May 14, 2007
TOUCHSTONE FUNDS GROUP TRUST
TOUCHSTONE PITCAIRN SELECT VALUE FUND
Dear Shareholder:
On behalf of the Board of Trustees of the Touchstone Funds Group Trust (the
"Trust"), we are pleased to invite you to a Special Meeting of Shareholders (the
"Meeting") of the Trust with respect to the Touchstone Pitcairn Select Value
Fund ("Select Value"), a series of the Trust, to be held at 10:00 a.m. Eastern
Time on July 13, 2007 at 303 Broadway, Suite 1100, Cincinnati, Ohio 45202.
At the Meeting, you will be asked to approve an Agreement and Plan of
Reorganization, between Select Value and the Touchstone Diversified Value Fund
("Diversified Value"), each, a series of the Trust, under which Select Value
will merge into Diversified Value (the "Reorganization").
The Board of Trustees of the Trust unanimously approved the Agreement and Plan
of Reorganization at a meeting held on February 22, 2007. The Board of Trustees
recommends that you vote FOR the Reorganization.
The details of the proposed Agreement and Plan of Reorganization are set forth
in the Prospectus/Proxy Statement that accompanies this letter, including
details about Diversified Value's investment objective and policies, portfolio
management and fees and expenses 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 following this letter.
Shareholders may cast their votes by mail or in person, 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 Meeting, forty percent of shares must be represented in
person or by proxy. Please vote promptly.
If you have any questions regarding the Reorganization, please call
1-800-543-0407.
We thank you for considering this proposal carefully and for your continued
confidence in and support of the Trust.
Sincerely,
Jill T. McGruder
President
Touchstone Funds Group Trust
QUESTIONS AND ANSWERS RELATING TO THE REORGANIZATION
While we encourage you to read the full text of the enclosed Prospectus/Proxy
Statement, 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 JULY 13, 2007?
A. The Board of Trustees of the Touchstone Funds Group Trust (the "Trust")
has called a Special Meeting at which you will be asked to vote on the
reorganization (the "Reorganization") of Touchstone Pitcairn Select Value
Fund ("Select Value"), into Touchstone Diversified Value Fund
("Diversified Value"), each, a series of the Trust.
Q. WHY DID THE BOARD OF TRUSTEES APPROVE THE REORGANIZATION?
A. The Board of Trustees of the Trust unanimously approved the Reorganization
after reviewing detailed information about the Reorganization provided by
the management of the Trust and reviewed various factors about Diversified
Value and Select Value and the proposed Reorganization. The Trustees noted
that Diversified Value has an identical investment objective and
substantially similar strategies to Select Value. In addition, on a pro
forma basis immediately following the Reorganization, net expenses of
Diversified Value will be less than those of Select Value. After
consideration of these factors, together with other factors and
information considered to be relevant, the Board of Trustees determined
that the proposed Reorganization was in the best interests of Select
Value, Diversified Value and their shareholders.
The Board of Trustees recommends that you vote FOR the Reorganization.
Q. WHAT WILL HAPPEN TO MY EXISTING SHARES?
A. Your shares of Select Value will be exchanged for shares of Diversified
Value. Therefore, in exchange for Class II shares of Select Value that you
own at the time of the Reorganization, you will receive Class A shares of
Diversified Value. Although Class A shares of Diversified Value have a
front-end sales charge, you will not pay any sales charges in connection
with the Reorganization or any additional investments in Diversified Value
or any exchanges into Class A shares of other Trust funds. The shares of
Diversified Value that you receive following the Reorganization will have
an aggregate net asset value equal to the aggregate net asset value of
your shares of Select Value 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 INVESTMENT
STRATEGIES OF SELECT VALUE AND DIVERSIFIED VALUE?
A. The investment objective of Select Value is identical to that of
Diversified Value. The investment strategies of Select Value are
substantially similar to those of Diversified Value. However, Select Value
is a non-diversified fund while Diversified Value is a diversified fund.
Non-diversified funds have fewer investments than diversified funds of
comparable size. Because non-diversified funds generally invest in a small
number of issuers, they are more susceptible to any single economic,
political or regulatory event affecting those issuers than diversified
funds.
Q. WHAT IS THE DIFFERENCE IN THE TOTAL ANNUAL OPERATING EXPENSES BETWEEN
SELECT VALUE AND DIVERSIFIED VALUE?
A. The total annual fund operating expenses (before any fee waiver and
expense reimbursement) of Select Vale and Diversified Value were 1.25% and
1.45%, respectively, as of the most recently ended fiscal year. However,
Touchstone Advisors, Inc., the advisor to the Trust, has contractual
agreements in place with the Funds to waive fees and reimburse expenses
through March 1, 2008 for Select Value and Diversified Value. As a result
of these fee waivers and reimbursements, the net expenses of Select Value
and Diversified Value are 1.15% and 1.10%, respectively. Accordingly, net
expenses of Diversified Value immediately following the Reorganization
will less than those of Select Value.
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. In addition,
Touchstone Advisors, Inc. will bear the costs associated with the
Reorganization.
Q. WHAT IS THE TIMETABLE FOR THE REORGANIZATION?
A. If approved by shareholders of record at the Meeting, the Reorganization
is expected to occur on or about July 13, 2007.
Q. WILL THE REORGANIZATION CREATE A TAXABLE EVENT FOR ME?
A. No. The Reorganization is expected to be a tax free transaction for
federal income tax purposes.
Q. WHAT HAPPENS IF THE REORGANIZATION IS NOT APPROVED?
A. If shareholders of Select Value do not approve the Reorganization, the
Reorganization will not take effect and the Board of Trustees will
consider other possible courses of action in the best interests of
shareholders.
Q. WHO SHOULD I CALL WITH QUESTIONS ABOUT THIS PROXY?
A. If you have any questions regarding this proxy, please contact the Trust
by calling 1-800-543-0407.
PLEASE VOTE THE ENCLOSED PROXY CARD.
YOUR VOTE IS VERY IMPORTANT!
ACQUISITION OF ASSETS AND LIABILITIES OF
TOUCHSTONE PITCAIRN SELECT VALUE FUND
a series of
TOUCHSTONE FUNDS GROUP TRUST
303 Broadway, Suite 1100
Cincinnati, Ohio 45202
(800) 543-0407
BY AND IN EXCHANGE FOR SHARES OF
TOUCHSTONE DIVERSIFIED VALUE FUND
a series of
TOUCHSTONE FUNDS GROUP TRUST
303 Broadway, Suite 1100
Cincinnati, Ohio 45202
(800) 543-0407
PROSPECTUS/PROXY STATEMENT
MAY 14, 2007
This Prospectus/Proxy Statement is being furnished in connection with the
proposed Agreement and Plan of Reorganization which will be submitted to
shareholders of Touchstone Pitcairn Select Value Fund ("Select Value"), a series
of Touchstone Funds Group Trust (the "Trust"), for consideration at a Special
Meeting of Shareholders to be held on July 13, 2007 at 10:00 a.m. Eastern Time
at the offices of the Trust, 303 Broadway, Suite 1100, Cincinnati, Ohio 45202,
and any adjournments thereof (the "Meeting").
Subject to the approval of Select Value's shareholders, the Board of Trustees of
the Trust has approved the proposed reorganization under which all of the assets
of Select Value will be acquired by Touchstone Diversified Value Fund
("Diversified Value"), also a series of the Trust, in exchange for Class A
shares of Diversified Value and the assumption by Diversified Value of the
liabilities of Select Value (the "Reorganization"). Select Value and Diversified
Value are sometimes referred to in this Prospectus/Proxy Statement individually
as a "Fund" and collectively as the "Funds."
This Prospectus/Proxy Statement explains concisely the information about
Diversified Value that you should know before voting on the Reorganization.
Please read it carefully and keep it for future reference.
Information relating to Select Value and Diversified Value contained in the
Prospectus of the Trust dated February 1, 2007 (SEC File No. 811-08104) and the
Statement of Additional Information dated February 1, 2007 which includes the
financial statements of the Trust relating to Select Value and Diversified Value
for the fiscal year ended September 30, 2006 are incorporated by reference in
this document. This means that such information is legally considered to be part
of this Prospectus/Proxy Statement. The Statement of Additional Information
dated May 14, 2007 relating to this Prospectus/Proxy Statement and the
Reorganization is also incorporated by reference in its entirety in this
document.
(i)
- --------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT DETERMINED THAT THE INFORMATION
IN THIS PROSPECTUS/PROXY STATEMENT IS ACCURATE OR ADEQUATE, NOR HAS IT APPROVED
OR DISAPPROVED THESE SECURITIES. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
An investment in Diversified Value:
o is not a deposit of, or guaranteed by, any bank
o is not insured by the FDIC, the Federal Reserve Board or any other
government agency
o is not endorsed by any bank or government agency o involves investment
risk, including possible loss of the purchase payment of your original
investment
(i)
TABLE OF CONTENTS
Page
SUMMARY........................................................................1
Why is the Reorganization being proposed?................................1
What are the key features of the Reorganization?.........................1
After the Reorganization, what shares of Diversified
Value will I own?......................................................1
How will the Reorganization affect me?...................................2
Will I be able to purchase and redeem shares, change
my investment options and receive distributions the
same way?.............................................................2
How do the Trustees recommend that I vote?...............................2
How do the Funds' investment objectives, principal
investment strategies and risks compare?..............................3
How do the Funds' fees and expenses compare?.............................5
Who will be the investment adviser of my Fund after
the Reorganization? What will the advisory and
sub-advisory fees be after the Reorganization?........................9
What will be the primary federal tax consequences of
the Reorganization?..................................................10
RISKS.........................................................................10
Are the risk factors for the Funds similar?..........................10
What are the primary risks of investing in each Fund?................10
Are there any other risks of investing in each Fund?.................12
INFORMATION ABOUT THE REORGANIZATION..........................................13
Reasons for the Reorganization.......................................13
Agreement and Plan of Reorganization.................................15
Federal Income Tax Consequences......................................16
Pro Forma Capitalization.............................................18
ADDITIONAL INFORMATION ABOUT THE FUNDS........................................19
Distribution of Shares...............................................19
Purchase and Redemption Procedures...................................19
Exchange Privileges..................................................20
Dividend Policy......................................................20
Financial Highlights of the Funds....................................21
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS...............................23
Form of Organization.................................................23
Capitalization.......................................................23
Shareholder Liability................................................24
Shareholder Meetings and Voting Rights...............................24
Liquidation..........................................................25
Liability and Indemnification of Trustees............................25
VOTING INFORMATION CONCERNING THE MEETING.....................................25
Shareholder Information..............................................27
Control Persons and Principal Holders of Securities..................27
FINANCIAL STATEMENTS AND EXPERTS..............................................28
ADDITIONAL INFORMATION........................................................28
OTHER BUSINESS................................................................29
PROXY CARD...................................................................A-1
AGREEMENT AND PLAN OF REORGANIZATION.........................................B-1
(2)
SUMMARY
THIS SECTION SUMMARIZES THE PRIMARY FEATURES AND CONSEQUENCES
OF THE REORGANIZATION. IT MAY NOT CONTAIN ALL OF THE
INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
REORGANIZATION, YOU SHOULD READ THIS ENTIRE PROSPECTUS/PROXY
STATEMENT AND THE EXHIBITS.
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectus and Statement of Additional Information relating to the Funds and the
copy of the Agreement and Plan of Reorganization (the "Plan"), which is attached
to this Prospectus/Proxy Statement as Exhibit A.
WHY IS THE REORGANIZATION BEING PROPOSED?
The Reorganization is part of a restructuring designed to eliminate the offering
of overlapping funds with similar investment objectives and similar investment
strategies that are managed by Touchstone Advisors, Inc., the advisor to the
Trust. The net expenses (total annual fund operating expenses less fee waivers
and expense reimbursements) of Diversified Value, assuming the Reorganization is
consummated, will be less than those of Select Value. In addition, the average
annual total return for Diversified Value was higher than that of Select Value
for the one- and five-year periods ended December 31, 2006. Therefore, the
Trustees believe that the Reorganization is in the best interests of Select
Value's shareholders.
