UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
|_| Pre-Effective Amendment No. |_| Post-Effective Amendment No.
(Check appropriate box or boxes)
Touchstone Strategic Trust
(Exact Name of Registrant as Specified in Charter)
303 Broadway, Suite 1100
Cincinnati, OH 45202
(Address of Principal Executive Offices: Number, Street, City, State, Zip Code)
(800) 543-0407
(Area Code and Telephone Number)
Jay S. Fitton, Esq.
JPMorgan
303 Broadway, Suite 1100
Cincinnati, OH 45202
513-362-8217
(Name and Address of Agent for Service)
Copies to:
John M. Ford, Esq.
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103
215-963-5110
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective under the Securities Act of 1933.
It is proposed that this filing will become effective on October 18, 2007
pursuant to Rule 488.
An indefinite number of Registrant's shares of beneficial interest without par
value have been registered pursuant to Rule 24f-2 under the Investment Company
Act of 1940, as amended. Accordingly, no filing fee is being paid at this time.
TOUCHSTONE STRATEGIC TRUST
FORM N-14
CROSS REFERENCE SHEET
FORM N-14 ITEM NO. PROSPECTUSES/PROXY
STATEMENT CAPTION
PART A
Item 1. Beginning of Registration Statement and Front Cover Page
Outside Front Cover Page of Prospectus
Item 2. Beginning and Outside Back Cover Page of Table of Contents
Prospectus
Item 3. Fee Table, Synopsis Information and Risk Summary
Factors
Item 4. Information About the Transaction Letter to Shareholders; Questions and
Answers; General; Summary; Risks
Item 5. Information About the Registrant Letter to Shareholders; Questions and
Answers; General; Summary; Information about
the Proposals; Prospectus of Touchstone
Strategic Trust dated August 1, 2007(1)
Item 6. Information About the Fund Being Acquired Letter to Shareholders; Questions and
Answers; General; Summary; Information about
the Proposals; Prospectus of Touchstone
Strategic Trust dated August 1, 2007(1)
Item 7. Voting Information Letter to Shareholders; Questions and
Answers; Summary; Comparative Information on
Shareholders' Rights; Voting Information
Concerning the Meeting
Item 8. Interest of Certain Persons and Experts Not Applicable
Item 9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
PART B STATEMENT OF ADDITIONAL
INFORMATION CAPTION
Item 10. Cover Page Cover Page
Item 11. Table of Contents Not Applicable
Item 12. Additional Information About the Registrant Statement of Additional Information of
Touchstone Strategic Trust dated August 1,
2007(1)
Item 13. Additional Information About the Fund Being Statement of Additional Information of
Acquired Touchstone Strategic Trust dated August 1,
2007(1)
Item 14. Financial Statements Annual Report of Touchstone Strategic Trust for
the fiscal year ended March 31, 2007(2)
PART C PART C CAPTION
Item 15. Indemnification Indemnification
Item 16. Exhibits Exhibits
Item 17. Undertakings Undertakings
(1) Incorporated herein by reference to Post-Effective Amendment No. 67 to the
Registrant's Registration Statement on Form N-1A filed on August 1, 2007 (File
Nos. 002-80859 and 811-03651).
(2) Incorporated herein by reference to the Registrant's Annual Report, filed on
Form N-CSR on June 5, 2007 (File No. 811-03651).
October __, 2007
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE SMALL CAP GROWTH FUND
Dear Shareholder:
On behalf of the Board of Trustees (the "Board"), we are pleased to invite you
to a Special Meeting of Shareholders (the "Meeting") of the Touchstone Strategic
Trust ("Trust") with respect to the Touchstone Small Cap Growth Fund ("Small Cap
Growth"), a series of the Trust, to be held at 10:00 a.m. Eastern Time on
December 14, 2007 at 303 Broadway, Suite 1100, Cincinnati, Ohio 45202.
At the Meeting you will be asked to approve two proposals. Proposal 1 would
approve an Agreement and Plan of Reorganization between Small Cap Growth and
Touchstone Diversified Small Cap Growth Fund ("Diversified Small Cap Growth"),
each a series of the Trust, under which Small Cap Growth will merge into
Diversified Small Cap Growth (the "Reorganization").
Proposal 2 would approve a new sub-advisory agreement for Small Cap Growth. You
are being asked to approve the addition of Small Cap Growth to the existing
sub-advisory agreement between Touchstone Advisors, Inc. and Fort Washington
Investment Advisors, Inc. ("FWIA") (the "New Agreement"). FWIA currently acts as
sub-advisor to Small Cap Growth pursuant to an interim sub-advisory agreement
that was approved by the Board on September 12, 2007. FWIA also currently serves
as sub-advisor to Diversified Small Cap Growth.
The Board unanimously approved the Agreement and Plan of Reorganization and the
New Agreement at meetings held on August 15, 2007 and on September 12, 2007,
respectively. NOTE, the approval of the New Agreement on September 12 will not
satisfy the "in person" requirements of 15(c); therefore, the Board will need to
ratify their actions or otherwise reapprove the contract at its next in person
meeting in November. We will add disclosure to this effect later in the proxy,
but not here. The Board unanimously recommends that you vote FOR each Proposal.
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 Small Cap Growth's investment goal and policies,
portfolio management and fees and expenses that are important for you to know.
The Investment Sub-Advisory Agreement is also described in the Prospectus/Proxy
Statement. 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, by telephone, through the Internet 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, fifty-one 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 Strategic Trust
QUESTIONS AND ANSWERS RELATING TO THE PROPOSALS
While we encourage you to read the full text of the enclosed Prospectus/Proxy
Statement, below is a brief overview of the proposals, which will require your
vote.
Q. WHAT ARE SHAREHOLDERS BEING ASKED TO VOTE ON AT THE UPCOMING SPECIAL
MEETING ON DECEMBER 14, 2007?
A. The Board of Trustees of the Touchstone Strategic Trust (the "Board") has
called a Special Meeting at which you will be asked to vote on two
separate proposals. PROPOSAL 1 is the reorganization (the
"Reorganization") of Touchstone Small Cap Growth Fund ("Small Cap Growth")
into Touchstone Diversified Small Cap Growth Fund ("Diversified Small Cap
Growth"), each a series of the Touchstone Strategic Trust (the "Trust").
PROPOSAL 2 is the approval of an amendment to the existing Investment
Sub-Advisory Agreement between Touchstone Advisors, Inc. and Fort
Washington Investment Advisors, Inc. ("FWIA") to add Small Cap Growth.
Q. WHY DID THE BOARD APPROVE PROPOSAL 1 - THE REORGANIZATION?
A. The Board unanimously approved the Reorganization after reviewing detailed
information about the Reorganization provided by the management of the
Trust and various factors about Small Cap Growth and Diversified Small Cap
Growth and the proposed Reorganization. The Board noted that Diversified
Small Cap Growth has an identical investment goal and substantially
similar investment strategies to Small Cap Growth. In addition, on a pro
forma basis after the Reorganization, total net operating expenses of
Diversified Small Cap Growth are anticipated to be less than those of
Small Cap Growth. After consideration of these factors, together with
other factors and information considered to be relevant, the Board
determined that the proposed Reorganization was in the best interests of
Small Cap Growth and its shareholders.
The Board unanimously recommends that you vote FOR Proposal 1 - the
Reorganization.
Q. WHAT WILL HAPPEN TO MY EXISTING SHARES?
A. Your shares of Small Cap Growth will be exchanged for shares of
Diversified Small Cap Growth. In exchange for either Class A and Class B
shares of Small Cap Growth that you own at the time of the Reorganization,
you will receive Class A shares of Diversified Small Cap Growth. In
exchange for Class C and Class Y shares of Small Cap Growth that you own
at the time of the Reorganization, you will receive Class C and Class Y
shares of Diversified Small Cap Growth, respectively. You will not pay any
sales charges in connection with the Reorganization. The shares of
Diversified Small Cap Growth that you receive following the Reorganization
will have an aggregate net asset value equal to the aggregate net asset
value of your shares of Small Cap Growth for each class share 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 GOALS AND INVESTMENT
STRATEGIES OF SMALL CAP GROWTH AND DIVERSIFIED SMALL CAP GROWTH?
A. The investment goal of Small Cap Growth is identical to that of
Diversified Small Cap Growth. Both Funds seek long-term growth of capital.
The investment strategies of Small Cap Growth are substantially similar to
those of Diversified Small Cap Growth. Under normal circumstances, both
Funds will invest at least 80% of their assets in common stock of small
cap companies. However, Diversified Small Cap Growth invests in small cap
companies with a market capitalization of less than $2.5 billion while
Small Cap Growth invests in small cap companies with a market
capitalization of less than $1.5 billion.
Q. WHAT IS THE DIFFERENCE IN THE TOTAL ANNUAL OPERATING EXPENSES BETWEEN
SMALL CAP GROWTH AND DIVERSIFIED SMALL CAP GROWTH?
A. The total annual fund operating expenses (before any fee waiver and
expense reimbursement) of Small Cap Growth as of the most recently ended
fiscal year were 2.41% for Class A shares, 3.19% for Class B shares, 3.14%
for Class C shares and 1.66% for Class Y shares. The total annual fund
operating expenses (before any fee waiver and expense reimbursement) of
Diversified Small Cap Growth as of the most recently ended fiscal year
were 2.60% for Class A shares, 3.35% for Class C shares and 2.35% for
Class Y shares. However, the Trust's investment adviser, Touchstone
Advisors, Inc., ("Advisor"), has contractual agreements in place with the
Funds to waive fees and reimburse expenses through at least March 31, 2008
for each share class of Small Cap Growth and for Class A and Class Y
shares of Diversified Small Cap Growth. The expense waiver for Class C
Shares of Diversified Small Cap Growth will remain in effect until August
1, 2008. As a result of these fee waivers and reimbursements, the net
expenses of Small Cap Growth were 1.70% for Class A shares, 2.45% for
Class B shares, 2.45% for Class C shares and 1.30% for Class Y shares. As
a result of these fee waivers and reimbursements, the net expenses of
Diversified Small Cap Growth were 1.40% for Class A shares, 2.15% for
Class C shares and 1.15% for Class Y shares. Net expenses shown above for
Small Cap Growth reflect a change in the Fund's operating expenses that
took effect on January 1, 2007 and will differ from the Net Expenses
reflected in the Fund's Annual Report for March 31, 2007. Accordingly, it
is anticipated that net expenses of Diversified Small Cap Growth
immediately following the Reorganization will be less than those of Small
Cap Growth.
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. The Advisor 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 December 15, 2007.
Q. WILL THE REORGANIZATION CREATE A TAXABLE EVENT FOR ME FOR FEDERAL INCOME
TAX PURPOSES?
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 Small Cap Growth do not approve the Reorganization, the
Reorganization will not take effect and the Board will consider other
possible courses of action in the best interests of shareholders,
including the potential liquidation of Small Cap Growth.
Q. WHY AM I BEING ASKED TO VOTE ON PROPOSAL 2 - APPROVAL OF THE INVESTMENT
SUB-ADVISORY AGREEMENT FOR SMALL CAP GROWTH?
A. On August 31, 2007, Longwood Investment Advisors, Inc. ("Longwood"), one
of the two previous sub-advisors to Small Cap Growth, notified the Advisor
that it intended to cease operations as an investment advisor on September
30, 2007. Accordingly, the existing sub-advisory agreement between the
Advisor and Longwood (the "Old Agreement") would terminate on that date.
On September 12, 2007, the Board met to consider various options for Small
Cap Growth's investment management. At that meeting and in light of the
anticipated termination of the Old Agreement with Longwood, the Board
determined that it was in the best interests of shareholders to
immediately terminate the existing sub-advisory agreement with Longwood,
select an interim sub-advisor and approve an interim sub-advisory
agreement and, subject to shareholder approval, a new sub-advisory
agreement (the "New Agreement"). In light of the planned Reorganization,
the Board determined that it would be most efficient to transition the day
to day management of Small Cap Growth to Fort Washington Investment
Advisors, Inc. ("FWIA"), the current sub-advisor to Diversified Small Cap
Growth. As a result, the Board approved FWIA to act as interim sub-advisor
and approved an interim sub-advisory agreement between the Advisor and
FWIA for Small Cap Growth (the "Interim Agreement"). In addition, the
Board voted to terminate the sub-advisory agreement between the Advisor
and Bjurman, Barry & Associates (the "Old Agreement"), which also served
as a sub-advisor to Small Cap Growth.
The Board selected Fort Washington Investment Advisors, Inc. ("FWIA"), the
current sub-advisor to Diversified Small Cap Growth, to act as interim
sub-advisor and approved an interim sub-advisory agreement between the
Advisor and FWIA for Small Cap Growth. The Board also approved amending
the existing sub-advisory agreement between the Advisor and FWIA to add
Small Cap Growth, subject to approval by Small Cap Growth's shareholders.
FWIA would then serve as investment sub-advisor to Small Cap Growth.
FWIA's fee rate for its services to Small Cap Growth under the New
Agreement is the same as the fee rate paid under the Interim Agreement
(the Advisor is responsible for the payment of fees to FWIA for services
it performs for Small Cap Growth Fund). The other terms of the New
Agreement are similar to those of the Old Agreements. . The New Agreement
is necessary to provide for the continued management of Small Cap Growth
by FWIA in the event that shareholders do not approve the Reorganization,
or in the event that shareholders approve the Reorganization, but the
Reorganization cannot be completed prior to the expiration of the Interim
Agreement, the term of which, by law, cannot exceed 150 days.
The Board unanimously recommends that you vote FOR Proposal 2 - Approval
of the Investment Sub-Advisory Agreement.
Q. WHO HAS BEEN MANAGING SMALL CAP GROWTH SINCE THE TERMINATION OF THE OLD
AGREEMENTS?
A. During the period between the termination of the Old Agreements and the
approval of the New Agreement by shareholders (the "Interim Period"), FWIA
has provided investment sub-advisory services to Small Cap Growth pursuant
to an interim agreement between the Advisor and FWIA that was approved by
the Board at a special meeting (the "Interim Agreement"). The Interim
Agreement is identical in all respects -- including fees to be paid to
FWIA -- to the New Agreement, except for the time periods covered by the
agreements. The New Agreement will replace the Interim Agreement upon
approval by shareholders.
Q. WHAT HAPPENS IF THE NEW AGREEMENT IS NOT APPROVED?
A. If the shareholders of Small Cap Growth do not approve the New Agreement
with the FWIA the Board will take such further action as it deems in the
best interests of the shareholders of Small Cap Growth.
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 SMALL CAP GROWTH FUND
a series of
TOUCHSTONE STRATEGIC TRUST
303 Broadway, Suite 1100
Cincinnati, Ohio 45202
(800) 543-0407
BY AND IN EXCHANGE FOR SHARES OF
TOUCHSTONE DIVERSIFIED SMALL CAP GROWTH FUND
a series of
TOUCHSTONE STRATEGIC TRUST
303 Broadway, Suite 1100
Cincinnati, Ohio 45202
(800) 543-0407
PROSPECTUS/PROXY STATEMENT
October __, 2007
This Prospectus/Proxy Statement is being furnished in connection with two
proposals which will be submitted to shareholders of Touchstone Small Cap Growth
Fund ("Small Cap Growth"), a series of Touchstone Strategic Trust (the "Trust"),
for consideration at a Special Meeting of Shareholders to be held on or about
December 14, 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").
First, subject to the approval of Small Cap Growth's shareholders, the Trust's
Board of Trustees ("Board") has approved the proposed reorganization under which
all of the assets of Small Cap Growth will be acquired by Touchstone Diversified
Small Cap Growth Fund ("Diversified Small Cap Growth"), also a series of the
Trust (the "Reorganization"). In the Reorganization, all of the assets of Small
Cap Growth will be acquired by Diversified Small Cap Growth in exchange for
Class A, Class C and Class Y shares of Diversified Small Cap Growth and
Diversified Small Cap Growth will assume all of the liabilities of Small Cap
Growth. Small Cap Growth and Diversified Small Cap Growth are sometimes referred
to in this Prospectus/Proxy Statement individually as a "Fund" and together as
the "Funds."
Second, subject to the approval of Small Cap Growth's shareholders, the Board
has approved a sub-advisory agreement between Touchstone Advisors, Inc.
("Advisor") and Fort Washington Investment Advisors, Inc. ("FWIA") whereby FWIA
would serve as the investment sub-advisor to Small Cap Growth. FWIA currently
serves as sub-advisor to Diversified Small Cap Growth and the existing
sub-advisory agreement between the Advisor and FWIA would be amended to add
Small Cap Growth.
Small Cap Growth and Diversified Small Cap Growth are each separate series of
the Trust, a Massachusetts business trust, which is registered as an open-end
management investment company.
This Prospectus/Proxy Statement explains concisely the information about Small
Cap Growth and Diversified Small Cap Growth that you should know before voting
on the Proposals. Please read it carefully and keep it for future reference.
Information relating to Small Cap Growth and Diversified Small Cap Growth
contained in the Trust's Prospectus dated August 1, 2007 and the Statement of
Additional Information dated August 1, 2007 which includes the financial
statements of the Trust relating to Small Cap Growth and Diversified Small Cap
Growth for the fiscal year ended March 1, 2007 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 October __, 2007 relating to this Prospectus/Proxy Statement and the
Reorganization is also incorporated by reference in its entirety in this
document.
- --------------------------------------------------------------------------------
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 Small Cap Growth:
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
TABLE OF CONTENTS
PAGE
SUMMARY
Why is the Reorganization being proposed?................................................................
What are the key features of the Reorganization?.........................................................
After the Reorganization, what shares of Diversified Small Cap Growth will I own?........................
How will the Reorganization affect me?...................................................................
Will I be able to purchase and redeem shares, change my investment options and receive
distributions the same way?.....................................................................
How does the Board recommend that I vote?................................................................
How do the Funds' investment goals, principal investment strategies and risks compare?...................
How do the Funds' fees and expenses compare?.............................................................
How do the Funds' performance records compare?...........................................................
Who will be the investment advisor of my Fund after the Reorganization? What will the advisory
and sub-advisory fees be after the Reorganization?..............................................
What will be the primary federal tax consequences of the Reorganization?.................................
RISKS .........................................................................................................
Are the risk factors for the Funds identical?............................................................
What are the primary risks of investing in each Fund?....................................................
Are there any other risks of investing in each Fund?.....................................................
INFORMATION ABOUT PROPOSAL 1 - REORGANIZATION.....................................................................
Reasons for the Reorganization...........................................................................
Agreement and Plan of Reorganization.....................................................................
Federal Income Tax Consequences..........................................................................
Pro Forma Capitalization.................................................................................
ADDITIONAL INFORMATION ABOUT THE FUNDS............................................................................
Distribution of Shares...................................................................................
Purchase and Redemption Procedures.......................................................................
Exchange Privileges......................................................................................
Dividend Policy..........................................................................................
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS...................................................................
-i-
TABLE OF CONTENTS
(continued)
PAGE
Form of Organization.....................................................................................
Capitalization...........................................................................................
Shareholder Meetings and Voting Rights...................................................................
Limitation of Shareholder Liability......................................................................
Liquidation..............................................................................................
Liability and Indemnification of Trustees................................................................
INFORMATION ABOUT PROPOSAL 2 - APPROVAL OF THE INVESTMENT SUB-ADVISORY AGREEMENT..................................
VOTING INFORMATION CONCERNING THE MEETING.........................................................................
Shareholder Information..................................................................................
Control Persons and Principal Holders of Securities......................................................
FINANCIAL STATEMENTS AND EXPERTS..................................................................................
ADDITIONAL INFORMATION............................................................................................
