in domestic debt securities intends that substantially
all net investment income will be declared as a dividend either daily or monthly
and paid either daily or monthly. Each Fund designated by an asterisk in the
above chart declares and pays net investment income at the end of each calendar
quarter or at the end of each calendar year (such Funds are referred to herein
as "periodic dividend Funds"). Future series of the Trusts may declare dividends
daily or periodically. The Funds and any future series of the Trusts will
declare and pay substantially all net realized gains, if any, at least annually.
The Trusts presently offer the following series of shares (collectively, the "Money Market Funds") representing interests in separate investment portfolios:
Each Money Market Fund may offer four classes of shares as more fully described in the Trusts' Rule 18f-3 Plan. The Multiple Class Distribution System would enable each Money Market Fund to offer investors the option of purchasing shares in one of four manners: (1) subject to a distribution fee not to exceed .35% of average net assets (Retail shares); (2) subject to no distribution fee with a higher minimum initial investment requirement (Institutional shares); (3) subject to a distribution fee not to exceed 1% of average net assets and a CDSC (Class B shares); or (4) subject to a distribution fee not to exceed 1% of average net assets (Class S shares) . Each of the Money Market Funds intends that substantially all net investment income will be declared as a dividend daily and paid monthly.
Pursuant to a Sub-Administration Agreement, JPMorgan Chase Bank, N.A. maintains the accounting records and performs the daily calculations of net asset value for each Touchstone Fund. Thus the procedures and internal accounting controls for the Touchstone Funds include the participation of JPMorgan Chase Bank, N.A. (the "Accounting Agent").
The internal accounting control environment of the Accounting Agent provides for minimal risk of error. This has been accomplished through the use of competent and well-trained employees, adequate facilities and established internal accounting control procedures.
Additional procedures and internal accounting controls have been designed for the multiple class funds. These procedures and internal accounting controls have been reviewed by management of the Trusts to ensure that the risks associated with multiple-class funds are adequately addressed.
The specific internal accounting control objectives and the related methodology, procedures and internal accounting controls to achieve these stated objectives are outlined below.
METHODOLOGY, PROCEDURES AND INTERNAL
ACCOUNTING CONTROLS FOR MULTIPLE CLASS FUNDS
The three internal accounting control objectives to be achieved are:
(1) The daily net asset value for all classes of shares of each Touchstone Fund is accurately calculated.
(2) Recorded expenses of a Touchstone Fund are properly allocated between each class of shares.
(3) Dividend distributions are accurately calculated for each class of shares.
1. Control Objective
The daily net asset value for all classes of shares of each Touchstone Fund is accurately calculated.
Methodology, Procedures and Internal Accounting Controls
a. Securities of the Funds will be valued daily at their current market value by a reputable pricing source. Security positions will be reconciled from the Trusts' records and to custody records and reviewed for completeness and accuracy.
b. Securities of the Money Market Funds will be valued daily on an amortized cost basis in accordance with written procedures adopted pursuant to Rule 2a-7 of the 1940 Act.
c. Prepaid and intangible assets will be amortized over their estimated useful lives. These assets will be reviewed monthly to ensure a proper presentation and amortization during the period.
d. Investment income, realized and unrealized gains or losses will be calculated daily from the Accounting Agents' portfolio system and reconciled to the general ledger. Yields and fluctuations in security prices will be monitored on a daily basis by personnel of the Accounting Agent. Interest and dividend receivable amounts will be reconciled to holdings reports.
e. An estimate of all expenses for each Touchstone Fund will be accrued daily. Daily expense accruals will be reviewed and revised, as required, to reflect actual payments made to vendors.
f. Capital accounts for each class of shares will be updated based on daily share activity and reconciled to transfer agent reported outstanding shares.
g. All balance sheet asset, liability and capital accounts will be reconciled to subsidiary records for completeness and accuracy.
h. For each Touchstone Fund, a pricing worksheet (see attached example) will be prepared daily which calculates the net asset value of settled shares by class (for the Money Market Funds and the other daily dividend funds) or net asset value of outstanding shares (for periodic dividend funds) and the percentage of net asset value of such class to the total of all classes of shares. Investment income and joint expenses will be allocated by class of shares according to such percentages. Realized and unrealized gains will be allocated by class of shares according to such percentages.