WHAT ARE THE KEY FEATURES OF THE REORGANIZATION?
The Plan sets forth the key features of the Reorganization. For a complete
description of the Reorganization, see Exhibit A. The Plan generally provides
for the following:
o the transfer in-kind of all of the assets of Select Value to Diversified
Value in exchange for Class A shares of Diversified Value;
o the assumption by Diversified Value of all of the liabilities of Select
Value;
o the liquidation of Select Value by distribution of Class A shares of
Diversified Value to Select Value's shareholders; and
o the structuring of the Reorganization as a tax-free Reorganization for
federal income tax purposes.
The Reorganization is expected to be completed on or about July 13, 2007.
AFTER THE REORGANIZATION, WHAT SHARES OF DIVERSIFIED VALUE WILL I OWN?
Shareholders owning Class II shares of Select Value will own Class A shares of
Diversified Value. The new shares you receive will have the same total value as
your shares of Select Value as of the close of business on the day immediately
prior to the Reorganization.
1
HOW WILL THE REORGANIZATION AFFECT ME?
It is anticipated that the Reorganization will benefit you as follows, although
no assurance can be given that the Reorganization will result in any such
benefits:
o POTENTIAL COST SAVINGS: Immediately following the Reorganization, Select
Value's shareholders will benefit from lower fund operating expenses.
Select Value's and Diversified Value's net expenses (total annual fund
operating expenses less fee waivers and expense reimbursements) at current
asset levels and as of the Trust's most recent fiscal year ended September
30, 2006 were 1.15% and 1.10%, respectively. It is anticipated that
Diversified Value's net expenses will be 1.10% for Class A shares based
upon its anticipated level of assets immediately following the
Reorganization.
o OPERATING EFFICIENCIES: After the Reorganization, operating efficiencies
may be achieved by Diversified Value because it will have a greater level
of combined assets than Select Value. As of September 30, 2006, Select
Value's and Diversified Value's total net assets were approximately $60.0
million and $167.6 million, respectively, which, when combined, will give
Diversified Value total net assets of approximately $227.6 million after
the Reorganization.
After the Reorganization, Select Value will cease to exist and the value of your
shares will depend on the performance of Diversified Value. Touchstone Advisors,
Inc. will bear the expenses incurred in connection with the Reorganization,
except Diversified Value will pay its own federal and state registration fees
and any portfolio transaction costs.
Like Select Value, Diversified Value will declare and pay dividends from net
investment income quarterly and will distribute net realized capital gains at
least annually. These dividends and distributions will continue to be reinvested
in the same class of shares of Diversified Value you receive in the
Reorganization or, if you have so elected, distributed in cash or invested in
other funds of the Trust.
WILL I BE ABLE TO PURCHASE AND REDEEM SHARES, CHANGE MY INVESTMENT OPTIONS AND
RECEIVE DISTRIBUTIONS THE SAME WAY?
The Reorganization will not affect your right to purchase and redeem shares, to
exchange shares, and to receive distributions. After the Reorganization, you
will be able to purchase additional shares, redeem shares, exchange shares and
receive distributions of Diversified Value in the same way you did for your
shares of Select Value before the Reorganization. For more information, see
"Purchase and Redemption Procedures," "Exchange Privileges" and "Dividend
Policy" below.
HOW DO THE TRUSTEES RECOMMEND THAT I VOTE?
The Trustees of the Trust, including those Trustees who are not "interested
persons" of the Trust, as such term is defined in the Investment Company Act of
1940 (the "1940 Act") (the "Disinterested Trustees"), have concluded that the
Reorganization would be in the best interest of Select Value and Diversified
Value, and that shareholders' interests will not be diluted as a result of the
Reorganization. Accordingly, the Trustees have submitted the Plan for the
approval of the shareholders of Select Value.
2
THE TRUSTEES RECOMMEND THAT YOU VOTE FOR THE PROPOSED REORGANIZATION.
HOW DO THE FUNDS' INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES AND
RISKS COMPARE?
The investment objectives of Select Value and Diversified Value are identical.
The investment strategies for Select Value are substantially similar to those of
Diversified Value. However, Diversified Value is a diversified fund and will
invest in a greater number of stocks than Select Fund would typically own.
Select Value is a non-diversified fund and will typically own between 25 and 40
stocks.
The investment objective of each Fund is non-fundamental, which means that it
may be changed by vote of the Trustees without shareholder approval.
The following tables summarize the investment objectives and principal
investment strategies of Select Value and Diversified Value as set forth in each
Fund's Prospectus and Statement of Additional Information.
- ------------------ ------------------------------------------ ------------------------------------------
Select Value Diversified Value
- ------------------ ------------------------------------------ ------------------------------------------
Investment
Objective Long-term capital appreciation. Long-term capital appreciation.
- ------------------ ------------------------------------------ ------------------------------------------
Principal Select Value invests, under normal Diversified Value invests, under normal
Investment market conditions, at least 80% of its market conditions, at least 80% of its
Strategies assets in common stocks of U.S. assets in common stocks of U.S.
companies that the Sub-advisor believes companies that the Sub-advisor believes
to be priced below their true worth. to be priced below their true worth.
This is a non-fundamental investment This is a non-fundamental investment
policy that the Fund can change upon 60 policy that the Fund can change upon 60
days' prior notice to shareholders. The days' prior notice to shareholders. The
Sub-advisor considers a company to be Sub-advisor considers a company to be
priced below its true worth in instances priced below its true worth in instances
where it believes that the market price where it believes that the market price
of a company's stock does not correctly of a company's stock does not correctly
reflect the company's potential future reflect the company's potential future
values based on analysis of factors such values based on analysis of factors such
as the company's earnings, book value as the company's earnings, book value
and dividend paying ability. and dividend paying ability.
Select Value is non-diversified and may Diversified Value is diversified as to
invest a significant percentage of its issuers and industries, and emphasizes
assets in the securities of a single investments in companies that have a
company. Select Value will typically market capitalization in excess of $1.5
own between 25 and 40 stocks, which is a billion. Diversified Value may, however,
smaller number than diversified funds invest in companies of any size in order
own. The Fund emphasizes investments in to achieve its investment objective.
companies that have a market
capitalization in excess of $1.5 The Sub-advisor focuses on specific
billion. Select Value may, however, security selection within a disciplined,
invest in companies of any size in order risk-managed portfolio structure, and
to achieve its investment objective. conducts in-depth analysis of the
financial quality, market
The Sub-advisor focuses on specific capitalization, cash flow, earnings and
security selection within a disciplined, revenues of individual companies prior
risk-managed portfolio structure, and to making an investment decision.
conducts in-depth analysis of the Dividend income is a consideration
financial quality, market incidental to Diversified Value's
capitalization, cash flow, earnings and investment objective. The Sub-advisor
revenues of individual companies prior generally considers selling a security
to making an investment decision. when it reaches a target price, when it
Dividend income is a consideration fails to perform as expected, or when
incidental to Diversified Value's other opportunities appear more
investment objective. The Sub-advisor attractive.
generally considers selling a security
when it reaches a target price, when it
fails to perform as expected, or when
other opportunities appear more
attractive.
- ------------------ ------------------------------------------ ------------------------------------------
3
Because the Funds have identical investment objectives and substantially similar
investment strategies, they are subject to similar risks. The principal risks of
investing in Select Value and Diversified Value include:
o Market risk - A Fund's share price can fall because of weakness in the
broad market, a particular industry, or specific holdings. A Fund's
investment performance may also be harmed by potentially rapid changes in
the prices of equity securities.
o Market capitalization risk - Investments primarily in issuers in one
market capitalization category (large, medium or small) carry the risk
that due to current market conditions that category may be out of favor.
To the extent that a Fund invests in small and medium capitalization
companies, the Fund may be more vulnerable to adverse business events than
a fund that invests in larger, more established companies.
4
o Investment style risk - Different investment styles such as growth or
value investing tend to shift in or out of favor, depending on market and
economic conditions as well as investor sentiment. 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.
Select Value is also subject to non-diversification risk. The Fund may have
fewer investments than diversified mutual funds of comparable size. Because the
Fund may invest in a small number of issuers, the Fund is more susceptible to
any single economic, political or regulatory event affecting those issuers than
is a diversified fund. While Diversified Value will be less susceptible to any
single such event, because investors will now be invested in a more diversified
portfolio of securities, they would be subject to the risk that a
non-diversified portfolio may have outperformed a more diversified portfolio.
Each Fund may invest some or all of its assets in money market instruments or
utilize other investment strategies as a temporary defensive measure during, or
in anticipation of, adverse market conditions. This strategy may be inconsistent
with the Fund's principal investment objective and strategies, and could result
in lower returns and loss of market opportunities.
For a detailed discussion of the Funds' risks, see the section entitled "Risks"
below.
The Funds have other investment policies, practices and restrictions which,
together with their related risks, are also set forth in the Prospectus and
Statement of Additional Information relating to Select Value and Diversified
Value.
Because Select Value and Diversified Value have identical investment objectives
and substantially similar investment strategies, it is not expected that the
securities held by Select Value will be sold in significant amounts in order to
comply with the investment policies and practices of Diversified Value in
connection with the Reorganization. If such sales occur, the transaction costs
will be borne by Diversified Value. Such costs are ultimately borne by
Diversified Value's shareholders.
HOW DO THE FUNDS' FEES AND EXPENSES COMPARE?
Select Value currently offers one class of shares, Class II shares. Diversified
Value currently offers two classes of shares, Class A and Class C shares. Select
Value shareholders will receive Class A shares of Diversified Value as part of
the Reorganization. You will not pay any initial sales charges in connection
with the Reorganization.
The following tables allow you to compare the various fees and expenses that you
may pay for buying and holding shares of each of the Funds. The table entitled
"Annual Fund Operating Expenses" shows you what fees and expenses are estimated
to be assuming the Reorganization takes place. Class II shares of Select Value
are sold at net asset value. Class A shares of Diversified Value will be sold
with a front-end sales charge.
5
The fees and expenses for the shares of Select Value and Diversified Value set
forth in the following tables and in the examples are based on the expenses for
Select Value and Diversified Value for the fiscal year ended September 30, 2006.
The shares of the Funds are subject to the sales charges as set forth in the
table below. Class A shares of Diversified Value have a front-end sales charge,
although existing shareholders of Select Value (i) will not pay any sales charge
in connection with the shares of Diversified Value received in the
Reorganization and (ii) will be able to make additional investments in
Diversified Value or exchanges into Class A shares of other Trust funds without
paying a front-end sales charge. In addition, you will not pay a charge for
those shares purchased in connection with the reinvestment of your dividends.
Shareholder Fees (fees paid directly from your investment)
- ----------------------------------------------------------
- --------------------------------------------- -------------------- ------------------------ -----------------------
Diversified Value Pro
Select Value Diversified Value Forma After
Class II Class A Reorganization
- --------------------------------------------- -------------------- ------------------------ -----------------------
Maximum Sales Charge Imposed on Purchases None 5.75%(1) 5.75%(1)
(as a percentage of offering price)
- --------------------------------------------- -------------------- ------------------------ -----------------------
Maximum Deferred Sales Charge (as a None None(2) None(2)
percentage of original purchase price or
the amount redeemed, whichever is less)
- --------------------------------------------- -------------------- ------------------------ -----------------------
Wire Redemption Fee Up to $15 Up to $15 Up to $15
- --------------------------------------------- -------------------- ------------------------ -----------------------
(1) Investors may pay a reduced sales charge on very large purchases. Sales
charge not applicable to Select Value shareholders.