AGREEMENT AND PLAN OF REORGANIZATION...........................................................................A-1
INVESTMENT SUB-ADVISORY AGREEMENT..............................................................................B-1
-ii-
SUMMARY
THIS SECTION SUMMARIZES THE PRIMARY FEATURES AND CONSEQUENCES OF PROPOSAL 1 -
REORGANIZATION. IT MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO
YOU. TO UNDERSTAND PROPOSAL 1 - 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 Trust's
Prospectus and Statement of Additional Information dated August 1, 2007, 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 goals and similar investment
strategies that are managed by Touchstone Advisors, Inc., the advisor to the
Trust (the "Advisor"). The net expenses (total annual fund operating expenses
less fee waivers and expense reimbursements) of Diversified Small Cap Growth,
assuming the Reorganization is consummated, will be less than those of Small Cap
Growth.
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 Small Cap Growth to
Diversified Small Cap Growth in exchange for Class A, Class C and Class Y
shares of Diversified Small Cap Growth;
o the assumption by Diversified Small Cap Growth of all of the liabilities
of Small Cap Growth;
o the liquidation of Small Cap Growth by distribution of Class A, Class C
and Class Y shares of Diversified Small Cap Growth to Small Cap Growth'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 December 15, 2007.
AFTER THE REORGANIZATION, WHAT SHARES OF DIVERSIFIED SMALL CAP GROWTH WILL I
OWN?
Shareholders owning Class A shares of Small Cap Growth will own Class A shares
of Diversified Small Cap Growth. Shareholders owning Class B shares of Small Cap
Growth will own Class A shares of Diversified Small Cap Growth. Shareholders
owning Class C shares of Small Cap Growth will own Class C shares of Diversified
Small Cap Growth. Shareholders owning Class Y shares of Small Cap Growth will
own Class Y shares of Diversified Small Cap Growth. The new shares you receive
will have the same total value as your shares of Small Cap Growth as of the
close of business on the day immediately prior to the Reorganization.
1
Reorganizing/Selling Fund Surviving/Acquiring Fund
Shares - Class Shares - Class
Small Cap Growth Diversified Small Cap Growth
Class A Class A
Class B Class A
Class C Class C
Class Y Class Y
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, Small
Cap Growth's shareholders will benefit from lower fund operating expenses.
Each Fund's net expenses and Diversified Small Cap Growth's (pro forma)
net expenses (total annual fund operating expenses less fee waivers and
expense reimbursements) at current asset levels and as of the Funds' most
recent fiscal year ended March 31, 2007 are as follows:
------------------------------------------------------------------------------------------------------
Small Cap Growth Diversified Small Pro Forma*
Cap Growth
------------------------------------------------------------------------------------------------------
Class A 1.70% 1.40% 1.40%
------------------------------------------------------------------------------------------------------
Class B 2.45% N/A N/A
------------------------------------------------------------------------------------------------------
Class C 2.45% 2.15% 2.15%
------------------------------------------------------------------------------------------------------
Class Y 1.30% 1.15% 1.15%
------------------------------------------------------------------------------------------------------
*Based on Diversified Small Cap Growth's anticipated level of assets after
the Reorganization.
o OPERATING EFFICIENCIES: After the Reorganization, operating efficiencies
may be achieved by Diversified Small Cap Growth because it will have a
greater level of combined assets than Small Cap Growth. As of August 15,
2007, Small Cap Growth's and Diversified Small Cap Growth's total net
assets were approximately [$44] million and $14 million, respectively,
which, when combined, could lead to operating efficiencies and lower
operating costs for the Funds' shareholders.
After the Reorganization, Small Cap Growth will cease to exist and the value of
your shares will depend on the performance of Diversified Small Cap Growth. The
Advisor will bear the expenses incurred in connection with the Reorganization,
except Diversified Small Cap Growth will pay its own federal and state
registration fees and any portfolio transaction costs.
Like Small Cap Growth, Diversified Small Cap Growth will declare and pay
dividends from net investment income annually 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 Small Cap Growth you
receive in the Reorganization or, if you have so elected, distributed in cash or
invested in other funds of the Trust.
2
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 Small Cap Growth in the same way you did
for your shares of Small Cap Growth before the Reorganization. For more
information, see "Purchase and Redemption Procedures," "Exchange Privileges" and
"Dividend Policy" below.
HOW DOES THE BOARD RECOMMEND THAT I VOTE?
The Board, including those Trustees who are not "interested persons" of the
Trust, as such term is defined in the Investment Company Act of 1940, as amended
(the "1940 Act") (the "Disinterested Trustees"), have concluded that the
Reorganization would be in the best interests of Small Cap Growth and
Diversified Small Cap Growth, and that shareholders' interests will not be
diluted as a result of the Reorganization. Accordingly, the Board has submitted
the Plan for the approval of the shareholders of Small Cap Growth.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL 1 - THE PROPOSED
REORGANIZATION.
HOW DO THE FUNDS' INVESTMENT GOALS, PRINCIPAL INVESTMENT STRATEGIES AND RISKS
COMPARE?
The investment goals of Small Cap Growth and Diversified Small Cap Growth are
identical. The investment strategies for Small Cap Growth are substantially
similar to those of Diversified Small Cap Growth. However, Diversified Small Cap
Growth invests in small cap companies with a market capitalization of less than
$2.5 billion while Small Cap Growth invests in small cap companies with a market
capitalization of less than $1.5 billion.
The investment goal of each Fund is non-fundamental, which means that it may be
changed by vote of the Board without shareholder approval.
The following tables summarize the investment objectives and principal
investment strategies of Small Cap Growth and Diversified Small Cap Growth as
set forth in each Fund's Prospectus and Statement of Additional Information.
- -----------------------------------------------------------------------------------------------------------------------------------
SMALL CAP GROWTH DIVERSIFIED SMALL CAP GROWTH
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT Long-term growth of capital. Long-term growth of capital.
GOAL
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL Small Cap Growth invests, under normal market Diversified Small Cap Growth invests, under normal market
INVESTMENT conditions, at least 80% of its assets in conditions, at least 80% of its assets in common stocks of
STRATEGIES common stocks of small cap companies. This is small cap companies. This is a non-fundamental investment
a non-fundamental investment policy that the policy that the Fund can change upon 60 days' prior notice
Fund can change upon 60 days' prior notice to to shareholders. A small cap company has a market
shareholders. A small cap company has a capitalization of less than $2.5 billion. The Fund may
market capitalization of less than $1.5 invest in securities in the technology sector.
billion. The Fund will seek to maintain a
weighted average market capitalization that
falls within the range of the Russell 2000
Index. The Fund's investments may include
securities in the technology sector.
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3
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The Fund will generally hold approximately
80-120 stocks. The Fund will invest in The Fund will generally hold approximately 80-120 stocks.
securities that the Sub-Advisor believes will The Fund will invest in securities that the Sub-Advisor
capitalize on inefficiencies that exist in believes will capitalize on inefficiencies that exist in
the small cap growth market by focusing on: the small cap growth market by focusing on:
o companies that are experiencing improving o companies that are experiencing improving long-term or
long-term or cyclical fundamental trends; cyclical fundamental trends;
o high quality, well-managed companies; and o high quality, well-managed companies; and
o companies with competitive business models. o companies with competitive business models.
The Sub-Advisor employs a four-step
investment process:
1. Proprietary Quantitative Selection
Criteria - The small cap growth stock The Sub-Advisor employs a four-step investment process:
universe is analyzed through a quantitative
model and stocks are given rankings along 1. Proprietary Quantitative Selection Criteria - The small
four dimensions: fundamental, risk, valuation cap growth stock universe is analyzed through a
and technical. This reduces the universe to a quantitative model and stocks are given rankings along
bulletin of approximately 300 stocks. four dimensions: fundamental, risk, valuation and
technical. This reduces the universe to a bulletin of
2. Fundamental Research - Bottom-up approximately 300 stocks.
fundamental research is conducted on the
resulting bullpen of stocks along several 2. Fundamental Research - Bottom-up fundamental research
dimensions, such as earnings drivers (those is conducted on the resulting bullpen of stocks along
factors that ultimately determine a company's several dimensions, such as earnings drivers (those
ability to grow its earnings), business model factors that ultimately determine a company's ability to
(the strategy used in managing the business), grow its earnings), business model (the strategy used in
and operating margins (the earnings a company managing the business), and operating margins (the
produces before allocating interest expenses, earnings a company produces before allocating interest
taxes, depreciation, etc.) expenses, taxes, depreciation, etc.)
3. Team Review - A portfolio manager 3. Team Review - A portfolio manager recommends stocks
recommends stocks after performing the after performing the fundamental research. Each portfolio
fundamental research. Each portfolio manager manager specializes in one or more economic sectors, and
specializes in one or more economic sectors, is responsible for making recommendations within that
and is responsible for making recommendations sector. The entire investment team reviews this
within that sector. The entire investment recommendation, determining whether to add it to the Fund
team reviews this recommendation, determining along with the corresponding position weight, if
whether to add it to the Fund along with the applicable.
corresponding position weight, if applicable.
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4
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4. Portfolio Construction - The portfolio is constructed
4. Portfolio Construction - The portfolio is subject to guidelines and constraints. A risk overlay is
constructed subject to guidelines and added to ensure optimal positioning with respect to
constraints. A risk overlay is added to macroeconomic trends. Positions are consistently monitored
ensure optimal positioning with respect to and an annual intensive review is conducted to determine
macroeconomic trends. Positions are if drivers of growth are still present in each industry.
consistently monitored and an annual
intensive review is conducted to determine if
drivers of growth are still present in each
industry.
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Because the Funds have identical investment goals and substantially similar
investment strategies, they are subject to similar risks. The principal risks of
investing in Small Cap Growth and Diversified Small Cap Growth 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. Investing in small
cap stock may involve more abrupt or erratic market movements than stocks of
larger, more established companies.
o TECHNOLOGY SECURITIES. The value of technology securities may fluctuate
dramatically and technology securities may be subject to greater than average
financial and market risk. Small companies may have limited product lines or
financial resources, or may be dependent upon a small or inexperienced
management group. In addition, small cap stocks typically are traded in lower
volume, and their issuers typically are subject to great degrees of change in
their earnings and prospects.
o INVESTMENT STYLE RISK. Different investment styles such as growth or value
investing tend to shift in and out of favor, depending on market and economic
conditions as well as investor sentiment. Growth stocks may be more volatile
than other stocks because they are more sensitive to investor perceptions of the
issuing company's growth of earnings potential. Also, since growth companies
usually invest a high portion of earnings in their business, growth stocks may
lack the dividends of some value stocks that can cushion stock prices in a
falling market. Growth oriented funds may underperform when value investing is
in favor.
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 goal and strategies, and could result in
lower returns and loss of market opportunities. For a detailed discussion of the
Funds' risks, see the section titled "Risks" below.
5
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 Small Cap Growth and Diversified
Small Cap Growth.
Although Small Cap Growth and Diversified Small Cap Growth have identical
investment goals and substantially similar investment strategies, it is expected
that a portion of the securities held by Small Cap Growth will be sold in
connection with the Reorganization in order to comply with the investment
policies and practices of Diversified Small Cap Growth. To the extent such sales
occur prior to the Reorganization, the transaction costs will be borne by Small
Cap Growth. To the extent such sales occur following the Reorganization, the
transaction costs will be borne by Diversified Small Cap Growth. Such costs
would be ultimately borne by shareholders.
HOW DO THE FUNDS' FEES AND EXPENSES COMPARE?
Small Cap Growth currently offers four classes of shares: Class A, Class B,
Class C and Class Y. Diversified Small Cap Growth currently offers three classes
of shares: Class A, Class C and Class Y. As part of the Reorganization,
shareholders owning Class A shares of Small Cap Growth will own Class A shares
of Diversified Small Cap Growth. Shareholders owning Class B shares of Small Cap
Growth will own Class A shares of Diversified Small Cap Growth. Shareholders
owning Class C shares of Small Cap Growth will own Class C shares of Diversified
Small Cap Growth. Shareholders owning Class Y shares of Small Cap Growth will
own Class Y shares of Diversified Small Cap Growth. You will not pay any initial
sales charges in connection with the Reorganization. . In addition, Class B
shareholders of Small Cap Growth will not pay any contingent deferred 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 titled
"Annual Fund Operating Expenses" shows you what the fees and expenses are
estimated to be assuming the Reorganization takes place. Class A shares of the
Small Cap Growth and Diversified Small Cap Growth are sold with a front-end
sales charge. Class B shares of Small Cap Growth are sold with a contingent
deferred sales charge ("CDSC") and will be converted to Class A shares after
approximately eight years with an annual 12b-1 fee of 0.25%. Class C shares of
Small Cap Growth are sold with a lower CDSC but they do not convert to Class A
shares after a stated period of time and are subject to an annual 12b-1 fee of
1.00%. Class Y shares of Small Cap Growth and Diversified Small Cap Growth are
sold at NAV, without an initial sales charge and are not subject to a 12b-1 fee
or CDSC, but are subject to higher initial investment requirements than the
other share classes.
The fees and expenses for the shares of Small Cap Growth and Diversified Small
Cap Growth set forth in the following tables and in the examples are based on
the expenses for Small Cap Growth and Diversified Small Cap Growth for the
fiscal year ended March 31, 2007.
The shares of the Funds are subject to the sales charges as set forth in the
table below. Class A shares of Diversified Small Cap Growth have a front-end
sales charge, although existing shareholders of Class B shares of Small Cap
Growth will not pay any sales charge in connection with the shares of
Diversified Small Cap Growth received in the Reorganization. In addition, you
will not pay a charge for those shares purchased in connection with the
reinvestment of your dividends.
6
Shareholder Fees (fees paid directly from your investment)
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap Diversified Small Diversified Small
Growth Cap Growth Cap Growth
Class A Class A Class A
Pro Forma After
Reorganization
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Maximum Sales Charge Imposed on Purchases (as a 5.75%(1) 5.75%(1) 5.75%(1)
percentage of offering price)
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Maximum Deferred Sales Charge (as a percentage None(2) None(2) None(2)
of original purchase price or the amount
redeemed, whichever is less)
- -----------------------------------------------------------------------------------------------------------------------------------
Wire Redemption Fee Up to $15 Up to $15 Up to $15
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(1) Investors may pay a reduced sales charge on very large purchases. The sales
charge is not applicable to Small Cap Growth's shareholders.
(2) Purchasers of $1 million or more do not pay a front-end sales charge, but
may pay a 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)
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap Diversified Small Diversified Small
Growth Cap Growth Cap Growth
Class A Class A Class A
Pro Forma After
Reorganization
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Management Fees 1.25% 1.05% 1.05%
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Distribution (12b-1) and/or 0.25% 0.25% 0.25%
Shareholder Services Fees
- -----------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.91% 1.30% 1.30%
Administration Fees 0.20% 0.20% 0.20%
Other Expenses 0.71% 1.10% 1.10%
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Total Annual Fund Operating 2.41% 2.60% 2.60%
Expenses Before Contractual Fee
Waiver/Expense Reimbursement
- -----------------------------------------------------------------------------------------------------------------------------------
Less Contractual Fee (0.71%)(1) (1.20%)(2) (1.20%)(2)
Waiver/Expense Reimbursement
- -----------------------------------------------------------------------------------------------------------------------------------
Net Expenses 1.70%(3) 1.40% 1.40%
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(1) Effective August 1, 2007, the Advisor and the Trust have entered into an
Expense Limitation Agreement whereby the Advisor has agreed to waive a portion
of its advisory fee and/or reimburse certain Fund expenses in order to limit
"Net Expenses" to 1.70% for Class A shares. This expense limitation will remain
in effect until at least March 31, 2008.
(2) Effective August 1, 2007, the Advisor and the Trust have entered into an
Expense Limitation Agreement whereby the Advisor has agreed to waive a portion
of its advisory fee and/or reimburse certain Fund expenses in order to limit
"Net Expenses" to 1.40% for Class A shares. This expense limitation will remain
in effect until at least March 31, 2008.
7
(3) Net Expenses shown above reflect a change in the Fund's operating expenses
that took effect on January 1, 2007 and will differ from the Net Expenses
reflected in the Fund's Annual Report for March 31, 2007. The actual Net
Expenses for the Fund for the fiscal year ended March 31, 2007 were 1.90% for
Class A shares.
Shareholder Fees (fees paid directly from your investment)
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap Growth Diversified Small Cap Diversified Small Cap
Class B Growth Growth
Class A Class A
Pro Forma After
Reorganization
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a None 5.75%(1) 5.75%(1)
percentage of offering price)
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Maximum Deferred Sales Charge (as a percentage of 5.00%(2) None(3) None(3)
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. The sales
charge is not applicable to Small Cap Growth's shareholders.
(2) Investors may pay a 5.00% CDSC if shares are redeemed within 1 year of their
purchase. The CDSC will be incrementally reduced over time. After the 6th year,
there is no CDSC. The CDSC may be waived under certain circumstances described
in the Fund's Prospectus.
(3) Purchasers of $1 million or more do not pay a front-end sales charge, but
may pay a 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)
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap Growth Diversified Small Cap Diversified Small Cap
Class B Growth Growth
Class A Class A
Pro Forma After
Reorganization
- -----------------------------------------------------------------------------------------------------------------------------------
Management Fees 1.25% 1.05% 1.05%
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Distribution (12b-1) and/or Shareholder Services 1.00% 0.25% 0.25%
Fees
- -----------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.94% 1.30% 1.30%
Administration Fees 0.20% 0.20% 0.20%
Other Expenses 0.74% 1.10% 1.10%
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Total Annual Fund Operating Expenses Before 3.19% 2.60% 2.60%
Contractual Fee Waiver/Expense Reimbursement
- -----------------------------------------------------------------------------------------------------------------------------------
Less Contractual Fee Waiver/Expense Reimbursement (0.74%)(1) (1.20%)(2) (1.20%)(2)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Expenses 2.45%(3) 1.40% 1.40%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Effective August 1, 2007, the Advisor and the Trust have entered into an
Expense Limitation Agreement whereby the Advisor has agreed to waive a portion
of its advisory fee and/or reimburse certain Fund expenses in order to limit
"Net Expenses" to 2.45% for Class B shares. This expense limitation will remain
in effect until at least March 31, 2008.
8
(2) Effective August 1, 2007, the Advisor and the Trust have entered into an
Expense Limitation Agreement whereby the Advisor has contractually agreed to
waive a portion of its advisory fee and/or reimburse certain Fund expenses in
order to limit "Net Expenses" to 1.40% for Class A shares. This expense
limitation will remain in effect until at least March 31, 2008.
(3) Net Expenses shown above reflect a change in the Fund's operating expenses
that took effect on January 1, 2007 and will differ from the Net Expenses
reflected in the Fund's Annual Report for March 31, 2007. The actual Net
Expenses for the Fund for the fiscal year ended March 31, 2007 were 2.66% for
Class B shares.
Shareholder Fees (fees paid directly from your investment)
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap Diversified Small Diversified Small
Growth Cap Growth Cap Growth
Class C Class C Class C
Pro Forma After
Reorganization
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a None None None
percentage of offering price)
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Maximum Deferred Sales Charge (as a percentage of 1.00%(1) 1.00%(1) 1.00%(1)
original purchase price or the amount redeemed,
whichever is less)
- -----------------------------------------------------------------------------------------------------------------------------------
Wire Redemption Fee Up to $15 Up to $15 Up to $15
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(1) The 1.00% CDSC is waived if shares are held for 1 year or longer or under
other circumstances described in the Prospectus.