i. Prior day net assets by class will be rolled forward to current day net assets by class of shares by adjusting for current day income, expense and distribution activity. (There may or may not be distribution activity in the periodic dividend funds.) Net assets by class of shares will then be divided by the number of outstanding shares for each class to obtain the net asset value per share. Net asset values will be reviewed and approved by supervisors.
j. Net asset values per share of the different classes of shares for daily dividend funds should be identical except with respect to possible differences attributable to rounding. Differences, if any, will be investigated by the accounting supervisor.
k. Net asset values per share of the different classes of shares for the periodic dividend funds may be different as a result of accumulated income between distribution dates and the effect of class specific expenses. Other differences, if any, will be investigated by the accounting supervisor.
2. Control Objective
Recorded expenses of a Touchstone Fund are properly allocated between each class of shares.
Methodology, Procedures and Internal Accounting Controls
a. Expenses will be classified as being either joint or class specific on the pricing worksheet.
b. Certain expenses will be attributable to more than one Touchstone Fund. Such expenses will be first allocated among the Touchstone Funds, based on the aggregate net assets of such Touchstone Funds, and then borne on such basis by each Touchstone Fund and without regard to class. These expenses could include, for example, Trustees' fees and expenses, unallocated audit and legal fees, insurance premiums, expenses relating to shareholder reports and printing expenses. Expenses that are attributable to a particular Touchstone Fund but not to a particular class thereof will be borne by each class on the basis of the net assets of such class in relation to the aggregate net assets of the Touchstone Fund. These expenses could include, for example, advisory fees and custodian fees, and fees related to the preparation of separate documents for current shareholders of a particular Touchstone Fund.
c. Class specific expenses are those identifiable with each individual class of shares. These expenses include 12b-1 distribution fees; transfer agent fees as identified by the Accounting Agent as being attributable to a specific class; printing and postage expenses related to preparing and distributing materials such as shareholder reports, prospectuses and proxies to current shareholders of a particular class; SEC and Blue Sky registration fees; the expenses of administrative personnel and services required to support the shareholders of a specific class; litigation or other legal expenses relating solely to one class of shares; Trustees' fees incurred as a result of issues relating to one class of shares; and accounting fees and expenses relating to a specific class of shares.
d. Joint expenses will be allocated daily to each class of shares based on the percentage of the net asset value of shares of such class to the total of the net asset value of shares of all classes of shares. Class specific expenses will be charged to the specific class of shares. Both joint expenses and class specific expenses are compared against expense projections.
e. The total of joint and class specific expense limits will be reviewed to ensure that voluntary or contractual expense limits are not exceeded. Amounts will be adjusted to ensure that any limits are not exceeded. Expense waivers and reimbursements will be calculated and allocated to each class of shares based upon the pro rata percentage of the net assets of a Touchstone Fund as of the end of the prior day, adjusted for the previous day's share activity.
f. Each Fund and class will accrue distribution expenses at a rate (but not in excess of the applicable maximum percentage rate), which will be reviewed by the Board of Trustees on a quarterly basis. Such distribution expenses will be calculated at an annual rate not to exceed .25% (except that such amount is .35% for the series of Touchstone Investment Trust) of the average daily net assets of a Fund's Class A shares (including Retail of a Money Market Fund) and not to exceed 1% of the average daily net assets of a Touchstone Fund's Class B shares, Class C shares and Class S shares. Under the distribution plans, payments will be made only for expenses incurred in providing distribution related services. Unreimbursed distribution expenses of the Distributor will be determined daily and the Distributor shall not be entitled to reimbursement for any amount with respect to any day in which there are no unreimbursed distribution expenses.
g. Expense accruals for both joint and class specific expenses are reviewed each month. Based upon these reviews, adjustments to expense accruals or expense projections are made as needed.
h. Expense ratios and yields for each class of shares will be reviewed daily to ensure that differences in yield relate solely to acceptable expense differentials.
i. Any change to the classification of expenses as joint or class specific is reviewed and approved by the Board of Trustees.
j. The Accounting Agent will perform detailed expense analyses to ensure that expenses are properly charged to each Touchstone Fund and to each class of shares. Any expense adjustments required as a result of this process will be made.