(2) Purchases of $1 million or more do not pay a front-end sales charge, but may
pay a contingent deferred sales charge ("CDSC") of 1.00% if shares are redeemed
within 1 year of their purchase and compensation was paid to an unaffiliated
broker-dealer.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
- ----------------------------------------------------------------------------
- --------------------------------------------- -------------------- ------------------------ ------------------------
Diversified Value
Select Value Diversified Value Class A Pro Forma
Class II Class A After Reorganization
- --------------------------------------------- -------------------- ------------------------ ------------------------
Management Fees 0.70%(1) 0.70% 0.70%
- --------------------------------------------- -------------------- ------------------------ ------------------------
Distribution (12b-1) and/or Shareholder 0.25% 0.25% 0.25%
Services Fees
- --------------------------------------------- -------------------- ------------------------ ------------------------
Other Expenses 0.30%(2) 0.50%(3) 0.50%(3)
- --------------------------------------------- -------------------- ------------------------ ------------------------
Total Annual Fund Operating Expenses Before 1.25% 1.45% 1.45%
Contractual Fee Waiver/Expense
Reimbursement
- --------------------------------------------- -------------------- ------------------------ ------------------------
Less Contractual Fee Waiver/Expense (0.10%) (0.35%) (0.35%)
Reimbursement
- --------------------------------------------- -------------------- ------------------------ ------------------------
Net Expenses 1.15% 1.10% 1.10%
- --------------------------------------------- -------------------- ------------------------ ------------------------
6
(1) Investment Advisory Fees paid by the Fund in the most recently completed
fiscal year were 0.69%. The Investment Advisory Fees in the table have been
restated to reflect the contractual rate. As a result, the actual Net Expenses
for the most recently completed fiscal year ended were 1.14%.
(2) Touchstone Advisors has contractually agreed to waive fees and reimburse
expenses in order to keep "Other Expenses" and "Distribution and/or Shareholder
Services Fees" from collectively exceeding 0.45% through March 1, 2008. The
contractual waiver may not be modified or eliminated except with the approval of
the Board of Trustees of the Fund.
(3) Touchstone Advisors has contractually agreed to waive fees and reimburse
expenses in order to keep "Other Expenses" and "Distribution and/or Shareholder
Services Fees" from collectively exceeding 0.40% through March 1, 2008. The
contractual waiver may not be modified or eliminated except with the approval of
the Board of Trustees of the Fund.
The tables below show examples of the total expenses you would pay on a $10,000
investment over one-, three-, five- and ten-year periods. The examples are
intended to help you compare the cost of investing in Select Value versus
Diversified Value and Diversified Value (Pro Forma), assuming the Reorganization
takes place. The examples assume a 5% average annual return, that you redeem all
of your shares at the end of each time period and that you reinvest all of your
dividends. The following tables also assume that total annual operating expenses
remain the same and that all expense limitations remain in effect only through
March 1, 2008. The examples are for illustration only, and your actual costs may
be higher or lower.
Examples of Fund Expenses
- -------------------------
- --------------------------------------------------------------------------------
SELECT VALUE
------------
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Class II $117 $387 $677 $1,502
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVERSIFIED VALUE
-----------------
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Class A $681 $975 $1,290 $2,182
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVERSIFIED VALUE PRO FORMA AFTER REORGANIZATION
------------------------------------------------
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Class A $681 $975 $1,290 $2,182
- --------------------------------------------------------------------------------
HOW DO THE FUNDS' PERFORMANCE RECORDS COMPARE?
The following charts show how Select Value and Diversified Value have performed
in the past. Past performance before and after taxes is not an indication of
future results.
7
Year-by-Year Total Return (%)
- -----------------------------
The charts below show the percentage gain or loss for the shares of Select Value
in each calendar year since the inception of the Fund on August 11, 2000, and
for the shares of Diversified Value in each full calendar year since the
inception of the Fund on August 4, 2000.
These charts should give you a general idea of the risks of investing in Select
Value and Diversified Value by showing how each Fund's return has varied from
year-to-year. These charts include the effects of each Fund's expenses. The bar
chart for Diversified Value however, does not reflect any sales charges. Each
Fund can also experience short-term performance swings as indicated in the high
and low quarter information at the bottom of each chart.
SELECT VALUE
------------- ------------ ----------- ----------- ---------- -----------
-2.19% -22.18% 30.23% 11.95% 1.46% 16.37%
01 02 03 04 05 06
------------- ------------ ----------- ----------- ---------- -----------
High Quarter: 2nd - 2003 + 17.46%
Low Quarter: 3rd - 2002 -21.21%
DIVERSIFIED VALUE
- ------------- ------------ ----------- ----------- ---------- ------------
-4.91% -13.28% 29.04% 14.13% 4.88% 17.67%
01 02 03 04 05 06
- ------------- ------------ ----------- ----------- ---------- ------------
High Quarter: 2nd - 2003 + 17.45%
Low Quarter: 3rd - 2002 -17.57%
The next set of tables lists the average annual total return (before and after
taxes) of the Class II shares of Select Value and Class A shares of Diversified
Value for the past one, five years and since inception (through December 31,
2006). These tables include the effects of Fund expenses and are intended to
provide you with some indication of the risks of investing in each Fund by
comparing its performance with an appropriate widely recognized index of
securities, a description of which can be found following the table. Average
annual total return information for Diversified Value reflects the maximum sales
charge applicable for Class A shares. An index does not reflect fees or
expenses. It is not possible to invest directly in an index.
8
Average Annual Total Return (for the period ended 12/31/2006)
- -------------------------------------------------------------
- ------------------------------ --------------- ---------------- ----------------
From Inception
1 Year Ended 5 Years Ended (8/11/2000 to
12/31/06 12/31/06 12/31/06)
- ------------------------------ --------------- ---------------- ----------------
Select Value - Class II
- ------------------------------ --------------- ---------------- ----------------
Before taxes on distributions 16.37% 6.02% 6.09%
- ------------------------------ --------------- ---------------- ----------------
After taxes on distributions 14.61% 4.92% 5.14%
- ------------------------------ --------------- ---------------- ----------------
After taxes on distributions 12.96% 4.84% 4.95%
and sales of shares
- ------------------------------ --------------- ---------------- ----------------
Russell 1000 Value Index(1) 22.25% 10.86% 8.50%
- ------------------------------ --------------- ---------------- ----------------
- ------------------------------ --------------- ---------------- ----------------
From Inception
1 Year Ended 5 Years Ended (8/04/2000
12/31/06 12/31/06 to 12/31/06)
- ------------------------------ --------------- ---------------- ----------------
Diversified Value - Class A
- ------------------------------ --------------- ---------------- ----------------
Before taxes on distributions 10.90% 8.25% 6.42%
- ------------------------------ --------------- ---------------- ----------------
After taxes on distributions 10.09% 7.37% 5.66%
- ------------------------------ --------------- ---------------- ----------------
After taxes on distributions 8.12% 6.78% 5.23%
and sale of shares
- ------------------------------ --------------- ---------------- ----------------
Russell 1000 Value Index1 22.25% 10.86% 8.64%
- ------------------------------ --------------- ---------------- ----------------
(1) The Russell 1000 Value Index is an unmanaged index that measures the
performance of those Russell 1000 companies with lower price-to-book ratios and
lower forecasted growth values.
For a detailed discussion of the manner of calculating total return, please see
the Funds' Statement of Additional Information. Generally, the calculations of
total return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment date and the deduction of all recurring
expenses that were charged to shareholders' accounts. Important information
about Diversified Value is also contained in management's discussion of
Diversified Value's performance which appears in the most recent Annual Report
of the Trust relating to Diversified Value.
9
WHO WILL BE THE INVESTMENT ADVISER OF MY FUND AFTER THE REORGANIZATION? WHAT
WILL THE ADVISORY AND SUB-ADVISORY FEES BE AFTER THE REORGANIZATION?
Management of the Funds
- -----------------------
The overall management of Select Value and Diversified Value is the
responsibility of, and is supervised by, the Board of Trustees of the Trust.
Adviser
- -------
Touchstone Advisors, Inc. (the "Adviser") is the investment adviser for each
Fund. The Adviser has contracted with sub-advisers including the Sub-Adviser (as
defined below) to make the day-to-day investment decisions for each of the
Funds. The Adviser is responsible for overseeing the Trust's sub-advisers,
including the Sub-Adviser, and for making recommendations to the Board of
Trustees relating to hiring and replacing the sub-advisers. As of December 31,
2006, the Adviser had assets under management of approximately $7.8 billion. The
Adviser is located at 303 Broadway, Suite 1100, Cincinnati, Ohio 45202.
Sub-Adviser
- -----------
Pitcairn Investment Management (the "Sub-Adviser") is the sub-adviser to each
Fund. Pursuant to a Sub-Advisory Agreement with the Adviser, the Sub-Adviser
continuously furnishes an investment program for each Fund, makes day-to-day
investment decisions on behalf of each Fund, and arranges for the execution of
Fund transactions. The Sub-Adviser is a division of Pitcairn Trust Company
("PTC"). As of December 31, 2006, the Sub-Adviser had assets under management of
approximately $669.5 million. The Sub-Adviser is located at One Pitcairn Place,
Suite 3000, 165 Township Line Road, Jenkintown, Pennsylvania 19046.
Eric Feder and David Larrabee, CFA, are the portfolio managers for Diversified
Value. Mr. Feder, who is a Vice President and Chief Investment Officer of the
Sub-Adviser and PTC, joined PTC in 1994. Mr. Feder has investment experience
dating back to 1995. Mr. Larrabee, who is Vice President of the Sub-Adviser and
PTC, joined PTC in 1997. Mr. Larrabee has investment experience dating back to
1994.
Eric Feder and David Larrabee are also the portfolio managers for Select Value.
Advisory Fees
- -------------
Select Value pays the Adviser a monthly investment advisory fee at the annual
rate of 0.70% of the Fund's average daily net assets. Diversified Value pays the
Adviser a monthly investment advisory fee at the annual rate of 0.70% of the
Fund's average daily net assets.
The Adviser may, at its discretion, reduce or waive its fee or reimburse the
Fund for certain of its other expenses in order to reduce the expense ratios.
The Adviser has currently agreed pursuant to a contractual waiver agreement in
effect through March 1, 2008 to waive or otherwise reimburse the Funds' "Other
Expenses" and "Distribution and/or Shareholder Services Fees" for Class A shares
from collectively exceeding 0.45% for Select Value and 0.40% for Diversified
Value. As a result of these fee waivers and reimbursements, the net expenses of
Select Value and Diversified Value were 1.15% and 1.10%, respectively, as of the
Funds' most recently ended fiscal year.
10
Sub-Advisory Fees
- -----------------
Under the terms of the Sub-Advisory Agreement, the Sub-Adviser is paid by the
Adviser for providing sub-advisory services to Diversified Value at an
annualized rate of 0.55% on the value of the first $211 million of the Fund's
average daily net assets, and 0.40% on the value of assets above that amount.
The Fund does not pay a fee to the Sub-Adviser.
WHAT WILL BE THE PRIMARY FEDERAL TAX CONSEQUENCES OF THE REORGANIZATION?
It is anticipated that the Reorganization will constitute a tax-free
reorganization for federal income tax purposes. It is a condition to each Fund's
obligation to complete the Reorganization that such Fund will have received an
opinion from Morgan, Lewis & Bockius LLP, based upon representations made by the
Funds, and upon certain assumptions, substantially to the effect that the
Reorganization will qualify for federal income tax purposes as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended (the "Code").
RISKS
ARE THE RISK FACTORS FOR THE FUNDS SIMILAR?
Yes. The risk factors are similar due to the identical investment objectives and
substantially similar investment strategies of Select Value and Diversified
Value.
WHAT ARE THE PRIMARY RISKS OF INVESTING IN EACH FUND?
An investment in each Fund is subject to certain risks. There is no assurance
that the investment performance of any Fund will be positive or that the Funds
will meet their investment objectives. Loss of money is a risk of investing in
either of these Funds. The following tables and discussions highlight the
primary risks associated with an investment in each Fund.