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap Growth Diversified Small Cap Diversified Small Cap
Class C Growth Growth
Class C Class C
Pro Forma After
Reorganization
- -----------------------------------------------------------------------------------------------------------------------------------
Management Fees 1.25% 1.05% 1.05%
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Distribution (12b-1) and/or Shareholder Services 1.00% 1.00% 1.00%
Fees
- -----------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.89% 1.30%(1) 1.30%(1)
Administration Fees 0.20% 0.20% 0.20%
Other Expenses 0.69% 1.10% 1.10%
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Total Annual Fund Operating Expenses Before 3.14% 3.35% 3.35%
Contractual Fee Waiver/Expense Reimbursement
- -----------------------------------------------------------------------------------------------------------------------------------
Less Contractual Fee Waiver/Expense Reimbursement (0.69%)(2) (1.20%)(3) (1.20%)(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Expenses 2.45%(4) 2.15% 2.15%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) "Other Expenses" for Class C shares are based on estimated amounts for the
current fiscal year.
9
(2) Effective August 1, 2007, the Advisor and the Trust have entered into an
Expense Limitation Agreement whereby the Advisor has agreed to waive a portion
of its advisory fee and/or reimburse certain Fund expenses in order to limit
"Net Expenses" to 2.45% for Class C shares. This expense limitation will remain
in effect until at least March 31, 2008.
(3) Effective August 1, 2007, the Advisor and the Trust have entered into an
Expense Limitation Agreement whereby the Advisor has agreed to waive a portion
of its advisory fee and/or reimburse certain Fund expenses in order to limit
"Net Expenses" to 2.15% for Class C shares. This expense limitation will remain
in effect until August 1, 2008.
(4) Net Expenses shown above reflect a change in the Fund's operating expenses
that took effect on January 1, 2007 and will differ from the Net Expenses
reflected in the Fund's Annual Report for March 31, 2007. The actual Net
Expenses for the Fund for the fiscal year ended March 31, 2007 were 2.67% for
Class C shares.
Shareholder Fees (fees paid directly from your investment)
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap Growth Diversified Small Cap Diversified Small Cap
Class Y Growth Growth
Class Y Class Y
Pro Forma After
Reorganization
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Purchases (as a None None None
percentage of offering price)
- -----------------------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a percentage of None None None
original purchase price or the amount redeemed,
whichever is less)
- -----------------------------------------------------------------------------------------------------------------------------------
Wire Redemption Fee None None None
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
- -----------------------------------------------------------------------------------------------------------------------------------
Small Cap Growth Diversified Small Cap Diversified Small Cap
Class Y Growth Growth
Class Y Class Y
Pro Forma After
Reorganization
- -----------------------------------------------------------------------------------------------------------------------------------
Management Fees 1.25% 1.05% 1.05%
- -----------------------------------------------------------------------------------------------------------------------------------
Distribution (12b-1) and/or Shareholder Services None None None
Fees
- -----------------------------------------------------------------------------------------------------------------------------------
Other Expenses 0.41% 1.30% 1.30%
Administration Fees 0.20% 0.20% 0.20%
Other Expenses 0.21% 1.10% 1.10%
- -----------------------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating Expenses Before 1.66% 2.35% 2.35%
Contractual Fee Waiver/Expense Reimbursement
- -----------------------------------------------------------------------------------------------------------------------------------
Less Contractual Fee Waiver/Expense Reimbursement (0.36%)(1) (1.20%)(2) (1.20%)(2)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Expenses 1.30%(3) 1.15% 1.15%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Effective August 1, 2007, the Advisor and the Trust have entered into an
Expense Limitation Agreement whereby the Advisor has agreed to waive a portion
of its advisory fee and/or reimburse certain Fund expenses in order to limit
"Net Expenses" to 1.30%. This expense limitation will remain in effect until at
least March 31, 2008.
10
(2) Effective August 1, 2007, the Advisor and the Trust have entered into an
Expense Limitation Agreement whereby the Advisor has agreed to waive a portion
of its advisory fee and/or reimburse certain Fund expenses in order to limit
"Net Expenses" to 1.15%. This expense limitation will remain in effect until at
least March 31, 2008.
(3) Net Expenses shown above reflect a change in the Fund's operating expenses
that took effect on January 1, 2007 and will differ from the Net Expenses
reflected in the Fund's Annual Report for March 31, 2007. The actual Net
Expenses for the Fund for the fiscal year ended March 31, 2007 were 1.55% for
Class Y shares.
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 Small Cap Growth versus
Diversified Small Cap Growth and Diversified Small Cap Growth (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
- --------------------------------------------------------------------------------------------------------------
One Year Three Years Five Years Ten Years
- --------------------------------------------------------------------------------------------------------------
Small Cap Growth - Class A $738 $1,219 $1,726 $3,112
- --------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth - Class A $709 $1,229 $1,775 $3,256
- --------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Pro Forma $709 $1,229 $1,775 $3,256
- - Class A
- --------------------------------------------------------------------------------------------------------------
One Year Three Years Five Years Ten Years
- --------------------------------------------------------------------------------------------------------------
Small Cap Growth - Class B $648 $1,114 $1,705 $3,262
- --------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth - Class A $709 $1,229 $1,775 $3,256
- --------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Pro Forma $709 $1,229 $1,775 $3,256
- - Class A
- --------------------------------------------------------------------------------------------------------------
One Year Three Years Five Years Ten Years
- --------------------------------------------------------------------------------------------------------------
Small Cap Growth - Class C $248 $904 $1,585 $3,400
- --------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth - Class C $318 $919 $1,642 $3,559
- --------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Pro Forma $318 $919 $1,642 $3,559
- - Class C
- --------------------------------------------------------------------------------------------------------------
One Year Three Years Five Years Ten Years
- --------------------------------------------------------------------------------------------------------------
Small Cap Growth - Class Y $132 $488 $868 $1,935
- --------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth - Class Y $117 $618 $1,146 $2,594
- --------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth Pro Forma $117 $618 $1,146 $2,594
- - Class Y
- --------------------------------------------------------------------------------------------------------------
HOW DO THE FUNDS' PERFORMANCE RECORDS COMPARE?
11
The following bar chart shows how Small Cap Growth has performed in the past.
Diversified Small Cap Growth began its operations in September 2006 and has not
had a full calendar year of operations. Accordingly, Diversified Small Cap
Growth's performance is not included below. A Fund's past performance (before
and after taxes) does not necessarily indicate how it will perform in the
future.
Year-by-Year Total Return (%)
The chart below shows the percentage gain or loss for the shares of Small Cap
Growth for each full calendar year since the inception of the Fund on October
21, 2002. This chart should give you a general idea of the risks of investing in
Small Cap Growth by showing how the Fund's return has varied from year to year.
This chart does not reflect any sales charges. The Fund can also experience
short-term performance swings as indicated in the best and worst quarter
information at the bottom of the chart.
[BAR CHART OMITTED]
2003 55.33%
2004 6.88%
2005 1.37%
2006 1.97%
The year-to-date return of the Fund's Class A shares
as of June 30, 2007 is 5.78%.
Best Quarter: 2nd Quarter 2003 +27.30%
Worst Quarter: 2nd Quarter 2006 -13.06%
The next table lists the average annual total return (before and after taxes) of
the Class A, Class B, Class C and Class Y shares of Small Cap Growth for the
past calendar year and since inception (through December 31, 2006). This table
includes the effects of Fund expenses and is intended to provide you with some
indication of the risks of investing in the Fund by comparing its performance
with an appropriate widely recognized index of securities, a description of
which can be found following the table. An index does not reflect fees or
expenses. It is not possible to invest directly in an index.
12
Average Annual Total Returns (for the period ended 12/31/2006)
- ------------------------------------------------------------------------------------------------
1 YEAR ENDED
12/31/06 SINCE INCEPTION(1)
- ------------------------------------------------------------------------------------------------
SMALL CAP GROWTH - CLASS A
- ------------------------------------------------------------------------------------------------
Return before taxes -3.88% 12.60%
- ------------------------------------------------------------------------------------------------
Return after taxes on distributions -3.88% 12.20%
- ------------------------------------------------------------------------------------------------
Return after taxes on distributions and sale of -2.52% 10.76%
fund shares
- ------------------------------------------------------------------------------------------------
Russell 2000 Growth Index(2) 13.35% 19.51%
- ------------------------------------------------------------------------------------------------
SMALL CAP GROWTH - CLASS B
- ------------------------------------------------------------------------------------------------
Return before taxes -2.68% 13.29%
- ------------------------------------------------------------------------------------------------
Russell 2000 Growth Index(2) 13.35% 19.51%
- ------------------------------------------------------------------------------------------------
SMALL CAP GROWTH - CLASS C
- ------------------------------------------------------------------------------------------------
Return before taxes 1.32% 13.47%
- ------------------------------------------------------------------------------------------------
Russell 2000 Growth Index(2) 13.35% 19.51%
- ------------------------------------------------------------------------------------------------
SMALL CAP GROWTH - CLASS Y
- ------------------------------------------------------------------------------------------------
Return before taxes 2.44% 4.39%
- ------------------------------------------------------------------------------------------------
Russell 2000 Growth Index(2) 13.35% 10.98%
- ------------------------------------------------------------------------------------------------
(1) Returns for Class A, Class B and Class C shares are shown from the
commencement of operations on October 21, 2002. Returns for Class Y shares are
shown from the commencement of operations on March 5, 2004.
(2) The Russell 2000 Growth Index measures the performance of those Russell 2000
Index companies with higher price-to-book ratios and higher forecasted growth
values. The Russell 2000 Index measures the performance of the 2,000 smallest
companies in the Russell 3000 Index. The Russell 3000 Index measures the
performance of the 3,000 largest U.S. companies based on total market
capitalization.
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 Small Cap Growth is also contained in
management's discussion of Diversified Small Cap Growth's performance that
appears in the most recent Annual Report of the Trust relating to the Fund.
WHO WILL BE THE INVESTMENT ADVISOR OF MY FUND AFTER THE REORGANIZATION? WHAT
WILL THE ADVISORY AND SUB-ADVISORY FEES BE AFTER THE REORGANIZATION?
13
Management of the Funds
The Board is responsible for and supervises the overall management of Small Cap
Growth and Diversified Small Cap Growth.
Advisor
Touchstone Advisors, Inc. is the investment advisor for each Fund. The Advisor
has contracted with the Sub-Advisor (as defined below) to make the day-to-day
investment decisions for each of the Funds. The Advisor is responsible for
overseeing the Trust's sub-advisors, including each Sub-Advisor, and for making
recommendations to the Board relating to hiring and replacing the sub-advisors.
As of June 30, 2007, the Advisor had assets under management of approximately
$8.2 billion. The Advisor is located at 303 Broadway, Suite 1100, Cincinnati,
Ohio 45202.
The SEC has granted an exemptive order that permits the Trust or the Advisor,
under certain conditions, to select or change unaffiliated Sub-Advisors, enter
into new sub-advisory agreements or amend existing sub-advisory agreements
without first obtaining shareholder approval. The Funds must still obtain
shareholder approval of any sub-advisory agreement with a Sub-Advisor affiliated
with the Trust or Touchstone Advisors other than by reason of serving as a
Sub-Advisor to one or more Touchstone Funds.
Sub-Advisors
Prior to September 13, 2007, Small Cap Growth's assets were allocated between
two sub-advisors, each investing in a different market capitalization. Longwood
Investment Advisors, Inc. managed approximately 60% of the Fund's assets,
consisting of small cap stocks, and Bjurman, Barry & Associates managed
approximately 40% of the Fund's assets, consisting of micro cap stocks. As of
September 13, 2007, all of Small Cap Growth's assets are managed by Fort
Washington Investment Advisors Inc. ("FWIA") pursuant to an interim investment
sub-advisory agreement.
Upon the Reorganization, Diversified Small Cap Growth will continue to be solely
managed by its current Sub-Advisor, FWIA. FWIA is located at The Huntington
Center, 41 South High Street, Suite 2495, Columbus, Ohio 43215.
FWIA has been a registered investment advisor since 1990 and has managed
Diversified Small Cap Growth since its inception. The Fund is managed by an
investment committee of FWIA, which consists of four members. The investment
committee makes the investment decisions for the Fund, and is primarily
responsible for the day-to-day management of the Fund's portfolio. The four
members of the investment committee are listed below.
Richard R. Jandrain III, Managing Director - Growth Equity. Mr. Jandrain joined
FWIA in 2004 as Managing Director, Vice President and Senior Portfolio Manager.
He was Chief Equity Strategist and Chief Investment Officer of Equities with
Banc One Investment Advisors Corporation from 1992 to 2004.
Daniel J. Kapusta, Senior Portfolio Manager. Mr. Kapusta joined FWIA in 2004 as
Vice President and Senior Portfolio Manager. He was a Growth Team Leader,
Portfolio Manager, Senior Equity Research Analyst with Banc One Investment
Advisors Corporation from 1992 to 2004.
14
David K. Robinson, CFA, Senior Portfolio Manager. Mr. Robinson joined FWIA in
2004 as Vice President and Senior Portfolio Manager. He was a Portfolio Manager
and Senior Equity Research Analyst with Banc One Investment Advisors Corporation
from 1994 to 2004. Bihag Patel, CFA, Senior Portfolio Manager. Mr. Patel joined
FWIA in 2004 as Vice President and Senior Portfolio Manager. He was a Portfolio
Manager and Senior Equity Analyst with Banc One Investment Advisors Corporation
from 1998 to 2004.
Investment strategy, asset allocation, portfolio construction, research and
security selection are handled by the investment committee in an interactive
environment. Each committee member is responsible for an entire sector of the
small cap growth market plus, since it represents a relatively small portion of
the market, a portion of the finance sector, as noted below:
o Richard Jandrain - Technology & Finance (REITs)
o Daniel Kapusta - Consumer & Finance (Diversified)
o David Robinson - Industrial & Finance (Banks)
o Bihag Patel - Healthcare & Finance (Insurance)
As Managing Director for FWIA, Mr. Jandrain has ultimate responsibility for
overall portfolio management.
FWIA is an affiliate of the Advisor. Therefore, Touchstone Advisors may have a
conflict of interest when making decisions to keep FWIA as the Fund's
Sub-Advisor. The Board reviews the Advisor's decisions with respect to the
retention of FWIA, to reduce the possibility of a conflict of interest
situation.
Advisory Fees
Small Cap Growth pays the Advisor a monthly investment advisory fee at the
annual rate of 1.25% of the Fund's average daily net assets. Diversified Small
Cap Growth pays the Advisor a monthly investment advisory fee at the annual rate
of 1.05% of the Fund's average daily net assets.
The Advisor may, at its discretion, reduce or waive its fee or reimburse each
Fund for certain of its other expenses in order to reduce the expense ratios.
The Advisor has contractually agreed to waive fees and reimburse expenses in
order to limit the Funds' annual operating expenses. However, for purposes of
these waivers, the cost of "Acquired Fund Fees and Expenses," if any, is
excluded from the Advisor's waiver obligations. Fee waivers and/or expense
reimbursements are calculated and applied monthly, based on each Fund's average
net assets during such month. These fee waivers and expense reimbursements will
remain in effect until March 31, 2008, except the fee waivers and expense
reimbursements for Diversified Small Cap Growth Class C which will remain in
effect until at least August 1, 2008.
Sub-Advisory Fees
15
Under the terms of the Sub-Advisory Agreement, FWIA is paid by the Advisor for
providing sub-advisory services to Diversified Small Cap Growth at an annualized
rate of 0.50% of the Fund's average daily net assets. The Fund does not pay a
fee to the Sub-Advisor.
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 goals and
substantially similar investment strategies of Small Cap Growth and Diversified
Small Cap Growth. However, Small Cap Growth may be subject to higher risk than
Diversified Small Cap Growth due to its investments in micro cap stocks.
WHAT ARE THE PRIMARY RISKS OF INVESTING IN EACH FUND?
An investment in either 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 goals. Loss of money is a risk of investing in either
of these Funds. The following discussions highlight the primary risks associated
with an investment in each Fund.
MARKET RISK. Each Fund normally invests its assets primarily in common stocks
and is subject to the market risk. Stock prices in general may decline over
short or even extended periods, regardless of the success or failure of a
particular company's operations. Stock markets tend to run in cycles, with
periods when stock prices generally go up and periods when they generally go
down. In addition, stocks fall into four broad market capitalization categories
- - large cap, mid cap, small cap and micro cap. Investing primarily in one
category carries the risk that due to market conditions, that category may be
out of favor. For example, if valuations of large cap companies appear to be
greatly out of proportion to the valuations of smaller cap companies, investors
may migrate to the stocks of smaller-sized companies, causing a fund that
invests in these companies to increase in value more rapidly than a fund that
invests in larger, fully-valued companies. The prices of stocks tend to go up
and down more than the prices of bonds.
MARKET CAPITALIZATION RISK. Small Cap Growth normally invests at least 80% of
the Fund's assets in the securities of companies with market capitalizations
less than $1.5 billion. Diversified Small Cap Growth normally invests at least
80% of the Fund's assets in the securities of companies with market
capitalizations less than $2.5 billion.
Investing primarily in one category carries the risk that due to current market
conditions that category may be out of favor. Investing in small cap stocks may
involve more abrupt or erratic market movements than investing in stocks of
larger, more established companies. Small companies may have limited product
lines or financial resources, or may be dependent upon a small or inexperienced
management group. In addition, small cap stocks typically are traded in lower
volume, and their issuers typically are subject to greater degrees of change in
their earnings and prospects.
16
INVESTMENT STYLE RISK. Each Fund invests in "growth" 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. Examples of
different investment styles include growth and value investing. Growth stocks
may be more volatile than other stocks because they are more sensitive to
investor perceptions of the issuing company's growth of earnings potential.
Also, since growth companies usually invest a high portion of earnings in their
business, growth stocks may lack the dividends of some value stocks that can
cushion stock prices in a falling market. Growth oriented funds may underperform
when value investing is in favor. Value stocks are those that are undervalued in
comparison to their peers due to adverse business developments or other factors.
Value investing carries the risk that the market will not recognize a security's
inherent value for a long time, or that a stock judged to be undervalued may
actually be appropriately priced or overvalued. Value oriented funds may
underperform when growth investing is in favor.
TECHNOLOGY SECURITIES. Both Funds may invest in securities of the technology
sector. The value of technology securities may fluctuate dramatically, and
technology securities may be subject to greater than average financial and
market risk. Investments in the high technology sector include the risk that
certain products may be subject to competitive pressures and aggressive pricing
and may become obsolete, and the risk that new products will not meet
expectations or even reach the market.
ARE THERE ANY OTHER RISKS OF INVESTING IN EACH FUND?
FOREIGN RISK. Investing in foreign securities poses unique risks such as
fluctuation in currency exchange rates, market illiquidity, price volatility,
high trading costs, difficulties in settlement, regulations on stock exchanges,
limits on foreign ownership, less stringent accounting, reporting and disclosure
requirements, and other considerations. Diplomatic, political or economic
developments, including nationalization or appropriation, could affect
investments in foreign securities. In the past, equity and debt instruments of
foreign markets have had more frequent and larger price changes than those of
U.S. markets.
EMERGING MARKET COUNTRIES. Investments in countries that are still relatively
underdeveloped involve exposure to economic structures that are generally less
diverse and mature than those in the U.S. and to political and legal systems
that may be less stable. In the past, markets of developing countries have had
more frequent and larger price changes than those of developed countries.
Economic or political changes may cause larger price changes in these securities
than in other foreign securities.
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 Funds' principal investment goal and strategies,
and could result in lower returns and loss of market opportunities.