3. Control Objective
Dividend distributions are accurately calculated for each class of shares.
Methodology, Procedures and Internal Accounting Controls
a. The Money Market Funds and the other daily dividend Funds declare substantially all net investment income daily.
b. The periodic dividend Funds declare substantially all net investment income periodically.
c. Investment income, including amortization of discount and premium, where applicable, is recorded by each Touchstone Fund and is allocated to each class of shares based upon its pro rata percentage of the net assets of the Touchstone Fund as of the end of the prior day, adjusted for the previous day's share activity.
d. For Money Market Funds and the other daily dividend Funds, distributable income is calculated for each class of shares on the pricing worksheet from which daily dividends and distributions are calculated. The dividend rates are calculated on a settlement date basis for class shares outstanding.
e. Each non-daily dividend Fund will determine the amount of accumulated income available for all classes after deduction of allocated expenses but before consideration of any class specific expenses. This amount will be divided by total outstanding shares for all classes combined to arrive at a gross dividend rate for all shares. From this gross rate, a class specific amount per share for each class (representing the unique and incrementally higher, if any, expenses accrued during the period to that class divided by the shares outstanding for that class) is subtracted. The result is the actual per share rate available for each class in determining amounts to distribute.
f. Realized capital gains, if any, are allocated daily to each class based upon its relative percentage of the total net assets of the Touchstone Fund as of the end of the prior day, adjusted for the previous day's share activity.
g. Capital gains are distributed at least once every twelve months with respect to each class of shares.
h. The capital gains distribution rate will be determined on the ex-date by dividing the total realized gains of the Touchstone Fund to be declared as a distribution by the total outstanding shares of the Touchstone Fund as of the record date.
i. Capital gains dividends per share should be identical for each class of shares within a Touchstone Fund. Differences, if any, will be investigated and resolved.
j. Distributions are reviewed annually by the Accounting Agents at fiscal year end and as required for excise tax purposes during the fiscal year to ensure compliance with IRS regulations and accuracy of calculations.
There are several pervasive procedures and internal accounting controls that impact all three of the previously mentioned objectives.
a. The Accounting Agent's supervisory personnel will be involved on a daily basis to ensure that the methodology and procedures for calculating the net asset value and dividend distribution for each class of shares is followed and a proper allocation of expenses among each class of shares is performed.
b. The Accounting Agent's fund accountants will receive overall supervision. Their work with regard to multiple class calculations will be reviewed and approved by supervisors.
c. The Accounting Agent's pricing worksheets will be clerically checked and verified against corresponding computer system generated reports.
Sample Multiple Class Worksheet
Allocation Methodology - Value of Shares Outstanding (periodic dividend Funds)
Value of Settled Shares Outstanding (daily dividend Funds)
Fund ______________________________
Date ______________________________
Total
(T) (A) (B) (C) (S) (I)
------ ------ ------ ------ ------ ------
1 Prior day NAV per share (unrounded)
------ ------ ------ ------ ------ ------
Allocation Percentages
----------------------
Complete for all Funds:
2 Shares O/S - prior day
------ ------ ------ ------ ------ ------
3 Prior day shares activity
------ ------ ------ ------ ------ ------
4 Adjusted shares O/S [2 + 3]
------ ------ ------ ------ ------ ------
5 Adjusted net assets [4 x 1]
------ ------ ------ ------ ------ ------
6 % Assets by class
------ ------ ------ ------ ------ ------
For daily dividend funds complete Rows 7 - 11 For periodic (non daily) dividend
funds insert
same # from Rows 2 - 6
7 Settled shares prior day
------ ------ ------ ------ ------ ------
8 Prior day settled shares activity
------ ------ ------ ------ ------ ------
9 Adjusted settled shares O/S [7 & 8]
------ ------ ------ ------ ------ ------
10 Adjusted settled assets [9 x 1]
