As filed with the Securities and Exchange Commission on June 29, 2006
Securities Act Registration No. 333-134486
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. 1 |X|
Post-Effective Amendment No. |_|
Touchstone Strategic Trust
(Exact Name of Registrant as Specified in Charter)
303 Broadway, Suite 1100
Cincinnati, Ohio 45202
(Address of Principal Executive Offices) (Zip Code)
(513) 362-8000
(Registrant's Telephone Number, including Area Code)
Jill T. McGruder, President
303 Broadway, Suite 1100
Cincinnati, Ohio 45202
(Name and Address of Agent for Service)
With Copy To:
Jay Fitton, Esq. Kevin Howard, Esq. Michael V. Wible, Esq.
Senior Counsel Vice President and Associate Thompson Hine LLP
303 Broadway, Suite 1100 General Counsel 10 W. Broad Street,
Cincinnati, OH 45202 400 Broadway Suite 700
Cincinnati, OH 45202 Columbus, OH 45215
- --------------------------------------------------------------------------------
TITLE OF SECURITIES BEING REGISTERED: Shares of a series of the Registrant
NO FILING FEE IS REQUIRED because the Registrant is relying on Section 24(f) of
the Investment Company Act of 1940, as amended, pursuant to which it has
previously registered an indefinite number of shares (File No. 811-3651).
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
TOUCHSTONE STRATEGIC TRUST
303 BROADWAY, SUITE 1100
CINCINNATI, OH 45202
July 5, 2006
Dear Shareholder:
On behalf of the Board of Trustees of Touchstone Strategic Trust (the "Trust"),
we are pleased to invite you to a Special Meeting of Shareholders (the "Special
Meeting") of the Trust with respect to the Value Plus Fund, a series of the
Trust, to be held at 9:30 a.m. Eastern Time on August 7, 2006 at 303 Broadway,
Suite 1100, Cincinnati, OH 45202.
At the Special Meeting, you will be asked to approve a proposed Agreement and
Plan of Reorganization, between the Value Plus Fund and the Large Cap Core
Equity Fund, also a series of the Trust, (collectively, the "Funds") under which
the Value Plus Fund will merge with and into the Large Cap Core Equity Fund (the
"Reorganization").
The Board of Trustees of the Trust unanimously approved the Agreement and Plan
of Reorganization at a meeting held on May 18, 2006. The Board of Trustees
recommends that you vote FOR the proposal.
The details of the proposed Reorganization are set forth in the combined Proxy
Statement/Prospectus that accompanies this letter, including details about the
Large Cap Core Equity Fund's investment objective, policies, management and
costs that are important for you to know. We encourage you to read it
thoroughly. In addition, we have included a list of commonly asked questions and
answers on the next page.
Shareholders may cast their votes according to the instructions provided in the
enclosed proxy materials.
YOUR VOTE IS IMPORTANT TO US REGARDLESS OF THE NUMBER OF SHARES YOU OWN. In
order to conduct the Special Meeting, a majority of shares must be represented
in person or by proxy. Please vote promptly.
If you have any questions about the Reorganization, please call 1-800-543-0407.
We thank you for considering this matter carefully and for your continued
confidence in and support of the Touchstone Strategic Trust.
Sincerely,
Jill T. McGruder
President
Touchstone Strategic Trust
QUESTIONS AND ANSWERS RELATING TO THE REORGANIZATION
While we encourage you to read the full text of the enclosed Proxy
Statement/Prospectus, below is a brief overview of the proposal, which will
require your vote.
Q. WHAT ARE SHAREHOLDERS BEING ASKED TO VOTE ON AT THE UPCOMING SPECIAL
MEETING ON AUGUST 7, 2006?
A. The Board of Trustees of Touchstone Strategic Trust has called the Special
Meeting at which you will be asked to vote on the reorganization (the
"Reorganization") of the Value Plus Fund into the Large Cap Core Equity
Fund. Both the Value Plus Fund and the Large Cap Core Equity Fund are
series of Touchstone Strategic Trust.
Q. WHY DID THE BOARD OF TRUSTEES APPROVE THE REORGANIZATION?
A. After reviewing detailed information about the Reorganization, the
Touchstone Strategic Trust Board of Trustees unanimously approved the
Reorganization. The Board of Trustees considered the similarity in
investment objectives of the Funds and the lower total operating expenses
of the Large Cap Core Equity Fund. After careful consideration, the Board
of Trustees determined that the Reorganization is in the best interests of
the shareholders of the Value Plus Fund.
The Board of Trustees recommends that you vote FOR the Reorganization.
Q. WHAT WILL HAPPEN TO MY EXISTING SHARES?
A. Your shares of the Value Plus Fund will be exchanged for shares of the
Large Cap Core Equity Fund. Therefore, if you currently own Class A or
Class B shares of the Value Plus Fund, you will receive Class A shares of
the Large Cap Core Equity Fund. If you own Class C shares of the Value
Plus Fund, you will receive Class C shares of the Large Cap Core Equity
Fund. You will not pay any sales charges in connection with the
Reorganization. Although the price of the new shares of the Large Cap Core
Equity Fund may be different from the price of your current shares of the
Value Plus Fund, the new shares you receive will have the same total value
as your current shares immediately prior to the Reorganization so that the
value of your investment will remain exactly the same.
Q. WHAT ARE THE DIFFERENCES BETWEEN THE INVESTMENT OBJECTIVES AND PRINCIPAL
STRATEGIES OF THE VALUE PLUS FUND AND THE LARGE CAP CORE EQUITY FUND?
A. The investment objectives and principal strategies of the Funds are
similar, but differ in several aspects. While both Funds seek long-term
capital appreciation, the Large Cap Core Equity Fund seeks income as a
secondary objective. In addition, there are several differences in the
amount and types of securities that each Fund may hold. For example, the
Large Cap Core Equity Fund invests at least 80% of its total assets in
large capitalization companies (that is, companies with capitalizations of
over $10 billion), while the Value Plus Fund invests at least 75% of its
total assets in large capitalization companies and generally invests the
remainder in mid capitalization companies (that is, companies with
capitalizations of between $1.5 billion and $10 billion). In addition, the
Value Plus Fund may invest in certain types of fixed income securities,
American Depositary Receipts and cash equivalents. For a more complete
description of each Fund's investment objectives and strategies, please
read the section entitled "Investment Objectives" in the enclosed combined
Proxy Statement/Prospectus.
Q. WILL I INCUR ANY TRANSACTION COSTS AS A RESULT OF THE REORGANIZATION?
A. No. Shareholders will not incur any transaction costs, e.g., sales charges
or redemption fees, as a result of the Reorganization.
Q. WHAT IS THE TIMETABLE FOR THE REORGANIZATION?
A. If approved by shareholders of record at the Special Meeting, the
Reorganization is expected to occur on or about August 13, 2006.
Q. WILL THE REORGANIZATION CREATE A TAXABLE EVENT FOR ME?
A. No. The Reorganization is intended to have no direct or indirect federal
income tax consequences for you. However, the sale of securities by the
Value Plus Fund prior to the Reorganization could result in taxable gains
to its shareholders.
Q. WHAT HAPPENS IF THE REORGANIZATION IS NOT APPROVED?
A. If shareholders of the Value Plus Fund do not approve the Reorganization,
the Reorganization will not take effect and the Board of Trustees will
take such action as it deems to be in the best interests of the Value Plus
Fund and its shareholders.
Q. WHO SHOULD I CALL WITH QUESTIONS ABOUT THIS PROXY?
A. If you have any questions regarding this proxy, please contact Touchstone
Strategic Trust by calling 1-800-543-0407.
PLEASE VOTE THE ENCLOSED PROXY BALLOT CARD. YOUR VOTE IS VERY IMPORTANT!
TOUCHSTONE STRATEGIC TRUST
303 BROADWAY, SUITE 1100
CINCINNATI, OH 45202
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 7, 2006
Notice is hereby given that a Special Meeting of Shareholders (the
"Special Meeting") of Touchstone Strategic Trust (the "Trust") with respect to
the Value Plus Fund will be held at 9:30 a.m. Eastern Time, on August 7, 2006
for the purpose of considering the proposal set forth below:
1. Approval of the Agreement and Plan of Reorganization, which provides for:
(i) the transfer of all of the assets and liabilities of the Value Plus
Fund in exchange for shares of the Large Cap Core Equity Fund; (ii) the
distribution of shares of the Large Cap Core Equity Fund so received to
shareholders of the Value Plus Fund; and (iii) the liquidation and
termination of the Value Plus Fund.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
Shareholders of record as of the close of business on June 12, 2006 are
entitled to notice of, and to vote at the Special Meeting, or any adjournment of
this meeting.
By Order of the Board of Trustees,
Jay S. Fitton
Secretary
July 5, 2006
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE,
WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. SHAREHOLDERS MAY ALSO
VOTE BY TELEPHONE OR VOTE THROUGH THE INTERNET. INSTRUCTIONS FOR THE PROPER
EXECUTION OF THE PROXY ARE SET FORTH IMMEDIATELY FOLLOWING THIS NOTICE OR, WITH
RESPECT TO TELEPHONE OR INTERNET VOTING, ON THE PROXY CARD. IT IS IMPORTANT THAT
YOU VOTE PROMPTLY.
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance
to you and avoid the time and expense to the Trust in validating your vote if
you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party
signing should conform exactly to the name shown in the registration
on the proxy card.
3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of
registration. For example:
REGISTRATION VALID SIGNATURE
- ------------ ---------------
CORPORATE ACCOUNTS
- ------------------
(1) ABC Corp. . . . . . . . . . . . . . . . . . . ABC Corp.
(2) ABC Corp. . . . . . . . . . . . . . . . . . . John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer . . . . . . . . . . . John Doe
(4) ABC Corp. Profit Sharing Plan . . . . . . . . John Doe, Trustee
TRUST ACCOUNTS
- --------------
(1) ABC Trust . . . . . . . . . . . . . . . . . . Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78 . . . . . . . . . . . . . . . .Jane B. Doe
CUSTODIAL OR ESTATE ACCOUNTS
- ----------------------------
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA . . . . . . . . John B. Smith
(2) Estate of John B. Smith . . . . . . . . . . . John B. Smith, Jr., Executor
PROXY STATEMENT/PROSPECTUS
DATED JUNE 30, 2006
RELATING TO THE ACQUISITION OF THE ASSETS OF
VALUE PLUS FUND
A SERIES OF
TOUCHSTONE STRATEGIC TRUST
303 BROADWAY, SUITE 1100
CINCINNATI, OH 45202
BY AND IN EXCHANGE FOR SHARES OF
LARGE CAP CORE EQUITY FUND
A SERIES OF
TOUCHSTONE STRATEGIC TRUST
303 BROADWAY, SUITE 1100
CINCINNATI, OH 45202
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Trustees of Touchstone Strategic Trust
(the "Trust") in connection with a Special Meeting of Shareholders (the "Special
Meeting") of the Value Plus Fund, a series of the Trust, to be held on August 7,
2006 at 9:30 a.m., Eastern Time ("ET"), at 303 Broadway, Suite 1100, Cincinnati,
OH 45202. At the Special Meeting, shareholders of the Value Plus Fund will be
asked to consider and approve a proposed Agreement and Plan of Reorganization
(the "Reorganization Agreement"), by and between the Value Plus Fund and the
Large Cap Core Equity Fund, also a series of the Trust (collectively, the
"Funds"). A copy of the form of Reorganization Agreement is attached as Exhibit
A.
Proposal
1. Approval of the Agreement and Plan of Reorganization, which provides for:
(i) the transfer of all of the assets and liabilities of the Value Plus
Fund in exchange for shares of the Large Cap Core Equity Fund; (ii) the
distribution of shares of the Large Cap Core Equity Fund so received to
shareholders of the Value Plus Fund; and (iii) the liquidation and
termination of the Value Plus Fund.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
The Reorganization Agreement provides that the Value Plus Fund will
transfer all of its assets and liabilities to the Lage Cap Core Equity Fund. In
exchange for the transfer of these assets and liabilities, the Large Cap Core
Equity Fund will simultaneously issue shares to the Value Plus Fund in an amount
equal in value to the net asset value of the Value Plus Fund's shares as of the
close of business on the business day preceding the foregoing transfers (the
"Reorganization"). These transfers are expected to occur on or about August 13,
2006 (the "Effective Time").
Immediately after the transfer of the Value Plus Fund's assets and
liabilities, the Value Plus Fund will make a liquidating distribution to its
shareholders of the Large Cap Core Equity Fund shares received, so that a holder
of shares in the Value Plus Fund at the Effective Time of the Reorganization
will receive a number of shares of the Large Cap Core Equity Fund with the same
aggregate value as the shareholder had in the Value Plus Fund immediately before
the Reorganization. At the Effective Time of the Reorganization, shareholders of
the Value Plus Fund will become shareholders of the Large Cap Core Equity Fund,
and thereafter the Value Plus Fund will be liquidated and terminated.
Shareholders owning Class A or Class B shares of the Value Plus Fund prior
to the Reorganization will receive Class A shares of the Large Cap Core Equity
Fund. Class C shareholders of the Value Plus Fund will receive Class C shares of
the Large Cap Core Equity Fund.
The Trust is an open-end management investment company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"). Touchstone
Advisors, Inc., (the "Advisor") an investment advisor registered under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), is the
investment advisor to the Funds. Fort Washington Investment Advisors, Inc.
("Fort Washington"), an investment adviser registered under the Advisers Act, is
the sub-advisor to the Value Plus Fund. Todd Investment Advisors, Inc. ("Todd"),
an investment adviser registered under the Advisers Act, is the sub-advisor to
the Large Cap Core Equity Fund. Both Fort Washington and Todd are affiliated
with the Advisor. Integrated Investment Services, Inc. serves as the transfer,
administrative and fund accounting agent for both Funds, while Touchstone
Securities, Inc. (the "Distributor") is the principal distributor of each Fund.
The Distributor and Integrated Investment Services, Inc. are affiliated with the
Advisor, Fort Washington and Todd.
This Proxy Statement/Prospectus sets forth concisely the information that
a shareholder of the Value Plus Fund should know before voting on the
Reorganization and should be retained for future reference. Certain additional
relevant documents listed below, which have been filed with the U.S. Securities
and Exchange Commission (the "SEC"), are incorporated in whole or in part by
reference. (That means that those documents are considered legally to be part of
this Proxy Statement/Prospectus). A Statement of Additional Information dated
June 30, 2006 relating to this Proxy Statement/Prospectus and including certain
financial information about the Value Plus Fund and the Large Cap Core Equity
Fund, has been filed with the SEC and is incorporated in its entirety into this
Proxy Statement/Prospectus. A copy of such Statement of Additional Information
is available upon request and without charge by calling toll-free
1-800-543-0407.
For a detailed discussion of the investment objectives, policies, risks
and restrictions of the Value Plus Fund, see the prospectus for the Fund dated
August 1, 2005, as amended, which has been filed with the SEC and is
incorporated by reference into this Proxy Statement/Prospectus. A Statement of
Additional Information for the Value Plus Fund dated August 1, 2005, as amended,
has been filed with the SEC, and is incorporated by reference into this Proxy
Statement/Prospectus. Copies of the prospectus and Statement of Additional
Information for the Value Plus Fund are available upon request and without
charge by calling toll-free 1-800-543-0407.
For a detailed discussion of the investment objectives, policies, risks
and restrictions of the Large Cap Core Equity Fund, see the prospectus and
Statement of Additional Information for the Fund dated August 1, 2005, as
amended, which has been filed with the SEC. Copies of the prospectus and
Statement of Additional Information for the Large Cap Core Equity Fund are
available upon request and without charge by calling toll-free 1-800-543-0407.
ii
The Annual Report for the Trust relating to the Funds for the fiscal year
ended March 31, 2006 can be obtained without charge by calling toll-free
1-800-543-0407 or by visiting www.touchstoneinvestments.com. The Annual Report
for the Funds also is available on the SEC's website at www.sec.gov.
This Proxy Statement/Prospectus constitutes the proxy statement of Value
Plus Fund for the Special Meeting and is expected to be sent to shareholders on
or about July 7, 2006.
THE U.S. SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
iii
TABLE OF CONTENTS
PAGE
SYNOPSIS.......................................................................1
The Reorganization.......................................................1
The Funds................................................................1
Fees and Expenses........................................................2
Fund Management..........................................................5
Investment Objectives....................................................7
Investment Limitations...................................................9
The Funds' Purchase, Exchange and Redemption Procedures.................13
PRINCIPAL RISKS...............................................................19
INFORMATION RELATING TO THE REORGANIZATION....................................21
Description of the Reorganization.......................................21
Costs of Reorganization.................................................22
Federal Income Taxes....................................................22
Capitalization..........................................................22
REASONS FOR THE REORGANIZATION................................................23
SHAREHOLDER RIGHTS............................................................23
General Shareholder Rights..............................................23
Taxes...................................................................25
INFORMATION ABOUT THE VALUE PLUS FUND AND THE LARGE CAP CORE EQUITY FUND......25
VOTING MATTERS................................................................26
General Information.....................................................26
Voting Rights and Required Vote.........................................27
Expenses................................................................29
Record Date and Outstanding Shares......................................29
Security Ownership of Certain Beneficial Owners and Management........29
OTHER BUSINESS................................................................31
SHAREHOLDER INQUIRIES.........................................................31
EXHIBIT A - AGREEMENT AND PLAN OF REORGANIZATION.............................A-1
EXHIBIT B - MANAGEMENT DISCUSSION OF FUND PERFORMANCE........................B-1
EXHIBIT C - FINANCIAL HIGHLIGHTS.............................................C-1
SYNOPSIS
This Synopsis is designed to allow you to compare the current fees,
investment objectives, policies and restrictions, and distribution, purchase,
exchange and redemption procedures of the Value Plus Fund with those of the
Large Cap Core Equity Fund. This Synopsis is a summary of certain information
contained elsewhere in this Proxy Statement/Prospectus or incorporated by
reference into this Proxy Statement/Prospectus. Shareholders should read this
entire Proxy Statement/Prospectus carefully. The Synopsis is qualified in its
entirety by reference to the prospectus for the Value Plus Fund and the Large
Cap Core Equity Fund. For more complete information, please read the prospectus
for each of the Funds.
THE REORGANIZATION
BACKGROUND. Pursuant to the Reorganization Agreement, the Value Plus Fund
will transfer all of its assets and liabilities to the Large Cap Core Equity
Fund in exchange solely for shares of that Fund. The Value Plus Fund will then
distribute the Large Cap Core Equity Fund shares that it receives to its
shareholders in complete liquidation. The Value Plus Fund will thereafter be
terminated. The result of the Reorganization is that shareholders of the Value
Plus Fund will become shareholders of the Large Cap Core Equity Fund.
Shareholders owning Class A or Class B shares of the Value Plus Fund prior to
the Reorganization will receive Class A shares of the Large Cap Core Equity
Fund. Class C shareholders of the Value Plus Fund will receive Class C shares of
the Large Cap Core Equity Fund. No front-end sales charges or contingent
deferred sales charges will be imposed in connection with this Reorganization.
The Board of Trustees of the Trust, including the Trustees who are not
"interested persons" within the meaning of Section 2(a)(19) of the 1940 Act, has
concluded that the Reorganization would be in the best interests of the Value
Plus Fund and the Large Cap Core Equity Fund and their shareholders, and that
the interests of existing shareholders in the Value Plus Fund and the Large Cap
Core Equity Fund will not be diluted as a result of the transactions
contemplated by the Reorganization. The Board of Trustees of the Trust
recommends that you vote FOR approval of the Reorganization.
TAX CONSEQUENCES. The Reorganization is intended to qualify for federal
income tax purposes as a tax-free reorganization. If the Reorganization so
qualifies, shareholders of the Value Plus Fund will not recognize a gain or loss
in the transaction. Nevertheless, the sale of securities by the Value Plus Fund
prior to the Reorganization, whether in the ordinary course of business or in
anticipation of the Reorganization, could result in a taxable capital gains
distribution prior to the Reorganization.
SPECIAL CONSIDERATIONS AND RISK FACTORS. The investment objectives of the
Value Plus Fund and the Large Cap Core Equity Fund are similar. The primary
objective of both Funds is long-term capital appreciation, although the Large
Cap Core Equity Fund has a secondary goal of generating income. In addition, the
principal investment strategies of the Funds differ slightly. Finally, an
investment in the Large Cap Core Equity Fund will involve investment risks that
are, in most respects, similar to those of the Value Plus Fund. For a more
complete discussion of the risks associated with the respective Funds, see
"Principal Risks" below.
THE FUNDS
BUSINESS OF THE FUNDS. Both the Value Plus Fund and the Large Cap Core
Equity Fund are series of the Trust. The Trust is an open-end, diversified
management investment company organized as a Massachusetts business trust on
November 18, 1982. The Trust currently offers eight series of shares to
investors.
FEES AND EXPENSES
If the Reorganization is approved by shareholders, you will pay the fees
assessed by Large Cap Core Equity Fund. The following tables compare the current
fees and expenses of the Value Plus Fund and with those of the Large Cap Core
Equity Fund. The Net Expenses of the Large Cap Core Equity Fund are lower than
those of the Value Plus Fund due to the Advisor's contractual commitment to
waive a portion of its advisory fee and/or reimburse certain Fund expenses.
There is no guarantee that these waivers or reimbursements will continue in the
future.
VALUE PLUS FUND AND LARGE CAP CORE EQUITY FUND
COMPARISON OF SHAREHOLDER FEES
- -----------------------------------------------------------------------------------------------------------------
MAXIMUM SALES CHARGE MAXIMUM DEFERRED SALES
(LOAD) IMPOSED ON PURCHASE CHARGE (LOAD)
(AS A PERCENTAGE OF (AS A PERCENTAGE OF NET WIRE REDEMPTION
FUND AND SHARE CLASS OFFERING PRICE) ASSET VALUE) FEE
- -------------------- -------------------------- ----------------------- ---------------
VALUE PLUS FUND -CLASS A 5.75%(1) * Up to $15
VALUE PLUS FUND -CLASS B None 5.00%(2) Up to $15
LARGE CAP CORE EQUITY FUND - CLASS A 5.75%(1) * Up to $15
VALUE PLUS FUND -CLASS C None 1.00%(3) Up to $15
LARGE CAP CORE EQUITY FUND - CLASS C None 1.00%(3) Up to $15
- -----------------------------------------------------------------------------------------------------------------
COMPARISON OF ANNUAL OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
OTHER EXPENSES
------------------- TOTAL FUND FEE WAIVER/AND OR
MANAGEMENT DISTRIBUTION SPONSOR OTHER OPERATING EXPENSE NET
FUND AND SHARE CLASS FEES (12B-1) FEES FEES(4) EXPENSES EXPENSES REIMBURSEMENT EXPENSES
- -------------------- --------- ------------ -------- -------- --------- ----------------- --------
VALUE PLUS FUND - CLASS A 0.75% 0.25% 0.20% 0.25% 1.45% 0.15%(5) 1.30%
VALUE PLUS FUND - CLASS B 0.75% 1.00% 0.20% 2.40% 4.35% 2.30%(5) 2.05%
LARGE CAP CORE EQUITY FUND -
CLASS A 0.65% 0.25% 0.20% 0.61% 1.71% 0.56%(6) 1.15%
VALUE PLUS FUND - CLASS C 0.75% 1.00% 0.20% 1.12% 3.07% 1.02%(5) 2.05%
LARGE CAP CORE EQUITY FUND -
CLASS C 0.65% 1.00% 0.20% 2.08% 3.93% 2.03%(6) 1.90%
2
* Investors investing $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.