17
INFORMATION ABOUT PROPOSAL 1 - REORGANIZATION
REASONS FOR THE REORGANIZATION
The Reorganization is designed to eliminate the offering of overlapping funds
with similar investment goals and similar investment strategies that are managed
by the Advisor. 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 August 15, 2007, the Board, including the
Disinterested Trustees, considered and approved the Reorganization, determined
that the Reorganization was in the best interests of shareholders of Small Cap
Growth and Diversified Small Cap Growth, and further determined that the
interests of existing shareholders of Small Cap Growth will not be diluted as a
result of the transaction contemplated by the Reorganization. In evaluating the
Reorganization, the Board requested and reviewed, with the assistance of
independent counsel, materials furnished by the Advisor. These materials
included written information regarding operations and financial conditions of
the Funds and principal terms and conditions of the Reorganization, including
the intention that the Reorganization be consummated on a tax-free basis for
Small Cap Growth and its respective shareholders. The Board noted that
Diversified Small Cap Growth will have an identical investment goal and
substantially similar investment strategies to those of Small Cap Growth. In
addition, on a pro forma basis after the Reorganization, net operating expenses
of Diversified Small Cap Growth are anticipated to be lower than those of Small
Cap Growth.
The Board was also advised that as of August 15, 2007, Small Cap Growth had net
assets of approximately $44 million, and Diversified Small Cap Growth had assets
of approximately $14 million at that date. If the Reorganization is approved,
the Funds' combined assets could lead to operating efficiencies and lower
operating costs for the Funds' shareholders. Accordingly, by merging Small Cap
Growth and Diversified Small Cap Growth, shareholders would enjoy a greater
asset base over which fund expenses may be spread. The Board considered that if
the Plan is approved, shareholders of Small Cap Growth would realize an
immediate reduction in the net operating expenses paid on their investment,
although there can be no assurance that operational savings will be realized.
In addition, the Board 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 Small Cap Growth as compared
with those of Small Cap Growth;
o the advice and recommendation of the Advisor, including its opinion
that in light of the foregoing, the Reorganization would be in the
best interests of Small Cap Growth, Diversified Small Cap Growth and
their shareholders;
18
o the expenses of the Reorganization would not be borne by Small Cap
Growth's shareholders;
o the identical investment goals and substantially similar investment
strategies of the Funds and their compatibility with each other;
o the fact that Diversified Small Cap Growth will assume all of the
liabilities of Small Cap Growth;
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 Small Cap
Growth and its shareholders for federal income tax purposes; and
o alternatives available to shareholders of Small Cap Growth,
including the ability to redeem their shares.
During their consideration of the Reorganization, the Board was advised by Fund
counsel and 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 Board concluded that the Reorganization would be in the best
interests of Small Cap Growth, Diversified Small Cap Growth and their respective
shareholders. Consequently, they approved the Plan and directed that the Plan be
submitted to shareholders of Small Cap Growth for approval.
At a special telephonic meeting held on September 12, 2007, the Board considered
the impact of the termination of Small Cap Growth's former sub-advisors and the
appointment of FWIA as Sub-Advisor to the Fund on the Reorganization, and
concluded that the expected continuity of day-to-day Fund management was
consistent with the goals of the Reorganization.
The Board, including the Disinterested Trustees, has also approved the Plan on
behalf of Diversified Small Cap Growth.
AGREEMENT AND PLAN OF REORGANIZATION
The following summary is qualified in its entirety by reference to the Plan (a
copy of which is attached as Exhibit A to this Prospectus/Proxy Statement).
The Plan provides that all of the assets of Small Cap Growth will be acquired by
Diversified Small Cap Growth in exchange for Class A, Class C and Class Y shares
of Diversified Small Cap Growth, and the assumption by Diversified Small Cap
Growth of all of the liabilities of Small Cap Growth on or about December 15,
2007 or such other date as may be agreed upon by the parties (the "Closing
Date"). Prior to the Closing Date, Small Cap Growth will endeavor to discharge
all of its known liabilities and obligations. Small Cap Growth 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").
19
At or prior to the Closing Date, Small Cap Growth 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 Small Cap Growth does
not expect that a significant amount of investments in the pro forma portfolio
of investments dated March 31, 2007 must be sold as a result of the
Reorganization, to the extent such sales occur, the Fund may realize capital
gains upon the sale of its portfolio holdings.
The number of full and fractional Class A, Class C and Class Y shares of
Diversified Small Cap Growth to be received by the shareholders of Small Cap
Growth will be determined by multiplying each number of outstanding Class A,
Class B, Class C and Class Y shares of Small Cap Growth by a ratio which shall
be computed by dividing the net asset value per share of the Class A, Class B,
Class C and Class Y shares of Small Cap Growth by the net asset value per share
of the Class A, Class C and Class Y shares of Diversified Small Cap Growth.
These computations will take place as of the Valuation Date.
JPMorgan, 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 Small Cap Growth, Rule 22c-1 under the
1940 Act, and the interpretations of that Rule by the staff of the SEC's
Division of Investment Management.
As soon after the Closing Date as conveniently practicable, Small Cap Growth
will liquidate and distribute pro rata to the shareholders of record determined
as of the close of business on the Closing Date the full and fractional shares
of Diversified Small Cap Growth received by Small Cap Growth. The liquidation
and distribution will be accomplished by the establishment of accounts in the
names of Small Cap Growth's shareholders on Diversified Small Cap Growth's share
records of its transfer agent. Each account will represent the respective pro
rata number of full and fractional shares of Diversified Small Cap Growth due to
Small Cap Growth's shareholders. All issued and outstanding shares of Small Cap
Growth will be canceled. The shares of Diversified Small Cap Growth 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 its affairs, Small Cap
Growth will be terminated as a series of the Trust.
The consummation of the Reorganization is subject to the conditions set forth in
the Plan, including approval, as applicable, by Small Cap Growth's shareholders,
accuracy of various representations and warranties and receipt of opinions of
counsel. Notwithstanding the approval of Small Cap Growth's shareholders, the
Plan may be terminated: (a) by the mutual agreement of Small Cap Growth and
Diversified Small Cap Growth; 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 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. 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 Small Cap
Growth'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 Small Cap Growth to be issued to the
shareholders of Small Cap Growth without shareholder approval. Any material
amendment to the Plan is subject to review by the Board to ensure that it is in
the best interest of the shareholders of each Fund.
20
Whether or not the Reorganization is consummated, the Advisor will bear the
expenses incurred in connection with the Reorganization.
If Small Cap Growth's shareholders do not approve the Proposal 1 -
Reorganization, the Board 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 Small Cap Growth and Small Cap
Growth, 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 Small Cap Growth solely in
exchange for shares of Diversified Small Cap Growth and the
assumption by Diversified Small Cap Growth of the liabilities of
Small Cap Growth followed by the distribution of Diversified Small
Cap Growth's shares to the shareholders of Small Cap Growth in
dissolution and liquidation of Small Cap Growth, will constitute a
"reorganization" within the meaning of section 368(a) of the Code,
and Diversified Small Cap Growth and Small Cap Growth 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 Small Cap Growth
upon the receipt of the assets of Small Cap Growth solely in
exchange for the shares of Diversified Small Cap Growth and the
assumption by Diversified Small Cap Growth of the liabilities of
Small Cap Growth;
(3) No gain or loss will be recognized by Small Cap Growth upon the
transfer of all of its assets to Diversified Small Cap Growth solely
in exchange for Diversified Small Cap Growth's shares and the
assumption by Diversified Small Cap Growth of the liabilities of
Small Cap Growth or upon the distribution of Diversified Small Cap
Growth's shares to Small Cap Growth's shareholders in exchange for
their shares of Small Cap Growth;
(4) No gain or loss will be recognized by Small Cap Growth's
shareholders upon the exchange of their shares of Small Cap Growth
for shares of Diversified Small Cap Growth in liquidation of Small
Cap Growth;
21
(5) The aggregate tax basis of the shares of Diversified Small Cap
Growth received by each shareholder of Small Cap Growth pursuant to
the Reorganization will be the same as the aggregate tax basis of
the shares of Small Cap Growth held by such shareholder immediately
prior to the Reorganization, and the holding period of the shares of
Diversified Small Cap Growth received by each shareholder of Small
Cap Growth will include the period during which the shares of Small
Cap Growth exchanged therefore were held by such shareholder
(provided that the shares of Small Cap Growth were held as a capital
asset on the date of the Reorganization);
(6) The tax basis of the assets of Small Cap Growth acquired by
Diversified Small Cap Growth will be the same as the tax basis of
such assets to Small Cap Growth immediately prior to the
Reorganization, and the holding period of such assets in the hands
of Diversified Small Cap Growth will include the period during which
the assets were held by Small Cap Growth; and
(7) Diversified Small Cap Growth will succeed to and take into account
capital loss carryovers, if any, of Small Cap Growth 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) Small Cap Growth or Diversified Small Cap Growth 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 or (ii) any
shareholder of Small Cap Growth 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 Small Cap Growth would recognize
a taxable gain or loss equal to the difference between its tax basis in its
Small Cap Growth shares and the fair market value of the shares of Diversified
Small Cap Growth it received. . However, in addition to the opinion from Morgan,
Lewis & Bockius LLP, the Trust has requested a private letter ruling from the
Internal Revenue Service with respect to the qualification of the Reorganization
as a tax free reorganization under the Code.
Diversified Small Cap Growth's utilization after the Reorganization of any
pre-Reorganization losses realized by Small Cap Growth to offset gains realized
by Diversified Small Cap Growth could be subject to limitation in future years.
PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of Small Cap Growth and
Diversified Small Cap Growth, and the capitalization of Diversified Small Cap
Growth on a pro forma basis as of March 31, 2007, giving effect to the proposed
acquisition of assets at net asset value. The pro forma data reflects an
exchange ratio of approximately 1.43 Class A shares, 1.39 Class A share, 1.00
Class C shares and 1.44 Class Y shares of Diversified Small Cap Growth for each
Class A, Class B, Class C and Class Y share of Small Cap Growth.
22
- ---------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS Y
- ---------------------------------------------------------------------------------------------------------------------
Small Cap Growth
- ---------------------------------------------------------------------------------------------------------------------
Net Assets $32,662,308 $4,876,111 $8,727,626 $16,006,314
- ---------------------------------------------------------------------------------------------------------------------
Shares Outstanding 1,965,252 302,229 540,540 951,731
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share $16.62 $16.13 $16.15 $16.82
- ---------------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth
- ---------------------------------------------------------------------------------------------------------------------
Net Assets $5,846,348 N/A N/A $6,128,097
- ---------------------------------------------------------------------------------------------------------------------
Shares Outstanding 502,296 N/A N/A 525,756
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share $11.64 N/A N/A $11.66
- ---------------------------------------------------------------------------------------------------------------------
Diversified Small Cap Growth (pro
forma)
- ---------------------------------------------------------------------------------------------------------------------
Net Assets $43,384,767 N/A $8,727,626 $22,134,411
- ---------------------------------------------------------------------------------------------------------------------
Shares Outstanding 3,727,246 N/A 540,540 1,898,510
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share $11.64 N/A $16.15 $11.66
- ---------------------------------------------------------------------------------------------------------------------
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. ("TSI") 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 TSI, through
financial advisors and financial intermediaries or through processing
organizations. TSI currently allows concessions to dealers who sell shares of
the Funds. TSI receives that portion of the sales charge that is not reallowed
to the dealers who sell shares of a Fund. TSI retains the entire sales charge on
all direct initial investments in a Fund and on all investments in accounts with
no designated dealer of record. TSI is an affiliate of the Advisor by reason of
common ownership.
Diversified Small Cap Growth offers Class A, Class C and Class Y shares. Class A
shares are subject to a maximum front-end sales charge of 5.75% and a 0.25%
12b-1 distribution fee. Class C shares are subject to a CDSC of 1.00% and a
1.00% 12b-1 distribution fee. Class Y shares are sold without a sales charge or
12b-1 distribution fee.
With respect to Class A and Class C shares, Diversified Small Cap Growth has
adopted a plan of distribution under Rule 12b-1 of the 1940 Act pursuant to
which Class A and Class C shares may pay TSI up to 0.25% and 1.00%,
respectively, for the sale and distribution of its shares and for services
provided to shareholders. With respect to Class A, Class B and Class C shares,
Small Cap Growth has adopted a plan of distribution under Rule 12b-1 of the 1940
Act pursuant to which Class A, Class B and Class C shares may pay TSI up to
0.25%, 1.00% and 1.00%, respectively. With respect to Class B and Class C shares
of the Funds, TSI may be paid 0.25% for shareholder service fees and 0.75% for
distribution payments but not exceeding 1.00% in aggregate.
23
In the proposed Reorganization, (i) Class A shareholders of Small Cap Growth
will receive Class A shares of Diversified Small Cap Growth; (ii) Class B
shareholders of Small Cap Growth will receive Class A shares of Diversified
Small Cap Growth; (iii) Class C shareholders of Small Cap Growth will receive
Class C shares of Diversified Small Cap Growth; and (iv) Class Y shareholders of
Small Cap Growth will receive Class Y shares of Diversified Small Cap Growth.
Class A, Class C and Class Y shares of Diversified Small Cap Growth to be issued
upon consummation of the Reorganization will be issued at net asset value and no
sales charges will be imposed. Class B shareholders of Small Cap Growth will not
pay any contingent deferred sales charges in connection with the Reorganization.
More detailed descriptions of Diversified Small Cap Growth's Class A, Class C
and Class Y shares and the distribution arrangements applicable to each class of
shares are contained in the Prospectus and Statement of Additional Information
relating to Diversified Small Cap Growth.
PURCHASE AND REDEMPTION PROCEDURES
The Funds have the same purchase and redemption procedures. Each Fund has a
minimum initial purchase requirement of $2,500 for regular accounts and $1,000
for retirement or custodial accounts. The minimum subsequent purchase
requirement for each is $50. For more information, see "Purchasing Your Shares"
in the Trust's Prospectus. Small Cap Growth's and Diversified Small Cap Growth's
shares may each be redeemed by telephone, Internet, mail, or wire or through
accounts with certain brokers and other financial institutions. Payments for
redemptions of each Fund are sent within seven days (normally within three (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
The Funds have similar exchange privileges. Shareholders may exchange shares of
the Funds for shares of the same class of another Touchstone Fund (subject to
the applicable sales charge, if any). Shareholders may also exchange Class A or
Class C shares of the Funds for Class A shares of any Touchstone money market
fund. There is no exchange fee for an exchange. Additional information
concerning the Funds' exchange privileges is contained in the Trust's
Prospectus.
DIVIDEND POLICY
Each Fund intends to distribute to its shareholders substantially all of its
income and capital gains. Each Fund's dividends are distributed and paid
annually. Distributions of any capital gains earned by a Fund will be made at
least annually.
24
After the Reorganization, shareholders of Small Cap Growth who have elected to
have their dividends and/or distributions reinvested will have dividends and/or
distributions received from Diversified Small Cap Growth reinvested in the same
class of shares of Diversified Small Cap Growth received. Shareholders of Small
Cap Growth who have elected to receive dividends and/or distributions in cash
will receive dividends and/or distributions from Diversified Small Cap Growth 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 Small Cap Growth.
Each Fund has qualified to be treated as a regulated investment company under
the Code. To remain qualified as a regulated investment company, a Fund must,
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.
COMPARATIVE INFORMATION ON SHAREHOLDERS' RIGHTS
The operations of the Trust are governed by its Amended and Restated Agreement
and Declaration of Trust, as amended ("Declaration of Trust"), its Amended and
Restated By-Laws, and applicable Massachusetts 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 Small Cap Growth shareholders and Diversified Small Cap Growth
shareholders are the same under these documents.
FORM OF ORGANIZATION
As noted above, the Trust is organized as a Massachusetts business 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 Small Cap Growth, Diversified Small Cap Growth
and other mutual funds of various asset classes. The Trust is governed by its
Declaration of Trust, By-Laws, Board and applicable Massachusetts and federal
laws.
CAPITALIZATION
The beneficial interests in the Trust are represented by an unlimited number of
transferable shares of beneficial interest, no par value per share, of one or
more series. The Declaration of Trust permits the Trustees to allocate shares
into one or more series, and classes thereof, with rights determined by the
Trustees, all without shareholder approval. Fractional shares may be issued by
each Fund.
25
Small Cap Growth offers four classes of shares: Class A, Class B, Class C and
Class Y. Diversified Small Cap Growth offers three share classes: Class A, Class
C and Class Y. 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 Board, 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 MEETINGS AND VOTING RIGHTS
The Trust on behalf of either Small Cap Growth or Diversified Small Cap Growth
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, fifty-one percent (51%) 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 Trustees.
Under the Declaration of Trust, each whole share of beneficial interest of a
Fund is entitled to one vote, and each fractional share is entitled to a
proportionate vote.
The Declaration of Trust provides that the Board may, to the extent consistent
with applicable law, cause the Trust or a Fund to be merged or consolidated with
another trust or company.
LIMITATION OF SHAREHOLDER LIABILITY
Neither the Trust nor the Trustees, nor any officer, employee or agent of the
Trust have any power to bind personally any shareholder, nor, except as
specifically provided in the Declaration of Trust, to call upon any shareholder
for the payment of any sum of money or assessment other than the shareholder may
personally agree to pay.
26
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. The liquidation of
any particular Fund may be authorized by vote of a majority of the Trustees then
in office subject to the approval of a majority of the outstanding voting shares
of that Fund, as defined in the 1940 Act.
LIABILITY AND INDEMNIFICATION OF TRUSTEES
The Declaration of Trust provides that: (1) the Trustees shall not be
responsible or liable in any event for any neglect or wrongdoing of any officer,
agent, employee, consultant, adviser, administrator, distributor or principal
underwriter, custodian or transfer, dividend disbursing, shareholder servicing
or accounting agent of the Trust, nor shall any Trustee be responsible for the
act or omission of any other Trustee; (2) the Trustees may take advice of
counsel or other experts with respect to the meaning and operation of the
Declaration of Trust and their duties as Trustees, and shall be under no
liability for any act or omission in accordance with such advice or for failing
to follow such advice; and (3) in discharging their duties, the Trustees, when
acting in good faith, shall be entitled to rely upon the books of account of the
Trust and upon written reports made to the Trustees by any officer appointed by
them, any independent public accountant, and (with respect to the subject matter
of the contract involved) any officer, partner or responsible employee of a
contracting party appointed by the Trustees pursuant to the Declaration of
Trust.
The foregoing is only a summary of certain characteristics of the operations of
the Declaration of Trust, its By-Laws and Massachusetts law and is not a
complete description of those documents or law. Shareholders should refer to the
provisions of such Declaration of Trust, By-Laws and Massachusetts law directly
for more complete information.
27
THIS SECTION SUMMARIZES THE PRIMARY FEATURES AND CONSEQUENCES OF PROPOSAL 2 -
APPROVAL OF INVESTMENT SUB-ADVISORY AGREEMENT. IT MAY NOT CONTAIN ALL OF THE
INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND PROPOSAL 2 - APPROVAL OF
INVESTMENT SUB-ADVISORY AGREEMENT, 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 Trust's
Prospectus and Statement of Additional Information dated August 1, 2007, the
copy of the Form of Amended Investment Sub-Advisory Agreement (the "New
Agreement"), which is attached to this Prospectus/Proxy Statement as Exhibit B.
Proposal 2 relates to the approval by Small Cap Growth shareholders of the New
Agreement. For the reasons discussed below, the Board unanimously recommends
that shareholders vote "FOR" the approval of the New Agreement.
THE NEW AGREEMENT
On August 31, 2007, Longwood Investment Advisors, Inc. ("Longwood"), one of the
two previous sub-advisors to Small Cap Growth, notified the Advisor that it
intended to cease operations as an investment adviser on September 30, 2007.