------ ------ ------ ------ ------ ------
11 % Assets by class
------ ------ ------ ------ ------ ------
Income and Expenses
-------------------
12 Daily income *
Expenses: ------ ------ ------ ------ ------ ------
13 Management Fee*
------ ------ ------ ------ ------ ------
14 12b-1 Fee None
------ ------ ------ ------ ------ ------
15 Other Joint Expenses*
------ ------ ------ ------ ------ ------
16 Direct Class Expenses
------ ------ ------ ------ ------ ------
17 Daily expenses [13+14+15+16]
------ ------ ------ ------ ------ ------
18 Daily Net Income [12 - 17]
------ ------ ------ ------ ------ ------
19 Dividend Rate (Daily Dividend Funds Only)
[18/9] ------ ------ ------ ------ ------ ------
Capital
-------
20 Income distribution
------ ------ ------ ------ ------ ------
21 Undistributed Net Income [18 - 20]
------ ------ ------ ------ ------ ------
22 Capital share activity
------ ------ ------ ------ ------ ------
23 Realized Gains/Losses:
------ ------ ------ ------ ------ ------
24 Short-Term**
------ ------ ------ ------ ------ ------
25 Long-Term**
------ ------ ------ ------ ------ ------
26 Capital gain distribution
------ ------ ------ ------ ------ ------
27 Unrealized appreciation/depreciation**
------ ------ ------ ------ ------ ------
28 Daily net asset change
[21 + 22 + 24 + 25 + 26 + 27] ------ ------ ------ ------ ------ ------
|
Sample Multiple Class Worksheet
Allocation Methodology - Value of Shares Outstanding (periodic dividend Funds)
Value of Settled Shares Outstanding (daily dividend Funds)
Fund ______________________________
Date ______________________________
Total
(T) (A) (B) (C) (S) (I)
------ ------ ------ ------ ------ ------
NAV Proof
---------
29 Prior day net assets
------ ------ ------ ------ ------ ------
30 Current day net assets [28 + 29]
------ ------ ------ ------ ------ ------
31 NAV per share [30 / 4]
------ ------ ------ ------ ------ ------
32 Sales Load as a percent of offering price
------
33 Offering Price [31 / (100% - 32)]
------
|
* - Allocated based on Line 11 percentages.
** - Allocated based on Line 6 percentages.
MULTIPLE CLASS PRICING
FINANCIAL STATEMENT DISCLOSURE
STATEMENT OF ASSETS AND LIABILITIES
- Assets and liabilities will be disclosed in accordance with standard reporting format.
- The following will be disclosed for each class:
NET ASSETS FOR FUNDS:
Net Assets - equivalent to $__ per __ share based on shares outstanding.
Net Assets - equivalent to $__ per __ share based on shares outstanding.
Net Assets - equivalent to $__ per __ share based on shares outstanding.
Net Assets - equivalent to $__ per __ share based on shares outstanding.
Undistributed realized gain (loss) on investments - net Unrealized appreciation (depreciation) on investments - net
Net Assets - equivalent to $__ per __ share based on shares outstanding.
NET ASSETS FOR MONEY MARKET FUNDS:
Net Assets - equivalent to $1.00 per __ share based on shares outstanding.
Net Assets - equivalent to $1.00 per __ share based on shares outstanding.
Net Assets - equivalent to $1.00 per __ share based on shares outstanding.
Net Assets - equivalent to $1.00 per __ share based on shares outstanding.
STATEMENT OF OPERATIONS
- Standard reporting format, except that class specific expenses will be disclosed for each class.
STATEMENT OF CHANGES IN NET ASSETS
- Show components by each class of shares and in total as follows:
Current Year
--------------------------------------------------------------------------------
Total Class A Class B Class C Retail Institutional Class S Class Y
----- ------- ------- ------- ------ ------------- ------- -------
Prior Year
--------------------------------------------------------------------------------
Total Class A Class B Class C Retail Institutional Class S Class Y
----- ------- ------- ------- ------ ------------- ------- -------
|
- Show components by each class as follows:
Current Year
--------------------------------------------------------------------------------
Total Class A Class B Class C Retail Institutional Class S Class Y
----- ------- ------- ------- ------ ------------- ------- -------
Prior Year
--------------------------------------------------------------------------------
Total Class A Class B Class C Retail Institutional Class S Class Y
----- ------- ------- ------- ------ ------------- ------- -------
|
- Note on share transactions will include information on each class of shares for two years
- Notes will include additional disclosure regarding allocation of expenses between classes.