1 You may pay a reduced sales charge on very large purchases.
2 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 the applicable prospectus.
3 The 1.00% CDSC is waived if shares are held for 1 year or longer or under
other circumstances described in the applicable Fund's prospectus.
4 Pursuant to a Sponsor Agreement between the Advisor and the Trust, the
Advisor has agreed to provide certain management support and
administrative oversight services to the Fund in exchange for the payment
of a sponsor fee. For more information, see "The Investment Advisor" in
the Funds' Statement of Additional Information.
5 Under the Sponsor Agreement, the Advisor has contractually agreed to waive
a portion of its advisory fee and/or reimburse certain Fund expenses in
order to limit Net Expenses to 1.30% for Class A shares and 2.05% for
Class B and Class C shares. The Sponsor Agreement will remain in place
until at least March 31, 2007.
6 Fee Waiver and/or Expense Reimbursement" and "Net Expenses" have been
restated to reflect a decrease in "Fee Waivers and/or Expense
Reimbursements" and an increase in "Net Expenses" that became effective
April 1, 2006. The Advisor has contractually agreed to waive a portion of
its advisory fee and/or reimburse certain Fund expenses in order to limit
"Net Expenses" to certain amounts set forth in the Sponsor Agreement.
Effective April 1, 2006 the Sponsor Agreement was amended in order to
increase the limit on the Fund's "Net Expenses" from 1.00% to 1.15% for
Class A shares and from 1.75% to 1.90% for Class C shares. These expense
limitations will remain in effect until at least March 31, 2007.
EXAMPLES
These Examples are intended to help you compare the cost of investing in the
Large Cap Core Equity Fund with the cost of investing in the Value Plus Fund,
assuming the Reorganization is approved. The Examples assume that you invest
$10,000 in each Fund for the time periods indicated, that your investment has a
5% return each year, and that each Fund's operating expenses remain the same
(except for the 10 year amounts for Class B shares, which reflect the conversion
of Class B shares to Class A shares after 8 years). Although your actual costs
may be higher or lower, based on these assumptions you would pay the following
expenses if you redeem all of your shares at the end of the time periods
indicated:
ASSUMING REDEMPTION AT THE END OF PERIOD
FUND 1 YEAR 3 YEARS(1) 5 YEARS(1) 10 YEARS(1)
- ---- ---------- ---------- ---------- ----------
VALUE PLUS FUND CLASS A $ 700 $ 993 $ 1,308 $ 2,198
VALUE PLUS FUND CLASS B $ 608 $ 1,310 $ 2,123 $ 3,739(2)
LARGE CAP CORE EQUITY FUND CLASS A(1) $ 685 $ 1,031 $ 1,400 $ 2,434
VALUE PLUS FUND CLASS C $ 208 $ 852 $ 1,522 $ 3,312
LARGE CAP CORE EQUITY FUND CLASS C(1) $ 193 $ 1,012 $ 1,849 $ 4,020
ASSUMING NO REDEMPTION AT THE END OF PERIOD
FUND 1 YEAR 3 YEARS(1) 5 YEARS(1) 10 YEARS(1)
- ---- ---------- ---------- ---------- ----------
VALUE PLUS FUND CLASS B $ 208 $ 1,110 $ 2,023 $ 3,739(2)
(1) The Examples for the 3, 5 and 10 year periods are calculated using the
Total Annual Fund Operating Expenses before the limits agreed to under the
Sponsor Agreement with the Advisor for periods after year 1.
(2) Based on conversion to Class A shares after 8 years.
3
The Examples above should not be considered a representation of future expenses.
Actual expenses may be greater or less than those shown.
THE FUNDS' PERFORMANCE. The following charts show the past performance of
each class of the Value Plus Fund and the Large Cap Core Equity Fund. The charts
give some indication of the risks involved in investing in the Funds. PAST
PERFORMANCE BEFORE AND AFTER TAXES IS NOT AN INDICATION OF FUTURE RESULTS.
Year-to-Year Total Return
This chart shows the calendar year performance of Class A shares of each
Fund since the inception of the Fund. The chart should give you a general idea
of the comparative risks of investing in the Value Plus Fund and Large Cap Core
Equity Fund by showing how each Fund's Class A returns have varied from
year-to-year. The chart does not reflect any sales charges, which would reduce
your return. Each Fund also can experience short-term performance swings as
indicated in the high and low quarter information at the bottom of the chart.
CLASS A SHARES VALUE PLUS FUND LARGE CAP CORE EQUITY FUND(1)
- -------------- --------------- -----------------------------
1999 15.51% --
2000 1.91% --
2001 -1.77% -8.95%
2002 -26.02% -21.66%
2003 29.43% 30.86%
2004 9.99% 8.36%
2005 2.32% 3.27%
Best Quarter 2nd Quarter 2003 17.59% 2nd Quarter 2003 18.81%
Worst Quarter 3rd Quarter 2002 -18.72% 3rd Quarter 2002 -20.19%
(1) Class A shares began operations on May 1, 2000.
YEAR-TO-DATE RETURNS FOR CLASS A SHARES AS OF MARCH 31, 2006
------------------------------------------------------------
Value Plus Fund 4.13%
Large Cap Core Equity Fund 4.80%
Average Annual Total Returns (for the periods ended 12/31/2005)
This table shows each Fund's average annual total returns and after-tax
returns for Class A shares over the past one and five years (if applicable) or
since inception. The after-tax returns for other classes offered by the Funds
will differ from Class A after-tax returns. The table includes the effects of
Fund expenses and is intended to provide you with some indication of the risks
of investing in each Fund by comparing each Fund's performance with an
appropriate widely recognized securities index that is described in a footnote
to the table. An index does not reflect fees or expenses. It is not possible to
invest directly in an index. Past performance, before and after taxes, is not an
indication of future results.
4
SINCE CLASS STARTED ON
VALUE PLUS FUND CLASS A 1 YEAR 5 YEARS MAY 1, 1998
- ----------------------------------------------------------------------------------------------------------------
Return Before Taxes -3.52% -0.06% 2.68%
Return After Taxes on Distributions(1) -3.54% -0.16% 2.19%
Return After Taxes on Distributions and Sale of Fund Shares(2) -2.26% -0.09% 2.09%
Russell 1000 Value Index(3) 7.05% 5.28% 5.69%
SINCE CLASS STARTED ON
VALUE PLUS FUND CLASS B 1 YEAR 5 YEARS MAY 1, 2001
- ----------------------------------------------------------------------------------------------------------------
Return Before Taxes -2.44% -- -0.25%
Russell 1000 Value Index(3) 7.05% -- 5.94%
SINCE CLASS STARTED ON
LARGE CAP CORE EQUITY FUND CLASS A 1 YEAR 5 YEARS MAY 1, 2000
- ----------------------------------------------------------------------------------------------------------------
Return Before Taxes -2.65% -- -0.59%
Return After Taxes on Distributions(1) -2.66% -- -0.77%
Return After Taxes on Distributions and Sale of Fund Shares(2) -1.71% -- -0.59%
Russell 1000 Index(4) 6.27% -- -0.64%
SINCE CLASS STARTED ON
VALUE PLUS FUND CLASS C 1 YEAR 5 YEARS JANUARY 1, 1999(5)
- ----------------------------------------------------------------------------------------------------------------
Return Before Taxes 1.55% 0.35% 2.57%
Russell 1000 Value Index(2) 7.05% 5.28% 5.69%
SINCE CLASS STARTED ON
LARGE CAP CORE EQUITY FUND CLASS C 1 YEAR 5-YEARS MAY 16, 2000
- ----------------------------------------------------------------------------------------------------------------
Return Before Taxes 2.55% -- -0.18%
Russell 1000 Index(4) 6.27% -- -0.55%
1 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates, and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on the investor's tax
situation and may differ from those shown above. After tax returns do not
apply to investors who hold shares in a tax-deferred account, such as an
individual retirement account or a 401(k) plan.
2 When the "Return After Taxes on Distributions and Sale of Fund Shares" is
higher, it is because of realized losses. If a capital loss occurs upon
the redemption of the Fund's shares, the capital loss is recorded as a tax
benefit, which increases the return and translates into an assumed tax
deduction that benefits the shareholder.
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 capitalizations). The Index reflects no deductions for fees,
expenses or taxes.
4 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
capitalizations). The Index reflects no deductions for fees, expenses or
taxes.
5 The Class C performance was calculated using the historical performance
for the Class C predecessor, which was another mutual fund that began
operations on May 1, 1998.
FUND MANAGEMENT
5
THE INVESTMENT ADVISOR. The Advisor serves as investment advisor to both
the Value Plus Fund and the Large Cap Core Equity Fund. The Advisor, located at
303 Broadway, Suite 1100, Cincinnati, OH 45202, is registered as an investment
adviser under the Advisers Act. As of December 31, 2005, the Advisor had
approximately $4.0 billion in assets under management.
The Advisor is responsible for selecting each Fund's sub-advisor, subject
to approval by the Trust's Board of Trustees. The Advisor also continually
monitors each sub-advisor's performance through various analyses and through
in-person, telephone and written consultations with the sub-advisor. The Advisor
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 Advisor also is responsible for running all of the operations of each
Fund, except those that are subcontracted to the sub-advisor, custodian,
transfer, accounting and administrative agent, or other parties.
Each Fund pays the Advisor a management fee for its services. Out of this
fee the Advisor pays each sub-advisor a fee for its services. The fee paid to
the Advisor by each Fund during its most recent fiscal year is shown in the
table below:
FEE AS PERCENTAGE OF FUND'S AVERAGE
FUND DAILY NET ASSETS
---- ----------------
Value Plus Fund 0.75%
Large Cap Core Equity Fund 0.65%
A discussion of the basis for the Board of Trustees approval of the Funds'
advisory and sub-advisory agreements appears in the Trust's Annual Report dated
March 31, 2006.
THE SUB-ADVISORS. The sub-advisors make the daily decisions regarding
buying and selling specific securities for the Value Plus Fund and the Large Cap
Core Equity Fund. Each sub-advisor manages the investments held by the Fund it
serves according to the each Fund's applicable investment goals and strategies.
VALUE PLUS FUND
Fort Washington Investment Advisors, Inc. ("Fort Washington") is the
sub-advisor for the Value Plus Fund. Fort Washington, located at 303 Broadway,
Cincinnati, OH 45202, has been registered as an investment advisor since 1990
and has managed the Value Plus Fund since its inception in 1998. Fort Washington
is an affiliate of the Advisor and as of December 31, 2005, had approximately
$26 billion in assets under management.
PORTFOLIO MANAGEMENT
John C. Holden, CFA, and Bradley A. Reed, CFA, are jointly and primarily
responsible for managing the Value Plus Fund. Mr. Holden joined Fort Washington
in 1997 and is currently a Managing Director and Senior Portfolio Manager. He
was previously a Vice President and Senior Portfolio Manager at Fort Washington.
Mr. Reed joined Fort Washington in 1999 as a research analyst and became an
assistant portfolio manager in 2004. He currently is both a senior research
analyst and assistant portfolio manager at Fort Washington. Mr. Holden has
managed the Fund since 1998 and Mr. Reed has managed the Fund since 2004.
6
LARGE CAP CORE EQUITY FUND
Todd Investment Advisors, Inc. ("Todd") is the sub-advisor for the Large
Cap Core Equity Fund. Todd, located at 101 South Fifth Street, Suite 3160,
Louisville, KY 40202, has been registered as an investment advisor since 1967
and has managed the Fund since its inception in 2000. Todd will continue to
serve as sub-advisor for the Large Cap Core Equity Fund following the
Reorganization. Todd is an affiliate of the Advisor and as of December 31, 2005,
had $3.6 billion in assets under management.
PORTFOLIO MANAGEMENT
Curtiss M. Scott, Jr., CFA, has primary responsibility for the daily
management of the Large Cap Core Equity Fund. Mr. Scott joined Todd in 1996 and
is the President and Chief Executive Officer. Mr. Scott is supported by Robert
P. Bordogna, Bosworth M. Todd and John J. White, CFA. Mr. Bordogna is Todd's
Chairman and was President and Chief Executive Officer of Todd from 1980 to
2005. Mr. Todd founded Todd in 1967 and is Chairman Emeritus and a Director. Mr.
White is a Portfolio Manager and joined Todd in 2002. Mr. White worked as a
Director of Equity Research and Investment Strategy at Wachovia Securities from
1994 until 2002. Messrs. Scott, Bordogna and Todd have managed the Fund since
its inception in 2000. Mr. White has managed the Fund since 2002.
The Trust's Statement of Additional Information provides additional
information about the portfolio managers compensation structure, other managed
accounts and ownership of securities in the Funds.
SUB-ADVISORY FEES
The Advisor pays each sub-advisor a fee for its services out of its
management fees. The fee paid to each sub-advisor during the most recent fiscal
year is shown in the table below:
FEE AS PERCENTAGE OF FUND'S AVERAGE
FUND DAILY NET ASSETS
---- ----------------
Value Plus Fund 0.45%
Large Cap Core Equity Fund(1) 0.25%
(1) Todd has voluntarily agreed to waive a portion of its fee. If the
Reorganization is approved and assets in the Large Cap Core Equity
Fund exceed $100 million, the waiver will be discontinued and the
Advisor will pay Todd a fee of 0.30% of the Fund's average daily net
assets. The fee paid by the Fund to the Advisor will remain
unchanged.
INVESTMENT OBJECTIVES
This section will help you compare the investment objectives and principal
investment strategies of the Value Plus Fund with those of the Large Cap Core
Equity Fund. This section also describes the key differences, if any, between
the Funds. Please be aware that this is only a brief discussion. More complete
information may be found in each Fund's prospectus.
7
VALUE PLUS FUND
INVESTMENT OBJECTIVE:
The Value Plus Fund seeks to increase the value of Fund shares over the
long-term.
PRINCIPAL INVESTMENT STRATEGIES:
The Value Plus Fund invests primarily (at least 65% of its assets) in
common stocks of larger companies that Fort Washington believes are undervalued.
In choosing undervalued stocks, Fort Washington looks for companies that have
proven management and unique features or advantages, but are believed to be
priced lower than their true value. These companies may not pay dividends. These
may include companies in the technology sector.
At least 75% of the Value Plus Fund's assets will be invested in large cap
companies and the remainder generally will be invested in mid cap companies.
Generally, a mid cap company has a market capitalization of between $1.5 billion
and $10 billion, and a large cap company has a market capitalization of more
than $10 billion.
The Fund's securities will be considered for sale when Fort Washington
believes they are overvalued relative to their growth potential, when there is a
deterioration in fundamental criteria, or when their price decreases by at least
10% relative to the market.
The Value Plus 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 Fort Washington is unable to
identify attractive investment opportunities. The Fund's temporary investments
may include debt securities or cash equivalents. During these times, the Fund
may not achieve its investment goals.
The Fund may change its investment goals by a vote of the Board of
Trustees without shareholder approval. Except as provided above, shareholders
will be notified at least 30 days before any change takes effect.
OTHER INVESTMENT STRATEGIES:
Although not a principal strategy, the Value Plus Fund also may invest in
preferred stocks, investment grade debt securities, convertible securities, and
American depositary receipts ("ADRs") and other depositary receipts. In
addition, the Fund may invest up to 10% of its total assets in cash equivalents
and short-term debt securities.
LARGE CAP CORE EQUITY FUND
INVESTMENT OBJECTIVE:
The Large Cap Core Equity Fund seeks long-term capital appreciation as its
primary goal and income as its secondary goal.
PRINCIPAL INVESTMENT STRATEGIES:
The Large Cap Core Equity Fund invests primarily (at least 80% of its
total assets) in common stocks of large cap companies. Shareholders will be
provided with at least 60 days' prior notice of any change in this policy. A
large cap company has a market capitalization of more than $10 billion. The
Fund's portfolio will at all times consist of 30 stocks. The Fund's investments
may include companies in the technology sector.
8
Todd selects stocks that it believes are attractively valued with active
catalysts in place. Todd uses a database of 4,000 stocks from which to choose
the companies that will be selected for the Fund's portfolio. A specific process
is followed to assist Todd in its selections:
o The 4,000 stocks are reduced to 1,000 by screening for the stocks in
the Russell 1000 Index.
o The 1,000 stocks are reduced to 200 by screening for the largest
market capitalizations.
o A model is applied to select stocks that Todd believes are priced at
a discount to their true value.
o Todd then searches for those companies that have unrecognized
earnings potential versus their competitors. Restructuring
announcements, changes in regulations and spot news can be
indicators of improved earnings potential.
Stocks are considered for sale if Todd believes they are overpriced, or if
a significant industry or company development forces a re-evaluation of expected
earnings. Stocks will be sold if the relative price to intrinsic value reaches
50% or more above the Russell 1000 Index, if a structural event permanently
lowers the company's expected earnings, or if the integrity of accounting is in
doubt. The portfolio is rebalanced periodically, or as needed, due to changes in
the Russell 1000 Index or the Fund's other portfolio securities.
Todd's selection process is expected to cause the Fund's portfolio to have
some of the following characteristics:
o Attractive relative value
o Unrecognized earnings potential
o Above-average market capitalization
o Seasoned management
o Dominant industry position
The Large Cap Core Equity 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 Todd is unable to
identify attractive investment opportunities. The Fund's temporary investments
may include debt securities or cash equivalents. During these times, the Fund
may not achieve its investment goals.
The Fund may change its investment goals by a vote of the Board of
Trustees without shareholder approval. Shareholders will be notified at least 30
days before any change takes effect.
HOW THE FUNDS COMPARE
Investment Objectives
---------------------
The investment objectives of the Value Plus Fund and the Large Cap Core
Equity Fund are similar. The primary objective of both Funds is long-term
capital appreciation. However, unlike the Value Plus Fund, the Large Cap Core
Equity Fund has a secondary objective of generating income.
Principal Investment Strategies
-------------------------------
The principal investment strategies of the Funds, while similar, do differ
in some respects. The Large Cap Core Equity Fund invests at least 80% of its
total assets in the common stock of large capitalization companies. Large cap
companies are defined as companies with market capitalizations of more than $10
billion. The Value Plus Fund, by contrast, invests at least 75% of its total
assets in common stocks of large capitalization companies. In addition, the
Value Plus Fund may invest up to 25% of its assets in mid capitalization
companies, which are defined as companies with market capitalizations of between
$1.5 billion and $10 billion. While not a principal investment strategy, the
Value Plus Fund also may invest in preferred stock, investment grade debt
securities, convertible securities, and ADRs and other depositary receipts.
Finally, the Value Plus Fund may invest up to 10% of its assets in cash
equivalents and short-term debt securities. As a result, only the Value Plus
Fund currently is subject to the risks associated with investments in these
types of securities. For a discussion of the risks of investing in either Fund,
please see PRINCIPAL RISKS in this Proxy Statement/Prospectus.
9
INVESTMENT LIMITATIONS
This section will help you contrast the fundamental and non-fundamental
investment policies and restrictions of the Value Plus Fund to those of the
Large Cap Core Equity Fund.
FUNDAMENTAL INVESTMENT LIMITATIONS
Listed below are the fundamental investment limitations adopted by each of
the Funds. These limitations cannot be changed without the consent of the
holders of a majority of each Fund's outstanding shares. The term "majority of
the outstanding shares" means the vote of (i) 67% or more of the Fund's shares
present at a meeting, if more than 50% of the outstanding shares of the Fund are
present or represented by proxy, or (ii) more than 50% of the Fund's outstanding
shares, whichever is less.
The Value Plus Fund and the Large Cap Core Equity Fund have adopted the
following identical fundamental investment limitations.
1. BORROWING MONEY. The Funds may not engage in borrowing except as permitted
by the Investment Company Act of 1940, any rule, regulation or order under
the Act or any SEC staff interpretation of the 1940 Act.
2. UNDERWRITING. The Funds may not underwrite securities issued by other
persons, except to the extent that, in connection with the sale or
disposition of portfolio securities, a Fund may be deemed to be an
underwriter under certain federal securities laws or in connection with
investments in other investment companies.
3. LOANS. The Funds may not make loans to other persons except that a Fund
may (1) engage in repurchase agreements, (2) lend portfolio securities,
(3) purchase debt securities, (4) purchase commercial paper, and (5) enter
into any other lending arrangement permitted by the Investment Company Act
of 1940, any rule, regulation or order under the Act or any SEC staff
interpretation of the 1940 Act.
4. REAL ESTATE. The Funds may not purchase or sell real estate except that a
Fund may (1) hold and sell real estate acquired as a result of the Fund's
ownership of securities or other instruments (2) purchase or sell
securities or other instruments backed by real estate or interests in real
estate and (3) purchase or sell securities of entities or investment
vehicles, including real estate investment trusts that invest, deal or
otherwise engage in transactions in real estate or interests in real
estate.
5. COMMODITIES. The Funds may not purchase or sell physical commodities
except that a Fund may (1) hold and sell physical commodities acquired as
a result of the Fund's ownership of securities or other instruments, (2)
purchase or sell securities or other instruments backed by physical
commodities, (3) purchase or sell options, and (4) purchase or sell
futures contracts.
6. CONCENTRATION OF INVESTMENTS. The Funds may not purchase the securities of
an issuer (other than securities issued or guaranteed by the United States
Government, its agencies or its instrumentalities) if, as a result, more
than 25% of the Fund's total assets would be invested in the securities of
companies whose principal business activities are in the same industry.