- -------------------------- -----------------------------------------------------
Each of the Funds is subject to Market Risk.
- -------------------------- -----------------------------------------------------
Diversified Value Normally invests the Fund's assets primarily in
common stocks.
- -------------------------- -----------------------------------------------------
Select Value Normally invests the Fund's assets primarily in
common stocks.
- -------------------------- -----------------------------------------------------
A Fund's share price can fall because of weakness in the broad market, a
particular industry, or specific holdings. The market as a whole can decline for
many reasons, including disappointing corporate earnings, adverse political or
economic developments here or abroad, changes in investor psychology, or heavy
institutional selling. The prospects for an industry or a company may
deteriorate. In addition, an assessment by a Fund's sub-adviser of particular
companies may prove incorrect, resulting in losses or poor performance by those
holdings, even in a rising market. A Fund could also miss attractive investment
opportunities if its sub-adviser underweights fixed income markets or industries
where there are significant returns, and could lose value if the sub-adviser
overweights fixed income markets or industries where there are significant
declines. The investment performance of a Fund that invests in equity securities
could also be harmed by the potentially rapid changes in the prices of equity
securities (volatility).
11
- ------------------------------------- ------------------------------------------
Each of the Funds is subject to Market
Capitalization Risk.
- ------------------------------------- ------------------------------------------
Diversified Value Normally invests at least 80% of the
Fund's assets in the securities of
companies with market capitalizations in
excess of $1.5 billion.
- ------------------------------------- ------------------------------------------
Select Value Normally invests at least 80% of the
Fund's assets in the securities of
companies with market capitalizations in
excess of $1.5 billion.
- ------------------------------------- ------------------------------------------
Stocks fall into three broad market capitalization categories--large, medium and
small. Investing primarily in one category carries the risk that due to current
market conditions that category may be out of favor. If valuations of any of the
Funds' capitalization companies appear to be greatly out of proportion to the
valuations of small or medium capitalization 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. Larger, more established companies may also be unable to
respond quickly to new competitive challenges such as changes in technology and
consumer tastes. Many larger companies also may not be able to attain the high
growth rate of successful smaller companies, especially during extended periods
of economic expansion.
- ------------------------------------- ------------------------------------------
Each of the Funds is subject to
Investment Style Risk.
- ------------------------------------- ------------------------------------------
Diversified Value Invests in "value" stocks.
- ------------------------------------- ------------------------------------------
Select Value Invests in "value" stocks.
- ------------------------------------- ------------------------------------------
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.
A Fund may also employ a combination of styles that impact its risk
characteristics. Examples of different investment styles include growth and
value investing. Growth stocks may be more volatile than other stocks because
they are more sensitive to investor perceptions of the issuing company's growth
of earnings potential. Also, since growth companies usually invest a high
portion of earnings in their business, growth stocks may lack the dividends of
value stocks that can cushion stock prices in a falling market. Growth oriented
funds will typically underperform when value investing is in favor. Value stocks
are those which are undervalued in comparison to their peers due to adverse
business developments or other factors. Value investing carries the risk that
the market will not recognize a security's inherent value for a long time, or
that a stock judged to be undervalued may actually be appropriately priced or
overvalued. Value oriented funds will typically underperform when growth
investing is in favor.
12
- ------------------------------------- ------------------------------------------
Non-Diversification Risk
- ------------------------------------- ------------------------------------------
Diversified Value Invests in a diversified portfolio of
stocks.
- ------------------------------------- ------------------------------------------
Select Value Invests in a non-diversified portfolio of
stocks.
- ------------------------------------- ------------------------------------------
Select Value is also subject to non-diversification risk. The Fund may have
fewer investments than diversified mutual funds of comparable size. Because the
Fund may invest in a small number of issuers, the Fund is more susceptible to
any single economic, political or regulatory event affecting those issuers than
is a diversified fund. Diversified Value is not subject to non-diversification
risk. While Diversified Value will be less susceptible to any single such event,
because investors will now be invested in a more diversified portfolio of
securities, they would be subject to the risk that a non-diversified portfolio
may have outperformed a more diversified portfolio.
ARE THERE ANY OTHER RISKS OF INVESTING IN EACH FUND?
FOREIGN SECURITIES: Each of the Funds may invest in foreign securities and
foreign currency denominated securities. Investments in foreign securities and
in foreign currency denominated securities involve risks relating to political,
social and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject. These risks may include the seizure by the government of
company assets, excessive taxation, withholding taxes on dividends and interest,
limitations on the use or transfer of portfolio assets, and political or social
instability. Enforcing legal rights may be difficult, costly and slow in foreign
countries, and there may be special problems enforcing claims against foreign
governments. Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there may be less
public information about their operations. Foreign markets may be less liquid
and more volatile than U.S. markets.
Foreign securities often trade in currencies other than the U.S. dollar, and a
Fund may directly hold foreign currencies and purchase and sell foreign
currencies. Changes in currency exchange rates will affect a Fund's net asset
value, the value of dividends and interest earned, and gains and losses realized
on the sale of foreign securities. An increase in the strength of the U.S.
dollar relative to these other currencies may cause the value of a Fund to
decline. Certain foreign currencies may be particularly volatile, and foreign
governments may intervene in the currency markets, causing a decline in value or
liquidity of a Fund's foreign currency or securities holdings.
Costs of buying, selling and holding foreign securities, including brokerage,
tax and custody costs, may be higher than those involved in domestic
transactions. In addition, investments in emerging markets include all of the
risks of investments in foreign securities and are subject to severe price
declines. The economic and political structures of developing nations, in most
cases, do not compare favorably with the U.S. or other developed countries in
terms of wealth and stability, and their financial markets often lack liquidity.
Such countries may have relatively unstable governments, immature economic
structures, national policies restricting investments by foreigners and
economies based on only a few industries.
13
For these reasons, all of the risks of investing in foreign securities are
heightened by investing in emerging market countries. The markets of developing
countries have been more volatile than the markets of developed countries with
more mature economies. These markets often have provided significantly higher or
lower rates of return than developed markets, and significantly greater risks,
to investors.
ACTIVE TRADING RISK: The Funds may engage in active and frequent trading of Fund
securities to achieve their principal investment objective. Frequent trading
also increases brokerage and transaction costs, which could detract from a
Fund's performance.
OTHER RISKS: Each Fund may invest some or all of its assets in money market
instruments or utilize other investment strategies as a temporary defensive
measure during, or in anticipation of, adverse market conditions. This strategy
may be inconsistent with the Fund's principal investment objective and
strategies, and could result in lower returns and loss of market opportunities.
INFORMATION ABOUT THE REORGANIZATION
REASONS FOR THE REORGANIZATION
The Reorganization is designed to eliminate the offering of overlapping funds
with similar investment objectives and similar investment strategies that are
managed by Touchstone Advisors, Inc., the investment adviser to the Trust. The
Reorganization may lead to potential efficiencies and economies of scale for
shareholders. Also, the Reorganization could result in lower operating expenses
by reducing certain fund expenses associated with operating multiple funds.
At a regular meeting held on February 22, 2007, all of the Trustees of the
Trust, including the Disinterested Trustees, considered and approved the
Reorganization, determined that the Reorganization was in the best interests of
shareholders of Select Value and Diversified Value, and that the interests of
existing shareholders of Select Value will not be diluted as a result of the
transaction contemplated by the Reorganization.
In evaluating the Reorganization, the Board requested and reviewed, with
assistance of independent counsel, materials furnished by the Adviser. These
materials included written information regarding operations and financial
conditions of the Funds, principal terms and conditions of the Reorganization,
including the intention that the Reorganization be consummated on a tax-free
basis for Select Value and its respective shareholders. The Trustees noted that
Diversified Value will have an identical investment objective and substantially
similar investment strategies to those of Select Value. In addition, on a pro
forma basis after the Reorganization, net operating expenses of Diversified
Value are anticipated to be lower than those of Select Value. The Trustees also
noted that Diversified Value's overall performance has been better than that of
Select Value since their inceptions in August, 2000.
The Trustees were also advised that as of September 30, 2006, Select Value had
net assets of approximately $59.9 million, while Diversified Value had assets of
approximately $167.6 million at that date. As of September 30, 2006, the Funds'
combined assets would have been approximately $227.6 million, which could lead
to operating efficiencies and lower operating costs for the Funds' shareholders.
Accordingly, by merging Select Value and Diversified Value, shareholders would
enjoy a greater asset base over which fund expenses may be spread. The Trustees
considered that if the Plan is approved, shareholders of Select Value should
realize an immediate reduction in the net expenses paid on their investment,
although there can be no assurance that operational savings will be realized.
14
In addition, the Trustees considered, among other things:
o the terms and conditions of the Reorganization;
o the investment advisory and other fees paid by the Funds and the
projected expense ratios of Diversified Value as compared with those
of Select Value;
o the advice and recommendation of the Adviser, including its opinion
that in light of the foregoing, the Reorganization would be in the
best interests of Select Value, Diversified Value and their
shareholders;
o the expenses of the Reorganization would not be borne by Select
Value's shareholders;
o the historical investment performance record of Diversified Value
and expected continuity of day-to-day Fund management through the
Sub-Adviser;
o the identical investment objectives and substantially similar
investment strategies of the Funds and their compatibility of each
other;
o the fact that Diversified Value will assume all of the liabilities
of Select Value;
o the benefits to shareholders, including operating efficiencies,
which may be achieved from the Reorganization;
o the anticipated tax-free nature of the Reorganization for Select
Value and its shareholders; and
o alternatives available to shareholders of Select Value, including
the ability to redeem their shares.
During their consideration of the Reorganization, the Trustees of the Trust met
with counsel to the Disinterested Trustees regarding the legal issues involved.
After consideration of the factors noted above, together with other factors and
information considered to be relevant, and recognizing that there can be no
assurance that any operating efficiencies or other benefits will in fact be
realized, the Trustees of the Trust concluded that the Reorganization would be
in the best interests of Select Value, Diversified Value and their shareholders.
Consequently, they approved the Plan and directed that the Plan be submitted to
shareholders of Select Value for approval.
15
The Trustees of the Trust, including the Disinterested Trustees, have also
approved the Plan on behalf of Diversified Value.
AGREEMENT AND PLAN OF REORGANIZATION
The following summary is qualified in its entirety by reference to the Plan (the
copy of which is attached as Exhibit A to this Prospectus/Proxy Statement).
The Plan provides that all of the assets of Select Value will be acquired by
Diversified Value in exchange for Class A shares of Diversified Value, and the
assumption by Diversified Value of all of the liabilities of Select Value on or
about July 13, 2007 or such other date as may be agreed upon by the parties (the
"Closing Date"). Prior to the Closing Date, Select Value will endeavor to
discharge all of its known liabilities and obligations. Select Value will
prepare an unaudited statement of its assets and liabilities as of the close of
business on the New York Stock Exchange ("NYSE"), normally 4:00 p.m. Eastern
Time, on the business day immediately preceding the Closing Date (the "Valuation
Date").
At or prior to the Closing Date, Select Value will declare a dividend or
dividends and distribution or distributions which, together with all previous
dividends and distributions, shall have the effect of distributing to the Fund's
shareholders all of the Fund's investment company taxable income for the taxable
period ending on the Closing Date (computed without regard to any deduction for
dividends paid), all of the Fund's net tax exempt income and all of its net
capital gains realized in all taxable periods ending on the Closing Date (after
reductions for any capital loss carryforward). Although Select Value does not
expect that a significant amount of investments in the pro forma portfolio of
investments dated September 30, 2006 must be sold as a result of the
Reorganization, to the extent such sales occur, the Fund may realize capital
gains upon sale of its portfolio holdings.