- Notes will describe the distribution arrangements, incorporating disclosure on any classes' 12b-1 fee arrangements.
WESTFIELD CAPITAL MANAGEMENT COMPANY
CODE OF ETHICS
MAY 1, 2008
SUPPLEMENTS TO CODE OF ETHICS DATED MAY 1, 2008
EFFECTIVE NOVEMBER 13, 2008, THE FOLLOWING CHANGES WILL BE IN EFFECT:
o BLACKOUT PERIOD: The blackout period has been shortened to 5 business days.
Example: Last client trade is completed on Monday, Access Person can trade the following Tuesday.
o BLACKOUT PERIOD EXEMPTION: The exemption for large cap stocks during the blackout period has been increased from 1,000 to 10,000 shares. Access Persons may purchase up to 10,000 shares of a large cap stock (defined by WCM product guidelines) within a 30-day period. Pre-clearance and reporting requirements still apply.
o SHORT SELLING: Access Persons may short a security held in client accounts if the average cost of such security for the client is exceptionally low relative to current market value. Additionally, Access Persons may short a security that is not held broadly in a WCM product or group of accounts.
o 529 PLANS OR COLLEGE SAVINGS PLANS: Transactions in 529 Plans or college savings plans are exempt from preclearance and reporting requirements and transactional restrictions. (Does not apply to Coverdell ESAs that are invested in Covered Securities.)
o OPTIONS: Options will continue to be subject to the transactional restrictions detailed in the Code, as long as they are not expiring. Compliance will review each request on a case-by-case basis. Keep in mind that Access Persons are not allowed to use options to circumvent ANY of the requirements and restrictions in the personal securities trading section of the Code.
Additionally, the current restrictions on ETFs are being reviewed. Approved amendments will be distributed with the revised version of Code.
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 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.
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 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 Access Person has a direct or indirect beneficial interest in the security.
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 Covered 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, 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; although Access Persons 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
Chief Executive Officer.
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 the
Management Committee. Upon approval by the Management Committee, 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 the Management Committee
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 the Management Committee 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 Management Committee 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 Management Committee, to determine and impose a sanction upon any employee 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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TODD O VEREDUS
ASSET MANAGEMENT LLC
CODE OF ETHICS
ADOPTED MAY 1, 2009
BY SIGNING BELOW, I CERTIFY THAT I HAVE READ AND UNDERSTAND THE CODE OF ETHICS ("CODE") (REVISED AS OF MAY 1, 2009) AND RECOGNIZE THAT I AM SUBJECT TO IT. I CERTIFY THAT I WILL COMPLY WITH THE REQUIREMENTS OF THE CODE INCLUDING DISCLOSURE OF ALL SECURITIES TRANSACTIONS FOR WHICH THE CODE REQUIRES DISCLOSURE
CODE OF ETHICS
TODD O VEREDUS ASSET MANAGEMENT LLC
(AS REVISED MAY 1, 2009)
I. STATEMENT OF GENERAL PRINCIPLES
This Code of Ethics has been adopted by Todd o Veredus Asset Management LLC (the "Adviser") for the purpose of instructing all employees, officers, and directors of the Adviser in their ethical obligations and to provide rules for their personal securities transactions. All such employees, officers, and directors owe a fiduciary duty to the Adviser's clients (the "Clients"). A fiduciary duty means a duty of loyalty, fairness and good faith towards Clients, and the obligation to adhere not only to the specific provisions of this Code but to the general principles that guide the Code. These general principles are:
o The duty at all times to place the interests of Clients first;
o The duty at times to comply with the Investment Advisers Act of 1940, the Investment Company Act 1940, and all other Federal Securities Laws;
o The requirement that all personal securities transactions be conducted in a manner consistent with the Code of Ethics and in such a manner as to avoid any actual or potential conflict of interest or any abuse of any individual's position of trust and responsibility;
o The fundamental standard that such employees, officers, and directors should not take inappropriate advantage of their positions, or of their relationship with Clients; and
o The fiduciary principle that information concerning the identity of security holdings and financial circumstances of Clients is confidential.