10
7. SENIOR SECURITIES. The Funds may not issue senior securities except as
permitted by the Investment Company Act of 1940, any rule, regulation or
order under the Act or any SEC staff interpretation of the 1940 Act.
NON-FUNDAMENTAL INVESTMENT LIMITATION
The following investment limitations are non-fundamental investment
limitations of the Funds. Non-fundamental limitations may be changed at any time
by the Fund's Board of Trustees. Shareholders are notified before any material
change in these limitations becomes effective.
The Value Plus Fund and the Large Cap Core Equity Fund have adopted the
following identical non-fundamental investment limitations.
1. BORROWING MONEY. The Funds 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 a Fund may borrow for temporary or
emergency purposes up to 10% of its total assets; provided, however, that
no Fund may purchase any security while outstanding borrowings exceed 5%;
2. PLEDGING. The Funds will not pledge, mortgage or hypothecate for any
purpose in excess of 10% of each Fund's total assets (taken at market
value), provided that collateral arrangements with respect to options and
futures, including deposits of initial deposit and variation margin, and
reverse repurchase agreements are not considered a pledge of assets for
purposes of this restriction;
3. MARGIN PURCHASES. The Funds 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 Funds 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 Funds will not invest for the purpose of
exercising control or management;
6. ILLIQUID SECURITIES. The Funds will not invest more than 15% of their 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 a 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;
11
7. RESTRICTED SECURITIES. The Funds 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 Funds will not purchase securities of any
issuer if such purchase at the time thereof would cause a 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 Funds 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 a Fund's net assets (taken at market value) is
represented by such securities, or securities convertible into or
exchangeable for such securities, at any one time (the Funds have no
current intention to engage in short selling);
10. PURCHASE OF PUTS AND CALLS. The Funds will not purchase puts, calls,
straddles, spreads and any combination thereof if by reason thereof the
value of a Fund's aggregate investment in such classes of securities will
exceed 5% of its total assets;
11. WRITING OF PUTS AND CALLS. The Funds 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 a
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 a Fund's net assets; (c) the securities subject to the
exercise of the call written by a Fund must be owned by a Fund at the time
the call is sold and must continue to be owned by a Fund until the call
has been exercised, has lapsed, or a Fund has purchased a closing call,
and such purchase has been confirmed, thereby extinguishing a Fund's
obligation to deliver securities pursuant to the call it has sold; and (d)
at the time a put is written, a Fund establishes a segregated account with
its custodian consisting of cash or liquid securities equal in value to
the amount a 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 Funds 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 a 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 a Fund's total
assets.
The Large Cap Core Equity Fund has adopted the following non-fundamental
80% investment policy 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 non-fundamental 80% investment policy.
12
1. 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. A large cap company has a market
capitalization of more than $10 billion.
THE FUNDS' PURCHASE, EXCHANGE AND REDEMPTION PROCEDURES
Because the Value Plus Fund and the Large Cap Core Equity Fund are each
series of the Trust, they have identical purchase, exchange and redemption
procedures. These common procedures, as well as other features related to
investing in the Funds, are summarized below. A more complete description can be
found in the Funds' prospectus.
SHARE CLASSES.
Each Fund offers Class A, Class B and Class C shares. At the time of the
Reorganization, Class A and Class B shareholders of the Value Plus Fund will
receive Class A shares of the Large Cap Core Equity Fund. Class C shareholders
of the Value Plus Fund will receive Class C shares of the Large Cap Core Equity
Fund.
As discussed above under FEES AND EXPENSES, each class of shares has
different sales charges and distribution fees. The amount of sales charge and
distribution fees you pay will depend on which class of shares you decide to
purchase. Shares may be purchased directly from the Distributor, through your
financial advisor, through various retirement plans, by exchange of shares (see
below) or through a "processing organization", such as a mutual fund
supermarket. The minimum initial investment for each Fund is $1,000 ($250 for
Retirement Plan Accounts or Custodial Accounts under a Uniform Gift/Transfer to
Minors Act and $50 for investments through the Automatic Investment Plan).
Subsequent investments must be in amounts of at least $50.
PRICING 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 New York Stock Exchange ("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 the Distributor or its authorized
agent.
The Funds' equity investments are valued based on market value or, if no
market value is available, based on fair value as determined by the Board of
Trustees (or under their direction). Securities held by Funds that do not have
readily available market quotations, or securities for which the available
market quotation is not reliable, are priced at their fair value using
procedures approved by the Board of Trustees. The Funds may use fair value
pricing 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 use fair value pricing if
reliable market quotations are unavailable due to infrequent trading. The Funds
may also 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 Funds' NAV
calculation. The use of fair value pricing has the effect of valuing a security
based upon the price the Funds might reasonably expect to receive if it sold
that security but does not guarantee that the security can be sold at the fair
value price. With respect to any portion of the Funds' assets that is invested
in other mutual funds, that portion of the Funds' 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.
13
PURCHASE PROCEDURES.
Each Fund prices direct purchases based upon the next determined offering
price after your order is received. Direct purchase orders received by the
Distributor, or its authorized agent, by the close of the regular session of
trading on the NYSE, are processed at that day's public offering price. Direct
purchase orders received by the Distributor, or its authorized agent, after the
close of the regular session of trading on the NYSE, are processed at the public
offering price next determined on the following business day. It is the
responsibility of the Distributor's authorized agents to transmit orders that
will be received by the Distributor in proper form and in a timely manner.
SALES CHARGES AND DISTRIBUTION FEES.
Each Fund offers Class A shares, Class B shares and Class C shares. Each
class of shares has different sales charges and distribution fees. The amount of
sales charges and distribution fees you pay will depend on which class of shares
you decide to purchase.
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 Sales Charge. The following table shows the amount of front-end
sales charge paid on purchases of Class A shares. The amount of front-end sales
charge is shown as a percentage of (1) offering price and (2) the net amount
invested after the charge has been subtracted. Note that the front-end sales
charge gets lower as your investment amount gets larger.
- --------------------------------------------------------------------------------
Sales Charge as % of Sales Charge as % of
Amount of Your Investment Offering Price Net Amount Invested
- --------------------------------------------------------------------------------
Under $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.95% 3.04%
$500,000 but less than $1 million 2.25% 2.30%
$1 million or more 0.00% 0.00%
- --------------------------------------------------------------------------------
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 the Distributor to a participating unaffiliated 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(1)) of broker-dealers, banks, or other financial
institutions having agreements with the Distributor.
14
o Purchases in accounts as to which a broker-dealer or other financial
intermediary charges an asset management fee economically comparable to a
sales charge, provided the broker-dealer or other financial intermediary
has an agreement with the Distributor.
o Purchases by a trust department of any financial institution in its
capacity as trustee to any trust.
o Purchases through processing organizations described in the applicable
Fund's 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 the Distributor.
(1) 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 the Distributor by
marking the appropriate section on the investment application and completing the
"Eligibility for Exemption from Sales Charge" form. 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 also may 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, SIMPLE and 403(b)(7)
custodial accounts
15
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 the
Distributor 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 the Distributor 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, the
Distributor 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.
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.
16
Class B shares of the Funds are sold at NAV without an initial sales
charge so that the full amount of your purchase payment may be immediately
invested in the Funds. A CDSC will be charged if you redeem Class B shares
within 6 years after you purchased them. The amount of the CDSC will depend on
how long you have held your shares, as set forth in the following table:
- --------------------------------------------------------------------------------
CDSC as a % of
Year Since Purchase Payment Made Amount Subject to Charge
First 5.00%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 1.00%
Seventh and thereafter* None
* Class B shares will automatically convert to Class A shares after they
have been held for approximately 8 years.
Conversion to Class A Shares. Class B shares will convert automatically to
Class A shares in the month of your 8-year anniversary date or in the beginning
of the 9th year after the date of your original purchase of those shares. The
conversion is based on the relative NAVs of the shares of the two classes on the
conversion date and no sales charge will be imposed. Class B shares you have
acquired through automatic reinvestment of dividends or capital gains will be
converted in proportion to the total number of Class B shares you have purchased
and own. Since the Rule 12b-1 distribution fees for Class A shares are lower
than for Class B shares, converting to Class A shares will lower your expenses.
CLASS C SHARES
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.
EXCHANGE PRIVILEGES.
You may exchange shares of either Fund for shares of the same class of
series of the Trust or of another Touchstone Fund, other than for shares of
Touchstone Variable Series Trust. You also may 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. You do not have to pay an exchange
fee for your exchange. Shares otherwise subject to a contingent deferred sales
charge ("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. 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.
17
REDEMPTION PROCEDURES.
You may sell some or all of your shares on any day that the Funds
calculate their NAV. If your request is received by the Distributor, or its
authorized agent, in proper form by the close of regular trading on the NYSE,
you will receive a price based on that day's NAV for the shares you sell, minus
any applicable CDSC. Orders received after the close of trading on the NYSE will
be based on the next calculated NAV. Each Fund permits redemptions by phone,
mail, wire or through a systematic redemption plan.
Under unusual circumstances, when the Board of Trustees deems it
appropriate, each Fund may make payment for shares redeemed in portfolio
securities of the Fund taken at current value.
DISTRIBUTION ARRANGEMENTS
Each Fund has adopted distribution plans under Rule 12b-1 of the 1940 Act
for its Class A, Class B and Class C shares. 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 that are 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. The Distributor is
the principal underwriter of the Trust, and as such, the exclusive agent for the
distribution of shares of both Funds.
The Distributor, at its expense (from a designated percentage of its
income) currently provides additional compensation to certain dealers. The
Distributor pursues a focused distribution strategy with a limited number of
dealers who have sold shares of the Funds or other Touchstone Funds. The
Distributor 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. The Distributor may also provide compensation in connection with
conferences, sales or training programs for employees, seminars for the public,
advertising and other dealer-sponsored programs. 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 also may
reimburse the Distributor for making these payments.
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.
Both the Value Plus Fund and the Large Cap Core Equity Fund 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 of the Trust 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.
18
Generally, a shareholder may be considered a market timer if he or she has
(i) requested an exchange or redemption out of any of the Touchstone Funds
within 2 weeks of an earlier purchase or exchange request out of any Touchstone
Fund, or (ii) made more than 2 "round-trip" exchanges within a rolling 90 day
period. A "round-trip" exchange occurs when a shareholder exchanges from one
Touchstone Fund to another Touchstone Fund and back to the original Touchstone
Fund. If a shareholder exceeds these limits, the Funds may restrict or suspend
that shareholder's exchange privileges and subsequent exchange requests during
the suspension will not be processed. The Funds may also restrict or refuse to
process purchases by the shareholder. These policies and procedures generally do
not apply to purchases and redemptions of money market funds (except in the case
of an exchange request into a Touchstone non-money market fund), exchanges
between money market funds and systematic purchases and redemptions.
Financial intermediaries (such as investment advisers and broker-dealers)
often establish omnibus accounts in the Funds for their customers in which
transactions are placed. If a Fund identifies excessive trading in such an
account, the Fund may instruct the intermediary to restrict the investor
responsible for the excessive trading from further trading in the Fund. However,
some omnibus accounts submit daily aggregate purchase and redemption orders
reflecting the trade orders of multiple unidentified investors. In these
situations, the Fund cannot monitor trading activity by individual shareholders
who may be engaged in market timing.
The Value Plus Fund and the Large Cap Core Equity Fund 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.
DIVIDEND POLICIES.
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. Dividends and capital gains will be reinvested in the Fund that
pays them, unless you indicate on your investment application that dividends and
capital gains are to be automatically reinvested in another Touchstone Fund
within the same class of shares. Dividends and capital gains automatically
reinvested in another Touchstone Fund are not subject to a fee or sales charge.
You also may choose to have your dividends or capital gains paid to you in cash.
PRINCIPAL RISKS
The Value Plus Fund and the Large Cap Core Equity Fund are subject to many
of the same risks, but to different degrees due to the different investment
strategies of the Funds. Other risks, such as the risk of investing in debt
securities, apply only to the Value Plus Fund. The primary risks of an
investment in each Fund are discussed below.
19
RISKS COMMON TO INVESTMENTS IN BOTH FUNDS
MARKET RISK. Each Fund invests in common stocks. 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 three broad market capitalization categories - large
cap, mid cap and small cap. Investing primarily in one category carries the risk
that due to market conditions, that category may be out of favor. For example,
if valuations of large cap companies appear to be greatly out of proportion to
the valuations of small or mid cap companies, investors may migrate to the
stocks of small and mid-sized companies, causing a fund that invests in these
companies to increase in value more rapidly than a fund that invests in larger,
fully-valued companies. The price of stocks tends to go up and down more than
the price of bonds.
LARGE CAP STOCK RISK. The Value Plus Fund and the Large Cap Core Equity Fund
invest at least 75% and 80%, respectively, of their total assets in common
stocks of large cap companies. Large cap stock risk is the risk that stocks of
larger companies may underperform relative to those of small and mid-sized
companies. Larger, more established companies may be unable to respond quickly
to new competitive challenges, such as changes in technology and consumer
tastes. Many larger companies may not be able to attain the high growth rate of
successful smaller companies, especially during extended periods of economic
expansion.
TECHNOLOGY SECURITIES RISK. Both Funds may invest in companies in the technology
sector. The value of technology securities may fluctuate dramatically and
technology securities may be subject to greater than average financial and
market risk. Investments in the high technology sector include the risk that
certain products may be subject to competitive pressures and aggressive pricing
and may become obsolete and the risk that new products will not meet
expectations or even reach the market.
INVESTMENT STYLE RISK. Different investment styles tend to shift in and out of
favor depending upon market and economic conditions as well as investor
sentiment. A fund may outperform or underperform other funds that employ a
different investment style. The Value Plus Fund and the Large Cap Core Equity
Fund both employ a value investing style. 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. In addition,
the market may continually value the stocks held by a fund pursuing a value
investing style lower than a fund's advisor or sub-advisor believes them to be
valued.
ADDITIONAL RISKS OF INVESTING IN THE VALUE PLUS FUND
Up to 25% of the Value Plus Fund's assets will be invested mid cap
companies. In addition, the Fund may invest in investment grade debt securities,
convertible securities and preferred stocks. Finally, the Value Plus Fund may
invest up to 10% of its total assets in cash equivalent investments and
short-term debt securities. As a result, the Value Plus Fund is subject to the
following additional risks.
MID CAP COMPANY RISK. 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.
20
DEBT SECURITY RISK. Investments in debt securities are subject to the risk that
the market value of the debt securities will decline because of rising interest
rates. The price of debt securities is generally linked to the prevailing market
interest rates. In general, when interest rates rise, the price of debt
securities falls, and when interest rates fall, the price of debt securities
rises. The price volatility of a debt security also depends on its maturity.
Generally, the longer the maturity of a debt security, the greater its
sensitivity to changes in interest rates. To compensate investors for this
higher risk, debt securities with longer maturities generally offer higher
yields than debt securities with shorter maturities. Debt securities also 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.
INFORMATION RELATING TO THE REORGANIZATION
DESCRIPTION OF THE REORGANIZATION
The following summary is qualified in its entirety by reference to the
form of Reorganization Agreement found in Exhibit A.
The Reorganization Agreement provides that all of the assets and
liabilities of the Value Plus Fund will be transferred to the Large Cap Core
Equity Fund at the Effective Time of the Reorganization (i.e., 8:00 a.m. ET on
or about August 13, 2006). In exchange for this transfer of these assets and
liabilities, the Large Cap Core Equity Fund will simultaneously issue shares to
the Value Plus Fund in an amount equal in value to the net asset value of the
Value Plus Fund's shares.
Following the transfer of its assets and liabilities in exchange for Large
Cap Core Equity Fund shares, the Value Plus Fund will distribute, in complete
liquidation pro rata to its shareholders of record, all the shares of the Large
Cap Core Equity Fund so received. Shareholders of the Value Plus Fund owning
shares at the Effective Time of the Reorganization will receive shares of the
Large Cap Core Equity Fund with the same aggregate value as the shareholder had
in the Value Plus Fund immediately before the Reorganization. Such distribution
will be accomplished by the establishment of accounts in the names of the
shareholders of the Value Plus Fund on the share records of the Large Cap Core
Equity Fund's transfer agent. Each account will represent the respective pro
rata number of full and fractional shares of the Large Cap Core Equity Fund due
to the shareholders of the Value Plus Fund. The Large Cap Core Equity Fund does
not issue share certificates to shareholders. Shares of the Large Cap Core
Equity Fund to be issued will have no preemptive or conversion rights. No
front-end sales loads or contingent deferred sales charges will be imposed in
connection with the receipt of such shares by the Value Plus Fund's
shareholders. The Value Plus Fund will then be liquidated and terminated.
Shareholders owning Class A or Class B shares of the Value Plus Fund prior
to the Reorganization will receive Class A shares of the Large Cap Core Equity
Fund. Class C shareholders of the Value Plus Fund will receive Class C shares of
the Large Cap Core Equity Fund.
The Reorganization Agreement contains customary representations,
warranties and conditions designed to ensure that the Reorganization is fair to
both parties. The Reorganization Agreement provides that the consummation of the
Reorganization is contingent upon, among other things: (i) approval of the
Reorganization Agreement by the Value Plus Fund shareholders; and (ii) the
receipt by the Value Plus Fund and the Large Cap Core Equity Fund of a tax
opinion to the effect that the Reorganization will be tax-free to the Value Plus
Fund and the Large Cap Core Equity Fund and their shareholders. The
Reorganization Agreement may be terminated if, on the Closing Date, any of the
required conditions have not been met or if the representations and warranties
are not true or, if at any time prior to the Effective Time of the
Reorganization, the Board of Trustees of the Trust determines that the
consummation of the transactions contemplated by the Reorganization Agreement is
not in the best interest of the Funds' shareholders.
21
COSTS OF REORGANIZATION
The Advisor or an affiliate thereof will bear and pay all expenses of the
Reorganization. Reorganization expenses include, without limitation: (a)
expenses associated with the preparation and filing of this Prospectus/Proxy
Statement; (b) postage; (c) printing; (d) accounting fees; (e) legal and audit
fees; (f) solicitation costs of the transaction, and (g) the cost of winding up
and liquidating the business and affairs of the Value Plus Fund.
FEDERAL INCOME TAXES
The combination of the Value Plus Fund into the Large Cap Core Equity Fund
in the Reorganization is intended to qualify for federal income tax purposes as
a separate tax-free reorganization under Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). If so, neither the Value Plus Fund nor
its shareholders will recognize gain or loss as a result of the Reorganization.
The tax basis of the Large Cap Core Equity Fund received will be the same as the
basis of the Value Plus Fund shares exchanged and the holding period of the
Large Cap Core Equity Fund shares received will include the holding period of
the Value Plus Fund shares exchanged, provided that the shares exchanged were
held as capital assets at the time of the Reorganization. As a condition to the
closing of the Reorganization, the Trust will receive an opinion from counsel to
that effect. No tax ruling from the Internal Revenue Service regarding the
Reorganization has been requested. The opinion of counsel is not binding on the
Internal Revenue Service and does not preclude the Internal Revenue Service from
adopting a contrary position. Nevertheless, the sale of securities by the Value
Plus Fund prior to the Reorganization, whether in the ordinary course of
business or in anticipation of the Reorganization, could result in a taxable
capital gains distribution prior to the Reorganization. Shareholders should
consult their own tax advisors concerning the potential tax consequences of the
Reorganization to them, including foreign, state and local tax consequences.
CAPITALIZATION
The following table sets forth as of March 31, 2006: (i) the unaudited
capitalization of each of the Value Plus Fund and the Large Cap Core Equity
Fund, and (ii) the unaudited pro forma combined capitalization of the Funds
assuming the Reorganization has been approved. If the Reorganization is
consummated, the capitalizations are likely to be different on the Effective
Time as a result of daily share purchase and redemption activity in the Funds
and changes in NAV.
NET ASSET
VALUE SHARES
FUND NET ASSETS PER SHARE OUTSTANDING
- --------------------------------- ------------ ------------ ------------
Value Plus Fund $ 75,027,419 $ 11.58 6,477,602
Large Cap Core Equity Fund $ 28,804,799 $ 10.48 2,749,306
Adjustment for Shares Outstanding -- -- 674,030
Combined Funds $103,832,218 $ 10.49 9,900,938
22
REASONS FOR THE REORGANIZATION
At a meeting held on May 18, 2006, the Board of Trustees of the Trust
unanimously voted that the proposed Reorganization would be in the best
interests of the Value Plus Fund and its shareholders and that the interests of
the shareholders would not be diluted. At this meeting, representatives of the
Advisor provided, and the Board of Trustees reviewed, detailed information about
the proposed Reorganization. The representatives provided information to the
Board of Trustees concerning: (a) the specific terms of the Reorganization,
including information regarding comparative expense ratios; (b) the proposed
plans for ongoing management, distribution and operation of the Value Plus Fund
and the Large Cap Core Equity Fund; and (c) the impact of the Reorganization on
the Value Plus Fund and its shareholders.
Before approving the Reorganization, the Board of Trustees examined all
factors that it considered relevant, including information regarding comparative
expense ratios. In connection with its deliberations, the Board of Trustees
inquired into a number of matters and evaluated the above-referenced information
and considered, among other things,:
o The similarity of the investment objectives of the Value Plus Fund
and the Large Cap Core Equity Fund;
o The composition of each Fund's portfolio;
o The difference in the risks associated with investing in each Fund;
o The lower expense ratio, fees and expenses of the Large Cap Core
Equity Fund after waivers and reimbursements by the Advisor;
o The anticipated tax free nature of the Reorganization;
o The fact that the Funds will not bear the costs of the
Reorganization; and
o The alternatives available to the shareholders of the Value Plus
Fund, including the ability to redeem their shares.
The Board of Trustees determined that the Reorganization is in the best
interests of the Value Plus Fund's shareholders. On the basis of the information
provided to the Board of Trustees and its evaluation of that information, the
Board recommends that the shareholders of the Value Plus Fund approve the
Reorganization.
The Board of Trustees also determined that the Reorganization is in the
best interests of the shareholders of the Large Cap Core Equity Fund.
SHAREHOLDER RIGHTS
GENERAL SHAREHOLDER RIGHTS
General. The Trust is an open-end, diversified management investment
company registered with the SEC under the 1940 Act. The Trust was organized as a
Massachusetts business trust on November 18, 1982 and is governed by its
Declaration of Trust, Bylaws, a Board of Trustees and by applicable
Massachusetts and federal law. The Trust currently consists of eight series,
including Value Plus Fund and the Large Cap Core Equity Fund.