Accordingly, the existing sub-advisory agreement between the Advisor and
Longwood (the "Old Agreement") would terminate on that date. On September 12,
2007, the Board met to consider various options for Small Cap Growth's
investment management. At that meeting and in light of the anticipated
termination of the Old Agreement with Longwood, the Board determined that it was
in the best interests of shareholders to immediately terminate the existing
sub-advisory agreement with Longwood, select an interim sub-advisor and approve
an interim sub-advisory agreement and, subject to shareholder approval, a new
sub-advisory agreement (the "New Agreement"). In light of the planned
Reorganization, the Board determined that it would be most efficient to
transition the day to day management of Small Cap Growth to Fort Washington
Investment Advisors, Inc. ("FWIA"), the current sub-advisor to Diversified Small
Cap Growth. As a result, the Board approved FWIA to act as interim sub-advisor
and approved an interim sub-advisory agreement between the Advisor and FWIA for
Small Cap Growth (the "Interim Agreement"). In addition, the Board voted to
terminate the sub-advisory agreement between the Advisor and Bjurman, Barry &
Associates (the "Old Agreement"), which also served as a sub-advisor to Small
Cap Growth.
The Board also approved amending the existing sub-advisory agreement between the
Advisor and FWIA to add Small Cap Growth, subject to approval by Small Cap
Growth's shareholders. FWIA would then serve as investment sub-advisor to Small
Cap Growth. FWIA's fee rate for its services to Small Cap Growth under the New
Agreement is the same as the fee rate paid under the Interim Agreement (the
Advisor is responsible for the payment of fees to FWIA for services it performs
for Small Cap Growth Fund). The other terms of the New Agreement are similar to
those of the Old Agreements. The New Agreement is necessary to provide for the
continued management of Small Cap Growth by FWIA in the event that shareholders
do not approve the Reorganization, or in the event that shareholders approve the
Reorganization, but the Reorganization cannot be completed prior to the
expiration of the Interim Agreement, the term of which, by law, cannot exceed
150 days.
28
The New Agreement is attached as Appendix B to this Prospectus/Proxy Statement.
THE INTERIM ADVISORY AGREEMENT
During the period between the termination of the Old Agreements and the approval
of the New Agreements by shareholders (the "Interim Period"), FWIA provided
investment sub-advisory services to Small Cap Growth pursuant to an interim
agreement between the Advisor and FWIA that was approved by the Board at a
special meeting it held on September 12, 2007 (the "Interim Agreement"). The
Interim Agreement is identical in all respects -- including fees to be paid to
FWIA -- to the New Agreement, except for the time periods covered by the
agreements. The Interim Agreement provides for a termination date no greater
that 150 days from the date of the termination of the Old Agreements, or upon
approval of a new sub-advisory agreement by shareholders, whichever is shorter.
BOARD CONSIDERATIONS IN APPROVING THE NEW AGREEMENT
The Board last considered the sub-advisory agreement between the Advisor and
FWIA ("Agreement") at its meeting held on November 16, 2006. At that meeting,
the Board approved the continuance of the Agreement as it related to Diversified
Small Cap Growth. In determining whether to approve the continuation of the
Agreement, the Advisor furnished information necessary for a majority of the
Independent Trustees to make the determination that the continuance of the
Agreement was in the best interests of Diversified Small Cap Growth and its
shareholders. The information provided to the Board included: (1) industry data
comparing advisory fees and expense ratios of comparable investment companies;
(2) comparative performance information; (3) the Advisor's revenues and costs of
providing services to the Funds; and (4) information about FWIA's personnel.
Prior to voting, the Independent Trustees reviewed the proposed continuance of
Agreement with management and with experienced independent legal counsel and
received materials from such counsel discussing the legal standards for their
consideration of the proposed continuation with respect to Diversified Small Cap
Growth. The Disinterested Trustees also reviewed with respect to that Fund the
proposed continuation of the Agreement in private sessions with counsel at which
no representatives of management were present.
In conjunction with its approval of the Interim Agreement and the New Agreement
on September 12, 2007, the Board did not deem it necessary to request additional
information from FWIA, because the Board concluded that it was sufficiently
familiar with the services provided by FWIA, its respective personnel and prior
performance, as a result of its regular monitoring process, as well as the
reports it receives from the Advisor, and the fact that FWIA would be providing
the same management services to Small Cap Growth that it currently provided to
Diversified Small Cap Growth. Further, the Board was sufficiently familiar with
the terms of the New Agreement since it was the same agreement that was
currently in place between the Advisor and FWIA with respect to Diversified
Small Cap Growth, with the exception of the addition of Small Cap Growth. In
addition, Touchstone affirmed that there was no material information of which
the Board should be aware since the Board last reviewed FWIA's performance on
August 15, 2007 and at that time concluded it was in the best interests of
shareholders to have FWIA manage the assets of Small Cap Growth as a result of
the Reorganization. The Disinterested Trustees also considered the New Agreement
in a private session with independent counsel at which no representatives of
management were present.
29
The Board unanimously determined that the proposals to approve the New Agreement
would be in the best interests of the Fund. In determining whether to approve
the New Agreement and to recommend its approval to shareholders, the Board
considered, with the assistance of independent legal counsel, the following
factors, in addition to all other information it deemed relevant, and drew the
following conclusions:
(i) The planned Reorganization and Touchstone's intention to utilize the same
Sub-Advisor for Small Cap Growth that is currently responsible for the
day-to-day management of Diversified Small Cap Growth, and the Board's
conclusion that the preservation of continuity of management would be
beneficial to shareholders;
(ii) the nature of each respective Sub-Advisor's investment management services
proposed to be provided to the Funds, and the Board's conclusion that the
intended scope of services would be identical to those currently provided
by that Sub-Advisor pursuant to its respective Current Sub-Advisory
Agreement;
(iii) the investment performance that FWIA had achieved for Diversified Small
Cap Growth in the past, and the fact that it would be utilizing the same
investment strategy for Small Cap Growth;
(iv) the fees proposed to be paid by the Advisor to FWIA for its services to
Small Cap Growth pursuant to the terms of the New Agreement were identical
to the fees which the Board had previously approved to be paid by the
Advisor to FWIA for its services to Diversified Small Cap Growth, and the
Board's conclusion that the fees were reasonable in light of the services
to be provided; and
(v) the current and historic asset levels of Small Cap Growth and the Board's
conclusion that asset levels were not of a sufficient magnitude as to
represent a likelihood of economies of scale being realized in the
near-term by FWIA, and, thus, did not deem it necessary to make a
determination as to whether the sub-advisory fees proposed to be paid to
FWIA made accommodations for such economies of scale.
In drawing its conclusions with regard to the above factors and determining to
unanimously approve the New Agreement, and recommend that Shareholders approve
the New Agreement, the Board did not identify any single piece of information
that was all-important, controlling or determinative of its decision.
THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR PROPOSAL 2 - APPROVAL OF
INVESTMENT SUB-ADVISORY AGREEMENT.
30
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is being sent to shareholders of Small Cap
Growth 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, December
14, 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 Small Cap Growth on or about October 25, 2007.
The Board has fixed the close of business on October 15, 2007 as the record date
(the "Record Date") for determining the shareholders of Small Cap Growth
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 each Proposal, each full share of Small Cap Growth 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 each Proposal.
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 included 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 each Proposal and FOR any other
matters deemed appropriate.
APPROVAL OF PROPOSAL 1 - REORGANIZATION will require the affirmative vote of a
majority of the total number of shares of Small Cap Growth present at a
shareholders' meeting duly called and at which a quorum is present. A majority
of the shares entitled to vote constitutes a quorum.
APPROVAL OF PROPOSAL 2 - APPROVAL OF INVESTMENT SUB-ADVISORY AGREEMENT will
require the affirmative "vote of a majority of the outstanding voting
securities" of Small Cap Growth as defined by the 1940 Act. This means the
lesser of (1) 67% or more of the shares of Small Cap Growth present at the
Meeting if the owners of more than 50% of the shares then outstanding are
present in person or by proxy, or (2) more than 50% of the outstanding shares of
Small Cap Growth entitled to vote at the Meeting.
Proxy solicitations will be made primarily by mail, but beginning on or about
October 15, 2007, proxy solicitations may also be made by telephone, Internet or
personal solicitations conducted by officers and employees of the Advisor, its
affiliates or other representatives of Small Cap Growth (who will not be paid
for their soliciting activities). In addition, proxy solicitations may be made
by Broadridge, 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 Advisor 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.
31
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
a Proposal.
If shareholders of Small Cap Growth do not vote to approve either Proposal, 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 any lesser number 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 each Proposal 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 Small Cap Growth who objects to the proposed Reorganization
will not be entitled under either Massachusetts law or the Declaration of 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 Small Cap Growth that they receive
in the transaction at their then-current net asset value. Shares of Small Cap
Growth may be redeemed at any time prior to the Reorganization. Shareholders of
Small Cap Growth may wish to consult their tax advisors as to any different
consequences of redeeming or exchanging their shares prior to the
Reorganization.
If both Proposals are not approved, shareholders wishing to submit proposals to
be considered for inclusion in a proxy statement for a subsequent shareholder
meeting should send their written proposals to the Secretary of the Trust at the
address set forth on the cover of this Prospectus/Proxy Statement so that they
will be received by the Trust in a reasonable period of time prior to that
meeting.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES. Please
advise Small Cap Growth 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.
32
The votes of the shareholders of Diversified Small Cap Growth are not being
solicited by this Prospectus/Proxy Statement, and a vote of that Fund's
shareholders is not required to carry out Proposal 1 - Reorganization.
SHAREHOLDER INFORMATION
The shareholders of Small Cap Growth at the close of business on October 15,
2007 will be entitled to be present and vote at the Meeting with respect to
shares of Small Cap Growth owned as of the Record Date. As of the Record Date,
Small Cap Growth had the following number of shares outstanding:
SHARE CLASS NUMBER OF SHARES
---------------------------------------------------------------
Class A
Class B
Class C
Class Y
As of _____ __, 2007, the officers and Trustees of the Trust beneficially
owned as a group less than 1% of the outstanding shares of Small Cap Growth.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On ____, __, 2007, to the knowledge of the Board and management of the Trust,
other than as set forth below, no person owned beneficially or of record more
than 5% of Small Cap Growth's outstanding shares.
[INSERT 5% SHAREHOLDERS]
FINANCIAL STATEMENTS AND EXPERTS
The Annual Report of the Trust for the fiscal year ended March 31, 2007 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, given upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
Additional information concerning each Fund and the Proposals is contained in
the documents described below, all of which have been filed with the SEC:
- -------------------------------------------------------------------------------------------------------------------------
INFORMATION ABOUT SMALL CAP GROWTH AND HOW TO OBTAIN THIS INFORMATION:
DIVERSIFIED SMALL CAP GROWTH:
Copies are available upon request and without charge if you:
Prospectus of the Trust relating to Small Cap Growth
and Diversified Small Cap Growth, dated August 1, 2007
33
- -------------------------------------------------------------------------------------------------------------------------
o Write to the Trust at the address listed on
Statement of Additional Information of the Trust the cover page of this Prospectus/Proxy
relating to Small Cap Growth and Diversified Small Cap Statement; or
Growth, dated August 1, 2007
Annual Report of the Trust relating to Small Cap Growth o Call (800) 543-0407 toll-free.
and Diversified Small Cap Growth for the fiscal year
ended March 31, 2007
o Access the Touchstone Investments website
at http://www.touchstoneinvestments.com
- -------------------------------------------------------------------------------------------------------------------------
INFORMATION ABOUT THE REORGANIZATION: HOW TO OBTAIN THIS INFORMATION:
Statement of Additional Information dated Copies are available upon request and without charge if you:
October , 2007, which relates to this
Prospectus/Proxy Statement and the Reorganization
o Write to the Trust at the address listed on
the cover page of this Prospectus/Proxy
Statement;
o Call (800) 543-0407 toll-free; or
o Access the Touchstone Investments website
at http://www.touchstoneinvestments.com.
- -------------------------------------------------------------------------------------------------------------------------
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 in Washington, D.C., 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.
OTHER BUSINESS
The Board does 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 BOARD UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN AND ANY UNMARKED PROXY
CARDS WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
34
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this XX day of August, 2007, by and between Touchstone Strategic Trust, a
Massachusetts business trust, with its principal place of business at 303
Broadway, Suite 1100, Cincinnati, Ohio 45202 (the "Trust"), with respect to its
Touchstone Diversified Small Cap Growth Fund (the "Acquiring Fund"), and its
Touchstone Small Cap Growth Fund (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 shares of
beneficial interest, without par value, 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 set forth below, all
upon the terms and conditions hereinafter set forth in this Agreement:
Reorganizing/Selling Fund Surviving/Acquiring Fund
Shares - Class Shares - Class
Touchstone Small Cap Growth - Touchstone Diversified Small Cap Growth -
Class A Class A
Class B Class A
Class C Class C
Class Y Class Y
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:
A-1
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 of the respective Class, including fractional Acquiring
Fund Shares, computed in the manner and as of the time and date set forth in
paragraphs 2.2 and 2.3; and (ii) to assume all of the liabilities of the Selling
Fund, as set forth in paragraph 1.3. Such transactions shall take place on the
Closing Date provided for in paragraph 3.1.
1.2 ASSETS TO BE ACQUIRED. The assets of the Selling Fund to be acquired
by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, interests in futures and
dividends or interest receivables, that is owned by the Selling Fund and any
deferred or prepaid expenses shown as an asset on the books of the Selling Fund
on the Closing Date.
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.
A-2
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.
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 or such earlier or later
date and time as may be mutually agreed by an authorized officer of each of the
parties (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.
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2.2 VALUATION OF SHARES. The net asset value per share of the Acquiring
Fund Shares shall be the net asset value per share computed as of the close of
business on the New York Stock Exchange on the Valuation Date, using the
valuation procedures set forth in the Trust's Declaration of Trust and the
Acquiring Fund's then current prospectus and statement of additional
information.
2.3 SHARES TO BE ISSUED. The number of full and fractional Class A, Class
C and Class Y 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 for each class by the net asset value per share of
the Acquiring Fund for each class on the Valuation Date, determined in
accordance with paragraph 2.2. Shareholders of record of Class A Shares of the
Selling Fund at the Closing Date shall be credited with full and fractional
Class A Shares of the Acquiring Fund; shareholders of record of Class B Shares
of the Selling Fund at the Closing Date shall be credited with full and
fractional Class A Shares of the Acquiring Fund; shareholders of record of Class
C Shares of the Selling Fund at the Closing Date shall be credited with full and
fractional Class C Shares of the Acquiring Fund; shareholders of record of Class
Y Shares of the Selling Fund at the Closing Date shall be credited with full and
fractional Class Y Shares of the Acquiring Fund.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
JPMorgan Chase, 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 December 15, 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.
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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. Brown Brothers Harriman & Co. ("BBH"), 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.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE SELLING FUND. The Selling Fund represents and
warrants to the Acquiring Fund as follows:
(a) The Selling Fund is a separate investment series of the Trust, a
business trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts.
(b) The Selling Fund is a separate investment series of the Trust,
which is registered as an investment company classified as a management company
of the open-end type, and its registration with the Securities and Exchange
Commission (the "Commission") as an investment company under the 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.
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(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 that, if
adversely determined, would materially and adversely affect its financial
condition, the conduct of its business, or its ability 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.
(g) The audited financial statements of the Selling Fund as of March
31, 2007 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Acquiring Fund) fairly reflect the financial condition of the Selling
Fund as of such date, and there are no known contingent liabilities of the
Selling Fund as of such date not disclosed therein.
(h) Since March 31, 2007, 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.
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(l) At the Closing Date, the Selling Fund will have good and
marketable title to the Selling Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2 and full right, power, and authority to sell,
assign, transfer, and deliver such assets hereunder, and, upon delivery and
payment for such assets, the Acquiring Fund will acquire good and marketable
title thereto, subject to no restrictions on the full transfer thereof,
including such restrictions as might arise under the 1933 Act, other than as
disclosed to the Acquiring Fund and accepted by the Acquiring Fund.
(m) The execution, delivery, and performance of this Agreement have
been duly authorized by all necessary action on the part of the Selling Fund
and, subject to approval by the Selling Fund's shareholders, this Agreement
constitutes a valid and binding obligation of the Selling Fund, enforceable in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium, and other laws relating to or affecting creditors'
rights and to general equity principles.
(n) The information furnished by the Selling Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby is accurate and complete in all material
respects and complies in all material respects with federal securities and other
laws and regulations thereunder applicable thereto.
(o) The Selling Fund has provided the Acquiring Fund with
information reasonably necessary for the preparation of a prospectus, which
included the proxy statement of the Selling Fund (the "Prospectus/Proxy
Statement"), all of which was included in a Registration Statement on Form N-14
of the Acquiring Fund (the "Registration Statement"), in compliance with the
1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act") and
the 1940 Act in connection with the meeting of the shareholders of the Selling
Fund to approve this Agreement and the transactions contemplated hereby. The
Prospectus/Proxy Statement included in the Registration Statement (other than
information therein that relates to the Acquiring Fund and any other fund
described therein other than the Selling Fund) does not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Acquiring Fund represents
and warrants to the Selling Fund as follows:
(a) The Acquiring Fund is a separate investment series of the Trust,
a business trust duly organized and validly existing under the laws of the
Commonwealth of Massachusetts.
(b) The Acquiring Fund is a separate investment series of the Trust,
which is registered as an investment company classified as a management company
of the open-end type, and its registration with the Commission as an investment
company under the 1940 Act is in full force and effect.
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(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.
(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 that,
if adversely determined, would materially and adversely affect its financial
condition and the conduct of its business or its ability 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
March 31, 2007 are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been furnished
to the Selling Fund) fairly reflect the financial condition of the Acquiring
Fund as of such date, and there are no known contingent liabilities of the
Acquiring Fund as of such date not disclosed therein.
(g) Since March 31, 2007, 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).
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(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,
bankruptcy, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors' rights and to general equity principles.
(l) The Acquiring Fund Shares to be issued and delivered to the
Selling Fund, for the account of the Selling Fund Shareholders, pursuant to the
terms of this Agreement will, at the Closing Date, have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable.
(m) The information furnished by the Acquiring Fund for use in
no-action letters, applications for orders, registration statements, proxy
materials, and other documents that may be necessary in connection with the
transactions contemplated hereby is accurate and complete in all material
respects and complies in all material respects with federal securities and other
laws and regulations applicable thereto.
(n) The Prospectus/Proxy Statement included in the Registration
Statement (only insofar as it relates to the Acquiring Fund) does not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading.
(o) The Acquiring Fund agrees to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933 Act, the 1940 Act,
and such of the state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
ARTICLE V
COVENANTS OF THE ACQUIRING FUND AND THE SELLING FUND
5.1 OPERATION IN ORDINARY COURSE. The Acquiring Fund and the Selling Fund
each will operate its business in the ordinary course between the date hereof
and the Closing Date, it being understood that such ordinary course of business
will include customary dividends and distributions.
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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.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but in
any case within sixty (60) 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
condition:
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.
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:
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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 Selling Fund.
ARTICLE VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING
FUND AND THE SELLING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the 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.
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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 Funds shall have received on the Closing Date an opinion of
Morgan, Lewis & Bockius LLP, in a form reasonably satisfactory to the Funds,
covering the following points:
(a) The Funds are separate investment series of the Trust, which is
duly organized and validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has the trust power to own all of its
properties and assets and, to the knowledge of such counsel, to carry on its
business as presently conducted.