It is imperative that the personal trading activities of the employees, officers, and directors of the Adviser be conducted with the highest regard for these general principles in order to avoid any possible conflict of interest, any appearance of a conflict, or activities that could lead to disciplinary action. This includes executing transactions through or for the benefit of a third party when the transaction is not in keeping with the general principles of this Code. All personal securities transactions must also comply with the Securities & Exchange Commission's Rule 17j-1. Under this rule, no Employee may:
o employ any device, scheme or artifice to defraud a Client;
o make to any Client any untrue statement of a material fact or omit to state to such client a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;
o engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon a Client; or
o engage in any manipulative practice with respect to a Client.
No Employee may use material, non-public information about any issuer of Securities, whether or not such Securities are held in the portfolios of Clients or suitable for inclusion in such portfolios, for personal gain or on behalf of a Client. Any Employee who believes he or she is in possession of such information must contact the Compliance Officer immediately to discuss the information and the circumstances surrounding its receipt. This prohibition does not prevent an Employee from contacting officers and employees of issuers or other investment professionals in seeking information about issuers that is publicly available. The Compliance Officer will prepare a written report to management of any violation or possible violation of this policy for the purpose of determining whether corrective or disciplinary action is appropriate.
II. DEFINITIONS
A. Beneficial Interest: ownership or any benefits of ownership, including the opportunity to directly or indirectly profit or otherwise obtain financial benefits from any interest in a security.
B. Compliance Officer: James Jenkins, or with respect to James Jenkins, B. Anthony Weber or Curtiss Scott.
C. De Minimis Transactions:
Equity Securities: Any equity security transactions, or series or related transactions, effected over a five (5) trading day period, involving 500 or fewer shares in the aggregate of a Security included in the S&P 500. Fixed Income Securities: Any fixed income Security transaction, or series of related transactions, effected over a period of five (5) trading days, involving $10,000 principal amount or less in the aggregate.
D. Employee Account: each account in which an Employee or a member of his or her family has any direct or indirect Beneficial Interest or over which such person exercises control or influence, including, but not limited to, any joint account, partnership, corporation, trust or estate. An Employee's family members include the Employee's spouse, minor children, any person living in the home of the Employee and any relative of the Employee (including in-laws) to whose support an Employee directly or indirectly contributes.
E. Employees: the employees, officers, and directors of the Adviser.
F. Exempt Transactions: transactions which are 1) effected in an amount or in a manner over which the Employee has no direct or indirect influence or control, 2) pursuant to a systematic dividend reinvestment plan, systematic cash purchase plan or systematic withdrawal plan, 3) in connection with the exercise or sale of rights to purchase additional securities from an issuer and granted by such issuer pro-rata to all holders of a class of its securities, 4) in connection with the call by the issuer of a preferred stock or bond, 5) pursuant to the exercise by a second party of a put or call option, 6) closing transactions no more than five business days prior to the expiration of a related put or call option, 7) with respect to unaffiliated registered open-end investment companies, 8) inconsequential to any Client because the transaction is very unlikely to affect a highly liquid market or because the security is clearly not related economically to any securities that a Client may purchase or sell.
G. Federal Securities Laws: Federal securities laws means the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes Oxley Act of 2002, the Investment Company Act of 1940, the Investment Advisers Act of 1940, title V of the Gramm-Leach-Bliley Act, any rules adopted by the Securities & Exchange Commission under any of these statutes, the Bank Secrecy Act as it applies to funds and investment advisers, and any rules adopted thereunder by the Securities & Exchange Commission or the Department of the Treasury.
H. Related Entity: a partnership or other entity (other than an investment company) 1) in which persons unaffiliated with the Adviser or any Employee (and not otherwise subject to this Code) participate and 2) to which the Adviser or an Employee acts as adviser, general partner or other fiduciary.
I. Related Securities: securities issued by the same issuer or issuer under common control, or when either security gives the holder any contractual rights with respect to the other security, including options, warrants or other convertible securities.