The number of full and fractional Class A shares of Diversified Value to be
received by the shareholders of Select Value will be determined by multiplying
the number of outstanding Class II shares of Select Value by a ratio which shall
be computed by dividing the net asset value per share of the Class II shares of
Select Value by the net asset value per share of the Class A shares of
Diversified Value. These computations will take place as of the Valuation Date.
Integrated Investment Services, Inc., the accounting agent of the Funds, will
compute the value of each Fund's respective portfolio of securities. The method
of valuation employed will be consistent with the procedures set forth in the
Prospectus and Statement of Additional Information of Diversified Value, Rule
22c-1 under the 1940 Act, and with the interpretations of that Rule by the SEC's
Division of Investment Management.
As soon after the Closing Date as conveniently practicable, Select Value will
liquidate and distribute pro rata to the shareholders as of the close of
business on the Closing Date the full and fractional shares of Diversified Value
received by Select Value. The liquidation and distribution will be accomplished
by the establishment of accounts in the names of Select Value's shareholders on
Diversified Value's share records of its transfer agent. Each account will
represent the respective pro rata number of full and fractional shares of
Diversified Value due to Select Value's shareholders. All issued and outstanding
shares of Select Value will be canceled. The shares of Diversified Value to be
issued will have no preemptive or conversion rights and no share certificates
will be issued. After these distributions and the winding up of their affairs,
Select Value will be terminated as series of the Trust.
16
The consummation of the Reorganization is subject to the conditions set forth in
the Plan, including approval, as applicable, by Select Value's shareholders,
accuracy of various representations and warranties and receipt of opinions of
counsel. Notwithstanding approval of Select Value's shareholders, the Plan may
be terminated: (a) by the mutual agreement of Select Value and Diversified
Value; or (b) at or prior to the Closing Date by either party (1) because of a
breach by the other party of any representation, warranty, or agreement
contained in the Plan to be performed at or prior to the Closing Date, if not
cured within 30 days; or (2) because a condition to the obligation of the
terminating party has not been met and it reasonably appears that it will not or
cannot be met. To the extent permitted by law and subject to the terms of the
Plan, the Funds may also agree to terminate and abandon the Plan at any time
before the approval of Select Value's shareholders. Following the Meeting, no
amendment may be made to the Plan that would have the effect of changing the
provisions for determining the number of the shares of Diversified Value to be
issued to the shareholders of the Select Value without approval of the officers
of each Fund. Any material amendment to the Plan is subject to review by the
Board of Trustees to ensure that it is in the best interest of the shareholders
of each Fund.
Whether or not the Reorganization is consummated, the Adviser will bear the
expenses incurred in connection with the Reorganization.
If Select Value's shareholders do not approve the Reorganization, the Trustees
will consider other possible courses of action in the best interests of
shareholders.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is intended to qualify for federal income tax purposes as a
tax free reorganization under section 368(a) of the Code. As a condition to the
closing of the Reorganization, Diversified Value and Select Value, as
applicable, will receive an opinion from the law firm of Morgan, Lewis & Bockius
LLP substantially to the effect that, on the basis of the existing provisions of
the Code, U.S. Treasury regulations issued thereunder, current administrative
rules, pronouncements and court decisions, and certain representations made by
the Funds, for federal income tax purposes, upon consummation of the
Reorganization:
(1) The transfer of all of the assets of Select Value solely in exchange
for shares of Diversified Value and the assumption by Diversified
Value of the liabilities of Select Value followed by the
distribution of Diversified Value's shares to the shareholders of
Select Value in dissolution and liquidation of Select Value, will
constitute a "reorganization" within the meaning of section 368(a)
of the Code, and Diversified Value and Select Value will each be a
"party to a reorganization" within the meaning of section 368(b) of
the Code;
(2) No gain or loss will be recognized by Diversified Value upon the
receipt of the assets of Select Value solely in exchange for the
shares of Diversified Value and the assumption by Diversified Value
of the liabilities of Select Value;
17
(3) No gain or loss will be recognized by Select Value upon the transfer
of all of its assets to Diversified Value solely in exchange for
Diversified Value's shares and the assumption by Diversified Value
of the liabilities of Select Value or upon the distribution (whether
actual or constructive) of Diversified Value's shares to Select
Value's shareholders in exchange for their shares of Select Value;
(4) No gain or loss will be recognized by Select Value's shareholders
upon the exchange of their shares of Select Value for shares of
Diversified Value in liquidation of Select Value;
(5) The aggregate tax basis of the shares of Diversified Value received
by each shareholder of Select Value pursuant to the Reorganization
will be the same as the aggregate tax basis of the shares of Select
Value held by such shareholder immediately prior to the
Reorganization, and the holding period of the shares of Diversified
Value received by each shareholder of Select Value will include the
period during which the shares of Select Value exchanged therefor
were held by such shareholder (provided that the shares of Select
Value were held as a capital asset on the date of the
Reorganization);
(6) The tax basis of the assets of Select Value acquired by Diversified
Value will be the same as the tax basis of such assets to Select
Value immediately prior to the Reorganization, and the holding
period of such assets in the hands of Diversified Value will include
the period during which the assets were held by Select Value; and
(7) Diversified Value will succeed to and take into account capital loss
carryovers, if any, of Select Value described in Section 381(c) of
the Code, subject to the conditions and limitations specified in
Sections 381(b) and (c), 382, 383 and 384 of the Code and the
regulations thereunder.
No opinion, however, will be expressed as to the effect of the Reorganization on
(i) Select Value or Diversified Value with respect to any asset as to which any
unrealized gain or loss is required to be recognized for U.S. federal income tax
purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting and (ii) any shareholder of
Select Value that is required to recognize unrealized gains and losses for U.S.
federal income tax purposes under a mark-to-market system of accounting.
Such opinion shall be based on customary assumptions and such representations as
Morgan, Lewis & Bockius LLP may reasonably request.
Opinions of counsel are not binding upon the Internal Revenue Service or the
courts. If the Reorganization is consummated but does not qualify as a tax free
reorganization under the Code, a shareholder of Select Value would recognize a
taxable gain or loss equal to the difference between its tax basis in its Select
Value shares and the fair market value of the shares of Diversified Value it
received.
Diversified Value's utilization after the Reorganization of any
pre-Reorganization losses realized by Select Value to offset gains realized by
Diversified Value could be subject to limitation in future years.
18
PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of Select Value and
Diversified Value, and the capitalization of Diversified Value on a pro forma
basis as of September 30, 2006, giving effect to the proposed acquisition of
assets at net asset value. The pro forma data reflects an exchange ratio of
approximately 0.8973 Class A share of Diversified Value for each Class II share
of Select Value.
CAPITALIZATION OF SELECT VALUE, DIVERSIFIED VALUE AND
DIVERSIFIED VALUE (PRO FORMA)
- ------------------------- ---------------------- ----------------------- ------------------- -------------------------
Diversified Value Pro
Forma (After
Select Value Diversified Value Adjustments Reorganization)(a)
- ------------------------- ---------------------- ----------------------- ------------------- -------------------------
Net Assets
Class II $ 59,920,926 --- ---
Class A --- $ 167,596,573 --- $ 227,517,499
Total Net Assets $ 59,920,926 $ 167,596,573 --- $ 227,517,499
- ------------------------- ---------------------- ----------------------- ------------------- -------------------------
Net Asset Value Per
Share
Class II $ 11.36 --- --- ---
Class A --- $ 12.66 --- $ 12.66
- ------------------------- ---------------------- ----------------------- ------------------- -------------------------
Shares Outstanding
Class II $ 5,272,740 --- $ (539,649) ---
Class A --- $ 13,239,858 --- $ 17,972,949
- ------------------------- ---------------------- ----------------------- ------------------- -------------------------
Total Shares
Outstanding $ 5,272,740 $ 13,239,858 $ (539,649) $ 17,972,949
- ------------------------- ---------------------- ----------------------- ------------------- -------------------------
(a)Reflects change in shares outstanding due to the issuance of Class A shares
of Diversified Value in exchange for Class II shares of Select Value.
The table set forth above should not be relied upon to reflect the number of
shares to be received in the Reorganization; the actual number of shares to be
received will depend upon the net asset value and number of shares outstanding
of each Fund at the time of the Reorganization.
ADDITIONAL INFORMATION ABOUT THE FUNDS
DISTRIBUTION OF SHARES
Touchstone Securities, Inc. is the principal underwriter of the Trust and, as
such, the exclusive agent for distribution of the Trust's shares. Shares of the
Funds are sold in a continuous offering directly through Touchstone Securities,
Inc., through financial advisors and financial intermediaries or through
processing organizations. Touchstone Securities, Inc. allows concessions to
dealers who sell shares of the Funds. Touchstone Securities, Inc. receives that
portion of the sales charge that is not reallowed to dealers and retains the
entire sales charge on all direct investments and accounts with no designated
dealer of record. Touchstone Securities, Inc. is an affiliate of the Adviser by
reason of common ownership.
19
Diversified Value offers Class A and Class C shares. Class C shares are not
involved in the Reorganization. Class A shares are subject to a maximum
front-end sales charge of 5.75%.
Diversified Value has adopted a distribution plan under Rule 12b-1 of the 1940
Act with respect to its Class A shares. The plan allows Diversified Value to pay
Touchstone Securities, Inc. distribution and other fees for the sale and
distribution of its shares and for services provided to shareholders. Under the
Class A Plan, Diversified Value pays an annual fee of up to 0.25% of average
daily net assets that are attributable to Class A shares. With respect to Class
II shares, Select Value has adopted a plan of distribution and shareholder
service under Rule 12b-1 of the 1940 Act under which Touchstone Securities, Inc.
may be paid up to, but not exceeding 1.00% in the aggregate, with 0.25% for
shareholder service fees and 0.75% for distribution payments. However, Class II
shares currently only assess shareholder service fees.
In the proposed Reorganization, Class II shareholders of Select Value will
receive Class A shares of Diversified Value. Class A shares of Diversified Value
to be issued upon consummation of the Reorganization will be issued at net asset
value and no sales charges will be imposed. Shareholders who receive Class A
shares in the Reorganization will be able to buy additional Class A shares
without a sales charge. Select Value does not impose sales charges for Class II
shares.
More detailed descriptions of the Diversified Value Class A shares and the
distribution arrangements applicable to each class of shares is contained in the
Prospectus and Statement of Additional Information relating to Diversified
Value.
PURCHASE AND REDEMPTION PROCEDURES
The Funds have the same purchase and redemption procedures. Class II shares of
Select Value and Class A shares of Diversified Value each have a minimum initial
purchase requirement of $2,500. The minimum subsequent purchase requirement for
each is $50 ($25 if the subsequent investment is made through a systematic
investment plan). For more information, see "Purchasing Your Shares" in the
Trust Prospectus. Select Value's and Diversified Value's shares may each be
redeemed by telephone, Internet, by mail, by wire or through accounts with
certain brokers and other financial institutions. Payments for redemptions of
each Fund are sent within seven days (normally within 3 business days) after
receipt of a proper redemption request. Each Fund reserves the right to redeem
in kind, under certain circumstances, by paying you the proceeds in liquid
securities rather than in cash. Additional information concerning purchases and
redemptions of shares, including how each Fund's net asset value is determined,
is contained in the Trust's Prospectus. All investments in the Funds are
invested in full and fractional shares.
The Funds reserve the right to reject any purchase order.
EXCHANGE PRIVILEGES
20
The Funds have similar exchange privileges. You may exchange Class II shares of
Select Value and Class A of Diversified Value for the corresponding class of
shares of another Touchstone Fund at net asset value, subject to any applicable
limitations resulting from the closing of Touchstone Funds to new investors. You
do not have to pay any fee for your exchange of shares of the Funds. Additional
information concerning the Funds' exchange privileges is contained in the
Trust's Prospectus.