Shares. The Trust is authorized to issue an unlimited number of shares of
beneficial interest, without par value, of one or more series. The Trust's
Declaration of Trust permits the Trustees to allocate shares into one or more
series, and classes thereof, with rights determined by the Trustees, all without
shareholder approval. Fractional shares may be issued by each Fund. Shares of
each Fund are currently offered in three classes and each class of shares
represents an equal proportionate interest in the applicable Fund. Shareholders
of each Fund are entitled to receive dividends and other amounts as determined
by the Trustees. The shares of each Fund have no preference as to conversion and
have no preemptive rights.
23
Voting Requirements. Under the Trust's Declaration of Trust, each whole
share of beneficial interest of a Fund is entitled to one vote, and each
fractional share is entitled to a proportionate vote. Shareholders of each Fund
vote separately, by Fund, as to matters that affect only their particular Fund,
such as changes in fundamental investment restrictions, approval of or
amendments to investment advisory agreements or proposed mergers, except in
matters where a vote of all series of the Trust in the aggregate is required by
the 1940 Act. Except when a larger quorum is required by applicable law or the
applicable governing documents, a majority of the shares issued and outstanding
and entitled to vote constitutes a quorum for consideration of a matter at a
shareholders' meeting but any lesser number is sufficient for adjourned
sessions.
Shareholder Meetings. The Trust on behalf of the Funds is not required to
hold annual meetings of shareholders. However, a meeting of shareholders for the
purpose of voting upon the question of removal of a Trustee must be called when
requested in writing by the holders of at least 10% of the outstanding shares of
the Trust. In addition, the Trust is required to call a meeting of shareholders
for the purpose of electing Trustees if, at any time, less than a majority of
the Trustees then holding office were elected by shareholders. The Trust does
not currently intend to hold regular shareholder meetings.
Election and Term of Trustees. The affairs of the Trust are supervised by
the Trustees under the laws governing business trusts in the Commonwealth of
Massachusetts. When a quorum is present at a meeting, a majority of the shares
present in person or by proxy is sufficient to act on a matter and is required
to elect a Trustee (unless otherwise specifically required by the applicable
governing documents or other law, including the 1940 Act). A Trustee of the
Trust may be removed at a meeting of shareholders by a vote of two-thirds of the
outstanding shares of the Trust, or by the vote of two-thirds of the remaining
number of Trustees. Trustees hold office until their successors are duly elected
and qualified or until their death, removal or resignation.
Shareholder Liability. Under Massachusetts law, shareholders of a business
trust could, under certain circumstances, be held personally liable for the
obligations of the business trust. However, the Declaration of Trust under which
the Funds were established disclaims shareholder liability for acts or
obligations of the series and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Funds or the Trustees. The Declaration of Trust provides for indemnification out
of the series' property for all losses and expenses of any shareholder held
personally liable for the obligations of the series. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
considered remote since it is limited to circumstances in which a disclaimer is
inoperative and the series or the Trust itself would be unable to meet its
obligations.
Liability of Trustees. The Declaration of Trust of the Trust provides that
no Trustee or officer shall be liable to the Trust or to any shareholder,
Trustee, officer, employee or agent of the Trust for any action or failure to
act except for his or her own willful misfeasance, bad faith, gross negligence
or reckless disregard of his or her duties involved in the conduct of his or her
office. The Declaration of Trust provides that present and former Trustees or
officers are generally entitled to indemnification against liabilities and
expenses with respect to claims related to their position with the Funds unless,
in the case of any liability to the Funds or their shareholders, such Trustee or
officer is liable by reason of his or her willful misfeasance, bad faith, gross
negligence or reckless disregard of his or her duties involved in the conduct of
his or her office.
24
The foregoing is only a summary of certain characteristics of the
operations of the Declaration of Trust of the Trust, its Bylaws and
Massachusetts law and is not a complete description of those documents or law.
Shareholders should refer to the provisions of such Declaration of Trust, Bylaws
and Massachusetts law directly for more complete information.
TAXES
Please consult your tax advisor regarding your specific questions about
federal, state and local income taxes. Below is a summary of some important tax
issues that affect the Funds and their shareholders. This summary is based on
current tax laws, which may change. This summary is not applicable to the tax
consequences of the Reorganization. The tax-free nature of the Reorganization is
discussed above under INFORMATION RELATING TO THE REORGANIZATION - FEDERAL
INCOME TAXES.
Each Fund has qualified to be treated as a regulated investment company
under the Code. To remain qualified as a regulated investment company, a Fund
must distribute 90% of its taxable and tax-exempt income and diversify its
holdings as required by the 1940 Act and the Code. While so qualified, so long
as each Fund distributes all of its net investment company taxable and
tax-exempt income and any net realized gains to the shareholders, it is expected
that the Funds will not be required to pay any federal income taxes on the
amounts distributed to shareholders.
Each Fund will distribute substantially all of its net investment income
and its net realized capital gains, if any, at least annually. The dividends and
distributions that shareholders receive may be subject to federal, state and
local taxation, depending upon your tax situation. Distributions received from a
Fund may be taxable whether or not shareholders reinvest them.
Income and short-term capital gains that are distributed to you are
taxable as ordinary income for federal income tax purposes regardless of how
long you have held your Fund shares. To the extent that underlying income of a
Fund consists of qualified dividend income, income distributions by the Fund may
be subject to a maximum federal income tax rate of 15% for individuals and may
qualify for the dividends received deduction for corporations. Long-term capital
gains distributed to you are taxable as long-term capital gains for federal
income tax purposes regardless of how long you have held your Fund shares. The
maximum individual tax rate on net long-term capital gains is 15%.
Income distributions are generally taxable as ordinary income. Long-term
capital gains are currently taxed at a maximum rate of 15%. Each sale or
exchange of Fund shares may be a taxable event. For tax purposes, an exchange of
shares of one Fund for shares of another Fund is treated the same as a sale. 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.
Shareholders with tax-advantaged or other retirement accounts generally
will not be subject to federal taxation on income and capital gain distributions
until distributions from the retirement account are received. Shareholders
should consult their tax advisor regarding the rules governing their own
retirement plan.
INFORMATION ABOUT THE VALUE PLUS FUND
AND THE LARGE CAP CORE EQUITY FUND
Information concerning the operation and management of the Value Plus Fund
and the Large Cap Core Equity Fund is incorporated herein by reference from the
Trust's prospectus. Additional information about the Value Plus Fund and the
Large Cap Core Equity Fund is included in the Trust's Statement of Additional
Information dated August 1, 2005, as amended, which is available upon request
and without charge by calling 1-800-543-0407.
25
The Trust is subject to the information requirements of the Securities Exchange
Act of 1934 and the 1940 Act and in accordance therewith, and files reports and
other information, including proxy materials and charter documents, with the
SEC. Reports, proxy statements, registration statements and other information
filed by the Trust may be inspected without charge and copied at the public
reference facilities maintained by the SEC at 100 F Street, N.E., Washington, DC
20549, and at the following regional offices of the SEC: Northeast Regional
Office, 3 World Financial Center, Room 4-300, New York, New York 10281;
Southeast Regional Office, 801 Brickell Avenue, Suite 1800, Miami, Florida
33131; Midwest Regional Office, 175 West Jackson Boulevard, Suite 900, Chicago,
Illinois 60604; Central Regional Office, 1801 California Street, Suite 1500,
Denver, Colorado 80202; and Pacific Regional Office, 5670 Wilshire Boulevard,
Suite 1100, Los Angeles, California 90036. Copies of such materials may also be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, DC 20549
at prescribed rates. Information included in the Proxy Statement/Prospectus
concerning the Trust was provided by Integrated Investment Services, Inc.
INTEREST OF CERTAIN PERSONS IN THE TRANSACTIONS. The Advisor may be deemed to
have an interest in the Reorganization. If the Reorganization is approved, the
Advisor will pay Todd a fee of 0.30% for sub-advising the Large Cap Core Equity
Fund and will no longer pay Fort Washington a fee of 0.45% for sub-advising the
Value Plus Fund. However, as discussed above, the Large Cap Core Equity Fund
also pays a lower management fee to the Advisor.
FINANCIAL STATEMENTS. The financial statements of the Trust relating to the
Value Plus Fund and the Large Cap Core Equity Fund contained in the Annual
Report to shareholders for the fiscal year ended March 31, 2006 have been
audited by Ernst & Young LLP, their independent registered public accountant and
are incorporated herein by reference. The Trust will furnish, without charge, a
copy of the Annual Report on request. Requests should be made by calling
toll-free 1-800-543-0407 or by visiting www.touchstoneinvestments.com. The
Annual Reports for the Funds also are available on the SEC's website at
www.sec.gov.
The Financial Highlights relating to the Funds contained in the Annual
Report for the fiscal year ended March 31, 2006 are attached as Exhibit C.
THE BOARD OF TRUSTEES OF THE TRUST RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE REORGANIZATION AGREEMENT.
VOTING MATTERS
GENERAL INFORMATION
This Proxy Statement/Prospectus is being furnished in connection with the
solicitation of proxies by the Board of Trustees of the Trust in connection with
the Special Meeting to be held August 7, 2006 at 9:30 a.m., ET, at 303 Broadway,
Suite 1100, Cincinnati, OH 45202, and at any adjournments thereof. This
Prospectus/Proxy Statement, along with a Notice of the Special Meeting and a
proxy card, is first being mailed to shareholders of the Value Plus Fund on or
about July 7, 2006. It is expected that the solicitation of proxies will be
primarily by mail, but beginning on or about July 15, 2006, proxy solicitations
may also be made by telephone, or personal solicitations may be conducted by
officers and employees of the Advisor, its affiliates or other representatives
of the Trust (who will not be paid for their soliciting activities). In
addition, proxy solicitations may be made by Management Information Services
("MIS"), the Value Plus Fund's proxy solicitor.
26
The Board of Trustees of the Trust has fixed the close of business on June
12, 2006 as the record date (the "Record Date") for determining the shareholders
of the Value Plus Fund entitled to receive notice of the Special Meeting and to
vote, and for determining the number of shares that may be voted, with respect
to the Special Meeting or any adjournment thereof.
VOTING RIGHTS AND REQUIRED VOTE
Each shareholder of the Value Plus Fund is entitled to one vote for each
full share held and fractional votes for fractional shares. The holders of 50%
of the outstanding shares of the Value Plus Fund entitled to vote at the Special
Meeting, present in person or by proxy, constitute a quorum, however, approval
of the Reorganization requires the affirmative vote of the lesser of (a) 67% or
more of the votes attributable to all voting securities of the Value Plus Fund
present at the Special Meeting if holders of more than 50% of the outstanding
voting securities of the Value Plus Fund are present or represented by proxy or
(b) more than 50% of the outstanding voting securities of the Value Plus Fund.
If you wish to participate in the Special Meeting, you may submit the
proxy card included with this Prospectus/Proxy Statement, vote by telephone,
vote through the Internet, or attend in person. (Guidelines on voting by proxy
card are immediately after the Notice of Special Meeting. Instructions for
telephone and Internet voting are set forth on the proxy card.)
If the enclosed proxy is properly executed and returned in time to be
voted at the Special Meeting, the proxies named therein will vote the shares of
beneficial interest represented by the proxy in accordance with the instructions
marked on the returned proxy. PROXIES THAT ARE PROPERLY EXECUTED AND RETURNED
BUT ARE NOT MARKED WITH VOTING INSTRUCTIONS WILL BE VOTED FOR THE PROPOSED
REORGANIZATION AND FOR ANY OTHER MATTERS DEEMED APPROPRIATE. It is not
anticipated that any matters other than the approval of the Reorganization will
be brought before the Special Meeting. Should other business properly be brought
before the Special Meeting, it is intended that the accompanying proxies will be
voted in accordance with the judgment of the persons named as such proxies.
Proxies may be revoked by executing and delivering a later-dated signed
proxy to the Secretary of the Trust at the address set forth on the cover page
of this Prospectus/Proxy Statement, or by attending the Special Meeting in
person and voting your shares. Unless revoked, all valid proxies will be voted
in accordance with the specifications thereon.
Abstentions and "broker non-votes" (i.e. shares held by brokers or
nominees, typically in "street name," as to which (i) instructions have not been
received from the beneficial owners or persons entitled to vote and (ii) the
broker or nominee does not have discretionary voting power on a particular
matter) will be treated as present for purposes of determining a quorum. In
addition, under the rules of the New York Stock Exchange, if a broker has not
received instructions from beneficial owners or persons entitled to vote and the
proposal to be voted upon may "affect substantially" a shareholder's rights or
privileges, the broker may not vote the shares as to that proposal even if it
has discretionary voting power As a result, these shares also will be treated as
broker non-votes for purposes of proposals that may "affect substantially" a
shareholder's rights or privileges (but will not be treated as broker non-votes
for other proposals, including adjournment of the Special Meeting).
Abstentions and broker non-votes will be treated as shares voted against a
proposal. Treating broker non-votes as votes against a proposal can have the
effect of causing shareholders who choose not to participate in the proxy vote
to prevail over shareholders who cast votes or provide voting instructions to
their brokers or nominees. In order to prevent this result, the Trust may
request that selected brokers or nominees refrain from returning proxies on
behalf of shares for which voting instructions have not been received from
beneficial owners or persons entitled to vote. The Trust also may request that
selected brokers or nominees return proxies on behalf of shares for which voting
instructions have not been received if doing so is necessary to obtain a quorum.
27
If shareholders of the Value Plus Fund do not vote to approve the
Reorganization, the Trustees of the Trust will consider other possible courses
of action in the best interests of shareholders. If sufficient votes in favor of
the Reorganization are not received by the time scheduled for the Special
Meeting, the persons named as proxies or any officer present entitled to preside
or act as Secretary of such meeting, may propose one or more adjournments of the
Special Meeting to permit further solicitation of proxies. In determining
whether to adjourn the Special Meeting, the following factors may be considered:
the percentage of votes actually cast, the percentage of negative votes actually
cast, the nature of any further solicitation and the information to be provided
to shareholders with respect to the reasons for the solicitation. Any
adjournment will require an affirmative vote of a majority of those shares
represented at the Special Meeting, whether or not a quorum is present, in
person or by proxy. The persons named as proxies will vote upon such adjournment
after consideration of all circumstances that may bear upon a decision to
adjourn the Special Meeting. Any business that might have been transacted at the
Special Meeting originally called may be transacted at any such adjourned
meeting at which a quorum is present. The costs of any additional solicitation
and of any adjourned session will be borne by the Advisor.
A shareholder of the Value Plus Fund who objects to the proposed
Reorganization will not be entitled under either Massachusetts law or the
Declaration of Trust of the Trust to demand payment for, or an appraisal of, his
or her shares. However, shareholders should be aware that the Reorganization as
proposed is not expected to result in recognition of gain or loss to
shareholders for federal income tax purposes. If the Reorganization is
consummated, shareholders will be free to redeem the shares of Large Cap Core
Equity Fund that they receive in the transaction at their then-current net asset
value. Shares of the Value Plus Fund may be redeemed at any time prior to the
consummation of the Reorganization. Shareholders of the Value Plus Fund may wish
to consult their tax advisors as to any different consequences of redeeming
their shares prior to the Reorganization or exchanging such shares in the
Reorganization.
The Trust does not hold annual shareholder meetings. If the Reorganization
is not approved, shareholders wishing to submit proposals to be considered for
inclusion in a proxy statement for a subsequent shareholder meeting should send
their written proposals to the Secretary of the Trust at the address set forth
on the cover of this Prospectus/Proxy Statement so that they will be received by
the Trust in a reasonable period of time prior to that meeting.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise the Value Plus Fund whether other persons are beneficial owners of
shares for which proxies are being solicited and, if so, the number of copies of
this Prospectus/Proxy Statement needed to supply copies to the beneficial owners
of the respective shares.
28
EXPENSES
The costs of solicitation and the expenses incurred in connection with
preparing this Prospectus/Proxy Statement and its enclosures (totaling
approximately $ 30,000) will be paid by the Advisor whether or not shareholders
approve the Reorganization. The estimated cost of the additional proxy
solicitation by MIS is approximately $5,000. Persons holding shares as nominees
will, upon request, be reimbursed for their reasonable expenses in sending
soliciting material to their principals.
RECORD DATE AND OUTSTANDING SHARES
Only shareholders of record of the Value Plus Fund at the close of
business on June 12, 2006 (the "Record Date") are entitled to notice of and to
vote at the Special Meeting and any postponement or adjournment thereof. At the
close of business on the Record Date there were outstanding and entitled to vote
the following shares of the Value Plus Fund
CLASS NUMBER OF SHARES
Class A 6,225,045.598
Class B 79,531.080
Class C 156,188.672
The votes of the shareholders of the Large Cap Core Equity Fund are not being
solicited, because their approval or consent is not necessary for the approval
of the Reorganization. However, the vote required for approval of the proposal,
including the treatment of abstentions and broker non-votes would be the same as
for the Value Plus Fund. At the close of business on the Record Date there were
outstanding the following shares of the Large Cap Core Equity Fund:
CLASS NUMBER OF SHARES
Class A 2,461,658.736
Class B 165,542.710
Class C 137,493.681
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the Record Date, the officers and Trustees of the Trust, as a group,
beneficially owned less than 1% of the outstanding shares of either the Value
Plus Fund or the Large Cap Core Equity Fund.
As of the Record Date, to the knowledge of the Trustees and management of
the Trust, other than as set forth below, no person owned beneficially or of
record more than 5% of the outstanding shares of either the Value Plus Fund or
the Large Cap Core Equity Fund. Shareholders indicated below holding greater
than 25% of a Fund are "controlling persons" under the 1940 Act.
VALUE PLUS FUND
- ----------------------------------------------------------------------------------------------------------------------
PERCENTAGE
OWNERSHIP OF
COMBINED FUND
PERCENTAGE AFTER
NAME AND ADDRESS FUND/CLASS NUMBER OF SHARES OWNERSHIP REORGANIZATION
- ----------------------------------------------------------------------------------------------------------------------
Fifth Third Bank TTEE Value Plus Fund - Class A 1,233,429.961 19.83% 14.22%
FBO Various Fascorp
8515 E. Orchard 2T2
Centennial, CO 80111
29
VALUE PLUS FUND
- ----------------------------------------------------------------------------------------------------------------------
PERCENTAGE
OWNERSHIP OF
COMBINED FUND
PERCENTAGE AFTER
NAME AND ADDRESS FUND/CLASS NUMBER OF SHARES OWNERSHIP REORGANIZATION
- ----------------------------------------------------------------------------------------------------------------------
NFS LLC FEBO Value Plus Fund - Class A 456,816.224 7.34% 5.26%
Bank of NY C F AMER F
1 Wall St.
New York, NY 10286-0001
Western & Southern Life and Insurance Value Plus Fund - Class A 1,247,035.760 20.05% 33.16%
Company
400 Broadway MS 80
Cincinnati, OH 45202
Western & Southern Financial Group Value Plus Fund - Class A 1,429,262.021 22.98% 23.34%
400 Broadway
Cincinnati, OH 45202
Stifel Nicolaus Co. Inc. Value Plus Fund - Class B 4,757.400 6.41% 2.03%
A C 5020-2206
501 North Broadway
St. Louis, MO 63102
UBS Financial Services Inc. FBO Value Plus Fund - Class B 3,919.262 5.28% 1.67%
UBS-FINSVC CDN FBO 1000 Harbor Blvd.
Weehawken, NJ 07086-8154
MLPF & S For the Sole Benefit of its Value Plus Fund - Class C 13,367.598 8.86% 4.65%
Customers
4800 Deer Lake Dr., East 2nd
Jacksonville, FL 32246
Western & Southern Life and Insurance Value Plus Fund - Class C 28,555.047 18.93% 9.94%
Company
400 Broadway
Cincinnati, OH 45202
Western & Southern Financial Value Plus Fund - Class C 20,106.501 13.33% 7.00%
Group
400 Broadway
Cincinnati, OH 45202
LARGE CAP CORE EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------
PERCENTAGE
OWNERSHIP OF
COMBINED FUND
PERCENTAGE AFTER
NAME AND ADDRESS FUND/CLASS NUMBER OF SHARES OWNERSHIP REORGANIZATION
- ----------------------------------------------------------------------------------------------------------------------
Western & Southern Life and Insurance Large Cap Core Equity 1,630,630.454 66.38% 33.16%
Company Fund - Class A
400 Broadway
Cincinnati, OH 45202
30
LARGE CAP CORE EQUITY FUND
- ----------------------------------------------------------------------------------------------------------------------
PERCENTAGE
OWNERSHIP OF
COMBINED FUND
PERCENTAGE AFTER
NAME AND ADDRESS FUND/CLASS NUMBER OF SHARES OWNERSHIP REORGANIZATION
- ----------------------------------------------------------------------------------------------------------------------
Western & Southern Financial Group Large Cap Core Equity 509,234.755 20.73% 22.34%
400 Broadway Fund - Class A
Cincinnati, OH 45202
MLPF & S For the Sole Benefit of its Large Cap Core Equity 21,223.672 15.57% 7.39%
Customers Fund - Class C
4800 Deer Lake Dr., East 2nd
Jacksonville, FL 32246
Morgan Keegan Company, Inc. Large Cap Core Equity 12,052.854 8.84% 4.20%
FBO 720043691 Fund - Class C
50 North Front Street
Memphis, TN 38103
NFS LLC FEBO Large Cap Core Equity 8,671.376 6.36% 3.02%
NFS FMTC IRA Fund - Class C
406 Red Barn Road
Willow Grove, PA 19090
The votes of the shareholders of the Large Cap Core Equity Fund are not
being solicited, because their approval or consent is not necessary for the
approval of the Reorganization.
OTHER BUSINESS
The Board of Trustees of the Trust knows of no other business to be
brought before the Special Meeting. However, if any other matters come before
the Special Meeting, it is the intention that proxies that do not contain
specific restrictions to the contrary will be voted on such matters in
accordance with the judgment of the persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Trust by calling
1-800-543-0407.
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO
VOTE BY MAIL, PHONE, OR INTERNET. INFORMATION ON THE VARIOUS
MANNERS OF VOTING ARE SET FORTH IN THE ENCLOSED PROXY.
By Order of the Board of Trustees,
Jay S. Fitton
Secretary
31
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 18th day of May, 2006, by and between the Large Cap Core Equity Fund (the
"Acquiring Fund") and the Value Plus Fund (the "Selling Fund"), each a series of
Touchstone Strategic Trust (the "Trust"). The Trust is a Massachusetts business
trust, with its principal place of business at 303 Broadway, Suite 1100,
Cincinnati, Ohio 45202.