J. Reportable Funds: Any investment company for which the Adviser serves as an investment adviser or sub-adviser.
K. Securities: any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or
participation in any profit-sharing agreement,
collateral-trust certificate, pre-organization certificate or
subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a
security, fractional undivided interest in oil, gas or other
mineral rights, or, in general, any interest or instrument
commonly known as a "security," or any certificate or interest
or participation in temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to
or purchase (including options) any of the foregoing; except
for the following: 1) securities issued by the government of
the United States, 2) bankers' acceptances, 3) bank
certificates of deposit, 4) commercial paper and high quality
short-term debt instruments, including repurchase agreements,
5) shares of money market funds , 6) shares of registered
open-end investment companies (other than Reportable Funds)
and 7) shares issued by unit investment trusts that are
invested exclusively in one or more open-end funds, none of
which are advised by the Adviser.
L. Securities Transaction: the purchase or sale, or any action to accomplish the purchase or sale, of a Security for an Employee Account.
III. PERSONAL INVESTMENT GUIDELINES
A. Personal Accounts
1. Personal Investment Guidelines in this Section III do not apply to Exempt Transactions unless the transaction is an acquisition of a security in a private placement or initial public offering. Employees must remember that regardless of the transaction's status as exempt or not exempt, the Employee's fiduciary obligations remain unchanged.
2. A securities transaction effected on behalf of a Related Entity may be a Securities Transaction subject to this Code because the Adviser or Employee has an interest in the Related Entity. While the Adviser and each Employee is subject at all times to the fiduciary obligations described in this Code, paragraph 3 of this Section III does not apply to a Securities Transaction effected on behalf of a Related Entity if the transaction is "blocked" with the other Client's transaction, and paragraph 4 of this Section III does not apply to a Securities Transaction effected on behalf of a Related Entity
3. Except as provided in paragraph 2 of this Section III, an Employee may not execute a Securities Transaction within seven (7) calendar days before or after a transaction in the same Security or a Related Security has been executed on behalf of a Client. If the Compliance Officer determines that a transaction has violated this prohibition, the transaction shall be unwound or, if not possible or practical, the Employee must disgorge to the Client the value received by the Employee due to any favorable price differential received by the Employee. For example, if the Employee buys 100 shares at $10 per share, and the Client buys 1000 shares at $11 per share, the Employee will pay $100 (100 shares x $1 differential) to the Client.
4. In connection with the acquisition of any Security (excluding a De Minimis Transactions that is not an Initial Public Offering or Private Placement), the Employee must pre-clear the acquisition with the Compliance Officer. In connection with the acquisition of any Security in an initial public offering or private placement, the Compliance Officer will take into account, among other factors, whether the investment opportunity should be reserved for a Client, and whether the opportunity is being offered to the Employee by virtue of the Employee's position with the Adviser or relationship with a Client. If an acquisition in an initial public offering or private placement is authorized, the Compliance Officer shall retain a record of the authorization and the rationale supporting the authorization. Employees who have been authorized to acquire securities in a private placement will, in connection therewith, be required to disclose that investment if and when the Employee takes part in any subsequent investment in the same issuer. In such circumstances, the determination to purchase Securities of that issuer on behalf of a Client will be subject to an independent review by personnel of the Adviser with no personal interest in the issuer.
B. Other Restrictions
1. Employees are prohibited from serving on the boards of directors of publicly traded companies, absent prior authorization by the Compliance Officer. The consideration of prior authorization will be based upon a determination that the board service will be consistent with the interests of all Clients. In the event that board service is authorized, Employees serving as directors will be isolated from other Employees making investment decisions with respect to the securities of the company in question.
2. Employees should not accept inappropriate gifts, favors, entertainment, special accommodations, or other things of material value that could influence their decision-making or make them feel beholden to a person or firm. Similarly, Employees should not offer gifts, favors, entertainment or other things of value that could be viewed as overly generous. No Employee may accept from a Client, prospective Client, or any entity that does or seeks to do business with or on behalf of the Adviser an amount in excess of $100 per year in the form of gifts or gratuities, or as compensation for services. No Employee may accept cash gifts or cash equivalents from a Client, prospective Client, or any entity that does or seeks to do business with or on behalf of the Adviser. No Employee may accept extravagant or excessive entertainment from a Client, prospective Client, or any person or entity that does or seeks to do business with or on behalf of the Adviser. Employees may provide or accept a business entertainment event, such as a dinner or a sporting event, of reasonable value, if the person or entity providing the entertainment is present. If there is a question about giving or receiving a gift, gratuity or compensation, it should be reviewed by the Compliance Officer.