DIVIDEND POLICY
Each Fund has the same dividend distribution policy. Each Fund distributes its
income quarterly as a dividend to shareholders and distributes its capital gains
at least annually. Dividends and distributions are reinvested in additional
shares of the Fund, or paid in cash, if you have elected this option. See the
Trust's Prospectus for further information concerning dividends and
distributions.
After the Reorganization, shareholders of Select Value who have elected to have
their dividends and/or distributions reinvested will have dividends and/or
distributions received from Diversified Value reinvested in the same class of
shares of Diversified Value. Shareholders of Select Value who have elected to
receive dividends and/or distributions in cash will receive dividends and/or
distributions from Diversified Value in cash after the Reorganization, although
they may, after the Reorganization, elect to have such dividends and/or
distributions reinvested in additional shares of Diversified Value.
Select Value and Diversified Value have each qualified to be treated as a
regulated investment company under the Code. To remain qualified as a regulated
investment company, a Fund must, among other things, 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 its shareholders of record, it is expected that a Fund will not be
required to pay any federal income taxes on the amounts distributed to its
shareholders of record.
FINANCIAL HIGHLIGHTS OF THE FUNDS
The tables that follow present performance information about Class II shares of
Select Value and Class A shares of Diversified Value. This information is
intended to help you understand each fund's financial performance for the past
five years. The total returns in the table represents the rate that you would
have earned (or lost) on an investment in a fund, assuming you reinvested all of
your dividends and distributions. The financial highlights for each fund for the
year ended September 30, 2006 was audited by Ernst & Young LLP, independent
registered public accounting firm. The financial highlights for all other
periods presented were audited by other independent registered public
accountants. The report of the independent registered public accounting firm,
along with each fund's financial statements and related notes, appears in the
2006 Annual Report for the funds.
TOUCHSTONE PITCAIRN SELECT VALUE FUND - CLASS II SHARES
21
------------- -------------- -------------- -------------- -------------- ---------------- --------------- ------------
Realized and
Net asset unrealized Dividends
value, Net gains Total from net Distributions Total Net asset
beginning investment (losses) on investment investment from capital dividends and value, end
of period income (loss) investments activities income gains distributions of period
- ------------ ------------- -------------- -------------- -------------- -------------- ---------------- --------------- ------------
2006 (A) $11.60 0.15 0.87 1.02 (0.15) (1.11) (1.26) $11.36
- ------------ ------------- -------------- -------------- -------------- -------------- ---------------- --------------- ------------
2005 $10.87 0.07 0.89 0.96 (0.07) (0.16) (0.23) $11.60
- ------------ ------------- -------------- -------------- -------------- -------------- ---------------- --------------- ------------
2004 (B)(C) $10.38 0.08 0.66 0.74 (0.09) (0.16) (0.25) $10.87
- ------------ ------------- -------------- -------------- -------------- -------------- ---------------- --------------- ------------
2003 $8.36 0.08 2.03 2.11 (0.09) -- (0.09) $10.38
- ------------ ------------- -------------- -------------- -------------- -------------- ---------------- --------------- ------------
2002 $10.01 0.09 (1.65) (1.56) (0.09) -- (0.09) $8.36
- ------------ ------------- -------------- -------------- -------------- -------------- ---------------- --------------- ------------
2001 $10.96 0.09 (0.95) (0.86) (0.09) -- (0.09) $10.01
- ------------ ------------- -------------- -------------- -------------- -------------- ---------------- --------------- ------------
------------------- ------------------- ------------------- ------------------- ------------------- -------------------
Ratio of net
Ratio of net Ratio of total investment income
Total return Net assets end of expenses to expenses to (loss) to average Portfolio
period (000) average net assets average net assets net assets turnover rate
- ------------ ------------------- ------------------- ------------------- ------------------- ------------------- -------------------
2006 (A) 9.64% $59,921 1.10% 1.22% 1.30% 130%
- ------------ ------------------- ------------------- ------------------- ------------------- ------------------- -------------------
2005 8.82% $65,400 1.14% 1.24% 0.63% 94%
- ------------ ------------------- ------------------- ------------------- ------------------- ------------------- -------------------
2004 (B)(C) 7.16% (D) $61,817 1.03% 1.19% 0.84% 111%
- ------------ ------------------- ------------------- ------------------- ------------------- ------------------- -------------------
2003 25.48% $58,133 1.02% 1.23% 0.86% 104%
- ------------ ------------------- ------------------- ------------------- ------------------- ------------------- -------------------
2002 (15.77)% $48,455 1.02% 1.19% 0.92% 110%
- ------------ ------------------- ------------------- ------------------- ------------------- ------------------- -------------------
2001 (7.90)% $60,986 1.00% 1.19% 0.85% 104%
- ------------ ------------------- ------------------- ------------------- ------------------- ------------------- -------------------
(A) Effective March 1, 2006, Touchstone Advisors Inc. replaced Constellation
Investment Management Company, LP as the advisor to the Funds.
(B) Effective May 10, 2004 and August 2, 2004, the Constellation Funds acquired
the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a
tax-free reorganization. In connection with the reorganization, CIMCO became the
investment advisor to the Funds. See Note 10 in Notes to Financial Statements
for additional information.
(C) For the eleven-month period ended September 30, 2004. All ratios for the
period have been annualized. The Fund changed its fiscal year end from October
31 to September 30.
(D) Returns are for the period indicated and have not been annualized.
Amounts designated as "--" are either $0 or have been rounded to $0.
TOUCHSTONE DIVERSIFIED VALUE FUND - CLASS A SHARES*
22
------------- ------------- --------------- -------------- ------------- ---------------- --------------- -----------
Realized and
Net asset Net unrealized Dividends Net asset
value, investment gains Total from net Distributions Total value,
beginning income (losses) on investment investment from capital dividends and end of
of period (loss) investments activities income gains distributions period
- -------------- ------------- ------------- --------------- -------------- ------------- ---------------- --------------- -----------
2006 (A) $12.60 0.17 1.08 1.25 (0.17) (1.02) (1.19) $12.66
- -------------- ------------- ------------- --------------- -------------- ------------- ---------------- --------------- -----------
2005 $11.22 0.13 1.38 1.51 (0.13) -- (0.13) $12.60
- -------------- ------------- ------------- --------------- -------------- ------------- ---------------- --------------- -----------
2004 (B)(C) $10.26 0.10 0.97 1.07 (0.11) -- (0.11) $11.22
- -------------- ------------- ------------- --------------- -------------- ------------- ---------------- --------------- -----------
2003 $8.50 0.12 1.77 1.89 (0.13) -- (0.13) $10.26
- -------------- ------------- ------------- --------------- -------------- ------------- ---------------- --------------- -----------
2002 $9.19 0.10 (0.69) (0.59) (0.10) -- (0.10) $8.50
- -------------- ------------- ------------- --------------- -------------- ------------- ---------------- --------------- -----------
2001 $10.52 0.09 (1.33) (1.24) (0.09) -- (0.09) $9.19
- -------------- ------------- ------------- --------------- -------------- ------------- ---------------- --------------- -----------
------------------- ------------------ ------------------- ------------------- ------------------ -------------------
Ratio of net
investment
Ratio of net Ratio of total income (loss) to
Total return Net assets end expenses to expenses to average net Portfolio
of period (000) average net assets average net assets assets turnover rate
- -------------- ------------------- ------------------ ------------------- ------------------- ------------------ -------------------
2006 (A) 10.68% $167,597 1.06% 1.20% 1.34% 48%
- -------------- ------------------- ------------------ ------------------- ------------------- ------------------ -------------------
2005 13.47% $168,542 1.09% 1.21% 1.04% 64%
- -------------- ------------------- ------------------ ------------------- ------------------- ------------------ -------------------
2004 (B)(C) 10.50% (D) $152,202 1.02% 1.14% 1.06% 75%
- -------------- ------------------- ------------------ ------------------- ------------------- ------------------ -------------------
2003 22.43% $143,641 1.01% 1.14% 1.32% 59%
- -------------- ------------------- ------------------ ------------------- ------------------- ------------------ -------------------
2002 (6.43)% $122,391 1.02% 1.13% 1.17% 26%
- -------------- ------------------- ------------------ ------------------- ------------------- ------------------ -------------------
2001 (11.87)% $139,767 1.00% 1.16% 0.92% 48%
- -------------- ------------------- ------------------ ------------------- ------------------- ------------------ -------------------
* Prior to November 17, 2006, Class A shares of Diversified Value were referred
to as Class II shares.
(A) Effective March 1, 2006, Touchstone Advisors Inc. replaced Constellation
Investment Management Company, LP as the advisor to the Funds.
(B) Effective May 10, 2004 and August 2, 2004, the Constellation Funds acquired
the assets of certain Turner Funds and the Pitcairn Funds, respectively, in a
tax-free reorganization. In connection with the reorganization, CIMCO became the
investment advisor to the Funds. See Note 10 in Notes to Financial Statements
for additional information.
(C) For the eleven-month period ended September 30, 2004. All ratios for the
period have been annualized. The Fund changed its fiscal year end from October
31 to September 30.
(D) Returns are for the period indicated and have not been annualized.
Amounts designated as "--" are either $0 or have been rounded to $0.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
The operations of the Trust are governed by its Amended and Restated Agreement
and Declaration of Trust, as amended, and Amended and Restated By-Laws, and
applicable Delaware law. The organizational documents of the Trust are referred
to generically in this section of the Prospectus/Proxy Statement as the
Declaration of Trust and By-Laws. Shareholders entitled to vote at the Meeting
may obtain a copy of the Trust's Declaration of Trust and By-Laws, without
charge, upon written or oral request to the Trust at the address and telephone
number set forth on the cover of this Prospectus/Proxy Statement. The following
information summarizes shareholders' rights under the Amended and Restated
Declaration of Trust and Amended and Restated By-Laws. The rights of Select
Value shareholders and Diversified Value shareholders are the same under these
documents.
23
FORM OF ORGANIZATION
As noted above, the Trust is organized as a Delaware statutory trust. The Trust
is an open-end management investment company registered with the Securities and
Exchange Commission ("SEC") under the 1940 Act, and is organized as a "series
company" as that term is used in Rule 18f-2 under the 1940 Act. The series of
the Trust consist of Select Value, Diversified Value and other mutual funds of
various asset classes. The Trust is governed by its Declaration of Trust,
By-Laws, and a Board of Trustees, and by applicable Delaware and federal law.
CAPITALIZATION
The beneficial interests in the Trust are represented by an unlimited number of
transferable shares of beneficial interest, $.01 par value per share, of one or
more series. The Declaration of Trust of the 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.
Select Value offers Class II shares. Diversified Value offers Class A and Class
C shares. Class C shares are not involved in the Reorganization. Shares of the
classes of each Fund represent an equal pro rata interest in the Fund and
generally have identical voting, dividend, liquidation and other rights, other
than the payment of distribution fees. Shareholders of each Fund are entitled to
receive dividends and other amounts as determined by the Trustees, as
applicable.
Shareholders of each Fund vote separately, by Fund, as to matters, such as
changes in fundamental investment restrictions, that affect only their
particular Fund. Shareholders of each Fund vote by class as to matters, such as
approval of or amendments to Rule 12b-1 distribution plans, that affect only
their particular class.
SHAREHOLDER LIABILITY
Under Delaware law, shareholders of a Delaware statutory trust are entitled to
the same limitation of personal liability extended to stockholders of Delaware
corporations. To the extent that the Trust or a shareholder is subject to the
jurisdiction of courts in other states, it is possible that a court may not
apply Delaware law and may thereby subject shareholders of the Trust to
liability. To guard against this risk, the Trust's Declaration of Trust (a)
contains an express disclaimer of shareholder liability for obligations of the
Trust; (b) requires that notice of this disclaimer be given in each agreement,
obligation or instrument entered into or executed by or on behalf of the Trust
or its Trustees; and (c) provides for indemnification out of the Trust's
property of any shareholder held personally liable for the obligations of the
Trust. Accordingly, the risk of a shareholder of the Trust incurring financial
loss beyond that shareholder's investment because of shareholder liability is
limited to circumstances in which: (1) the court refuses to apply Delaware law;
(2) no contractual limitation of liability was in effect; and (3) the Trust
itself is unable to meet its obligations. In light of Delaware law, the nature
of the Trust's business, and the nature of its assets, the risk of personal
liability to a shareholder of the Trust is remote.