The reorganization (the "Reorganization") will consist of (i) the transfer
of all of the assets of the Selling Fund in exchange solely for shares of
beneficial interest, without par value per share, of the Acquiring Fund (the
"Acquiring Fund Shares"); (ii) the assumption by the Acquiring Fund of all of
the liabilities of the Selling Fund; and (iii) the distribution, after the
Closing Date hereinafter referred to, of the Acquiring Fund Shares to the
shareholders of the Selling Fund in liquidation of the Selling Fund as provided
herein, all upon the terms and conditions hereinafter set forth in this
Agreement.
WHEREAS, the Selling Fund and the Acquiring Fund are each a separate
investment series of an open-end, registered investment company of the
management type and the Selling Fund owns securities that generally are assets
of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, the Selling Fund and the Acquiring Fund are authorized to issue
their shares of beneficial interest;
WHEREAS, the Trustees of the Trust have determined that the transactions
contemplated herein will be in the best interests of the Acquiring Fund and its
shareholders;
WHEREAS, the Trustees of the Trust have determined that the Selling Fund
should exchange all of its assets and liabilities for Acquiring Fund Shares and
that the interests of the existing shareholders of the Selling Fund will not be
diluted as a result of the transactions contemplated herein;
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
ARTICLE I
TRANSFER OF ASSETS OF THE SELLING FUND IN EXCHANGE FOR THE ACQUIRING FUND
SHARES AND ASSUMPTION OF SELLING FUND LIABILITIES AND LIQUIDATION OF THE
SELLING FUND
1.1 THE EXCHANGE. Subject to the terms and conditions herein set forth and
on the basis of the representations and warranties contained herein, the Selling
Fund agrees to transfer all of the Selling Fund's assets as set forth in
paragraph 1.2 to the Acquiring Fund. The Acquiring Fund agrees in exchange for
the Selling Fund's assets (i) to deliver to the Selling Fund the number of
Acquiring Fund Class A and Class C Shares, including fractional Acquiring Fund
Shares, computed in the manner and as of the time and date set forth in
paragraphs 2.2 and 2.3; and (ii) to assume all of the liabilities of the Selling
Fund, as set forth in paragraph 1.3. Such transactions shall take place on the
Closing Date provided for in paragraph 3.1.
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be acquired
by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, interests in futures and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
1
The Selling Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of the Selling Fund's
assets as of the date thereof. The Selling Fund hereby represents that as of the
date of the execution of this Agreement there have been no changes in its
financial position as reflected in said financial statements other than those
occurring in the ordinary course of its business in connection with the purchase
and sale of securities and the payment of its normal operating expenses and the
payment of dividends, capital gains distributions and redemption proceeds to
shareholders. The Selling Fund reserves the right to sell any of such
securities, but will not, without the prior written approval of the Acquiring
Fund, acquire any additional securities other than securities of the type in
which the Acquiring Fund is permitted to invest.
The Acquiring Fund will, within a reasonable time prior to the Closing
Date, furnish the Selling Fund with a list of the securities, if any, on the
Selling Fund's list referred to in the second sentence of this paragraph that do
not conform to the Acquiring Fund's investment objectives, policies, and
restrictions. The Selling Fund will, within a reasonable period of time (not
less than 30 days) prior to the Closing Date, furnish the Acquiring Fund with a
list of its portfolio securities and other investments. In the event that the
Selling Fund holds any investments that the Acquiring Fund may not hold, the
Selling Fund, if requested by the Acquiring Fund, will dispose of such
securities prior to the Closing Date. In addition, if it is determined that the
Selling Fund and the Acquiring Fund portfolios, when aggregated, would contain
investments exceeding certain percentage limitations imposed upon the Acquiring
Fund with respect to such investments, the Selling Fund if requested by the
Acquiring Fund will dispose of a sufficient amount of such investments as may be
necessary to avoid violating such limitations as of the Closing Date.
Notwithstanding the foregoing, nothing herein will require the Selling Fund to
dispose of any investments or securities if, in the reasonable judgment of the
Selling Fund, such disposition would violate the Selling Fund's fiduciary duty
to its shareholders.
1.3 LIABILITIES TO BE ASSUMED. The Selling Fund will endeavor to discharge
all of its known liabilities and obligations prior to the Closing Date. The
Acquiring Fund shall assume all of the Selling Fund's liabilities and
obligations of any kind whatsoever, whether absolute, accrued, contingent or
otherwise in existence on the Closing Date.
1.4 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date as
is conveniently practicable (the "Liquidation Date"), (a) the Selling Fund will
liquidate and distribute pro rata to the Selling Fund's shareholders of record,
determined as of the close of business on the Valuation Date (the "Selling Fund
Shareholders"), the Acquiring Fund Shares received by the Selling Fund pursuant
to paragraph 1.1; and (b) the Selling Fund will thereupon proceed to terminate
as set forth in paragraph 1.8 below. Such liquidation and distribution will be
accomplished by the transfer of the Acquiring Fund Shares then credited to the
account of the Selling Fund on the books of the Acquiring Fund to open accounts
on the share records of the Acquiring Fund in the names of the Selling Fund
Shareholders and representing the respective pro rata number of the Acquiring
Fund Shares due such shareholders. All issued and outstanding shares of the
Selling Fund will simultaneously be canceled on the books of the Selling Fund.
The Acquiring Fund shall not issue certificates representing the Acquiring Fund
Shares in connection with such exchange.
1.5 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be shown
on the books of the Acquiring Fund's transfer agent. Shares of the Acquiring
Fund will be issued in the manner described in the Prospectus/Proxy Statement on
Form N-14 which has been distributed to shareholders of the Selling Fund as
described in paragraph 4.1(o).
1.6 TRANSFER TAXES. Any transfer taxes payable upon issuance of the
Acquiring Fund Shares in a name other than the registered holder of the Selling
Fund shares on the books of the Selling Fund as of that time shall, as a
condition of such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
2
1.7 REPORTING RESPONSIBILITY. Any reporting responsibility of the Selling
Fund is and shall remain the responsibility of the Selling Fund up to and
including the Closing Date and such later date on which the Selling Fund is
terminated.
1.8 TERMINATION. The Trust shall take all necessary and appropriate steps
under applicable law to terminate the Selling Fund promptly following the
Closing Date and the making of all distributions pursuant to paragraph 1.4.
ARTICLE II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Selling Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets
computed as of the close of business on the New York Stock Exchange on the
business day next preceding the Closing Date (such time and date being
hereinafter called the "Valuation Date"), using the valuation procedures set
forth in the Trust's Declaration of Trust and the Selling Fund's then current
prospectus and statement of additional information or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectus and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of full and fractional Acquiring Fund
Shares to be issued in exchange for the Selling Fund's assets shall be
determined by multiplying the outstanding shares of the Selling Fund by the
ratio computed by dividing the net asset value per share of the Selling Fund by
the net asset value per share of the Acquiring Fund on the Valuation Date,
determined in accordance with in paragraph 2.2. Class A, Class B and Class C
shares of the Acquiring Fund will be issued for Class A and Class B shares of
the Acquired Fund, and Class C shares of the Acquiring Fund will be issued for
Class C shares of the Acquired Fund.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
Integrated Fund Services, Inc., the Acquiring Fund and Selling Fund's accounting
agent, in accordance with its regular practice in pricing the shares and assets
of the Acquiring Fund and Selling Fund.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The closing of the Reorganization (the "Closing") shall
take place on or about August 13, 2006 or such other date as the parties may
agree to in writing (the "Closing Date"). All acts taking place at the Closing
shall be deemed to take place simultaneously immediately prior to the opening of
business on the Closing Date unless otherwise provided. The Closing shall be
held as of 8:00 a.m. Eastern Time ("ET") at the offices of the Trust, or at such
other time and/or place as the parties may agree.
3.2 EFFECT OF SUSPENSION IN TRADING. In the event that on the Valuation
Date (a) the New York Stock Exchange or another primary trading market for
portfolio securities of the Acquiring Fund or the Selling Fund shall be closed
to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of the Acquiring Fund or the
Selling Fund is impracticable, the Valuation Date (and the Closing Date) shall
be postponed until the first business day after the day when trading shall have
been fully resumed and reporting shall have been restored.
3
3.3 TRANSFER AGENT'S CERTIFICATE. The Selling Fund shall cause its
transfer agent to deliver at the Closing a certificate of an authorized officer
stating that its records contain the names and addresses of the Selling Fund
Shareholders and the number and percentage ownership of outstanding shares owned
by each such shareholder immediately prior to the Closing. The Acquiring Fund
shall issue and deliver, or cause its transfer agent, to issue and deliver, to
the Secretary of the Trust a confirmation evidencing the Acquiring Fund Shares
to be credited on the Closing Date or provide evidence satisfactory to the
Selling Fund that such Acquiring Fund Shares have been credited to the Selling
Fund's account on the books of the Acquiring Fund. At the Closing, each party
shall deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts and other documents as such other party or its
counsel may reasonably request.
3.4 CUSTODIAN'S CERTIFICATE. Brown Brothers Harriman & Co., as custodian
for the Selling Fund, shall deliver at the Closing a certificate of an
authorized officer stating that: (a) the Selling Fund's portfolio securities,
cash, and any other assets shall have been delivered in proper form to its
respective Acquiring Fund on the Closing Date; and (b) all necessary taxes
including all applicable federal and state stock transfer stamps, if any, shall
have been paid, or provision for payment shall have been made, in conjunction
with the delivery of portfolio securities by the Selling Fund.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling Fund represents and
warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of the Trust, a
business trust duly organized, validly existing and in good standing under the
laws of the Commonwealth of Massachusetts.
(b) The Selling Fund is a separate investment series of the Trust,
which is registered as an investment company classified as a management company
of the open-end type, and its registration with the Securities and Exchange
Commission (the "Commission") as an investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), is in full force and effect.
(c) The current prospectus and statement of additional information
of the Selling Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"), and the
1940 Act and the rules and regulations of the Commission thereunder and do not
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(d) The Selling Fund is not, and the execution, delivery, and
performance of this Agreement (subject to shareholder approval) will not result,
in violation of any provision of the Trust's Declaration of Trust or By-Laws or
of any material agreement, indenture, instrument, contract, lease, or other
undertaking to which the Selling Fund is a party or by which it is bound.
(e) The Selling Fund has no material contracts or other commitments
(other than this Agreement) that will be terminated with liability to it prior
to the Closing Date, except for liabilities, if any, to be discharged as
provided in paragraph 1.3 hereof.
(f) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation, administrative proceeding, or investigation of or
before any court or governmental body is presently pending or to its knowledge
threatened against the Selling Fund or any of its properties or assets, which,
if adversely determined, would materially and adversely affect its financial
condition, the conduct of its business, or the ability of the Selling Fund to
carry out the transactions contemplated by this Agreement. The Selling Fund
knows of no facts that might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of any order,
decree, or judgment of any court or governmental body that materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
4
(g) The audited financial statements of the Selling Fund at March
31, 2006 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Selling
Fund as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since March 31, 2006, there has not been any material adverse
change in the Selling Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Selling Fund of indebtedness maturing more than one year from
the date such indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund. For the purposes of this subparagraph (h), a
decline in the net asset value of the Selling Fund shall not constitute a
material adverse change.
(i) At the Closing Date, all federal and other tax returns and
reports of the Selling Fund required by law to have been filed by such date
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid, or provision shall have been made for the
payment thereof. To the best of the Selling Fund's knowledge, no such return is
currently under audit, and no assessment has been asserted with respect to such
returns.
(j) For each fiscal year of its operation, the Selling Fund has met
the requirements of Subchapter M of the Code for qualification and treatment as
a regulated investment company and has distributed in each such year all net
investment income and realized capital gains.
(k) All issued and outstanding shares of the Selling Fund are, and
at the Closing Date will be, duly and validly issued and outstanding, fully paid
and non-assessable by the Selling Fund. All of the issued and outstanding shares
of the Selling Fund will, at the time of the Closing Date, be held by the
persons and in the amounts set forth in the records of the transfer agent as
provided in paragraph 3.3. The Selling Fund does not have outstanding any
options, warrants, or other rights to subscribe for or purchase any of the
Selling Fund shares, nor is there outstanding any security convertible into any
of the Selling Fund shares.
(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act, other than as
disclosed to the Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Selling Fund
and, subject to approval by the Selling Fund's shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(n) The information furnished by the Selling Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby is accurate and complete in all material
respects and complies in all material respects with federal securities and other
laws and regulations thereunder applicable thereto.
5
(o) The Selling Fund has provided the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus, which
included the proxy statement of the Selling Fund (the "Prospectus/Proxy
Statement"), all of which was included in a Registration Statement on Form N-14
of the Acquiring Fund (the "Registration Statement"), in compliance with the
1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act") and
the 1940 Act in connection with the meeting of the shareholders of the Selling
Fund to approve this Agreement and the transactions contemplated hereby. The
Prospectus/Proxy Statement included in the Registration Statement (other than
information therein that relates to the Acquiring Fund and any other fund
described therein other than the Selling Fund) does not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring Fund represents
and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of the Trust,
a business trust duly organized, validly existing and in good standing under the
laws of the Commonwealth of Massachusetts.
(b) The Acquiring Fund is a separate investment series of the Trust,
which is registered as an investment company classified as a management company
of the open-end type, and its registration with the Securities and Exchange
Commission (the "Commission") as an investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), is in full force and effect.
(c) The prospectus and statement of additional information, as of
the date of the Prospectus/Proxy Statement, of the Acquiring Fund will conform
in all material respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations of the Commission thereunder and will not
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in violation of the Trust's
Declaration of Trust or By-Laws or of any material agreement, indenture,
instrument, contract, lease, or other undertaking to which the Acquiring Fund is
a party or by which it is bound.
(e) Except as otherwise disclosed in writing to the Selling Fund and
accepted by the Selling Fund, no litigation, administrative proceeding or
investigation of or before any court or governmental body is presently pending
or to its knowledge threatened against the Acquiring Fund or any of its
properties or assets, which, if adversely determined, would materially and
adversely affect its financial condition and the conduct of its business or the
ability of the Acquiring Fund to carry out the transactions contemplated by this
Agreement. The Acquiring Fund knows of no facts that might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree, or judgment of any court or governmental body
that materially and adversely affects its business or its ability to consummate
the transactions contemplated herein.
(f) The audited financial statements of the Acquiring Fund at March
31, 2006 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Selling Fund) fairly reflect the financial condition of the Acquiring
Fund as of such date, and there are no known contingent liabilities of the
Acquiring Fund as of such date not disclosed therein.
(g) Since March 31, 2006, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as otherwise disclosed to
and accepted by the Selling Fund. For the purposes of this subparagraph (g), a
decline in the net asset value of the Acquiring Fund shall not constitute a
material adverse change.
6
(h) At the Closing Date, all federal and other tax returns and
reports of the Acquiring Fund required by law then to be filed by such date
shall have been filed, and all federal and other taxes shown due on said returns
and reports shall have been paid or provision shall have been made for the
payment thereof. To the best of the Acquiring Fund's knowledge, no such return
is currently under audit, and no assessment has been asserted with respect to
such returns.
(i) For each fiscal year of its operation, the Acquiring Fund has
met the requirements of Subchapter M of the Code for qualification and treatment
as a regulated investment company and has distributed in each such year all net
investment income and realized capital gains.
(j) All issued and outstanding Acquiring Fund Shares are, and at the
Closing Date will be, duly and validly issued and outstanding, fully paid and
non-assessable. The Acquiring Fund does not have outstanding any options,
warrants, or other rights to subscribe for or purchase any Acquiring Fund
Shares, nor is there outstanding any security convertible into any Acquiring
Fund Shares.
(k) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Acquiring Fund,
and this Agreement constitutes a valid and binding obligation of the Acquiring
Fund enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors' rights and to general equity principles.
(l) The Acquiring Fund Shares to be issued and delivered to the
Selling Fund, for the account of the Selling Fund Shareholders, pursuant to the
terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable.
(m) The information furnished by the Acquiring Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby is accurate and complete in all material
respects and complies in all material respects with federal securities and other
laws and regulations applicable thereto.
(n) The Prospectus/Proxy Statement included in the Registration
Statement (only insofar as it relates to the Acquiring Fund) does not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling Fund
each will operate its business in the ordinary course between the date hereof
and the Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
5.2 APPROVAL BY SHAREHOLDERS. The Trust will call a meeting of the
shareholders of the Selling Fund to consider and act upon this Agreement and to
take all other action necessary to obtain approval of the transactions
contemplated herein.
7
5.3 INVESTMENT REPRESENTATION. The Selling Fund covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 ADDITIONAL INFORMATION. The Selling Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Selling Fund shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Selling Fund will each take, or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement, including any actions required to be taken after the Closing Date.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING FUND
The obligations of the Selling Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations and warranties of the Acquiring Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and as of the Closing Date with the same force and effect as if made on
and as of the Closing Date, and the Acquiring Fund shall have delivered to the
Selling Fund a certificate executed in its name by the Trust's President or Vice
President, in form and substance reasonably satisfactory to the Selling Fund and
dated as of the Closing Date, to such effect and as to such other matters as the
Selling Fund shall reasonably request.
6.2 With respect to the Selling Fund, the Trust shall have received on the
Closing Date an opinion from Sullivan & Worcester LLP, special counsel to the
Trust and the Acquiring Fund, dated as of the Closing Date, in a form reasonably
satisfactory to the Selling Fund, covering the following points:
(a) The Acquiring Fund is a separate investment series of a business
trust duly organized, validly existing and in good standing under the laws of
the Commonwealth of Massachusetts and, to such counsel's knowledge, has the
trust power to own all of its properties and assets and, to carry on its
business as presently conducted.
(b) The Acquiring Fund is a separate series of a Massachusetts
business trust registered as an investment company under the 1940 Act, and, to
such counsel's knowledge, such registration with the Commission as an investment
company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed, and delivered
by the Trust on behalf of the Acquiring Fund and, assuming due authorization,
execution and delivery of this Agreement by the Selling Fund, is a valid and
binding obligation of the Acquiring Fund enforceable against the Acquiring Fund
in accordance with its terms, subject as to enforcement, to bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium, and other laws
relating to or affecting creditors' rights generally and to general equity
principles.
(d) Assuming that a consideration therefore not less than the net
asset value thereof has been paid, the Acquiring Fund Shares to be issued and
delivered to the Selling Fund on behalf of the Selling Fund Shareholders as
provided by this Agreement are duly authorized and upon such delivery will be
legally issued and outstanding and fully paid and non-assessable, and no
shareholder of the Acquiring Fund has any statutory preemptive rights in respect
thereof.
8
(e) The Registration Statement, to the knowledge of such counsel,
has been declared effective by the Commission and no stop order under the 1933
Act pertaining thereto has been issued; and to the knowledge of such counsel, no
consent, approval, authorization or order of any court or governmental authority
of the United States or the Commonwealth of Massachusetts is required for
consummation by the Acquiring Fund of the transactions contemplated herein,
except such as have been obtained under the 1933 Act and the 1940 Act, and as
may be required under state securities laws.
(f) The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-Laws or a material provision
of any material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Acquiring Fund is
a party or by which it or any of its properties may be bound or, to the
knowledge of such counsel, result in the acceleration of any obligation or the
imposition of any penalty under any agreement, judgment, or decree to which the
Acquiring Fund is a party or by which it is bound.
(g) Only insofar as they relate to the Acquiring Fund, the
descriptions in the Prospectus/Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and fairly
present the information required to be shown.
(h) In the ordinary course of such counsel's representation of the
Acquiring Fund, and without having made any investigation, such counsel does not
know of any legal or governmental proceedings, only insofar as they relate to
the Acquiring Fund, existing on or before the effective date of the Registration
Statement or the Closing Date required to be described in the Registration
Statement or to be filed as exhibits to the Registration Statement which are not
described or filed as required.
(i) In the ordinary course of such counsel's representation of the
Acquiring Fund, and without having made any investigation, and except as
otherwise disclosed, to the knowledge of such counsel, no litigation or
administrative proceeding or investigation of or before any court or
governmental body is presently pending or threatened as to the Acquiring Fund or
any of its properties or assets and the Acquiring Fund is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body, which materially and adversely affects its business, other
than as previously disclosed in the Registration Statement.
(j) To the knowledge of such counsel no consent, approval,
authorization or order of any court or governmental authority of the United
States or the Commonwealth of Massachusetts is required for consummation by the
Acquiring Fund of the transaction contemplated herein, except as has and as may
be obtained under the 1933 Act, the 1934 Act and the 1940 Act, and as may be
required under state securities laws.
Such opinion shall contain such assumptions and limitations as shall be in
the opinion of Sullivan & Worcester LLP appropriate to render the opinions
expressed therein.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to complete the transactions
provided for herein shall be subject, at its election, to the performance by the
Selling Fund of all the obligations to be performed by it hereunder on or before
the Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Selling Fund contained in
this Agreement shall be true and correct as of the date hereof and as of the
Closing Date with the same force and effect as if made on and as of the Closing
Date, and the Selling Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by the Trust's President or Vice
President, in form and substance satisfactory to the Acquiring Fund and dated as
of the Closing Date, to such effect and as to such other matters as the
Acquiring Fund shall reasonably request.
9
7.2 The Selling Fund shall have delivered to the Acquiring Fund a
statement of the Selling Fund's assets and liabilities, together with a list of
the Selling Fund's portfolio securities showing the tax costs of such securities
by lot and the holding periods of such securities, as of the Closing Date,
certified by the Treasurer or Assistant Treasurer of the Trust.
7.3 With respect to the Acquiring Fund, the Trust shall have received on
the Closing Date an opinion of Sullivan & Worcester LLP, special counsel to the
Trust and the Selling Fund, in a form reasonably satisfactory to the Acquiring
Fund, covering the following points:
(a) The Selling Fund is a separate investment series of the Trust, a
business trust duly organized, validly existing and in good standing under the
laws of the Commonwealth of Massachusetts and has the trust power to own all of
its properties and assets and, to the knowledge of such counsel, to carry on its
business as presently conducted.
(b) The Selling Fund is a separate investment series of a
Massachusetts business trust registered as an investment company under the 1940
Act, and, to such counsel's knowledge, such registration with the Commission as
an investment company under the 1940 Act is in full force and effect.
(c) This Agreement has been duly authorized, executed and delivered
by the Trust on behalf of the Selling Fund and, assuming due authorization,
execution, and delivery of this Agreement by the Acquiring Fund, is a valid and
binding obligation of the Selling Fund enforceable against the Selling Fund in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles.