(b) The 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 Funds and is a valid and binding obligation of each of the Selling Fund
and the Acquiring Fund enforceable against the other in accordance with its
terms, subject as to enforcement, 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 Commonwealth of Massachusetts is required for consummation by the
Funds 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 Funds or any of
its respective properties or assets, and neither Fund is a party to nor subject
to the provisions of any order, decree or judgment of any court or governmental
body, that 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 each Fund's registration statement, or any
amendment thereto, in effect at the time of such issuance, all issued and
outstanding shares of the Funds are legally issued and fully paid and
non-assessable.
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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.
8.7 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.
(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.
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(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 8.7.
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.
A-14
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.
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.
A-15
ARTICLE XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to the
conflicts of laws provisions thereof.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, or corporation, other than the parties hereto and their respective
successors and permitted assigns, any rights or remedies under or by reason of
this Agreement.
13.5 With respect to the 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 Massachusetts, 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.
IN WITNESS WHEREOF, the parties have duly executed this Agreement, all as
of the date first written above.
TOUCHSTONE STRATEGIC TRUST ON
BEHALF OF TOUCHSTONE DIVERSIFIED
SMALL CAP GROWTH
By:
------------------------------------
Name: Jill T. McGruder
Title: President
A-16
TOUCHSTONE STRATEGIC TRUST ON
BEHALF OF TOUCHSTONE SMALL CAP
GROWTH
By:
------------------------------------
Name: Jill T. McGruder
Title: President
A-17
EXHIBIT B
FORM OF
AMENDED SUB-ADVISORY AGREEMENT
TOUCHSTONE DIVERSIFIED SMALL CAL GROWTH FUND
TOUCHSTONE SMALL CAP GROWTH FUND
TOUCHSTONE STRATEGIC TRUST
This SUB-ADVISORY AGREEMENT is made as of September 5, 2006, as amended on
____________, 2007, by and between TOUCHSTONE ADVISORS, INC., an Ohio
corporation (the "Advisor"), and Fort Washington Investment Advisors, an Ohio
corporation (the "Sub-Advisor").
WHEREAS, the Advisor is an investment advisor registered under the
Investment Advisers Act of 1940, as amended, and has been retained by Touchstone
Strategic Trust (the "Trust"), a Delaware business trust organized pursuant to
an Agreement and Declaration of Trust dated October 25, 1993 (as amended) and
registered as an open-end diversified management investment company under the
Investment Company Act of 1940 (the "1940 Act"), to provide investment advisory
services with respect to certain assets of the Touchstone Diversified Small Cap
Growth Fund and Touchstone Small Cap Growth Fund (each a "Fund" and collectively
the "Funds"); and
WHEREAS, the Sub-Advisor also is an investment advisor registered under
the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Advisor desires to retain the Sub-Advisor to furnish it with
portfolio management services in connection with the Advisor's investment
advisory activities on behalf of the Funds, and the Sub-Advisor is willing to
furnish such services to the Advisor and the Funds;
NOW THEREFORE, in consideration of the terms and conditions hereinafter
set forth, it is agreed as follows:
1. EMPLOYMENT OF THE SUB-ADVISOR. In accordance with and subject to the
Investment Advisory Agreement between the Trust and the Advisor, attached hereto
as Exhibit A (the "Advisory Agreement"), the Advisor hereby appoints the
Sub-Advisor to manage the investment and reinvestment of that portion of the
assets of the Funds allocated to it by the Advisor (the "Fund Assets"), in
conformity with each Fund's currently effective Registration Statement,
prospectus and Statement of Additional Information and subject to the control
and direction of the Advisor and the Trust's Board of Trustees, for the period
and on the terms hereinafter set forth. The Sub-Advisor hereby accepts such
employment and agrees during such period to render the services and to perform
the duties called for by this Agreement for the compensation herein provided.
The Sub-Advisor shall at all times maintain its registration as an investment
advisor under the Investment Advisers Act of 1940 (the "Advisers Act") and shall
otherwise comply in all material respects with all applicable laws and
regulations, both state and federal. The Sub-Advisor shall for all purposes
herein be deemed an independent contractor and shall, except as expressly
provided or authorized (whether herein or otherwise), have no authority to act
for or represent the Trust in any way or otherwise be deemed an agent of the
Trust or the Fund.
B-1
2. DUTIES OF THE SUB-ADVISOR. The Sub-Advisor will provide the following
services and undertake the following duties:
a. The Sub-Advisor will manage the investment and reinvestment of
the Fund Assets, subject to and in accordance with the investment
objectives, policies and restrictions of the Fund and in conformity with a
Fund's currently effective Registration Statement, prospectus and
Statement of Additional Information and any directions which the Advisor
or the Trust's Board of Trustees may give from time to time with respect
to the Fund. In furtherance of the foregoing, the Sub-Advisor will make
all determinations with respect to the investment of the Fund Assets and
the purchase and sale of portfolio securities and shall take such steps as
may be necessary or advisable to implement the same. The Sub-Advisor also
will determine the manner in which voting rights, rights to consent to
corporate action and any other rights pertaining to the portfolio
securities will be exercised. The Sub-Advisor will render regular reports
to the Trust's Board of Trustees and to the Advisor (or such other advisor
or advisors as the Advisor shall engage to assist it in the evaluation of
the performance and activities of the Sub-Advisor). Such reports shall be
made in such form and manner and with respect to such matters regarding
the Fund and the Sub-Advisor as the Trust or the Advisor shall from time
to time request; provided, however, that in the absence of extraordinary
circumstances, the individual primarily responsible for management of Fund
Assets for the Sub-Advisor will not be required to attend in person more
than one meeting per year with the trustees of the Trust.
b. The Sub-Advisor shall immediately notify the Advisor if the
Sub-Advisor reasonably believes that the value of any security held by a
Fund may not reflect fair value. The Sub-Advisor agrees to provide any
pricing information of which the Sub-Advisor is aware to the Advisor
and/or any Fund pricing agent to assist in the determination of the fair
value of any Fund holdings for which market quotations are not readily
available or as otherwise required in accordance with the 1940 Act or a
Fund's valuation procedures for the purpose of calculating a Fund's net
asset value in accordance with procedures and methods established by the
Board.
c. Regulatory Compliance.
(i) The Sub-Advisor agrees to comply with the requirements of
the 1940 Act, the Advisers Act, the 1933 Act, the Securities Exchange Act
of 1934, as amended (the "1934 Act"), the Commodity Exchange Act and the
respective rules and regulations thereunder, as applicable, as well as
with all other applicable federal and state laws, rules, regulations and
case law that relate to the services and relationships described hereunder
and to the conduct of its business as a registered investment adviser. In
selecting the Fund's portfolio securities and performing the Sub-Advisor's
obligations hereunder, the Sub-Advisor shall cause a Fund to comply with
the diversification and source of income requirements of Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. The Sub-Advisor shall
maintain compliance procedures that it reasonably believes are adequate to
ensure the compliance with the foregoing. No supervisory activity
undertaken by the Advisor shall limit the Sub-Advisor's full
responsibility for any of the foregoing.
B-2
(ii) The Sub-Advisor has adopted a written code of ethics that
it reasonably believes complies with the requirements of Rule 17j-1 under
the 1940 Act, which it will provide to the Advisor and the Fund. The
Sub-Advisor shall ensure that its Access Persons (as defined in the
Sub-Advisor's Code of Ethics) comply in all material respects with the
Sub-Advisor's Code of Ethics, as in effect from time to time. Upon
request, the Sub-Advisor shall provide the Fund with (i) a copy of the
Sub-Advisor's current Code of Ethics, as in effect from time to time, and
(ii) a certification that it has adopted procedures reasonably necessary
to prevent Access Persons from engaging in any conduct prohibited by the
Sub-Advisor's Code of Ethics. No less frequently than annually, the
Sub-Advisor shall furnish a written report, which complies with the
requirements of Rule 17j-1, concerning the Sub-Advisor's Code of Ethics to
a Fund and the Advisor. The Sub-Advisor shall respond to requests for
information from the Advisor as to violations of the Code by Access
Persons and the sanctions imposed by the Sub-Advisor. The Sub-Advisor
shall immediately notify the Advisor of any material violation of the
Code, whether or not such violation relates to a security held by any
Fund.
(iii) The Sub-Advisor shall notify the Trust's Chief
Compliance Officer and Advisor immediately upon detection of (i) any
material failure to manage any Fund in accordance with its investment
objectives and policies or any applicable law; or (ii) any material breach
of any of the Fund's or the Adviser's policies, guidelines or procedures.
In addition, the Sub-Advisor shall provide a quarterly report regarding
its compliance with a Fund's investment objectives and policies and
applicable law, including, but not limited to the 1940 Act, the Code, and
the Fund's and the Advisor's policies, guidelines or procedures as
applicable to the Sub-Advisor's obligations under this Agreement. The
Sub-Advisor acknowledges and agrees that the Advisor may, in its
discretion, provide such quarterly compliance certifications to the Board.
The Sub-Advisor agrees to correct any such failure promptly and to take
any action that the Board and/or the Advisor may reasonably request in
connection with any such breach. The Sub-Advisor shall also provide the
officers of the Trust with supporting certifications in connection with
such certifications of Fund financial statements and disclosure controls
pursuant to the Sarbanes-Oxley Act. The Sub-Advisor will promptly notify
the Trust in the event (i) the Sub-Advisor is served or otherwise receives
notice of any action, suit, proceeding, inquiry or investigation, at law
or in equity, before or by any court, public board, or body, involving the
affairs of the Trust (excluding class action suits in which a Fund is a
member of the plaintiff class by reason of the Fund's ownership of shares
in the defendant) or the compliance by the Sub-Advisor with the federal or
state securities laws or (ii) the controlling stockholder of the
Sub-Advisor changes or an actual change in control resulting in an
"assignment" (as defined in the 1940 Act) has occurred or is otherwise
proposed to occur.
B-3
(iv) The Sub-Advisor shall maintain separate books and
detailed records of all matters pertaining to a Fund's assets advised by
the Sub-Advisor required by Rule 31a-1 under the 1940 Act (other than
those records being maintained by the Advisor, custodian or transfer agent
appointed by aFund) relating to its responsibilities provided hereunder
with respect to a Fund, and shall preserve such records for the periods
and in a manner prescribed therefore by Rule 31a-2 under the 1940 Act (the
"Fund Books and Records"). The Fund Books and Records shall be available
to the Advisor and the Board at any time upon request shall be delivered
to the Trust upon the termination of this Agreement and shall be available
for telecopying without delay during any day the Fund is open for
business.
d. The Sub-Advisor shall provide support to the Advisor with respect
to the marketing of a Fund, including but not limited to: (i) permission
to use the Sub-Advisor's name as provided in Section 5, (ii) permission to
use the past performance and investment history of the Sub-Advisor with
respect to a composite of other funds managed by the Sub-Advisor that are
comparable, in investment objective and composition, to a Fund, (iii)
access to the individual(s) responsible for day-to-day management of a
Fund for marketing conferences, teleconferences and other activities
involving the promotion of a Fund, subject to the reasonable request of
the Advisor, (iv) permission to use biographical and historical data of
the Sub-Advisor and individual manager(s), and (v) permission to use the
names of those clients pre-approved by the Sub-Advisor to which the
Sub-Advisor provides investment management services, subject to receipt of
the consent of such clients to the use of their names.
e. The Sub-Advisor will, in the name of a Fund, place orders for the
execution of all portfolio transactions in accordance with the policies
with respect thereto set forth in the Trust's registration statements
under the 1940 Act and the Securities Act of 1933, as such registration
statements may be in effect from time to time. When placing orders with
brokers and dealers, the Sub-Advisor's primary objective shall be to
obtain the most favorable price and execution available for aFund, and in
placing such orders the Sub-Advisor may consider a number of factors,
including, without limitation, the overall direct net economic result to a
Fund (including commissions, which may not be the lowest available but
ordinarily should not be higher than the generally prevailing competitive
range), the financial strength and stability of the broker, the efficiency
with which the transaction will be effected, the ability to effect the
transaction at all where a large block is involved and the availability of
the broker or dealer to stand ready to execute possibly difficult
transactions in the future. Consistent with the Conduct Rules of the
National Association of Securities Dealers, Inc., and subject to seeking
most favorable price and execution and compliance with Rule 12b-1(h) under
the 1940 Act, the Sub-Advisor may select brokers and dealers to execute
portfolio transactions of a Fund that promote or sell shares of a Fund.
The Sub-Advisor is specifically authorized, to the extent authorized by
law (including, without limitation, Section 28(e) of the 1934 Act), to pay
a broker or dealer who provides research services to the Sub-Advisor an
amount of commission for effecting a portfolio transaction in excess of
the amount of commission another broker or dealer would have charged for
effecting such transaction, in recognition of such additional research
services rendered by the broker or dealer, but only if the Sub-Advisor
determines in good faith that the excess commission is reasonable in
relation to the value of the brokerage and research services provided by
such broker or dealer viewed in terms of the particular transaction or the
Sub-Advisor's overall responsibilities with respect to discretionary
accounts that it manages, and that the Fund derives or will derive a
reasonable benefit from such research services. The Sub-Advisor will
present a written report to the Board of Trustees of the Trust, at least
quarterly, indicating total brokerage expenses, actual or imputed, as well
as the services obtained in consideration for such expenses, broken down
by broker-dealer and containing such information as the Board of Trustees
reasonably shall request.
B-4
f. The Sub-Advisor shall maintain errors and omissions insurance
coverage in an appropriate amount and shall provide prior written notice
to the Trust (i) of any material changes in its insurance policies or
insurance coverage; or (ii) if any material claims will be made on its
insurance policies. Furthermore, the Sub-Advisor shall, upon reasonable
request, provide the Trust with any information it may reasonably require
concerning the amount of or scope of such insurance.
g. In the event of any reorganization or other change in the
Sub-Advisor, its investment principals, supervisors or members of its
investment (or comparable) committee, the Sub-Advisor shall give the
Advisor and the Trust's Board of Trustees written notice of such
reorganization or change within a reasonable time (but not later than 30
days) after such reorganization or change.
h. The Sub-Advisor will bear its expenses of providing services to
the Fund pursuant to this Agreement except such expenses as are expressly
undertaken by the Advisor or the Trust.
3. COMPENSATION OF THE SUB-ADVISOR.
a. As compensation for the services to be rendered and duties
undertaken hereunder by the Sub-Advisor, the Advisor will pay to the
Sub-Advisor a monthly fee equal on an annual basis to 0.50% of average
daily net without regard to any total expense limitation of the Trust or
the Advisor. Such fee shall be computed and accrued daily. If the
Sub-Advisor serves in such capacity for less than the whole of any period
specified in this Section 3a, the compensation to the Sub-Advisor shall be
prorated. For purposes of calculating the Sub-Advisor's fee, the daily
value of the Fund Assets shall be computed by the same method as the Trust
uses to compute the net asset value of the Fund for purposes of purchases
and redemptions of shares thereof.
b. The Sub-Advisor reserves the right to waive all or a part of its
fees hereunder.
B-5
4. ACTIVITIES OF THE SUB-ADVISOR. It is understood that the Sub-Advisor
may perform investment advisory services for various other clients, including
other investment companies. The Trust and the Advisor further acknowledge that
the Sub-Advisor may form or serve as an investment advisor or sub-advisor to
future funds, which have the same, similar, or overlapping investment
objectives. Provided, however that the Sub-Advisor represents and warrants that
it has no arrangement or understanding with any party, other than the Trust,
that would influence the decision of the Sub-Advisor with respect to its
selection of securities for the Fund, and that all selections shall be done in
accordance with what is in the best interest of the Fund in a manner consistent
with Sub-Advisor's fiduciary duty.
The Sub-Advisor will report to the Board of Trustees of the Trust (at
regular quarterly meetings and at such other times as such Board of Trustees
reasonably shall request, subject to the limitation on personal attendance at
such meetings set forth in Section 2a) (i) the financial condition and prospects
of the Sub-Advisor, (ii) the nature and amount of transactions affecting the
Fund that involve the Sub-Advisor and affiliates of the Sub-Advisor, (iii)
information regarding any potential conflicts of interest arising by reason of
its continuing provision of advisory services to the Fund and to its other
accounts, and (iv) such other information as the Board of Trustees shall
reasonably request regarding the Fund, the Fund's performance, the services
provided by the Sub-Advisor and affiliates of the Sub-Advisor to the Fund as
compared to its other accounts and the plans of, and the capability of, the
Sub-Advisor with respect to providing future services to the Fund and its other
accounts. The Sub-Advisor agrees to submit to the Trust a statement defining its
policies with respect to the allocation of business among the Fund and its other
clients.
The Sub-Advisor has supplied to the Advisor and the Trust copies of its
Form ADV with all exhibits and attachments thereto (including the Sub-Advisor's
statement of financial condition) and will hereafter supply to the Advisor,
promptly upon the preparation thereof, copies of all amendments or restatements
of such document.
5. USE OF NAMES. Neither the Advisor nor the Trust shall use the name of
the Sub-Advisor in any prospectus, sales literature or other material relating
to the Advisor or the Trust in any manner not approved in advance by the
Sub-Advisor; provided, however, that the Sub-Advisor will approve all uses of
its name which merely refer in accurate terms to its appointment hereunder or
which are required by the SEC or a state securities commission; and provided
further, that in no event shall such approval be unreasonably withheld. The
Sub-Advisor shall not use the name of the Advisor or the Trust in any material
relating to the Sub-Advisor in any manner not approved in advance by the Advisor
or the Trust, as the case may be; provided, however, that the Advisor and the
Trust shall each approve all uses of their respective names which merely refer
in accurate terms to the appointment of the Sub-Advisor hereunder or which are
required by the SEC or a state securities commission; and, provided further,
that in no event shall such approval be unreasonably withheld.
6. LIABILITY OF THE SUB-ADVISOR. The Sub-Advisor shall indemnify and hold
harmless the Trust and all affiliated persons thereof (within the meaning of
Section 2(a)(3) of the 1940 Act) and all controlling persons (as described in
Section 15 of the 1933 Act) (collectively, the "Sub-Advisor Indemnitees")
against any and all losses, claims, damages, liabilities or litigation
(including reasonable legal and other expenses) by reason of or arising out of:
(a) the Sub-Advisor being in material violation of any applicable federal or
state law, rule or regulation or any investment policy or restriction set forth
in the Funds' Registration Statement or any written guidelines or instruction
provided in writing by the Board, or (b) the Sub-Advisor's willful misfeasance,
bad faith or gross negligence generally in the performance of its duties
hereunder or its reckless disregard of its obligations and duties under this
Agreement. As used in this Section 6, the term "Sub-Advisor" shall include the
Sub-Advisor and/or any of its affiliates and the directors, officers and
employees of the Sub-Advisor and/or any of its affiliates.
B-6
7. LIMITATION OF TRUST'S LIABILITY. The Sub-Advisor acknowledges that it
has received notice of and accepts the limitations upon the Trust's liability
set forth in its Declaration of Trust. The Sub-Advisor agrees that (i) the
Trust's obligations to the Sub-Advisor under this Agreement (or indirectly under
the Advisory Agreement) shall be limited in any event to the Fund Assets and
(ii) the Sub-Advisor shall not seek satisfaction of any such obligation from the
holders of shares of the Fund, other than the Advisor, nor from any Trustee,
officer, employee or agent of the Trust.
8. FORCE MAJEURE. The Sub-Advisor shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but not
limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, insurrection, war, riot, or
failure of communication or power supply. In the event of equipment breakdowns
beyond its control, the Sub-Advisor shall take all reasonable steps to minimize
service interruptions but shall have no liability with respect thereto.