24
Under Delaware law, shareholders of a Delaware statutory trust are entitled to
the same limitation of personal liability extended to stockholders of Delaware
corporations. As a result, Delaware law is generally considered to afford
additional protection against potential shareholder liability.
SHAREHOLDER MEETINGS AND VOTING RIGHTS
The Trust on behalf of Select Value or Diversified Value 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. Special meetings of the Trust shall be called upon the written
request of shareholders owning at least 25% of the shares then outstanding. 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. Cumulative voting is not
permitted in the election of Trustees of the Trust.
Except when a larger quorum is required by applicable law or the applicable
governing documents, forty percent (40%) of the shares entitled to vote
constitutes a quorum for consideration of a matter at a shareholders' meeting,
but any lesser number is sufficient for adjourned sessions. Approval of a matter
by the shareholders of the Trust requires, when a quorum is present at a
meeting, the affirmative vote of a majority (greater than 50%) of the shares
voted, and a plurality of the shares voted is required to elect a Trustee
(unless a larger vote is 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 with or without cause by vote of a majority of the then Trustees.
Under the Declaration of Trust of the 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. The Declaration of Trust of the Trust provides
that the Board of Trustees may, to the extent consistent with applicable law,
cause the Trust or a Fund to be merged or consolidated with another trust or
company, provided such merger or consolidation is authorized by vote of a
majority of the outstanding shares of the Trust or the Fund, as applicable.
LIQUIDATION
In the event of the liquidation of the Trust or a Fund, the shareholders are
entitled to receive, when and as declared by the Trustees, the excess of the
assets belonging to the Trust or the Fund over the liabilities belonging to the
Trust or the Fund. The assets so distributable to shareholders of the Fund will
be distributed among the shareholders in proportion to the number of shares of a
class of the Fund held by them on the date of distribution.
LIABILITY AND INDEMNIFICATION OF TRUSTEES
The Declaration of Trust of the Trust provides that: (1) the Trustees shall not
be responsible or liable for any neglect or wrongdoing of any officer, agent,
employee, investment advisor or principal underwriter of the Trust, or any act
or omission of any other Trustee; and (2) the Trust out of its assets shall
indemnify and hold harmless each and every Trustee from and against any and all
claims and demands whatsoever arising out of or related to such Trustee's
performance of his or her duties as a Trustee of the Trust. Under the
Declaration of Trust of the Trust, a Trustee may be liable to the Trust or any
shareholder of the Trust by reason of such Trustee's own willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties involved in the
conduct of his or her office.
25
The foregoing is only a summary of certain characteristics of the operations of
the Declaration of Trust of the Trust, its By-Laws and Delaware law and is not a
complete description of those documents or law. Shareholders should refer to the
provisions of such Declaration of Trust, By-Laws and Delaware law directly for
more complete information.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is being sent to shareholders of Select Value in
connection with a solicitation of proxies by the Trustees of the Trust, to be
used at the Meeting to be held at 10:00 a.m. Eastern Time, July 13, 2007, at the
offices of the Trust, 303 Broadway, Suite 1100, Cincinnati, Ohio 45202, and at
any adjournments thereof. This Prospectus/Proxy Statement, along with a Notice
of the Meeting and a proxy card, is first being mailed to shareholders of Select
Value on or about May 25, 2007.
The Board of Trustees of the Trust has fixed the close of business on May 14,
2007 as the record date (the "Record Date") for determining the shareholders of
Select Value entitled to receive notice of the Meeting and to vote, and for
determining the number of shares for which such instructions may be given, with
respect to the Meeting or any adjournment thereof.
In voting for the Reorganization, each full share of Select Value is entitled to
one vote and any fractional share is entitled to a fractional vote.
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 Meeting in person and voting
your shares. Unless revoked, all valid proxies will be voted in accordance with
the specifications thereon or, in the absence of such specifications, FOR
approval of the Plan.
If you wish to participate in the Meeting, you may submit the proxy card
included with this Prospectus/Proxy Statement or attend in person. Guidelines on
voting by proxy card are immediately after the Notice of Special Meeting.
If the enclosed proxy card is properly executed and returned in time to be voted
at the Meeting, the proxies named therein will vote the interest represented by
the proxy card in accordance with the instructions marked on the returned proxy
card. Proxy cards 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.
Approval of the Reorganization will require the affirmative vote of a majority
of the total number of shares of Select Value present at a shareholders' meeting
duly called and at which a quorum is present (the presence in person or by proxy
of holders entitled to cast at least forty percent (40%) of the votes at any
shareholders' meeting).
26
Proxy solicitations will be made primarily by mail, but beginning on or about
May 25, 2007 proxy solicitations may also be made by telephone, through the
Internet or personal solicitations conducted by officers and employees of the
Adviser, its affiliates or other representatives of Select Value (who will not
be paid for their soliciting activities). In addition, proxy solicitations may
be made by MIS, an ADP Company, the Trust's proxy solicitor. The costs of
solicitation and the expenses incurred in connection with preparing this
Prospectus/Proxy Statement and its enclosures will be paid by the Adviser
whether or not shareholders approve the Reorganization. Persons holding shares
as nominees will, upon request, be reimbursed for their reasonable expenses in
sending soliciting material to their principals.
Proxies that reflect abstentions and "broker non-votes" (i.e., shares held by
brokers or nominees as to which (i) instructions have not been received from the
beneficial owners or the persons entitled to vote and (ii) the broker or nominee
does not have discretionary voting power on a particular matter) will be counted
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum, but will have the effect of being counted as votes against
the Plan, which must be approved by a majority of the shares present.
If shareholders of Select Value 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 to approve the Reorganization are
not received, the persons named as proxies may propose one or more adjournments
of the Meeting to permit further solicitation of voting instructions. In
determining whether to adjourn the 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 Meeting in person or by proxy. Abstentions and broker
non-votes will have the effect of being counted as votes against the Plan at any
adjournment. The persons named as proxies will vote upon such adjournment after
consideration of all circumstances which may bear upon a decision to adjourn the
Meeting.
A shareholder of Select Value who objects to the proposed Reorganization will
not be entitled under either Delaware 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. In addition, if the Reorganization is consummated, shareholders will
be free to redeem the shares of Diversified Value that they receive in the
transaction at their then-current net asset value. Shares of Select Value may be
redeemed at any time prior to the Reorganization. Shareholders of Select Value
may wish to consult their tax advisors as to any different consequences of
redeeming or exchanging their shares prior to 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.
27
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES. Please
advise Select Value 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.
The votes of the shareholders of Diversified Value are not being solicited by
this Prospectus/Proxy Statement and are not required to carry out the
Reorganization.
SHAREHOLDER INFORMATION
The shareholders of Select Value at the close of business on May 14, 2007 (the
Record Date) will be entitled to be present and vote at the Meeting with respect
to shares of Select Value owned as of the Record Date. As of the Record Date,
the total number of shares of Select Value outstanding and entitled to vote
was: 4,896,707.859
As of May 14, 2007, the officers and Trustees of the Trust beneficially owned as
a group less than 1% of the outstanding shares of Select Value.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On May 14, 2007, 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 Select Value or Diversified Value's outstanding shares.
Name and Address Number of Shares Percent of Funds
- ---------------- ---------------- ----------------
Select Value Fund
- -----------------
Pitcairn Trust Company 3742547.746 76.43%
165 Township Line Road
One Pitcairn Place Suite 3000
Jenkintown, PA 19046-3543
- --------------------------------------------------------------------------------
Pitcairn Trust Company 322290.532 6.58%
165 Township Line Road
One Pitcairn Place Suite 3000
Jenkintown, PA 19046-3543
- --------------------------------------------------------------------------------
Pitcairn Trust Company 689120.429 14.07%
165 Township Line Road
One Pitcairn Place Suite 3000
Jenkintown, PA 19046-3543
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS AND EXPERTS
The Annual Report of the Trust, for the year ended as of September 30, 2006, and
the financial statements and financial highlights for the periods indicated
therein, have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of Ernst & Young LLP, independent
registered public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
Additional information concerning each Fund and the Reorganization is contained
in the documents described below, all of which have been filed with the SEC:
28
- --------------------------------------------------------------------- -----------------------------------------------
Information about Select Value: How to Obtain this Information:
- ------------------------------- -------------------------------
- --------------------------------------------------------------------- -----------------------------------------------
Prospectus of the Trust relating to Select Value, dated February 1, Copies are available upon request and without
2007 charge if you:
Statement of Additional Information of the Trust relating to Select o Write to the Trust at the address
Value, dated February 1, 2007 listed on the cover page of
this Prospectus/Proxy
Annual Report of the Trust relating to Select Value for the fiscal Statement; or
year ended September 30, 2006
o Call (800) 543-0407 toll-free.
- --------------------------------------------------------------------- -----------------------------------------------
Information about Diversified Value: How to Obtain this Information:
- ------------------------------------ -------------------------------
- --------------------------------------------------------------------- -----------------------------------------------
Prospectus of the Trust relating to Diversified Value, dated Copies are available upon request and without
February 1, 2007 (which accompanies this Prospectus/Proxy charge if you:
Statement)
o Write to the Trust at the address
Statement of Additional Information of the Trust relating to listed on the cover page of
Diversified Value, dated February 1, 2007 this Prospectus/Proxy
Statement; or
Annual Report of the Trust relating to Diversified Value for the
fiscal year ended September 30, 2006 o Call (800) 543-0407 toll-free.
- --------------------------------------------------------------------- -----------------------------------------------
Information about the Reorganization: How to Obtain this Information:
- ------------------------------------- -------------------------------
- --------------------------------------------------------------------- -----------------------------------------------
Statement of Additional Information dated May 14, 2007, which A copy is available upon request and without
relates to this Prospectus/Proxy Statement and the Reorganization charge if you:
o Write to the Trust at the address
listed on the cover page of
this Prospectus/Proxy
Statement; or
o Call (800) 543-0407 toll-free.
- --------------------------------------------------------------------- -----------------------------------------------
The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance therewith file reports
and other information including proxy material and charter documents with the
SEC. These items can be inspected and copied at the Public Reference Facilities
maintained by the SEC at Washington, D.C. 20549-0102, and at the SEC's Regional
Offices located at Northeast Regional Office, 3 World Financial Center, Room
4300, New York, New York 10281; Southeast Regional Office, 801 Brickell Avenue,
Suite 1800, Miami, Florida 33131; Midwest Regional Office, 175 W. Jackson
Boulevard, Suite 900, Chicago, Illinois 60604; Central Regional Office, 1801
California Street, Suite 1500, Denver, Colorado 80202-2656; and Pacific Regional
Office, 5670 Wilshire Boulevard, 11th Floor, Los Angeles, California 90036-3648.
Copies of such materials can also be obtained at prescribed rates from the
Public Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549.
29
OTHER BUSINESS
The Trustees of the Trust do not intend to present any other business at the
Meeting. If, however, any other matters are properly brought before the Meeting,
the persons named in the accompanying form of proxy will vote thereon in
accordance with their judgment.
THE TRUSTEES OF THE TRUST RECOMMEND APPROVAL OF THE PLAN AND
ANY UNMARKED PROXY CARDS WILL BE VOTED IN FAVOR OF APPROVAL OF
THE PLAN.