(d) Assuming that a consideration therefore of not less than the net
asset value thereof has been paid, and assuming that such shares were issued in
accordance with the terms of the Selling Fund's registration statement, or any
amendment thereto, in effect at the time of such issuance, all issued and
outstanding shares of the Selling Fund are legally issued and fully paid and
non-assessable.
(e) The execution and delivery of this Agreement did not, and the
consummation of the transactions contemplated hereby will not, result in a
violation of the Trust's Declaration of Trust or By-laws, or a material
provision of any material agreement, indenture, instrument, contract, lease or
other undertaking (in each case known to such counsel) to which the Selling Fund
is a party or by which it or any of its properties may be bound or, to the
knowledge of such counsel, result in the acceleration of any obligation or the
imposition of any penalty, under any agreement, judgment, or decree to which the
Selling Fund is a party or by which it is bound.
(f) Only insofar as they relate to the Selling Fund, the
descriptions in the Prospectus/Proxy Statement of statutes, legal and
governmental proceedings and material contracts, if any, are accurate and fairly
represent the information required to be shown.
(g) In the ordinary course of such counsel's representation of the
Selling Fund and without having made any investigation, such counsel does not
know of any legal or governmental proceedings, only insofar as they relate to
the Selling Fund existing on or before the effective date of the Registration
Statement or the Closing Date, required to be described in the Registration
Statement or to be filed as exhibits to the Registration Statement which are not
described or filed as required.
(h) In the ordinary course of such counsel's representation of the
Selling Fund and without having made any investigation, and except as otherwise
disclosed, to the knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to the Selling Fund or any of its respective
properties or assets and the Selling Fund is not a party to nor subject to the
provisions of any order, decree or judgment of any court or governmental body,
which materially and adversely affects its business other than as previously
disclosed in the Prospectus/Proxy Statement.
10
(i) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or the Commonwealth of Massachusetts is required for consummation by the
Selling Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, 1934 Act and the 1940 Act, and as may be required
under state securities laws.
Such opinion shall contain such other assumptions and limitations as shall
be in the opinion of Sullivan & Worcester LLP appropriate to render the opinions
expressed therein.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF
THE ACQUIRING FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Selling Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Selling Fund in accordance with the provisions of the Trust's Agreement and
Declaration of Trust and By-Laws and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Selling Fund may waive the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, nor instituted any
proceeding seeking to enjoin the consummation of the transactions contemplated
by this Agreement under Section 25(c) of the 1940 Act and no action, suit or
other proceeding shall be threatened or pending before any court or governmental
agency in which it is sought to restrain or prohibit, or obtain damages or other
relief in connection with, this Agreement or the transactions contemplated
herein.
8.3 All required consents of other parties and all other consents, orders,
and permits of federal, state and local regulatory authorities (including those
of the Commission and of state Blue Sky securities authorities, including any
necessary "no-action" positions of and exemptive orders from such federal and
state authorities) to permit consummation of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order, or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Selling Fund, provided
that either party hereto may for itself waive any of such conditions.
8.4 The Registration Statement shall have become effective under the 1933
Act, and no stop orders suspending the effectiveness of the Registration
Statement shall have been issued and, to the best knowledge of the parties
hereto, no investigation or proceeding for that purpose shall have been
instituted or be pending, threatened or contemplated under the 1933 Act.
8.5 The Selling Fund shall have declared a dividend or dividends which,
together with all previous such dividends shall have the effect of distributing
to the Selling Fund Shareholders all of the Selling Fund's investment company
taxable income for all taxable periods ending on the Closing Date (computed
without regard to any deduction for dividends paid) and all of the net capital
gains realized in all taxable periods ending on the Closing Date (after
reduction for any capital loss carryforward).
11
8.6 The Trust shall have received a favorable opinion of Sullivan &
Worcester LLP addressed to the Acquiring Fund and the Selling Fund substantially
to the effect that, for federal income tax purposes:
(a) The transfer of all of the Selling Fund assets in exchange for
the Acquiring Fund Shares and the assumption by the Acquiring Fund of the
liabilities of the Selling Fund followed by the distribution of the Acquiring
Fund Shares to the Selling Fund Shareholders in dissolution and liquidation of
the Selling Fund will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and the Acquiring Fund and the Selling Fund will
each be a "party to a reorganization" within the meaning of Section 368(b) of
the Code.
(b) No gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Selling Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund upon the
transfer of the Selling Fund's assets to the Acquiring Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
liabilities of the Selling Fund or upon the distribution (whether actual or
constructive) of the Acquiring Fund Shares to Selling Fund Shareholders in
exchange for their shares of the Selling Fund.
(d) No gain or loss will be recognized by the Selling Fund
Shareholders upon the exchange of their Selling Fund shares for the Acquiring
Fund Shares in liquidation of the Selling Fund.
(e) The aggregate tax basis for the Acquiring Fund Shares received
by each Selling Fund Shareholder pursuant to the Reorganization will be the same
as the aggregate tax basis of the Selling Fund shares held by such Shareholder
immediately prior to the Closing. The holding period of the Acquiring Fund
Shares received by each Selling Fund Shareholder will include the period during
which the Selling Fund shares exchanged therefore were held by such Shareholder
(provided the Selling Fund shares were held as capital assets on the date of the
Closing).
(f) The tax basis of the Selling Fund assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the Selling
Fund immediately prior to the Closing, and the holding period of the assets of
the Selling Fund in the hands of the Acquiring Fund will include the period
during which those assets were held by the Selling Fund.
(g) The Acquiring Fund will succeed to and take into account the
items of the Selling Fund described in Section 381(c) of the Code, subject to
the conditions and limitations specified in Sections 381, 382, 383 and 384 of
the Code and applicable regulations thereunder.
Such opinion shall contain such assumptions and limitations as shall be in
the opinion of Sullivan & Worcester LLP appropriate to render the opinions
expressed therein. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Selling Fund may waive the conditions set forth in this
paragraph 8.6.
12
ARTICLE IX
EXPENSES
9.1 Except as otherwise provided for herein, all expenses of the
transactions contemplated by this Agreement incurred by the Selling Fund and the
Acquiring Fund, whether incurred before or after the date of this Agreement,
will be borne by Touchstone Advisors, Inc., the investment advisor to the Trust
or one of its affiliates. Such expenses include, without limitation, (a)
expenses incurred in connection with the entering into and the carrying out of
the provisions of this Agreement; (b) expenses associated with the preparation
and filing of the Registration Statement under the 1933 Act covering the
Acquiring Fund Shares to be issued pursuant to the provisions of this Agreement;
(c) registration or qualification fees and expenses of preparing and filing such
forms as are necessary under applicable state securities laws to qualify the
Acquiring Fund Shares to be issued in connection herewith in each state in which
the Selling Fund Shareholders are residents as of the date of the mailing of the
Prospectus/Proxy Statement to such shareholders; (d) postage; (e) printing; (f)
accounting fees; (g) legal fees; and (h) solicitation costs of the transaction.
ARTICLE X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Acquiring Fund and the Selling Fund agree that neither party has
made any representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
10.2 The representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
ARTICLE XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Acquiring Fund and the Selling Fund. In addition, either the Acquiring Fund or
the Selling Fund may at its option terminate this Agreement at or prior to the
Closing Date because:
(a) of a breach by the other of any representation, warranty, or
agreement contained herein to be performed at or prior to the Closing Date, if
not cured within 30 days;
(b) a condition herein expressed to be precedent to the obligations
of the terminating party has not been met and it reasonably appears that it will
not or cannot be met; or
(c) a determination by the Trust's Board of Trustees that the
consummation of the Transaction contemplated herein is not in the best interest
of the Selling Fund or the Acquiring Fund.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of the Acquiring
Fund, the Selling Fund, the Trust, or its Trustees or officers, to the other
party, but each shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement as provided in paragraph 9.1.
13
ARTICLE XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such
manner as may be mutually agreed upon in writing by the authorized officers of
the Trust; provided, however, that following the meeting of shareholders of the
Selling Fund pursuant to paragraph 5.2 of this Agreement, no such amendment may
have the effect of changing the provisions for determining the number of the
Acquiring Fund Shares to be issued to the Selling Fund Shareholders under this
Agreement to the detriment of such Selling Fund Shareholders without their
further approval.
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to the
conflicts of laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, or corporation, other than the parties hereto and their respective
successors and permitted assigns, any rights or remedies under or by reason of
this Agreement.
13.5 With respect to the Trust, the name used herein refers respectively
to the trust created and, as the case may be, the Trustees, as trustees but not
individually or personally, acting from time to time under organizational
documents filed in Massachusetts, which are hereby referred to and are also on
file at the principal offices of the Trust. The obligations of the Trust entered
into in the name or on behalf thereof by any of the Trustees, representatives or
agents of the Trust, are made not individually, but in such capacities, and are
not binding upon any of the Trustees, shareholders or representatives of the
Trust personally, but bind only the trust property, and all persons dealing with
the Selling Fund and the Acquiring Fund must look solely to the trust property
belonging to the Selling Fund and the Acquiring Fund for the enforcement of any
claims against the Selling Fund and the Acquiring Fund, respectively.
14
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as
of the date first written above.
TOUCHSTONE STRATEGIC TRUST ON
BEHALF OF THE LARGE CAP CORE EQUITY FUND
By: /s/ Jill T. McGruder
------------------------
Name: Jill T. McGruder
Title: President
TOUCHSTONE STRATEGIC TRUST ON
BEHALF OF THE VALUE PLUS FUND
By: /s/ Jill T. McGruder
------------------------
Name: Jill T. McGruder
Title: President
15
EXHIBIT B
- --------------------------------------------------------------------------------
PERFORMANCE AND MARKET OVERVIEW
March 31, 2006 (Unaudited)
VALUE PLUS FUND
FORT WASHINGTON INVESTMENT ADVISORS, INC.
The total return of the Touchstone Value Plus Fund Class A was 8.13% for the
twelve months ended March 31, 2006. The total return of the Russell 1000 Value
Index was 13.31% for the same period.
March 2006 was the fifth straight month of positive returns for the stock
market. The breadth of the market has also been strong, with nine out of ten
sectors providing positive performance over the twelve-month period. The only
lagging sector was Consumer Discretionary--a fact that reflects investors'
concerns about the health of consumer spending.
Acquisition activity began to pick up as corporations started to spend the cash
hoard that has been building up on their balance sheets over the last couple of
years. Small-cap stocks continued their dominance in the first quarter, handily
outperforming their large-cap brethren by almost ten percent. Lower quality
companies also continued to outperform as investor confidence in the current
economic expansion has allowed them to continue to dip down the risk spectrum.
Surprisingly, the Telecommunications, Information Technology, and Industrials
sectors led the market in the first quarter of 2006. This could be a signal that
the market is discounting a much-anticipated leadership change from the consumer
to corporations, as these are the sectors that benefit from increased capital
spending. We have long believed that this condition would be necessary for
continued economic growth in an already extended cycle.
PORTFOLIO REVIEW
The Fund's relative underperformance to the benchmark can be attributed to stock
selection, specifically in the Information Technology and Industrials sectors,
and sector allocation. Our decision to underweight the strong-performing
Financials sector while overweight the underperforming Consumer Discretionary
sector detracted from performance. Strong stock selection in the Consumer
Discretionary and Health Care sectors contributed positively to the Fund's
performance.
CURRENT STRATEGY AND OUTLOOK
Our assessment of market conditions is that the higher bond yields are likely to
persist for some time, and we expect the stock market to beat its results for
2005. However, there will likely be tests along the way for both of these
markets.
To a large extent, the recent market gains reflect growing investor confidence
about the global economy. The U.S. has rebounded from a hurricane-induced
slowdown in the fourth quarter, and real GDP growth is estimated to have grown
at a four to five percent rate in the first quarter.
So far, government policy actions have not caused an equity market sell-off,
mainly because investors still believe the end of Fed tightening is in sight and
that rate hikes abroad will be gradual. If more policy tightening is in store,
U.S. and world equity markets could become vulnerable. The possibility of a
significant hike in oil prices remains a concern. The United States still faces
a shortage of refining capacity and the prospect of another tumultuous hurricane
season that could send gasoline prices higher. In our opinion, neither of these
risks is sufficiently great to derail the global expansion.
A key element for the stock market will be the impact of slowing earnings growth
on investor's confidence. Since the beginning of the year, seven of the ten
market sectors have seen a slowdown in expected operating earnings growth. While
the overall earnings growth is still expected to be healthy, this slowing could
generate more interest in the larger capitalization, higher-quality stocks. This
is an area of the market where we continue to find ample investment
opportunities, and we believe the Fund is well positioned to benefit from this
possible trend.
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
VALUE PLUS FUND - CLASS A* AND THE RUSSELL 1000 VALUE INDEX
[LINE CHART]
VALUE PLUS FUND - CLASS A RUSSELL 1000 VALUE INDEX
Date Date
---- ----
05/01/98 9,425 05/01/98 10,000
05/31/98 9,105 05/31/98 9,852
06/30/98 9,302 06/30/98 9,978
09/30/98 8,134 09/30/98 8,823
12/31/98 9,830 12/31/98 10,288
03/31/99 10,208 03/31/99 10,435
06/30/99 11,000 06/30/99 11,612
09/30/99 10,045 09/30/99 10,474
12/31/99 11,352 12/31/99 11,043
03/31/00 11,155 03/31/00 11,096
06/30/00 11,029 06/30/00 10,576
09/30/00 10,953 09/30/00 11,407
12/31/00 11,568 12/31/00 11,818
03/31/01 11,072 03/31/01 11,125
06/30/01 11,787 06/30/01 11,668
09/30/01 10,393 09/30/01 10,390
12/31/01 11,362 12/31/01 11,156
03/31/02 11,329 03/31/02 11,611
06/30/02 9,633 06/30/02 10,622
09/30/02 7,830 09/30/02 8,628
12/31/02 8,406 12/31/02 9,424
03/31/03 8,090 03/31/03 8,966
06/30/03 9,514 06/30/03 10,514
09/30/03 9,624 09/30/03 10,731
12/31/03 10,879 12/31/03 12,253
03/31/04 11,087 03/31/04 12,625
06/30/04 11,262 06/30/04 12,736
09/30/04 11,054 09/30/04 12,932
12/31/04 11,965 12/31/04 14,274
03/31/05 11,794 03/31/05 14,287
06/30/05 11,761 06/30/05 14,526
09/30/05 12,124 09/30/05 15,089
12/31/05 12,247 12/31/05 15,281
03/31/06 12,753 03/31/06 16,187
- --------------------------------------------------------------------------------
VALUE PLUS FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR 5 YEARS SINCE INCEPTION*
CLASS A 1.87% 1.65% 3.12%
CLASS B 3.24% -- 0.56%
CLASS C 7.29% 2.10% 3.01%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
*The chart above represents performance of Class A shares only, which will vary
from the performance of Class B and Class C shares based on the difference in
loads and fees paid by shareholders in the different classes. The initial public
offering of Class A shares commenced on May 1, 1998 and the initial public
offering of Class B and Class C shares commenced on May 1, 2001 and January 1,
1999, respectively. The Class C performance information is calculated using the
historical performance information of the Fund's predecessor, which was another
mutual fund that began operations on May 1, 1998.
**The average annual total returns shown above are adjusted for maximum
applicable sales charges.
The performance of the above Fund does not reflect the deduction of taxes that a
sharesholder would pay on Fund distributions or the redemption of Fund shares.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE AND MARKET OVERVIEW
March 31, 2006 (Unaudited)
LARGE CAP CORE EQUITY FUND
TODD INVESTMENT ADVISORS, INC.
The total return of the Touchstone Large Cap Core Equity Fund Class A was 10.74%
for the twelve months ended March 31, 2006. The total return of the Russell 1000
Index was 13.20% over the same period.
Larger stocks lagged the broader Russell 1000 Index, as the largest 50 stocks
gained only 2.5% for the quarter. This underperformance persisted throughout the
year, and mid-cap stocks were the best performers by a wide margin.
Investors were concerned that the economy would weaken and hopes were high that
the Fed would have the leeway to stop raising rates. These factors are now
reversed, with the economy looking much stronger than many had expected and many
investors now worried that the Fed will keep raising rates. The net result of
this change was that investors bought into stocks and the equity markets set new
recovery highs. Bonds declined as the 10-year U.S. Treasury yield rose.
PORTFOLIO REVIEW
The Fund's overweight in Industrials helped performance. The Fund benefited from
good stock selection in Information Technology, where it also was overweight.
The Fund's best-performing stocks were an eclectic mix from diverse sectors of
the economy. While they all have their individual reasons for good performance,
the common theme was that investors do not expect the economy to falter. U.S.
capital goods production remains strong, and consumers continue to want the
latest-and-greatest digital technology. Those are two trends that we believe
will have legs for some time to come.
CURRENT STRATEGY AND OUTLOOK
The Fund's strategy has always been to hold a limited number of names that offer
better appreciation potential than other stocks because of their attractive
relative valuation and the presence of an active catalyst. The Fund holds 30
stocks at all times, selected from the 200 largest U.S. stocks. Fund managers
then look for catalysts to unlock a stock's value. The end result of this
process is a high-quality portfolio of large-capitalization stocks from
well-known companies that we believe to be attractively valued.
We have fought a number of headwinds over the past quarter and year, most
notably the weakness in large-cap stocks versus their smaller peers. We believe
that trend is going to turn this year and that the Fund is well positioned to
benefit from that change.
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
LARGE CAP CORE EQUITY FUND - CLASS A* AND THE RUSSELL 1000 INDEX
[LINE CHART]
LARGE CAP CORE EQUITY - CLASS A RUSSELL 1000 INDEX
DATE DATE
---- ----
05/16/00 9,425 05/16/00 10,000
05/31/00 9,341 05/31/00 9,647
06/30/00 9,273 06/30/00 9,893
07/31/00 9,171 07/31/00 9,729
08/31/00 9,571 08/31/00 10,449
09/30/00 9,318 09/30/00 9,964
10/31/00 9,588 10/31/00 9,844
11/30/00 9,188 11/30/00 8,945
12/31/00 9,263 12/31/00 9,053
01/31/01 9,263 01/31/01 9,351
02/28/01 8,936 02/28/01 8,478
03/31/01 8,313 03/31/01 7,915
6/30/2001 8,475 6/30/2001 8,415
9/30/2001 7,414 9/30/2001 7,133
12/31/2001 8,434 12/31/2001 7,926
3/31/2002 8,634 3/31/2002 7,984
6/30/2002 7,522 6/30/2002 6,910
9/30/2002 6,003 9/30/2002 5,741
12/31/2002 6,607 12/31/2002 6,210
3/31/2003 6,373 3/31/2003 6,027
6/30/2003 7,571 6/30/2003 6,976
9/30/2003 7,707 9/30/2003 7,185
12/31/2003 8,646 12/31/2003 8,066
3/31/2004 8,693 3/31/2004 8,219
6/30/2004 8,904 6/30/2004 8,334
9/30/2004 8,493 9/30/2004 8,183
12/31/2004 9,368 12/31/2004 8,985
3/31/2005 9,155 3/31/2005 8,814
6/30/2005 9,175 6/30/2005 8,994
9/30/2005 9,435 9/30/2005 9,350
12/31/2005 9,675 12/31/2005 9,548
3/31/2006 10,137 3/31/2006 9,977
- --------------------------------------------------------------------------------
LARGE CAP CORE EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR 5 YEARS SINCE INCEPTION*
CLASS A 4.35% 2.83% 0.23%
CLASS B 5.95% -- 1.76%
CLASS C 9.91% 3.37% 0.58%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
*The chart above represents performance of Class A shares only, which will vary
from the performance of Class B and Class C shares based on the differences in
loads and fees paid by shareholders in the different classes. The initial public
offering of Class A shares was May 1, 2000 and the initial public offering of
Class B and Class C shares commenced on May 1, 2001 and May 16, 2000,
respectively.
**The average annual total returns shown above are adjusted for maximum
applicable sales charges.
The performance of the above Fund does not reflect the deduction of taxes that a
shareholder would pay on Fund distributions or the redemption of Fund shares.
- --------------------------------------------------------------------------------
EXHIBIT C
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each Fund's
financial performance during the past five years (or, if shorter, during its
operations). Certain information reflects financial results for a single Fund
share. The total returns in the tables represent the rate an investor would have
earned or lost on an investment in a Fund (assuming reinvestment of all
dividends and distributions). The information has been audited by Ernst & Young
LLP, whose report, along with the Funds' financial statements, is included in
the Annual Report, which is available upon request.
LARGE CAP CORE EQUITY FUND--CLASS A
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED MARCH 31,
----------------------------------------------------------------------
2006 2005 2004 2003 2002
---------- ---------- ---------- ---------- ----------
Net asset value at beginning of year $ 9.48 $ 9.10 $ 6.71 $ 9.19 $ 8.90
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.06 0.11 0.07 0.06 0.06
Net realized and unrealized gains 0.96 0.38 2.37 (2.46) 0.28
(losses) on investments
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.02 0.49 2.44 (2.40) 0.34
---------- ---------- ---------- ---------- ----------
Dividends from net investment income (0.01) (0.11) (0.05) (0.08) (0.05)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year $ 10.49 $ 9.48 $ 9.10 $ 6.71 $ 9.19
========== ========== ========== ========== ==========
Total return(A) 10.74% 5.32% 36.41% (26.19%) 3.86%
========== ========== ========== ========== ==========
Net assets at end of year (000's) $ 25,693 $ 9,328 $ 8,783 $ 6,109 $ 7,561
========== ========== ========== ========== ==========
Ratio of net expenses to average net assets 1.00% 1.00% 0.97%(B) 1.00% 1.00%
Ratio of net investment income to average net assets 1.03% 1.18% 0.85%(B) 0.90% 0.70%
Portfolio turnover rate 6% 7% 10% 29% 9%
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 1.00% and the ratio of net investment
income to average net assets would have been 0.82%.