9. RENEWAL, TERMINATION AND AMENDMENT.
a. This Agreement shall continue in effect, unless sooner terminated
as hereinafter provided, until [ ]; and it shall continue thereafter
provided that such continuance is specifically approved by the parties
and, in addition, at least annually by (i) the vote of the holders of a
majority of the outstanding voting securities (as herein defined) of the
Fund or by vote of a majority of the Trust's Board of Trustees and (ii) by
the vote of a majority of the Trustees who are not parties to this
Agreement or interested persons of either the Advisor or the Sub-Advisor,
cast in person at a meeting called for the purpose of voting on such
approval.
b. This Agreement may be terminated at any time, without payment of
any penalty, (i) by the Advisor upon not more than sixty (60) days' nor
less than thirty (30) days' written notice delivered or mailed by
registered mail, postage prepaid, to the Sub-Advisor; (ii) by the
Sub-Advisor upon not less than sixty (60) days' written notice delivered
or mailed by registered mail, postage prepaid, to the Advisor; or (iii) by
the Trust upon either (y) the majority vote of its Board or (z) the
affirmative vote of a majority of the outstanding voting securities of the
Fund. This Agreement shall terminate automatically in the event of its
assignment.
c. This Agreement may be amended at any time by the parties hereto,
subject to approval by the Trust's Board of Trustees and, if required by
applicable SEC rules and regulations, a vote of the majority of the
outstanding voting securities of the Fund affected by such change.
B-7
d. The terms "assignment," "interested persons" and "majority of the
outstanding voting securities" shall have the meaning set forth for such
terms in the 1940 Act.
10. SEVERABILITY. If any provision of this Agreement shall become or shall
be found to be invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
11. NOTICE. Any notices under this Agreement shall be in writing addressed
and delivered personally (or by telecopy) or mailed postage-paid, to the other
party at such address as such other party may designate in accordance with this
paragraph for the receipt of such notice. Until further notice to the other
party, it is agreed that the address of the Trust and that of the Advisor for
this purpose shall be 303 Broadway, Suite 1100, Cincinnati, Ohio 45202 and that
the address of the Sub-Advisor shall be _____________________________________.
12. MISCELLANEOUS. Each party agrees to perform such further actions and
execute such further documents as are necessary to effectuate the purposes
hereof. This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio and the Sub-Advisor consents to the
jurisdiction of courts, both state or federal, in Ohio, with respect to any
dispute under this Agreement.. The captions in this Agreement are included for
convenience only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
THE REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK
B-8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered in their names and on their behalf by the undersigned, thereunto
duly authorized, all as of the day and year first above written.
TOUCHSTONE ADVISORS, INC.
Attest:
By:
- -------------------------------- ----------------------------------
James H. Grifo
Name: President
---------------------------
Title:
--------------------------
FORT WASHINGTON INVESTMENT ADVISORS
Attest:
By:
- -------------------------------- ----------------------------------
Name: Name:
--------------------------- ----------------------------------
Title: Title:
-------------------------- ----------------------------------
B-9
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER __, 2007
ACQUISITION OF ASSETS OF
TOUCHSTONE SMALL CAP GROWTH FUND
a series of
TOUCHSTONE STRATEGIC TRUST
303 BROADWAY, SUITE 1100
CINCINNATI, OHIO 45202
(800) 543-0407
BY AND IN EXCHANGE FOR SHARES OF
TOUCHSTONE DIVERSIFIED SMALL CAP GROWTH FUND
a series of
TOUCHSTONE STRATEGIC TRUST
303 BROADWAY, SUITE 1100
CINCINNATI, OHIO 45202
(800) 543-0407
This Statement of Additional Information, which is not a prospectus, supplements
and should be read in conjunction with the Prospectus/Proxy Statement dated
October __, 2007, relating specifically to the proposed transfer of all of the
assets and liabilities of Touchstone Small Cap Growth Fund (the "Small Cap
Growth Fund"), a series of Touchstone Strategic Trust (the "Trust"), in exchange
for Class A, Class C and Class Y shares of Touchstone Diversified Small Cap Fund
(the "Diversified Small Cap Fund"), also a series of the Trust, and the
assumption by the Diversified Small Cap Fund of all of the liabilities of the
Small Cap Growth Fund. The transfer is to occur pursuant to an Agreement and
Plan of Reorganization. This Statement of Additional Information consists of
this cover page and the following documents attached hereto and incorporated by
reference herein:
(1) The Statement of Additional Information of the Trust relating to the
Small Cap Growth Fund and the Diversified Small Cap Fund dated August 1, 2007;
and
(2) Annual Report of the Trust relating to the Small Cap Growth Fund and
the Diversified Small Cap Fund for the period ended March 31, 2007.
A copy of the Prospectus/Proxy Statement may be obtained without charge by
calling or writing to the Trust at the telephone number or address set forth
above.
The Pro Forma Financial Statements for the Reorganization are provided on the
following pages.
TOUCHSTONE SMALL CAP GROWTH FUND
TOUCHSTONE DIVERSIFIED SMALL CAP GROWTH FUND
Pro Forma Combined Statement of Assets & Liabilities
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE DIVERSIFIED SMALL CAP GROWTH FUND
PRO FORMA COMBINING
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2007
(UNAUDITED)
PRO FORMA
TOUCHSTONE TOUCHSTONE
TOUCHSTONE STRATEGIC TRUST STRATEGIC TRUST
STRATEGIC TRUST DIVERSIFIED DIVERSIFIED
SMALL CAP SMALL CAP SMALL CAP
GROWTH GROWTH PRO FORMA GROWTH
FUND FUND ADJUSTMENTS FUND
- -----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities:
At cost $ 69,835,743 $ 10,973,278 $ (16,676,886)(A) $ 64,132,135
- -----------------------------------------------------------------------------------------------------------------------------------
Affiliated securities at market value $ 1,217,649 $ 366,382 $ 1,709,658 (B) $ 3,293,689
Non-affiliated securities at market value 77,945,075 11,918,518 (18,386,544)(A),(B) 71,477,049
- -----------------------------------------------------------------------------------------------------------------------------------
At market value - including $16,131,203
of securities loaned for the Small
Cap Growth Fund. 79,162,724 12,284,900 (16,676,886)(A) 74,770,738
Dividends and interest receivable 18,665 1,843 - 20,508
Receivable for capital shares sold 59,146 - - 59,146
Receivable for securities sold 812,620 120,075 - 932,695
Receivable for securities lending income 19,285 - - 19,285
Other assets 19,579 2,513 - 22,092
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 80,092,019 12,409,331 (16,676,886) 75,824,464
- -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Bank overdrafts 4,689 - - 4,689
Payable upon return of securities loaned 16,676,886 - (16,676,886) (A) -
Payable for capital shares redeemed 264,268 - - 264,268
Payable for securities purchased 770,784 383,290 - 1,154,074
Payable to Advisor 27,065 10,200 - 37,265
Payable to other affiliates 16,324 2,539 - 18,863
Payable to Trustees 2,252 3,596 - 5,848
Other accrued expenses and liabilities 57,392 35,261 - 92,653
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 17,819,660 434,886 (16,676,886) 1,577,660
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 62,272,359 $ 11,974,445 $ - $ 74,246,804
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 74,175,873 $ 10,324,014 $ - $ 84,499,887
Accumulated net realized gains (losses) from
security transactions (21,230,495) 338,809 - 20,891,686)
Net unrealized appreciation on investments 9,326,981 1,311,622 - 10,638,603
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 62,272,359 $ 11,974,445 $ - $ 74,246,804
- -----------------------------------------------------------------------------------------------------------------------------------
BY CLASS:
NET ASSETS:
CLASS A $ 32,662,308 $ 5,846,348 $ 4,876,111 $ 43,384,767
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B $ 4,876,111 $ - $ (4,876,111) $ -
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS C $ 8,727,626 $ - $ 8,727,626
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS Y $ 16,006,314 $ 6,128,097 $ 22,134,411
- -----------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING SHARES:
CLASS A 1,965,252 502,296 3,224,950 3,727,246
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B 302,229 - (302,229) -
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS C 540,540 - 540,540
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS Y 951,731 525,756 1,372,754 1,898,510
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE:
CLASS A $ 16.62 $ 11.64 $ 11.64
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS B $ 16.13 $ - $ -
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS C $ 16.15 $ - $ 16.15
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS Y $ 16.82 $ 11.66 $ 11.66
- -----------------------------------------------------------------------------------------------------------------------------------
(A) Represents the elimination of securities on loan (and associated collateral)
from the Touchstone Strategic Trust Small Cap Growth Fund. The Diversified Small
Cap Growth Fund does not engage in securities lending.
(B) Represents reallocation of portfolio holdings resulting from the merger.
See accompanying pro forma notes to combining financial statements.
2
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE DIVERSIFIED SMALL CAP GROWTH FUND
PRO FORMA COMBINING
STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED MARCH 31, 2007
(UNAUDITED)
PRO FORMA
TOUCHSTONE TOUCHSTONE
TOUCHSTONE STRATEGIC TRUST STRATEGIC TRUST
STRATEGIC TRUST DIVERSIFIED DIVERSIFIED
SMALL CAP SMALL CAP SMALL CAP
GROWTH GROWTH PRO FORMA GROWTH
FUND FUND (A) ADJUSTMENTS FUND
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from affiliated securities $ 444,801 $ 2,334 $ - $ 447,135
Dividends from non-affiliated securities 588,089 13,360 - 601,449
Interest 45,250 - - 45,250
Income from securities loaned 514,472 - - 514,472
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 1,592,612 15,694 - 1,608,306
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fees 2,560,791 65,039 (124,545)(B) 2,501,285
Sponsor fees 377,148 6,767 (383,915)(D) -
Distribution expenses, Class A 96,624 7,742 - 104,366
Distribution expenses, Class B 71,011 - (71,011)(E) -
Distribution expenses, Class C 142,779 - - 142,779
Transfer Agent fees, Class A 122,184 4,000 - 126,184
Transfer Agent fees, Class B 15,515 - (15,515)(E) -
Transfer Agent fees, Class C 29,875 - - 29,875
Transfer Agent fees, Class Y 18,263 4,000 - 22,263
Postage and supplies 130,099 10,264 - 140,363
Administration fees 123,324 7,483 111,370 (B) 242,177
Reports to shareholders 102,468 9,500 - 111,968
Registration fees 1,421 - - 1,421
Registration fees, Class A 12,738 413 - 13,151
Registration fees, Class B 10,447 - (10,447)(E) -
Registration fees, Class C 11,938 - - 11,938
Registration fees, Class Y 38,319 402 - 38,721
Accounting services fees 48,375 10,347 (58,722)(F) -
Custodian fees 43,918 2,300 - 46,218
Professional fees 28,346 16,100 (12,000)(G) 32,446
Trustees' fees and expenses 7,858 6,300 (3,000)(C) 11,158
Compliance fees and expenses 1,248 600 - 1,848
Other expenses 9,257 2,101 - 11,358
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 4,003,946 153,358 (567,785) 3,589,519
Sponsor fees waived (377,148) (6,767) 383,915 (D) -
Fees waived and/or expenses reimbursed by the
Advisor (78,214) (67,594) - (145,808)
Fees reduced by Custodian (10,714) - - (10,714)
- -----------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 3,537,870 78,997 (183,870) 3,432,997
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (1,945,258) (63,303) (1,824,691)
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) from security
transactions (16,494,317) 402,112 - (16,092,205)
Net change in unrealized appreciation/
depreciation on investments (69,830,999) 1,311,622 - (68,519,377)
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS (86,325,316) 1,713,734 - (84,611,582)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ (88,270,574) $ 1,650,431 $ - $ (86,436,273)
- -----------------------------------------------------------------------------------------------------------------------------------
(A) Represents the period from commencement of operations (September 6, 2006)
through March 31, 2007.
(B) Based on contract in effect for the legal surviving fund.
(C) Based on director compensation plan for the Trust divided by remaining
number of funds.
(D) Sponsor fees are eliminated in the merged fund.
(E) Adjusted to reflect class eliminated in the merged fund.
(F) Services are now provided under the Administration fees effective January 1,
2007.
(G) Decrease due to the elimination of duplicate expenses achieved by merging
the funds.
See accompanying pro forma notes to combining financial statements.
3
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE DIVERSIFIED SMALL CAP GROWTH FUND
PRO FORMA COMBINING
PORTFOLIO OF INVESTMENTS
MARCH 31, 2007
(Unaudited)
TOUCHSTONE STRATEGIC TRUST TOUCHSTONE STRATEGIC TRUST
SMALL CAP GROWTH FUND DIVERSIFIED SMALL CAP GROWTH FUND
SHARES MARKET VALUE SHARES MARKET VALUE
----------------------------------------------------------------------------
COMMON STOCKS (95.9%) (A)
INFORMATION TECHNOLOGY (25.1%) (A)
24/7 Real Media, Inc.* - $ - 17,682 $ 141,986
Amphenol Corp. - - 1,180 76,193
Arris Group, Inc.* - - 10,585 149,037
Avnet, Inc.* - - 5,855 211,600
Digital River, Inc.* - - 3,265 180,391
eCollege.com* - - 4,532 81,349
Emulex Corp.* - - 5,290 96,754
Euronet Worldwide, Inc.* - - 4,785 128,525
F5 Networks, Inc.* - - 1,625 108,355
j2 Global Communications, Inc.* - - 5,325 147,609
MEMC Electronic Materials, Inc.* - - 2,195 132,973
Microsemi Corp.* - - 5,325 110,813
NETGEAR, Inc.* - - 5,380 153,491
Nuance Communications, Inc.* - - 9,910 151,722
Packeteer, Inc.* - - 12,355 153,449
Parametric Technology Corp.* 24,500 467,705 6,639 126,739
Secure Computing Corp.* - - 14,000 107,800
Sonic Solutions* - - 4,709 66,397
Tessera Technologies, Inc.* - - 3,340 132,732
Transaction Systems Architects, Inc.* - - 2,485 80,489
Ultra Clean Holdings, Inc.* 35,900 621,070 14,055 243,151
ValueClick, Inc.* - - 6,035 157,695
WebEx Communications, Inc.* - - 2,425 137,886
Western Digital Corp.* - - 2,210 37,150
- ------------------------------------------------------------------------------------------------------------------------------------
1,088,775 3,114,286
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (22.7%) (A)
Alexion Pharmaceuticals, Inc.* - - 5,635 243,657
Arrhythmia Research Technology, Inc. 9,000 235,980 - -
ArthroCare Corp.* - - 4,480 161,459
Avigen, Inc.* 52,900 343,321 - -
Biomarin Pharmaceutical, Inc.* - - 3,160 54,542
Bovie Medical Corp.* 12,700 90,170 - -
Cardiome Pharma Corp.* 40,350 409,553 - -
ev3, Inc.* - - 6,990 137,703
Genomic Health, Inc.* - - 11,456 198,647
Gen-Probe, Inc.* - - 3,205 150,891
HealthExtras, Inc.* 52,600 1,513,827 - -
HMS Holdings Corp.* 30,000 657,000 - -
Hologic, Inc.* 21,050 1,213,322 4,505 259,668
Intuitive Surgical, Inc.* - - 1,425 173,237
Isis Pharmaceuticals, Inc.* 65,500 607,185 - -
Kyphon, Inc.* - - 5,800 261,813
LCA-Vision, Inc. - - 3,805 156,728
LifeCell Corp.* - - 7,095 177,162
Medical Action Industries, Inc.* 25,050 598,695 - -
MEDTOX Scientific, Inc.* 14,400 264,960 - -
Mesa Laboratories, Inc. 16,800 310,800 - -
Micrus Endovascular Corp.* 13,050 311,112 - -
Molecular Insight Pharmaceuticals, Inc.* 38,000 451,440 - -
New Brunswick Scientific Co., Inc.* 47,200 380,904 - -
On Assignment, Inc.* 98,550 1,223,005 - -
Pharmion Corp.* - - 6,200 162,998
Progenics Pharmaceuticals, Inc.* - - 7,465 176,771
Radiation Therapy Services, Inc.* - - 7,420 227,349
Rochester Medical Corp.* 3,000 68,340 - -
Span-America Medical Systems, Inc. 7,400 117,734 - -
The TriZetto Group, Inc.* 50,650 1,013,507 - -
Vascular Solutions, Inc.* 9,900 97,416 - -
Ventana Medical Systems, Inc.* - - 5,625 235,688
Viasys Healthcare, Inc.* 66,350 2,255,236 - -
Zoll Medical Corp.* 20,100 535,665 - -
- ------------------------------------------------------------------------------------------------------------------------------------
12,699,172 2,778,313
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS (17.9%) (A)
AAR Corp.* 30,100 829,556 3,078 84,830
Adminstaff, Inc. - - 3,200 112,640
Astec Industries, Inc.* - - 1,040 41,860
Bucyrus International, Inc. - - 2,590 133,385
COMSYS IT Partners, Inc.* - - 7,152 142,325
Consolidated Graphics, Inc.* - - 1,592 117,888
CRA International, Inc.* - - 2,390 124,710
EnPro Industries, Inc.* - - 3,290 118,605
General Cable Corp.* - - 2,980 159,221
Hub Group, Inc.* - - 2,880 83,491
Infrasource Services, Inc.* - - 1,355 41,368
NCI Building Systems, Inc.* - - 2,915 139,162
Pike Electric Corp.* - - 4,720 85,338
Regal-Beloit Corp. - - 3,068 142,294
Triumph Group, Inc. - - 2,420 133,923
Wabtec Corp. - - 4,991 172,139
Watson Wyatt Worldwide, Inc. - - 2,588 125,906
WESCO International, Inc.* - - 2,350 147,533
Woodward Governor Co. - - 2,730 112,394
- ------------------------------------------------------------------------------------------------------------------------------------
829,556 2,219,012
- ------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED
PRO FORMA TOUCHSTONE STRATEGIC TRUST
ADJUSTMENTS DIVERSIFIED SMALL CAP GROWTH FUND