May 14, 2007
30
PROXY CARD
TOUCHSTONE PITCAIRN SELECT VALUE FUND
The undersigned shareholder of the Touchstone Pitcairn Select Value Fund
("Select Value"), a series of Touchstone Funds Group Trust (the "Trust"), hereby
appoints Jay S. Fitton and Frank L. Newbauer the attorneys and proxies of the
undersigned, with full power of substitution, to vote, as indicated herein, all
of the shares of beneficial interest of Select Value standing in the name of the
undersigned at the close of business on May 14, 2007, at a Special Meeting of
Shareholders to be held at the offices of the Trust at 303 Broadway, Suite 1100,
Cincinnati, Ohio 45202, at 10:00 a.m. Eastern Time, on July 13, 2007, and at any
and all adjournments thereof, with all of the powers the undersigned would
possess if then and there personally present and especially (but without
limiting the general authorization and power hereby given) to vote as indicated
on the proposal, as more fully described in the Prospectus/Proxy Statement for
the meeting.
Please mark boxes in blue or black ink.
To approve an Agreement and Plan of Reorganization providing for the
transfer of all of assets of Select Value to Touchstone Diversified Value
Fund ("Diversified Value"), a series of the Trust, in exchange for
Diversified Value's Class A shares having an aggregate net asset value
equal to the value of Select Value's net assets and the assumption by
Diversified Value of all of the liabilities of Select Value. Class A
shares of Diversified Value received in the Reorganization will be
distributed by Select Value to its shareholders in liquidation of Select
Value, after which Select Value will cease operations.
|_| FOR |_| AGAINST |_| ABSTAIN
THIS PROXY IS SOLICITED BY THE TRUST'S BOARD OF TRUSTEES AND WILL BE VOTED FOR
THE ABOVE PROPOSAL UNLESS OTHERWISE INDICATED.
Signature(s) should be exactly as name or names appearing on this proxy. If
shares are held jointly, each holder should sign. If signing is by attorney,
executor, administrator, trustee or guardian, please give full title. By signing
this proxy card, receipt of the Prospectus/Proxy Statement is acknowledged.
Dated:
-----------------------------
- ------------------------------------
Title
- ------------------------------------
Signature
- ------------------------------------
Signature
Please sign, date and return the proxy card promptly using the enclosed
envelope.
A-1
Exhibit A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 22nd day of February, 2007, by and between Touchstone Funds Group Trust, a
Delaware statutory trust, with its principal place of business at 303 Broadway,
Suite 1100, Cincinnati, Ohio 45202 (the "Trust"), with respect to its Touchstone
Diversified Value Fund series (the "Acquiring Fund"), and the Fund, with respect
to its Touchstone Pitcairn Select Value Fund series (the "Selling Fund," and
when used collectively with the "Acquiring Fund," the "Funds").
The reorganization (the "Reorganization") will consist of (i) the transfer
of all of the assets of the Selling Fund in exchange solely for Class A shares
of beneficial interest, $.01 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 the Trust 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, including a majority of Trustees that
are not "interested persons," as such term is defined in section 2(a)(19) of the
Investment Company Act of 1940, as amended (the "1940 Act"), of the Trust have
determined that the transactions contemplated herein are in the best interests
of the Funds and that the interests of the Funds' respective existing
shareholders will not be diluted as a result;
NOW, THEREFORE, in consideration of the promises 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 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.
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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.
The Selling Fund has provided the Acquiring Fund with its most recent
unaudited 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. 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 either violate the Selling Fund's fiduciary
duty to its shareholders or adversely affect the tax-free nature of the
Reorganization.
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 reflected on a
Statement of Assets and Liabilities prepared on behalf of the Selling Fund, as
of the Valuation Date (as defined in paragraph 2.1), in accordance with
generally accepted accounting principles consistently applied from the prior
audited period, and other 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.
B-2
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.
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 Fund 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 immediately 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 Acquiring 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.
B-3
2.3 SHARES TO BE ISSUED. The number of full and fractional Class A shares
of the 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 Class A shares of the
Acquiring Fund on the Valuation Date, determined in accordance with paragraph
2.2. Holders of Class II shares of the Selling Fund will receive Class A shares
of the Acquiring Fund.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
Integrated Investment Services, Inc., the Funds' accounting agent, in accordance
with its regular practice in pricing the shares and assets of the Funds.
ARTICLE III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The closing of the Reorganization (the "Closing") shall
take place on or about July 13, 2007 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 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 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 Fund 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. PFPC Trust Company, 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 provisions for payment shall have been made, in conjunction with the
delivery of portfolio securities by the Selling Fund.
B-4
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
statutory trust duly organized, validly existing, and in good standing under the
laws of the State of Delaware.
(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 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 or
reflected in the Statement of Assets and Liabilities 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.
B-5
(g) The audited financial statements of the Selling Fund as of
September 30, 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 September 30, 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 by the Internal Revenue Service or any state or local tax
authority, and no assessment has been asserted with respect to such returns.
(j) For each fiscal year of its operation, the Selling Fund has met,
and will continue to meet through the Closing Date, the requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification and treatment as a regulated investment company and has
distributed in each such year all net investment company taxable income
(computed without regard to any deduction for dividends paid) and net realized
capital gains (after reduction for any capital loss carryforward).
(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.
B-6
(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.
(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 statutory trust duly organized, validly existing, and in good standing under
the laws of the State of Delaware.
(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 Commission as an investment
company under the 1940 Act is in full force and effect.
(c) The current prospectus and statement of additional information
of the Acquiring Fund 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 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 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.
B-7
(e) Except as otherwise disclosed in writing 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 as of
September 30, 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 September 30, 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.
(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 by the Internal Revenue Service or any state or local
tax authority, and no assessment has been asserted with respect to such returns.
(i) For each fiscal year of its operation, the Acquiring Fund has
met, and will continue to meet through the Closing Date, 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
company taxable income (computed without regard to any deduction for dividends
paid) and net realized capital gains (after reduction for any capital loss
carryforward).
(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.
B-8
(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.
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.
B-9
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but in
any case within sixty days after the Closing Date, the Selling Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Selling Fund for
federal income tax purposes that will be carried over by the Acquiring Fund as a
result of Section 381 of the Code, and certified by the Fund's President, Vice
President or Treasurer.
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 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 Fund'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 Fund shall have received on the
Closing Date an opinion from Morgan, Lewis & Bockius LLP 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 the Trust,
which is duly organized, validly existing and in good standing under the laws of
the State of Delaware 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 Trust is 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 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,
moratorium, and other laws relating to or affecting creditors' rights generally
and to general equity principles.
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(d) Assuming that a consideration therefor 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.
(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 State of Delaware 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) 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.
Such opinion may contain such assumptions and limitations as shall be in
the opinion of such counsel appropriate to render the opinions expressed
therein. In addition, such counsel shall be entitled to state that they have
relied upon officers' certificates and certificates of public officials in
rendering their opinion.
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 Fund'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.
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 Fund.
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7.3 With respect to the Acquiring Fund, the Fund shall have received on
the Closing Date an opinion of Morgan, Lewis & Bockius LLP, 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
statutory trust duly organized, validly existing and in good standing under the
laws of the State of Delaware 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 Trust is 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 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, moratorium
and other laws relating to or affecting creditors' rights generally and to
general equity principles.
(d) To the knowledge of such counsel, no consent, approval,
authorization or order of any court or governmental authority of the United
States or the State of Delaware is required for consummation by the Selling 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.
(e) 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.
(f) Assuming that a consideration therefor 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.
Such opinion may contain such assumptions and limitations as shall be in
the opinion of such counsel appropriate to render the opinions expressed
therein. In addition, such counsel shall be entitled to state that they have
relied upon officers' certificates and certificates of public officials in
rendering their opinion.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
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If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Funds, 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).
8.6 The Fund shall have received a favorable opinion of Morgan, Lewis &
Bockius 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
solely 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.
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(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 all of
the liabilities of the Selling Fund.
(c) No gain or loss will be recognized by the Selling Fund upon the
transfer of all of its assets to the Acquiring Fund solely in exchange for
the Acquiring Fund Shares and the assumption by the Acquiring Fund of all
of the liabilities of the Selling Fund or upon the distribution of the
Acquiring Fund Shares to shareholders of the Selling Fund.
(d) No gain or loss will be recognized by the shareholders of the
Selling Fund upon the exchange of their shares of the Selling Fund for the
Acquiring Fund Shares (including fractional shares to which they may be
entitled).
(e) The aggregate tax basis of the Acquiring Fund Shares received by
each shareholder of the Selling Fund (including fractional shares to which
they may be entitled) will be the same as the aggregate tax basis of the
Selling Fund shares exchanged therefor.
(f) The holding period of the Acquiring Fund Shares received by the
shareholders of the Selling Fund (including fractional shares to which
they may be entitled) will include the holding period of the Selling Fund
shares surrendered in exchange therefor, provided that the Selling Fund
shares were held as a capital asset as of the Closing Date of the
Reorganization.
(g) The tax basis of the assets of the Selling Fund received by the
Acquiring Fund will be the same as the tax basis of such assets to the
Selling Fund immediately prior to the exchange.
(h) The holding period of the assets of the Selling Fund received by
the Acquiring Fund will include the period during which such assets were
held by the Selling Fund.
(i) The Acquiring Fund will succeed to and take into account as of
the date of the transfer (as defined in Section 1.381(b)-1(b) of the
Treasury Regulations) the items of the Selling Fund described in Section
381(c) of the Code, subject to the conditions and limitations specified in
Sections 381(b) and (c), 382, 383 and 384 of the Code.
No opinion will be expressed as to the effect of the Reorganization on (i)
the Selling Fund or the Acquiring Fund with respect to any asset as to
which any unrealized gain or loss is required to be recognized for U.S.
federal income tax purposes at the end of a taxable year (or on the
termination or transfer thereof) under a mark-to-market system of
accounting and (ii) any shareholder of the Selling Fund that is required
to recognize unrealized gains and losses for U.S. federal income tax
purposes under a mark-to-market system of accounting.
Such opinion shall be based on customary assumptions, limitations and such
representations as Morgan, Lewis & Bockius LLP may reasonably request, and the
Selling Fund and Acquiring Fund will cooperate to make and certify the accuracy
of such representations. Such opinion may contain such assumptions and
limitations as shall be in the opinion of such counsel 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.
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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 and paid by Touchstone Advisors, Inc., the investment advisor to
the Fund. 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.
All such fees and expenses so borne and paid by Touchstone Advisors, Inc. shall
be solely and directly related to the transactions contemplated by this
Agreement and shall be paid directly by Touchstone Advisors, Inc. to the
relevant providers of services or other payees in accordance with the principles
set forth in the Internal Revenue Service Rev. Ruling 73-54, 1973-1 C.B. 187.
Notwithstanding the foregoing, the Acquiring Fund shall pay its own
federal and state registration fees and any portfolio transaction costs.
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 not survive the consummation of the transactions contemplated hereunder.
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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; or
(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.
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 their Trustees or officers, to the other
party. In such event, Touchstone Advisors, Inc. shall bear the expenses incurred
by the Selling Fund and the Acquiring Fund incidental to the preparation and
carrying out of this Agreement as provided in paragraph 9.1.
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 Fund; 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 State of Delaware, 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.
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13.5 With respect to the Fund, 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 Delaware, which are hereby referred to and are also on file
at the principal offices of the Fund. The obligations of the Fund entered into
in the name or on behalf thereof by any of the Trustees, representatives or
agents of the Fund, are made not individually, but in such capacities, and are
not binding upon any of the Trustees, shareholders or representatives of the
Fund 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.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as
of the date first written above.
TOUCHSTONE FUNDS GROUP TRUST ON BEHALF OF
TOUCHSTONE PITCAIRN SELECT VALUE FUND
By: /s/ Jill T. McGruder
---------------------------------------
Name: Jill T. McGruder
Title: President
TOUCHSTONE FUNDS GROUP TRUST ON BEHALF OF
TOUCHSTONE DIVERSIFIED VALUE FUND
By: /s/ Jill T. McGruder
---------------------------------------
Name: Jill T. McGruder
Title: President
B-18