IV. COMPLIANCE PROCEDURES
A. Employee Disclosure and Certification
1. Within ten (10) days of commencement of employment with the Adviser, each Employee must certify that he or she has read and understands this Code and recognizes that he or she is subject to it, and must disclose the following information as of the date the person became an Employee: a) the title and type of security, the ticker symbol or CUSIP number, number of shares and principal amount of each Security in which the Employee has a Beneficial Interest when the person became an Employee, b) the name of any broker, dealer or bank with whom the Employee maintained an account when the person became an Employee, and c) the date the report is submitted. The information in the report must be current as of a date no more than 45 days prior to commencement of employment with the Adviser.
2. Annually, each Employee must certify that he or she has read and understands this Code and recognizes that he or she is subject to it, that he or she has complied with the requirements of this Code and has disclosed or reported all personal Securities Transactions required to be disclosed or reported pursuant to the requirements of this Code. In addition, each Employee shall annually provide the following information (as of a date no more than 45 days before the report is submitted): a) the title and type of security, the ticker symbol or CUSIP number, number of shares and principal amount of each Security in which the Employee had any Beneficial Interest, b) the name of any broker, dealer or bank with whom the Employee maintains an account in which any Securities are held for the direct or indirect benefit of the Employee, and 3) the date the report is submitted.
B. Compliance
1. The Compliance Officer shall institute procedures to review the reports required by this Section IV. The Compliance Officer shall identify all Employees, inform those persons of their reporting obligations, and maintain a record of all current and former Employees.
2. All Employees must provide copies of all broker confirmations and periodic account statements to the Compliance Officer. Each Employee must report, no later than 30 days after the close of each calendar quarter, on the Securities Transaction Report form provided by the Adviser, all transactions in which the Employee acquired or sold any direct or indirect Beneficial Interest in a Security, including Exempt Transactions, and certify that he or she has reported all transactions required to be disclosed pursuant to the requirements of this Code. The following information shall be provided on the Securities Transaction Report: a) the date of the transaction, the title and, as applicable, the ticker symbol or CUSIP number, interest rate and maturity date, number of shares and principal amount of each Security involved, b) the nature of the transaction (i.e., purchase, sale, etc.) c) the price of the Security at which the transaction was effected, d) the name of any broker, dealer or bank with or through whom the transaction was effected; and e) the date the report is submitted. The Report shall also identify any trading account, in which the Employee has a direct or indirect Beneficial Interest, established during the quarter with a broker, dealer or bank.
3. The quarterly report may exclude transactions effected pursuant to an automatic investment plan, defined as a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An automatic investment plan includes a dividend reinvestment plan.
4. The Compliance Officer will, on a quarterly basis, check the trading confirmations provided by brokers to verify that the Employee has not violated the Code. The Employee's annual disclosure of Securities holdings will be reviewed by the Compliance Officer for compliance with this Code, including transactions that reveal a pattern of trading inconsistent with this Code.
5. If an Employee violates this Code, the Compliance Officer will report the violation to management personnel of the Adviser for appropriate remedial action which, in addition to the actions specifically delineated in other sections of this Code, may include a reprimand of the Employee, or suspension or termination of the Employee's relationship with the Adviser or the Client.
6. If the Adviser serves as investment adviser to an investment company, the management personnel of the Adviser will furnish to the investment company's board an annual report that summarizes existing procedures and any changes in the procedures made during the past year and certify to the investment company's board that the Adviser has adopted procedures reasonably necessary to prevent Employees from violating this Code. The report will describe any issues existing under this Code since the last report, including without limitation, information about any material violations of this Code, any significant remedial action during the past year and any recommended procedural or substantive changes to this Code based on management's experience under this Code, evolving industry practices or legal developments.
7. "Whistleblower" Provision: If you become aware of a violation of the Code, the apparent or suspected violation must be reported promptly to the Chief Compliance Officer. All such reports will be treated confidentially to the extent permitted by law and investigated promptly and appropriately. Reports may be submitted anonymously should you wish. In addition, should the Chief Compliance Officer be involved in the violation or is unreachable, you may report a violation to the Chief Executive Officer. Any retaliation against an individual who reports a violation is prohibited and constitutes a further violation of this Code.