LARGE CAP CORE EQUITY FUND--CLASS B
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
----------------------------------------------------------------------
YEAR ENDED MARCH 31, PERIOD ENDED
MARCH 31,
2006 2005 2004 2003 2002(A)
---------- ---------- ---------- ---------- ----------
Net asset value at beginning of period $ 9.42 $ 9.04 $ 6.69 $ 9.13 $ 9.50
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.03 0.04 0.01 0.01 0.02
Net realized and unrealized gains 0.91 0.37 2.36 (2.45) (0.37)
(losses) on investments
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.94 0.41 2.37 (2.44) (0.35)
---------- ---------- ---------- ---------- ----------
Dividends from net investment income (0.01) (0.03) (0.02) --(B) (0.02)
---------- ---------- ---------- ---------- ----------
Net asset value at end of period $ 10.35 $ 9.42 $ 9.04 $ 6.69 $ 9.13
========== ========== ========== ========== ==========
Total return(C) 9.95% 4.55% 35.37% (26.70%) (3.60%)(D)
========== ========== ========== ========== ==========
Net assets at end of period (000's) $ 1,713 $ 1,665 $ 1,456 $ 729 $ 860
========== ========== ========== ========== ==========
Ratio of net expenses to average net assets 1.75% 1.75% 1.72%(F) 1.75% 1.75%(E)
Ratio of net investment income to average net assets 0.26% 0.46% 0.10%(F) 0.18% 0.03%(E)
Portfolio turnover rate 6% 7% 10% 29% 9%(E)
(A) Represents the period from the commencement of operations (May 1, 2001)
through March 31, 2002.
(B) Amount rounds to less than $0.01 per share.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Not annualized.
(E) Annualized.
(F) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 1.75% and the ratio of net investment
income to average net assets would have been 0.07%.
LARGE CAP CORE EQUITY FUND--CLASS C
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED MARCH 31,
----------------------------------------------------------------------
2006 2005 2004 2003 2002
---------- ---------- ---------- ---------- ----------
Net asset value at beginning of year $ 9.46 $ 9.08 $ 6.72 $ 9.13 $ 8.88
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.03 0.04 0.01 0.01 0.01
Net realized and unrealized gains 0.91 0.37 2.37 (2.41) 0.25
(losses) on investments
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.94 0.41 2.38 (2.40) 0.26
---------- ---------- ---------- ---------- ----------
Dividends from net investment income (0.01) (0.03) (0.02) (0.01) (0.01)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year $ 10.39 $ 9.46 $ 9.08 $ 6.72 $ 9.13
========== ========== ========== ========== ==========
Total return(A) 9.91% 4.52% 35.38% (26.32%) 3.00%
========== ========== ========== ========== ==========
Net assets at end of year (000's) $ 1,399 $ 1,675 $ 2,260 $ 920 $ 900
========== ========== ========== ========== ==========
Ratio of net expenses to average net assets 1.75% 1.75% 1.72%(B) 1.74% 1.75%
Ratio of net investment income (loss) to average
net assets 0.26% 0.41% 0.13%(B) 0.18% (0.05%)
Portfolio turnover rate 6% 7% 10% 29% 9%
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 1.75% and the ratio of net investment
income to average net assets would have been 0.10%.
VALUE PLUS FUND--CLASS A
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED MARCH 31,
----------------------------------------------------------------------
2006 2005 2004 2003 2002
---------- ---------- ---------- ---------- ----------
Net asset value at beginning of year $ 10.74 $ 10.14 $ 7.45 $ 10.49 $ 10.27
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income 0.10 0.04 0.06 0.05 0.02
Net realized and unrealized gains (losses) on 0.77 0.60 2.69 (3.05) 0.22
investments
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.87 0.64 2.75 (3.00) 0.24
---------- ---------- ---------- ---------- ----------
Dividends from net investment income (0.01) (0.04) (0.06) (0.04) (0.02)
---------- ---------- ---------- ---------- ----------
Net asset value at end of year $ 11.60 $ 10.74 $ 10.14 $ 7.45 $ 10.49
========== ========== ========== ========== ==========
Total return(A) 8.13% 6.34% 37.04% (28.59%) 2.34%
========== ========== ========== ========== ==========
Net assets at end of year (000's) $ 72,504 $ 73,600 $ 64,612 $ 46,113 $ 93,214
========== ========== ========== ========== ==========
Ratio of net expenses to average net assets 1.30% 1.30% 1.30% 1.30% 1.30%
Ratio of net investment income to average net assets 0.86% 0.46% 0.68% 0.58% 0.23%
Portfolio turnover rate 57% 29% 44% 58% 33%
(A) Total returns shown exclude the effect of applicable sales loads.
VALUE PLUS FUND--CLASS B
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
----------------------------------------------------------------------
YEAR ENDED MARCH 31, PERIOD ENDED
MARCH 31,
2006 2005 2004 2003 2002(A)
---------- ---------- ---------- ---------- ----------
Net asset value at beginning of period $ 10.27 $ 9.73 $ 7.18 $ 10.18 $ 10.72
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss) 0.01 (0.03) --(B) --(B) (0.01)
Net realized and unrealized gains (losses) on 0.73 0.57 2.58 (2.96) (0.53)
investments
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.74 0.54 2.58 (2.96) (0.54)
---------- ---------- ---------- ---------- ----------
Dividends from net investment income (0.01) -- (0.03) (0.04) --
---------- ---------- ---------- ---------- ----------
Net asset value at end of period $ 11.00 $ 10.27 $ 9.73 $ 7.18 $ 10.18
========== ========== ========== ========== ==========
Total return(C) 7.24% 5.55% 36.04% (29.05%) (5.01%)(D)
========== ========== ========== ========== ==========
Net assets at end of period (000's) $ 813 $ 876 $ 753 $ 367 $ 130
========== ========== ========== ========== ==========
Ratio of net expenses to average net assets 2.05% 2.05% 2.05% 2.05% 2.05%(E)
Ratio of net investment income (loss) to average net 0.10% (0.29%) (0.09%) (0.06%) (0.77%)(E)
assets
Portfolio turnover rate 57% 29% 44% 58% 33%(E)
(A) Represents the period from the commencement of operations (May 1, 2001)
through March 31, 2002.
(B) Amount rounds to less than $0.01 per share.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Not annualized.
(E) Annualized.
VALUE PLUS FUND--CLASS C
FINANCIAL HIGHLIGHTS
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR ENDED MARCH 31,
----------------------------------------------------------------------
2006 2005 2004 2003 2002
---------- ---------- ---------- ---------- ----------
Net asset value at beginning of year $ 10.33 $ 9.78 $ 7.22 $ 10.18 $ 10.02
---------- ---------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income (loss) 0.01 (0.03) --(A) (0.02) (0.04)
Net realized and unrealized gains (losses) on 0.74 0.58 2.59 (2.94) 0.20
investments
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.75 0.55 2.59 (2.96) 0.16
---------- ---------- ---------- ---------- ----------
Dividends from net investment income (0.01) -- (0.03) -- --
---------- ---------- ---------- ---------- ----------
Net asset value at end of year $ 11.07 $ 10.33 $ 9.78 $ 7.22 $ 10.18
========== ========== ========== ========== ==========
Total return(B) 7.29% 5.62% 35.89% (29.08%) 1.60%
========== ========== ========== ========== ==========
Net assets at end of year (000's) $ 1,710 $ 1,851 $ 1,867 $ 1,512 $ 2,548
========== ========== ========== ========== ==========
Ratio of net expenses to average net assets 2.05% 2.05% 2.05% 2.05% 2.05%
Ratio of net investment income (loss) to average net 0.10% (0.29%) (0.05%) (0.15%) (0.51%)
assets
Portfolio turnover 57% 29% 44% 58% 33%
(A) Amount rounds to less than $0.01 per share.
(B) Total returns shown exclude the effect of applicable sales loads.
STATEMENT OF ADDITIONAL INFORMATION
JUNE 30, 2006
TOUCHSTONE STRATEGIC TRUST
300 BROADWAY, SUITE 1100
CINCINNATI, OH 45202
1-800-543-0407
This Statement of Additional Information is not a prospectus but should be read
in conjunction with the Proxy Statement/Prospectus dated June 30, 2006 for the
Special Meeting of Shareholders of Touchstone Strategic Trust (the "Trust") with
respect to the Value Plus Fund to be held on August 7, 2006. Copies of the Proxy
Statement/Prospectus may be obtained at no charge by calling 1-800-543-0407.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Proxy
Statement/Prospectus.
Further information about the Value Plus Fund and the Large Cap Core Equity
Fund, each a series of the Trust, is contained in and incorporated by reference
to the Statement of Additional Information for the Trust dated August 1, 2005,
as amended. The audited financial statements and related independent registered
public accountants' report for the Trust relating to the Value Plus Fund and the
Large Cap Core Equity Fund contained in the Annual Report to Shareholders for
the fiscal year ending March 31, 2006, are incorporated herein by reference.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Pro Forma Financial Statements of the combined Value Plus Fund and 1
the Large Cap Core Equity Fund for the year ended March 31, 2006
- --------------------------------------------------------------------------------
INTRODUCTION
The proposed transaction, if approved by shareholders, will result in: (i)
the transfer of all of the assets and liabilities of the Touchstone Strategic
Trust Value Plus Fund in exchange for shares of the Touchstone Strategic Trust
Large Cap Core Equity Fund; (ii) the distribution of shares of the Large Cap
Core Equity Fund so received to shareholders of the Value Plus Fund; and (iii)
the liquidation and termination of the Value Plus Fund. The Value Plus Fund and
the Large Cap Core Equity Fund, both series of the Touchstone Strategic Trust,
are the only entities involved in the proposed transaction.
The Portfolio of Investments and the Statement of Assets and Liabilities
for the Value Plus Fund, the Large Cap Core Equity Fund and the combined Large
Cap Core Equity Fund, set forth in the following Pro Forma Financial Statements,
are as of March 31, 2006. The Statement of Operations for the Value Plus Fund,
the Large Cap Core Equity Fund and the combined Large Cap Core Equity Fund, set
forth in the following Pro Forma Financial Statements, are for the twelve months
ended March 31, 2006.
PRO FORMA FINANCIAL STATEMENTS
LARGE CAP CORE EQUITY
PRO FORMA COMBINING
PORTFOLIO OF INVESTMENTS
MARCH 31, 2006
(UNAUDITED)
PRO FORMA
COMBINED
PRO FORMA TST LARGE CAP CORE
VALUE PLUS FUND LARGE CAP CORE EQUITY ADJUSTMENTS EQUITY FUND
SHARE/PAR MARKET VALUE SHARE/PAR MARKET VALUE SHARE/PAR MARKET VALUE SHARE/PAR MARKET VALUE
--------- ------------ --------- ------------ --------- ------------ --------- ------------
CASH EQUIVALENTS - 3.3%(A)
STIFS/MONEY MARKETS - 3.3%(A)
INSTITUTIONAL MONEY FUND^
YIELD ON 3/31/06 - 4.63% 2,746,686 $ 2,746,686** 751,420 $ 751,420 3,498,106 $ 3,498,106
------------ ------------ ------------
TOTAL CASH EQUIVALENTS 2,746,686 751,420 3,498,106
COMMON STOCKS - 96.7%(A)
BASIC MATERIALS - 1.8%(A)
DOW CHEMICAL 22,725 922,635 - - 22,725 922,635
DU PONT DE NEMOURS & CO. - - 22,470 948,459 22,470 948,459
------------
1,871,094
CONGLOMERATES -2.8%(A)
GENERAL ELECTRIC CO. 58,395 2,030,978 26,320 915,410 84,715 2,946,388
------------
2,946,388
CONSUMER, CYCLICAL - 9.9%(A)
BEST BUY COMPANY, INC. - - 20,715 1,158,590 20,715 1,158,590
CLEAR CHANNEL COMM., INC. 36,318 1,053,585 - - 36,318 1,053,585
THE WALT DISNEY CO. - - 35,230 982,565 35,230 982,565
HOME DEPOT, INC. 27,398 1,158,935 22,630 957,249 50,028 2,116,184
MCDONALD'S CORP. 24,192 831,237 - - 24,192 831,237
OUTBACK STEAKHOUSE, INC. 41,917 1,844,348 - - 41,917 1,844,348
TARGET CORP. 28,175 1,465,382 - - 28,175 1,465,382
WAL-MART STORES, INC. - - 19,730 932,045 19,730 932,045
------------ ------------ ------------
6,353,487 4,030,449 10,383,936
PRO FORMA
COMBINED
PRO FORMA TST LARGE CAP CORE
VALUE PLUS FUND LARGE CAP CORE EQUITY ADJUSTMENTS EQUITY FUND
SHARE/PAR MARKET VALUE SHARE/PAR MARKET VALUE SHARE/PAR MARKET VALUE SHARE/PAR MARKET VALUE
--------- ------------ --------- ------------ --------- ------------ --------- ------------
CONSUMER, NON-CYCLICAL - 20.1%(A)
ALTRIA GROUP INC. - $ - 11,660 $ 826,228 11,660 $ 826,228
AMGEN, INC.* 10,604 771,441 - - 10,604 771,441
ANHEUSER-BUSCH CO., INC. 26,950 1,152,652 - - 26,950 1,152,652
BOSTON SCIENTIFIC CORP.* 45,788 1,055,413 - - 45,788 1,055,413
CVS CORP. 49,181 1,469,037 - - 49,181 1,469,037
CARDINAL HEALTH, INC. 16,168 1,204,839 13,610 1,014,217 29,778 2,219,056
COCA-COLA CO. - - 20,070 840,331 20,070 840,331
DIAGEO PLC - ADR (t) 20,691 1,312,430 - - 20,691 1,312,430
JOHNSON & JOHNSON - - 13,690 810,722 13,690 810,722
KIMBERLY-CLARK CORP. 14,961 864,746 14,550 840,990 29,511 1,705,736
NOVARTIS AG - ADR 23,112 1,281,329 - - 23,112 1,281,329
PFIZER, INC. 139,104 3,466,472 - - 139,104 3,466,472
PROCTER & GAMBLE CO. - - 14,890 857,962 14,890 857,962
TYCO INTERNATIONAL LTD. 37,637 1,011,683 - - 37,637 1,011,683
WELLPOINT INC.* 19,599 1,517,551 11,390 881,928 30,989 2,399,479
------------ ------------ ------------
15,107,593 6,072,378 21,179,971
ENERGY - 9.2%(A)
BAKER HUGHES, INC. 17,550 1,200,420 - - 17,550 1,200,420
CHEVRON CORP. 23,208 1,345,368 - - 23,208 1,345,368
CONOCOPHILLIPS CO. 38,399 2,424,896 - - 38,399 2,424,896
EXXON MOBIL CORP. 35,866 2,182,805 14,270 868,472 50,136 3,051,277
MARATHON OIL CORP. 21,280 1,620,898 - - 21,280 1,620,898
------------ ------------ ------------
8,774,387 868,472 9,642,859
FINANCIAL SERVICES - 23.1%(A)
ALLSTATE CORP. 23,000 1,198,530 15,815 824,120 38,815 2,022,650
AMERICAN EXPRESS CO. 17,330 910,692 17,330 910,692
BANK OF AMERICA CORP. 70,469 3,209,158 20,660 940,855 91,129 4,150,013
PRO FORMA
COMBINED
PRO FORMA TST LARGE CAP CORE
VALUE PLUS FUND LARGE CAP CORE EQUITY ADJUSTMENTS EQUITY FUND
SHARE/PAR MARKET VALUE SHARE/PAR MARKET VALUE SHARE/PAR MARKET VALUE SHARE/PAR MARKET VALUE
--------- ------------ --------- ------------ --------- ------------ --------- ------------
CITIGROUP, INC. 70,595 $ 3,334,908 19,066 $ 900,678 89,661 $ 4,235,586
FREDDIE MAC CORP. 30,752 1,875,872 - - 30,752 1,875,872
GENWORTH FINANCIAL INC 45,024 1,505,152 - - 45,024 1,505,152
J.P. MORGAN CHASE & CO. 55,038 2,291,782 25,800 1,074,312 80,838 3,366,094
MERRILL LYNCH & CO., INC. 25,834 2,034,685 - - 25,834 2,034,685
MORGAN STANLEY CO. 30,925 1,942,709 - - 30,925 1,942,709
WELLS FARGO & CO. 35,470 2,265,469 - - 35,470 2,265,469
------------ ------------ ------------
19,658,265 4,650,657 24,308,922
INDUSTRIAL - 6.7%(A)
FLEXTRONICS INTL LTD* 88,923 920,353 - - 88,923 920,353
CATERPILLER, INC. 15,357 1,102,786 14,990 1,076,431 30,347 2,179,217
DEERE & CO 24,296 1,920,599 - - 24,296 1,920,599
MASCO CORP. 34,438 1,118,891 - - 34,438 1,118,891
3M CO. - - 12,100 915,849 12,100 915,849
------------ ------------ ------------
5,062,629 1,992,280 7,054,909
TECHNOLOGY - 15.8%(A)
CISCO SYSTEMS, INC.* 78,480 1,700,662 48,980 1,061,396 127,460 2,762,058
COMCAST CORP. - CL A* 49,512 1,293,254 - - 49,512 1,293,254
COMPUTER SCIENCES CORP.* 10,300 572,165 18,430 1,023,787 28,730 1,595,952
FIRST DATA CORP. 18,686 874,879 - - 18,686 874,879
HEWLETT-PACKARD CO. 23,111 760,352 30,320 997,528 53,431 1,757,880
HONEYWELL INTERNATIONAL - - 23,520 1,005,950 23,520 1,005,950
INTEL CORP. 33,097 640,427 35,220 681,507 68,317 1,321,934
IBM CORP. - - 10,800 890,676 10,800 890,676
MICROSOFT CORP. 74,645 2,031,089 34,640 942,554 109,285 2,973,643
MICRON TECHNOLOGY, INC. 78,560 1,156,403 - - 78,560 1,156,403
UNITED TECHNOLOGIES CORP. - - 17,170 995,345 17,170 995,345
------------ ------------ ------------
9,029,231 7,598,743 16,627,974
PRO FORMA
COMBINED
PRO FORMA TST LARGE CAP CORE
VALUE PLUS FUND LARGE CAP CORE EQUITY ADJUSTMENTS EQUITY FUND
SHARE/PAR MARKET VALUE SHARE/PAR MARKET VALUE SHARE/PAR MARKET VALUE SHARE/PAR MARKET VALUE
--------- ------------ --------- ------------ --------- ------------ --------- ------------
UTILITIES - 7.3%(A)
AT&T, INC. 72,977 $ 1,973,298 36,140 $ 977,226 109,117 $ 2,950,524
ALLTEL CORP. 12,246 792,929 - - 12,246 792,929
CINERGY CORP. 30,742 1,395,994 - - 30,742 1,395,994
DOMINION RESOURCES, INC. 15,241 1,052,086 - - 15,241 1,052,086
PUBLIC SERVICE ENTERPRISE 22,345 1,430,974 - - 22,345 1,430,974
------------ ------------ ------------
6,645,281 977,226 7,622,507
TOTAL COMMON STOCK - 96.7%(A) 73,584,486 28,054,074 101,638,560
TOTAL INVESTMENT AT MARKET - 100%(A) $ 76,331,172 $ 28,805,494 $105,136,666
------------ ------------ ------------
TOTAL INVESTMENT AT COST $ 66,920,175 $ 24,557,578 $ 91,477,753
------------ ------------ ------------
(A) Calculated based on total investments at market of the Pro Forma Combined
TST Large Cap Core Equity Fund.
* Non-income producing security.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
(t) All or a portion of the security is on loan. The total value of securities
on loan as of March 31, 2006 was $1,246,780.
** As of March 31, 2006, $1,297,296 represents collateral for securities
loaned.
ADR - American Depositary Receipts.
See accompanying pro forma notes to combining financial statements.
TST LARGE CAP CORE EQUITY FUND
PRO FORMA COMBINING
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2006
(UNAUDITED)
PRO FORMA
COMBINED
TST LARGE TST LARGE
TST CAP CORE CAP CORE
VALUE PLUS EQUITY PRO FORMA EQUITY
FUND FUND ADJUSTMENTS FUND
------------ ------------ ------------ ------------
ASSETS
Investments, at cost $ 66,920,175 $ 24,557,578 $ -- $ 91,477,753
============ ============ ============ ============
Affiliated securities at market value $ 2,746,686 $ 751,420 $ -- $ 3,498,106
Non-Affiliated securities at market value 73,584,486 28,054,074 -- 101,638,560
Investments, at market value including
$1,246,780 of securities loaned for
the Value Plus Fund 76,331,172 28,805,494 -- 105,136,666
Receivable for securities sold 3,227,665 -- -- 3,227,665
Receivable for capital shares sold 50,401 1,248 -- 51,649
Dividend and interest receivable 125,914 43,643 -- 169,557
Other Assets 4,792 5,122 -- 9,914
------------ ------------ ------------ ------------
Total Assets 79,739,944 28,855,507 -- 108,595,451
------------ ------------ ------------ ------------
LIABILITIES
Payable for securities purchased 3,251,542 -- -- 3,251,542
Payable upon return of securities loaned 1,297,296 -- -- 1,297,296
Payable for capital shares redeemed 52,268 678 -- 52,946
Payable to other affiliates 28,131 8,528 -- 36,659
Payable to trustees 4,259 4,196 -- 8,455
Payable to Advisor 55,838 14,952 -- 70,790
Accrued expenses and other liabilities 23,191 22,354 -- 45,545
------------ ------------ ------------ ------------
Total Liabilities 4,712,525 50,708 -- 4,763,233
------------ ------------ ------------ ------------
Net Assets $ 75,027,419 $ 28,804,799 $ -- $103,832,218
============ ============ ============ ============
ANALYSIS OF NET ASSETS
Accumulated paid in capital $ 72,687,706 $ 26,140,406 $ -- $ 98,828,112
Undistributed net investment income 629,055 184,135 -- 813,190
Accumulated net realized losses
from security transactions (7,700,339) (1,767,658) (9,467,997)
Net unrealized appreciation on investments 9,410,997 4,247,916 -- 13,658,913
------------ ------------ ------------ ------------
Net Assets $ 75,027,419 $ 28,804,799 $ -- $103,832,218
============ ============ ============ ============
BY CLASS:
NET ASSETS:
CLASS A $ 72,504,173 $ 25,693,072 $ 2,525,266(A) $100,722,511
CLASS B 812,889 1,712,377 (2,525,266) --
CLASS C 1,710,357 1,399,350 -- 3,109,707
------------ ------------ ------------ ------------
$ 75,027,419 $ 28,804,799 $ -- $103,832,218
============ ============ ============ ============
OUTSTANDING SHARES:
CLASS A 6,249,162 2,449,226 903,311 9,601,699
CLASS B 73,871 165,457 (239,328) --
CLASS C 154,569 134,623 10,047 299,239
------------ ------------ ------------ ------------
6,477,602 2,749,306 674,030 9,900,938
============ ============ ============ ============
NET ASSET VALUE PER SHARE:
CLASS A $ 11.60 $ 10.49 $ 10.49
------------ ------------ ------------
CLASS B $ 11.00 $ 10.35 $ 0.00
------------ ------------ ------------
CLASS C $ 11.07 $ 10.39 $ 10.39
------------ ------------ ------------
(A) After the merger, Class B shares of the funds will be converted to Class A
shares of the Large Cap Core Equity Fund.
TST LARGE CAP CORE EQUITY FUND
PRO FORMA COMBINING
STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)
PRO FORMA
COMBINED
TST LARGE TST LARGE
TST CAP CORE CAP CORE
VALUE PLUS EQUITY PRO FORMA EQUITY
FUND FUND ADJUSTMENTS FUND
------------ ------------ ------------ ------------
INVESTMENT INCOME
Dividends from affiliated securities $ 57,646 $ 17,483 $ -- $ 75,129
Dividends from non-affiliated securities 1,560,311 387,391 -- 1,947,702
Interest 10,383 1,553 -- 11,936
Interest from securities lending 1,813 125 -- 1,938
------------ ------------ ------------ ------------
Total Investment Income 1,630,153 406,552 -- 2,036,705
------------ ------------ ------------ ------------
EXPENSES
Investment Advisory Fees 566,439 130,011 (16,790)(A) 679,660
Distribution Fees - Class A 182,355 42,555 26,896 (A) 251,806
Distribution Fees - Class B 8,532 16,855 (25,387)(D) --
Distribution Fees - Class C 17,300 12,928 8,754 (A) 38,982
Administration fees 41,538 11,000 4,967 (A) 57,505
Accounting fees 45,000 39,000 (40,500)(A) 43,500
Audit and legal fees 18,149 16,449 (15,598)(B) 19,000
Custodian fee 17,956 3,076 (10,232)(B) 10,800
Directors/ Trustees fees 8,798 8,757 (7,955)(C) 9,600
Postage and supplies 20,795 12,764 (3,559)(B) 30,000
Registration fees 14 1,427 59 (B) 1,500
Registration fees - Class A 8,687 7,417 (7,104)(B) 9,000
Registration fees - Class B 6,801 7,060 (13,861)(D) --
Registration fees - Class C 4,053 6,971 (3,024)(B) 8,000
Report Printing 7,637 9,325 (6,962)(B) 10,000
Sponsor fees 151,052 40,002 18,188 (A) 209,242
Transfer Agent Fees - Class A 31,930 12,172 -- 44,102
Transfer Agent Fees - Class B 12,000 12,000 (24,000)(D) --
Transfer Agent Fees - Class C 12,000 12,000 (12,000)(A) 12,000
Other expense 1,589 1,902 -- 3,303
------------ ------------ ------------ ------------
1,162,625 403,671 (128,108) 1,438,188
C-1
PRO FORMA
TST LARGE TST LARGE
TST CAP CORE CAP CORE
VALUE PLUS EQUITY PRO FORMA EQUITY
FUND FUND ADJUSTMENTS FUND
------------ ------------ ------------ ------------
Fees waived (Class A) $ (123,785) $ (122,149) $ 64,389(A) $ (181,545)
Fees waived (Class B) (19,632) (30,937) 50,569(D) --
Fees waived (Class C) (18,110) (28,167) 22,197(A) (24,080)
------------ ------------ ------------ ------------
Total expenses, net of fees waived 1,001,098 222,418 9,047 1,232,563
------------ ------------ ------------ ------------
NET INVESTMENT INCOME 629,055 184,134 (9,047) 804,142
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on investments 6,831,578 (107,665) -- 6,723,913
Net change in unrealized appreciation/
depreciation of investments (1,612,200) 2,459,434 -- 847,234
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 5,219,378 2,351,769 -- 7,571,147
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 5,848,433 $ 2,535,903 $ (9,047) $ 8,375,289
============ ============ ============ ============
(A) Based on contract in effect for the surviving fund. Adjustments reflect
an increase in the number of Class A shares and shareholders due to the
combination of the Class B shares of the Value Plus Fund with the Class A
shares of the Large Cap Core Equity Fund.
(B) Decrease due to the elimination of duplicate expenses achieved by merging
the funds.
(C) Based on director compensation plan for the Trust divided by remaining
number of funds.
(D) After the merger, Class B shares of the funds will be converted to Class A
shares of the Large Cap Core Equity Fund.
C-2
LARGE CAP CORE EQUITY FUND
PRO FORMA NOTES TO COMBINING FINANCIAL STATEMENTS
MARCH 31, 2006
(UNAUDITED)
DESCRIPTION OF THE FUND
The acquiring fund, Touchstone Strategic Trust Large Cap Core Equity Fund
("Acquiring Fund"), is registered under the Investment Company Act of 1940, as
amended, as an open-end, management investment company portfolio consisting of
Class A, Class B and Class C shares. The target fund, Touchstone Strategic Trust
Value Plus Fund ("Target Fund"), is registered under the Investment Company Act
of 1940, as amended, as an open-end, management investment company portfolio
consisting of Class A, Class B and Class C shares.
BASIS OF COMBINATION
The accompanying unaudited pro forma financial statements are presented to
show the effect of the transfer of assets and liabilities of the Target Fund in
exchange for shares of the Acquiring Fund (for purposes of maintaining the
financial statements and performance).
Under the terms of the Plan of Reorganization, the combination of the
Acquiring Fund and Target Fund will be accounted for by the method of accounting
for tax-free mergers of investment companies. The statement of assets and
liabilities and the related statement of operations of the Acquiring Fund and
Target Fund have been combined as of and for the twelve months ended March 31,
2006. In accordance with U.S. generally accepted accounting principles ("GAAP"),
the historical cost of investment securities will be carried forward to the
Acquiring Fund and the results of operations for pre-combination periods of the
Acquiring Fund will not be restated.
The accompanying pro forma financial statements should be read in
conjunction with the financial statements of Acquiring Fund and Target Fund
included in their respective annual reports dated March 31, 2006.
The following notes refer to the accompanying pro forma financial
statements as if the above-mentioned acquisition of Target Fund by Acquiring
Fund had taken place as of April 1, 2005.
PORTFOLIO VALUATION
Equity securities listed on national securities exchanges are valued at
the last sale price as of the close of business on the day the securities are
being valued. Over-the-counter securities are valued at the last sales price.
Debt securities with maturities of 60 days or less are valued at amortized cost.
In the absence of readily available market quotations, securities are valued at
fair value under procedures established by and under the general supervision of
the Board of Trustees.
C-3
CAPITAL SHARES
The pro forma net asset value per share assumes the issuance of shares of
Acquiring Fund that would have been issued at March 31, 2006, in connection with
the proposed reorganization. The number of shares assumed to be issued is equal
to the net asset value of shares of Target Fund, as of March 31, 2006, divided
by the net asset value per share of the shares of Acquiring Fund as of March 31,
2006. The pro forma number of shares outstanding for the combined fund consists
of the following at March 31, 2006:
SHARES OF ADDITIONAL SHARES TOTAL OUTSTANDING
ACQUIRING FUND ASSUMED ISSUED SHARES
PRE-COMBINATION IN REORGANIZATION POST-COMBINATION
--------------- ----------------- ----------------
2,749,306 7,151,632 9,900,938
ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
FEDERAL INCOME TAXES
Each Fund has elected to be taxed as a "regulated investment company"
under the Internal Revenue Code. After the acquisition, the Acquiring Fund
intends to continue to qualify as a regulated investment company, if such
qualification is in the best interest of its shareholders, by complying with the
provisions available to certain investment companies, as defined in applicable
sections of the Internal Revenue Code, and to make distributions of taxable
income sufficient to relieve it from all, or substantially all, Federal income
taxes.
The identified cost of investments for the Funds is substantially the same for
both financial accounting and Federal income tax purposes. The tax cost of
investments will remain unchanged for the combined Fund.
C-4
PART C
ITEM 15. Indemnification:
Article VII of the Restated Agreement and Declaration of Trust filed as an
Exhibit to the Registrant's Post-Effective Amendment No. 36 is incorporated
herein by reference. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to trustees, directors,
officers and controlling persons of the Registrant by the Registrant pursuant to
the Restated Agreement and Declaration of Trust or otherwise, the Registrant is
aware that in the opinion of the U.S. Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and, therefore,
is 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 trustees, directors, officers or controlling persons of the Registrant
in connection with the successful defense of any act, suit or proceeding) is
asserted by such trustees, directors, officers or controlling persons in
connection with the shares 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 issues.
ITEM 16. EXHIBITS
(1) (i) Restated Agreement and Declaration of Trust and Amendment No. 1 dated
May 24, 1994, Amendment No. 2 dated February 28, 1997 and Amendment No. 3
dated August 11, 1997, which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 36, is incorporated by reference.
(ii) Amendment No. 4 to Restated Agreement and Declaration of Trust dated
February 12, 1998, which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 42, is incorporated by reference.
(iii) Amendments to Restated Agreement and Declaration of Trust dated
March 16, 2000, which were filed as Exhibits to Registrant's
Post-Effective Amendment No. 42 is incorporated by reference.
(iv) Amendment to Restated Agreement and Declaration of Trust dated April
6, 2000, which was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 42 is incorporated by reference.
(v) Amendment to Restated Agreement and Declaration of Trust, which was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 45 is
incorporated by reference.
(vi) Amendment to Restated Agreement and Declaration of Trust, which was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 45 is
incorporated by reference.
(vii) Amendment to Restated Agreement and Declaration of Trust, which was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 48 is
incorporated by reference.
(viii) Amendment dated November 7, 2002 to Restated Agreement and
Declaration of Trust, which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 49 is incorporated by reference.
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(ix) Amendment dated April 14, 2004 to Restated Agreement and Declaration
of Trust, which was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 54 is incorporated by reference.
(x) Amendment dated January 3, 2006 to Restated Agreement and Declaration
of Trust, which was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 60 is incorporated by reference.
(2) Bylaws with Amendments adopted July 17, 1984 and April 5, 1989, which were
filed as Exhibits to Registrant's Post-Effective Amendment No. 36, are
hereby incorporated by reference.
(3) None
(4) Agreement and Plan of Reorganization dated as of May 18, 2006 is filed
herewith.
(5) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
Article IV of Registrant's Restated Agreement and Declaration of
Trust provides the following rights for security holders:
LIQUIDATION. In event of the liquidation or dissolution of the
Trust, the Shareholders of each Series that has been established and
designated shall be entitled to receive, as a Series, when and as declared
by the Trustees, the excess of the assets belonging to that Series over
the liabilities belonging to that Series. The assets so distributable to
the Shareholders of any particular Series shall be distributed among such
Shareholders in proportion to the number of Shares of that Series held by
them and recorded on the books of the Trust.
VOTING. All shares of all Series shall have "equal voting rights" as
such term is defined in the Investment Company Act of 1940 and except as
otherwise provided by that Act or rules, regulations or orders promulgated
thereunder. On each matter submitted to a vote of the Shareholders, all
shares of each Series shall vote as a single class except as to any matter
with respect to which a vote of all Series voting as a single series is
required by the 1940 Act or rules and regulations promulgated thereunder,
or would be required under the Massachusetts Business Corporation Law if
the Trust were a Massachusetts business corporation. As to any matter
which does not affect the interest of a particular Series, only the
holders of Shares of the one or more affected Series shall be entitled to
vote.
REDEMPTION BY SHAREHOLDER. Each holder of Shares of a particular
Series shall have the right at such times as may be permitted by the
Trust, but no less frequently than once each week, to require the Trust to
redeem all or any part of his Shares of that Series at a redemption price
equal to the net asset value per Share of that Series next determined in
accordance with subsection (h) of this Section 4.2 after the Shares are
properly tendered for redemption.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the holders of Shares of any
Series to require the Trust to redeem Shares of that Series during any
period or at any time when and to the extent permissible under the 1940
Act, and such redemption is conditioned upon the Trust having funds or
property legally available therefore.
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TRANSFER. All Shares of each particular Series shall be
transferable, but transfers of Shares of a particular Series will be
recorded on the Share transfer records of the Trust applicable to that
Series only at such times as Shareholders shall have the right to require
the Trust to redeem Shares of that Series and at such other times as may
be permitted by the Trustees.
Article V of Registrant's Restated Agreement and Declaration of
Trust provides the following rights for security holders:
VOTING POWERS. The Shareholders shall have power to vote only (i)
for the election or removal of Trustees as provided in Section 3.1, (ii)
with respect to any contract with a Contracting Party as provided in
Section 3.3 as to which Shareholder approval is required by the 1940 Act,
(iii) with respect to any termination or reorganization of the Trust or
any Series to the extent and as provided in Sections 7.1 and 7.2, (iv)
with respect to any amendment of this Declaration of Trust to the extent
and as provided in Section 7.3, (v) to the same extent as the stockholders
of a Massachusetts business corporation as to whether or not-a court
action, proceeding or claim should or should not be brought or maintained
derivatively or as a class action on behalf of the Trust or the
Shareholders, and (vi) with respect to such additional matters relating to
the Trust as may be required by the 1940 Act, this Declaration of Trust,
the Bylaws or any registration of the Trust with the Commission (or any
successor agency) in any state, or as the Trustees may consider necessary
or desirable. There shall be, no cumulative voting in the election of any
Trustee or Trustees. Shares may be voted in person or by proxy.
(6) (i) Advisory Agreement with Touchstone Advisors, Inc., which was filed as
an Exhibit to Registrant's Post-Effective Amendment No. 57 is incorporated
by reference.
(ii) Subadvisory Agreement between Touchstone Advisors, Inc. and
Mastrapasqua Asset Management, Inc. for the Growth Opportunities Fund
which was filed as an Exhibit to Registrant's Post-Effective Amendment No.
42 is incorporated by reference.
(iii) Subadvisory Agreement between Touchstone Advisors, Inc. and TCW
Investment Management Company for the Mid Cap Growth Fund (formerly the
Emerging Growth Fund), which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 45 is incorporated by reference.
(iv) Subadvisory Agreement between Touchstone Advisors, Inc. and Westfield
Capital Management, Inc. for the Mid Cap Growth Fund (formerly the
Emerging Growth Fund), which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 57 is incorporated by reference.
(v) Subadvisory Agreement between Touchstone Advisors, Inc. and Fort
Washington Investment Advisors, Inc. for the Value Plus Fund, which was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 49 is
incorporated by reference.
(vi) (a) Form of Subadvisory Agreement between Touchstone Advisors, Inc.
and Navellier & Associates, Inc. for the Large Cap Growth Fund, which was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 54 is
incorporated by reference.
(b) Amendment to Sub-Advisory Agreement with Navellier & Associates,
Inc., which was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 57 is incorporated by reference.
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(vii) Subadvisory Agreement between Touchstone Advisors, Inc. and Todd
Investment Advisors, Inc. for the Large Cap Core Equity Fund, which was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 49 is
incorporated by reference.
(viii) Subadvisory Agreement between Touchstone Advisors, Inc. and
Bjurman, Barry & Associates for the Small Cap Growth Fund, which was filed
as an Exhibit to Registrant's Post-Effective Amendment No. 48 is hereby
incorporated by reference.
(ix) Subadvisory Agreement between Touchstone Advisors, Inc. and Longwood
Investment Advisors, Inc. for the Small Cap Growth Fund, which was filed
as an Exhibit to Registrant's Post-Effective Amendment No. 48 is hereby
incorporated by reference.
(x) Subadvisory Agreement between Touchstone Advisors, Inc. and Bjurman,
Barry & Associates for the Micro Cap Growth Fund, which was filed as an
Exhibit to Registrant's Post-Effective Amendment No. 54 is, incorporated
by reference.
(xi) Form of Subadvisory Agreement between Touchstone Advisors, Inc. and
JS Asset Management LLC which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 60 is incorporated by reference.
(7) (i) Distribution Agreement with Touchstone Securities, Inc., which was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 45, is
incorporated by reference.
(i) Form of Underwriter's Dealer Agreement, which was filed as an Exhibit
to Registrant's Post-Effective Amendment No. 56, is incorporated by
reference.
(8) The Touchstone Trustee Deferred Compensation Plan, which was filed as an
Exhibit to Registrant's Post-Effective Amendment No. 43, is incorporated
by reference.
(9) (i) Custodian Agreement with Brown Brothers Harriman & Co., which was
filed as an Exhibit to Registrant's Post-Effective Amendment No. 49 is
incorporated by reference.
(ii) Securities Lending Agreement, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 49 is incorporated by reference.
(iii) Custody Fee Offset Agreement with Brown Brothers Harriman & Co.,
which was filed as an Exhibit to Registrant's Post-Effective Amendment No.
58 is incorporated by reference.
(10) (i) Registrant's Plans of Distribution Pursuant to Rule 12b-1 for Class A
Shares and Class C Shares, which were filed as an Exhibit to Registrant's
Post-Effective Amendment No. 42, are incorporated by reference.
(ii) Registrant's Plan of Distribution Pursuant to Rule 12b-1 for Class B
Shares, which was filed as an Exhibit to Registrant's Post-Effective
Amendment No. 45, is incorporated by reference.
(iii) Amended Rule 18f-3 Plan Adopted with Respect to the Multiple Class
Distribution System, which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 56, is incorporated by reference.
(11) Opinion and Consent of Counsel is filed herewith.
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(12) Opinion and Consent of Counsel regarding tax matters is filed herewith.
(13) (i) Accounting Services Agreement dated December 31, 2002 with Integrated
Fund Services, Inc., which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 49 is incorporated by reference.
(ii) (a) Transfer Agency Agreement dated December 31, 2002 with Integrated
Fund Services, Inc., which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 49 is incorporated by reference.
(b) Recordkeeping Agreement which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 51 is incorporated by reference.
(c) Integrated Fund Services Anti-Money Laundering Compliance Program
Service Agreement Addendum which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 51 is incorporated by reference.
(d) Addendum to Transfer Agency Agreements, which was filed as an Exhibit
to Registrant's Post-Effective Amendment No. 60 is incorporated by
reference.
(iii) Administration Agreement dated December 31, 2002 with Integrated
Fund Services, Inc., which was filed as an Exhibit to Registrant's
Post-Effective Amendment No. 49 is incorporated by reference.
(iv) Allocation Agreement for Allocation of Fidelity Bond Proceeds, which
was filed as an Exhibit to Registrant's Post-Effective Amendment No. 50 is
incorporated by reference.
(v) Amended Expense Limitation Agreement with Touchstone Advisors, Inc.,
which was filed as an Exhibit to Registrant's Post-Effective Amendment No.
57 is incorporated by reference.
(vi) (a) Sponsor Agreement with Touchstone Advisors, Inc., which was filed
as an Exhibit to Registrant's Post-Effective Amendment No. 43 is
incorporated by reference.
(b) Amendment No. 1 to Sponsor Agreement, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 45 is incorporated by reference.
(c) Amendment No. 2 to Sponsor Agreement, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 49 is incorporated by reference.
(d) Amendments 3 and 4 to Sponsor Agreement with Touchstone Advisors,
Inc., which were filed as Exhibits to Registrant's Post-Effective
Amendment No.50 are incorporated by reference.
(e) Amendments 5, 6, and 7 to Sponsor Agreement with Touchstone Advisors,
Inc., which were, filed as an Exhibit to Registrant's Post-Effective
Amendment No. 54 is incorporated by reference.
(f) Amendments 8 and 9 to Sponsor Agreement with Touchstone Advisors,
which were filed as Exhibits to Registrant's Post-Effective Amendment No.
57 are incorporated by reference.
(g) Amendment 10 to Sponsor Agreement, which was filed as an Exhibit to
Registrant's Post-Effective Amendment No. 60 is incorporated by reference.
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(vii) Compliance Services Agreement with Integrated Fund Services, Inc.
which was filed as an Exhibit to Touchstone Investment Trust's
Post-Effective Amendment No. 89 (File Number 2-52242) is incorporated by
reference.
(14) Consent of Ernst & Young LLP is filed herewith.
(15) None.
(16) None
(17) (i) Prospectus and Statement of Additional Information for Touchstone
Strategic Trust dated August 1, 2005 filed in Post-Effective Amendment No.
58 are incorporated by reference.
(ii) Audited Annual Financial Report for Touchstone Strategic Trust for
the fiscal year ended March 31, 2006 filed on Form N-CSR is incorporated
by reference.
(iii) Form of Proxy Card is filed herewith.
Item 17. UNDERTAKINGS
(1) The undersigned Registrant agrees that prior to any public reoffering of
the securities registered through the use of a prospectus which is a part
of this registration statement by any person or party who is deemed to be
an underwriter within the meaning of Rule 145(c) of the Securities Act of
1933, as amended, the reoffering prospectus will contain the information
called for by the applicable registration form for reofferings by persons
who may be deemed underwriters, in addition to the information called for
by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities Act
of 1933, as amended, each post-effective amendment shall be deemed to be a
new registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the initial
bona fide offering of them.
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SIGNATURES
As required by the Securities Act of 1933 this registration statement has been
signed on behalf of the Registrant, in the City of Cincinnati and the State of
Ohio, on the 26 day of June, 2006.
TOUCHSTONE STRATEGIC TRUST
By: /s/ Jill T. McGruder
------------------------
Jill T. McGruder, President
As required of the Securities Act of 1933, this registration statement has been
signed below by the following persons in the capacity and on the dates
indicated.
/s/ John F. Barrett Trustee June 26, 2006
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John F. Barrett
/s/ Phillip R. Cox Trustee June 26, 2006
- -------------------------
Phillip R. Cox
/s/ H. Jerome Lerner Trustee June 26, 2006
- -------------------------
H. Jerome Lerner
/s/ Robert E. Stautberg Trustee June 26, 2006
- -------------------------
Robert E. Stautberg
/s/ John P. Zanotti Trustee June 26, 2006
- -------------------------
John P. Zanotti
/s/ Donald C. Siekmann Trustee June 26, 2006
- -------------------------
Donald C. Siekmann
/s/ Richard L. Brenan Trustee June 26, 2006
- -------------------------
Richard L. Brenan
/s/ Jill T. McGruder President and Trustee June 26, 2006
- -------------------------
Jill T. McGruder
/s/ Terrie A. Wiedenheft Treasurer and Controller June 26, 2006
- -------------------------
Terrie A. Wiedenheft
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EXHIBIT INDEX
(4) Agreement and Plan of Reorganization
(11) Opinion and Consent of Counsel
(12) Opinion and Consent of Counsel regarding tax matters
(14) Consent of Ernst & Young LLP
(17)(v) Form of Proxy Card