SHARES MARKET VALUE SHARES MARKET VALUE
-------------------------------------------------------------------------------------
COMMON STOCKS (95.9%) (A)
Information Technology (25.1%) (A)
24/7 Real Media, Inc.* 82,510 $ 662,553 (B) 100,192 $ 804,539
Amphenol Corp. 5,506 355,541 (B) 6,686 431,734
Arris Group, Inc.* 49,393 695,455 (B) 59,978 844,492
Avnet, Inc.* 27,321 987,395 (B) 33,176 1,198,995
Digital River, Inc.* 15,236 841,763 (B) 18,501 1,022,154
eCollege.com* 21,148 379,601 (B) 25,680 460,950
Emulex Corp.* 24,685 451,486 (B) 29,975 548,240
Euronet Worldwide, Inc.* 22,328 599,740 (B) 27,113 728,265
F5 Networks, Inc.* 7,583 505,620 (B) 9,208 613,975
j2 Global Communications, Inc.* 24,848 688,792 (B) 30,173 836,401
MEMC Electronic Materials, Inc.* 10,243 620,496 (B) 12,438 753,469
Microsemi Corp.* 24,848 517,090 (B) 30,173 627,903
NETGEAR, Inc.* 25,105 716,239 (B) 30,485 869,730
Nuance Communications, Inc.* 46,243 707,984 (B) 56,153 859,706
Packeteer, Inc.* 57,652 716,043 (B) 70,007 869,492
Parametric Technology Corp.* 30,980 591,406 (B) 62,119 1,185,850
Secure Computing Corp.* 65,329 503,030 (B) 79,329 610,830
Sonic Solutions* 21,974 309,830 (B) 26,683 376,227
Tessera Technologies, Inc.* 15,586 619,371 (B) 18,926 752,103
Transaction Systems Architects, Inc.* 11,596 375,588 (B) 14,081 456,077
Ultra Clean Holdings, Inc.* 65,585 1,134,622 (B) 115,540 1,998,843
ValueClick, Inc.* 28,161 735,856 (B) 34,196 893,551
WebEx Communications, Inc.* 11,316 643,421 (B) 13,741 781,307
Western Digital Corp.* 10,313 173,354 (B) 12,523 210,504
- ------------------------------------------------------------------------------------------------------------------------------------
14,532,277 18,735,338
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (22.7%) (A)
Alexion Pharmaceuticals, Inc.* 26,295 1,136,983 (B) 31,930 1,380,640
Arrhythmia Research Technology, Inc. (9,000) (235,980) (B) - -
ArthroCare Corp.* 20,905 753,421 (B) 25,385 914,880
Avigen, Inc.* (52,900) (343,321) (B) - -
Biomarin Pharmaceutical, Inc.* 14,746 254,511 (B) 17,906 309,053
Bovie Medical Corp.* (12,700) (90,170) (B) - -
Cardiome Pharma Corp.* (40,350) (409,553) (B) - -
ev3, Inc.* 32,618 642,567 (B) 39,608 780,270
Genomic Health, Inc.* 53,457 926,952 (B) 64,913 1,125,599
Gen-Probe, Inc.* 14,956 704,107 (B) 18,161 854,998
HealthExtras, Inc.* (52,600) (1,513,827) (B) - -
HMS Holdings Corp.* (30,000) (657,000) (B) - -
Hologic, Inc.* 21,022 1,211,696 (B) 46,577 2,684,686
Intuitive Surgical, Inc.* 6,650 808,381 (B) 8,075 981,618
Isis Pharmaceuticals, Inc.* (65,500) (607,185) (B) - -
Kyphon, Inc.* 27,065 1,221,705 (B) 32,865 1,483,518
LCA-Vision, Inc. 17,755 731,344 (B) 21,560 888,072
LifeCell Corp.* 33,108 826,696 (B) 40,203 1,003,858
Medical Action Industries, Inc.* (25,050) (598,695) (B) - -
MEDTOX Scientific, Inc.* (14,400) (264,960) (B) - -
Mesa Laboratories, Inc. (16,800) (310,800) (B) - -
Micrus Endovascular Corp.* (13,050) (311,112) (B) - -
Molecular Insight Pharmaceuticals, Inc.* (38,000) (451,440) (B) - -
New Brunswick Scientific Co., Inc.* (47,200) (380,904) (B) - -
On Assignment, Inc.* (98,550) (1,223,005) (B) - -
Pharmion Corp.* 28,931 760,602 (B) 35,131 923,600
Progenics Pharmaceuticals, Inc.* 34,834 824,871 (B) 42,299 1,001,642
Radiation Therapy Services, Inc.* 34,624 1,060,885 (B) 42,044 1,288,234
Rochester Medical Corp.* (3,000) (68,340) (B) - -
Span-America Medical Systems, Inc. (7,400) (117,734) (B) - -
The TriZetto Group, Inc.* (50,650) (1,013,507) (B) - -
Vascular Solutions, Inc.* (9,900) (97,416) (B) - -
Ventana Medical Systems, Inc.* 26,248 1,099,797 (B) 31,873 1,335,485
Viasys Healthcare, Inc.* (66,350) (2,255,236) (B) - -
Zoll Medical Corp.* (20,100) (535,665) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
1,478,667 16,956,152
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS (17.9%) (A)
AAR Corp.* 14,363 395,845 (B) 47,541 1,310,231
Adminstaff, Inc. 14,932 525,615 (B) 18,132 638,255
Astec Industries, Inc.* 4,853 195,332 (B) 5,893 237,192
Bucyrus International, Inc. 12,086 622,418 (B) 14,676 755,803
COMSYS IT Partners, Inc.* 33,374 664,135 (B) 40,526 806,460
Consolidated Graphics, Inc.* 7,429 550,104 (B) 9,021 667,992
CRA International, Inc.* 11,153 581,938 (B) 13,543 706,648
EnPro Industries, Inc.* 15,352 553,450 (B) 18,642 672,055
General Cable Corp.* 13,906 742,977 (B) 16,886 902,198
Hub Group, Inc.* 13,439 389,596 (B) 16,319 473,087
Infrasource Services, Inc.* 6,323 193,037 (B) 7,678 234,405
NCI Building Systems, Inc.* 13,602 649,375 (B) 16,517 788,537
Pike Electric Corp.* 22,025 398,215 (B) 26,745 483,553
Regal-Beloit Corp. 14,316 663,990 (B) 17,384 806,284
Triumph Group, Inc. 11,293 624,929 (B) 13,713 758,852
Wabtec Corp. 23,290 803,257 (B) 28,281 975,396
Watson Wyatt Worldwide, Inc. 12,076 587,519 (B) 14,664 713,425
WESCO International, Inc.* 10,966 688,437 (B) 13,316 835,970
Woodward Governor Co. 12,739 524,467 (B) 15,469 636,861
- ------------------------------------------------------------------------------------------------------------------------------------
10,354,636 13,403,204
- ------------------------------------------------------------------------------------------------------------------------------------
4
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE DIVERSIFIED SMALL CAP GROWTH FUND
PRO FORMA COMBINING
PORTFOLIO OF INVESTMENTS
MARCH 31, 2007
(Unaudited)
TOUCHSTONE STRATEGIC TRUST TOUCHSTONE STRATEGIC TRUST
SMALL CAP GROWTH FUND DIVERSIFIED SMALL CAP GROWTH FUND
SHARES MARKET VALUE SHARES MARKET VALUE
----------------------------------------------------------------------------
CONSUMER DISCRETIONARY (15.2%) (A)
BJ'S Restaurants, Inc.* - - 6,945 146,748
Bright Horizons Family Solutions, Inc.* - - 3,809 143,790
Chipotle Mexican Grill, Inc.* - - 963 59,802
Claire's Stores, Inc. - - 2,230 71,628
Coldwater Creek, Inc.* - - 7,251 147,050
DSW, Inc.* - - 3,490 147,313
Guitar Center, Inc.* - - 3,168 142,940
LIFE TIME FITNESS, Inc.* - - 2,825 145,233
McCormick & Schmick's Seafood Restaurants, Inc.* 6,200 166,222 5,439 145,820
Morningstar, Inc.* - - 2,865 147,948
Nutri/System, Inc.* - - 2,955 154,871
PetMed Express, Inc.* - - 10,635 126,025
Phillips-Van Heusen Corp. - - 2,478 145,706
Sonic Corp.* - - 4,600 102,488
Steiner Leisure Ltd.* - - 3,275 147,310
- ------------------------------------------------------------------------------------------------------------------------------------
166,222 1,974,672
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL (7.1%) (A)
Affiliated Managers Group, Inc.* - - 1,220 132,187
Boston Private Financial Holdings, Inc. 23,100 644,952 2,365 66,031
East West Bancorp, Inc. - - 3,285 120,789
Jefferies Group, Inc. - - 4,460 129,117
LaSalle Hotel Properties - - 3,470 160,869
Portfolio Recovery Associates, Inc.* - - 4,765 212,758
- ------------------------------------------------------------------------------------------------------------------------------------
644,952 821,751
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY (5.2%) (A)
Bolt Technology Corp.* 3,900 133,731 - -
Cabot Oil & Gas Corp. - - 1,308 88,055
Carrizo Oil & Gas, Inc.* 17,700 618,792 - -
Goodrich Petroleum Corp.* 28,200 948,366 - -
Helix Energy Solutions Group, Inc.* - - 2,470 92,106
Helmerich & Payne, Inc. - - 3,218 97,634
Input/Output, Inc.* - - 14,283 196,819
InterOil Corp.* 90,000 2,394,000 - -
SEACOR Holdings, Inc.* - - 450 44,280
Trico Marine Services, Inc.* - - 1,075 40,055
W-H Energy Services, Inc.* - - 2,835 132,508
- ------------------------------------------------------------------------------------------------------------------------------------
4,094,889 691,457
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES (1.3%) (A)
The Andersons, Inc. - - 2,735 121,434
Wild Oats Market, Inc.* - - 2,543 46,283
- ------------------------------------------------------------------------------------------------------------------------------------
- 167,717
- ------------------------------------------------------------------------------------------------------------------------------------
MATERIALS (1.1%) (A)
Brush Engineered Materials, Inc.* - - 860 41,684
Reliance Steel & Aluminum Co. - - 2,265 109,626
- ------------------------------------------------------------------------------------------------------------------------------------
- 151,310
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY (0.0%) (A)
Actuate Corp.* 100,000 522,000 - -
Astronics Corp.* 6,500 114,400 - -
Avici Systems, Inc.* 16,300 186,146 - -
Compudyne Corp.* 10,000 60,700 - -
CyberSource Corp.* 36,700 459,117 - -
Edgewater Technology, Inc.* 10,500 88,620 - -
Frequency Electronics 8,500 92,820 - -
Gilat Satellite Networks Ltd.* 9,300 76,725 - -
Globecomm Systems, Inc.* 18,900 202,230 - -
Harris Stratex Networks - Class A* 29,250 561,308 - -
Hauppage Digital, Inc.* 41,200 281,396 - -
iGATE Capital Corp.* 27,700 228,248 - -
Informatica Corp.* 143,750 1,930,562 - -
Iomega Corp.* 48,100 180,375 - -
LivePerson, Inc.* 17,400 137,112 - -
Opsware, Inc.* 121,800 883,050 - -
OSI Systems, Inc.* 30,950 818,318 - -
Rainmaker Systems, Inc.* 38,000 319,200 - -
Simulations Plus, Inc.* 12,500 123,750 - -
Smith Micro Software, Inc.* 24,000 447,120 - -
SRS Labs, Inc.* 15,800 220,094 - -
Syntax-Brillian Corp.* 24,800 208,320 - -
TeleCommunication Systems, Inc.* 32,900 122,388 - -
TESSCO Technologies, Inc.* 22,500 611,775 - -
Vocus, Inc.* 6,300 126,819 - -
- ------------------------------------------------------------------------------------------------------------------------------------
9,002,593 -
- ------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS (0.0%) (A)
Cogent Communications Group, Inc.* 52,500 1,240,575 - -
Global Crossing Ltd.* 76,900 2,114,750 - -
Harmonic, Inc.* 142,350 1,397,877 - -
MRV Communications, Inc.* 154,200 547,410 - -
SBA Communications Corp. - Class A* 39,150 1,156,883 - -
- ------------------------------------------------------------------------------------------------------------------------------------
6,457,495 -
- ------------------------------------------------------------------------------------------------------------------------------------
PRO FORMA COMBINED
PRO FORMA TOUCHSTONE STRATEGIC TRUST
ADJUSTMENTS DIVERSIFIED SMALL CAP GROWTH FUND
SHARES MARKET VALUE SHARES MARKET VALUE
-------------------------------------------------------------------------------------
CONSUMER DISCRETIONARY (15.2%) (A)
BJ'S Restaurants, Inc.* 32,408 684,774 (B) 39,353 831,522
Bright Horizons Family Solutions, Inc.* 17,774 670,971 (B) 21,583 814,761
Chipotle Mexican Grill, Inc.* 4,494 279,056 (B) 5,457 338,858
Claire's Stores, Inc. 10,406 334,240 (B) 12,636 405,868
Coldwater Creek, Inc.* 33,836 686,183 (B) 41,087 833,233
DSW, Inc.* 16,285 687,411 (B) 19,775 834,724
Guitar Center, Inc.* 14,783 667,005 (B) 17,951 809,945
LIFE TIME FITNESS, Inc.* 13,182 677,705 (B) 16,007 822,938
McCormick & Schmick's Seafood Restaurants, Inc.* 25,380 680,444 (B) 37,019 992,486
Morningstar, Inc.* 13,369 690,374 (B) 16,234 838,322
Nutri/System, Inc.* 13,789 722,679 (B) 16,744 877,550
PetMed Express, Inc.* 49,626 588,074 (B) 60,261 714,099
Phillips-Van Heusen Corp. 11,563 679,912 (B) 14,041 825,618
Sonic Corp.* 21,465 478,243 (B) 26,065 580,731
Steiner Leisure Ltd.* 15,282 687,397 (B) 18,557 834,707
- ------------------------------------------------------------------------------------------------------------------------------------
9,214,466 11,355,360
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL (7.1%) (A)
Affiliated Managers Group, Inc.* 5,693 616,828 (B) 6,913 749,015
Boston Private Financial Holdings, Inc. 11,036 308,122 (B) 36,501 1,019,105
East West Bancorp, Inc. 15,329 563,641 (B) 18,614 684,430
Jefferies Group, Inc. 20,812 602,502 (B) 25,272 731,619
LaSalle Hotel Properties 16,192 750,667 (B) 19,662 911,536
Portfolio Recovery Associates, Inc.* 22,235 992,798 (B) 27,000 1,205,556
- ------------------------------------------------------------------------------------------------------------------------------------
3,834,559 5,301,262
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY (5.2%) (A)
Bolt Technology Corp.* (3,900) (133,731) (B) - -
Cabot Oil & Gas Corp. 6,104 410,893 (B) 7,412 498,948
Carrizo Oil & Gas, Inc.* (17,700) (618,792) (B) - -
Goodrich Petroleum Corp.* (28,200) (948,366) (B) - -
Helix Energy Solutions Group, Inc.* 11,526 429,797 (B) 13,996 521,903
Helmerich & Payne, Inc. 15,016 455,592 (B) 18,234 553,226
Input/Output, Inc.* 66,649 918,422 (B) 80,932 1,115,241
InterOil Corp.* (90,000) (2,394,000) (B) - -
SEACOR Holdings, Inc.* 2,100 206,625 (B) 2,550 250,905
Trico Marine Services, Inc.* 5,016 186,910 (B) 6,091 226,965
W-H Energy Services, Inc.* 13,229 618,326 (B) 16,064 750,834
- ------------------------------------------------------------------------------------------------------------------------------------
(868,324) 3,918,022
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES (1.3%) (A)
The Andersons, Inc. 12,762 566,651 (B) 15,497 688,085
Wild Oats Market, Inc.* 11,866 215,972 (B) 14,409 262,255
- ------------------------------------------------------------------------------------------------------------------------------------
782,622 950,339
- ------------------------------------------------------------------------------------------------------------------------------------
MATERIALS (1.1%) (A)
Brush Engineered Materials, Inc.* 4,013 194,511 (B) 4,873 236,195
Reliance Steel & Aluminum Co. 10,569 511,551 (B) 12,834 621,177
- ------------------------------------------------------------------------------------------------------------------------------------
706,062 857,372
- ------------------------------------------------------------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY (0.0%) (A)
Actuate Corp.* (100,000) (522,000) (B) - -
Astronics Corp.* (6,500) (114,400) (B) - -
Avici Systems, Inc.* (16,300) (186,146) (B) - -
Compudyne Corp.* (10,000) (60,700) (B) - -
CyberSource Corp.* (36,700) (459,117) (B) - -
Edgewater Technology, Inc.* (10,500) (88,620) (B) - -
Frequency Electronics (8,500) (92,820) (B) - -
Gilat Satellite Networks Ltd.* (9,300) (76,725) (B) - -
Globecomm Systems, Inc.* (18,900) (202,230) (B) - -
Harris Stratex Networks - Class A* (29,250) (561,308) (B) - -
Hauppage Digital, Inc.* (41,200) (281,396) (B) - -
iGATE Capital Corp.* (27,700) (228,248) (B) - -
Informatica Corp.* (143,750) (1,930,562) (B) - -
Iomega Corp.* (48,100) (180,375) (B) - -
LivePerson, Inc.* (17,400) (137,112) (B) - -
Opsware, Inc.* (121,800) (883,050) (B) - -
OSI Systems, Inc.* (30,950) (818,318) (B) - -
Rainmaker Systems, Inc.* (38,000) (319,200) (B) - -
Simulations Plus, Inc.* (12,500) (123,750) (B) - -
Smith Micro Software, Inc.* (24,000) (447,120) (B) - -
SRS Labs, Inc.* (15,800) (220,094) (B) - -
Syntax-Brillian Corp.* (24,800) (208,320) (B) - -
TeleCommunication Systems, Inc.* (32,900) (122,388) (B) - -
TESSCO Technologies, Inc.* (22,500) (611,775) (B) - -
Vocus, Inc.* (6,300) (126,819) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
(9,002,593) -
- ------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS (0.0%) (A)
Cogent Communications Group, Inc.* (52,500) (1,240,575) (B) - -
Global Crossing Ltd.* (76,900) (2,114,750) (B) - -
Harmonic, Inc.* (142,350) (1,397,877) (B) - -
MRV Communications, Inc.* (154,200) (547,410) (B) - -
SBA Communications Corp. - Class A* (39,150) (1,156,883) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
(6,457,495) -
- ------------------------------------------------------------------------------------------------------------------------------------
5
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE DIVERSIFIED SMALL CAP GROWTH FUND
PRO FORMA COMBINING
PORTFOLIO OF INVESTMENTS
MARCH 31, 2007
(Unaudited)
TOUCHSTONE STRATEGIC TRUST TOUCHSTONE STRATEGIC TRUST
SMALL CAP GROWTH FUND DIVERSIFIED SMALL CAP GROWTH FUND
SHARES MARKET VALUE SHARES MARKET VALUE
----------------------------------------------------------------------------
COMMERCIAL/INDUSTRIAL SERVICES (0.0%) (A)
Concur Technologies, Inc.* 31,600 551,736 - -
Matrix Service Co.* 31,300 633,199 - -
Medical Staffing Network Holdings, Inc.* 3,900 24,765 - -
Perficient, Inc.* 30,000 593,400 - -
Standard Parking Corp.* 10,800 381,996 - -
SumTotal Systems, Inc.* 80,300 640,794 - -
Team, Inc.* 800 30,520 - -
TheStreet.com, Inc. 38,200 467,950 - -
Thomas Group, Inc. 7,750 92,380 - -
VA Software Corp.* 158,600 639,158 - -
Varian, Inc.* 30,150 1,756,539 - -
- ------------------------------------------------------------------------------------------------------------------------------------
5,812,437 -
- ------------------------------------------------------------------------------------------------------------------------------------
PRODUCER MANUFACTURING (0.0%) (A)
AAON, Inc. 7,800 203,814 - -
Amerigon, Inc.* 33,400 415,830 - -
Fuel-Tech N.V.* 25,000 616,250 - -
Kadant, Inc.* 17,700 448,872 - -
K-Tron International, Inc.* 7,100 509,283 - -
Magnetek, Inc.* 9,600 48,384 - -
Powell Industries, Inc.* 4,700 150,400 - -
Smith & Wesson Holding Corp.* 45,000 589,050 - -
Tat Technologies Ltd. 23,000 483,690 - -
Virco Manufacturing Corp.* 13,600 91,800 - -
- ------------------------------------------------------------------------------------------------------------------------------------
3,557,373 -
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCE (0.0%) (A)
Affirmative Insurance Holdings, Inc. 5,500 95,150 - -
American Physicians Capital, Inc.* 12,150 486,972 - -
CompuCredit Corp.* 44,050 1,375,241 - -
Consumer Portfolio Services, Inc.* 1,700 10,455 - -
James River Group, Inc. 15,100 472,781 - -
Marlin Business Services, Inc.* 19,000 415,720 - -
Mercer Insurance Group, Inc. 19,000 377,910 - -
- ------------------------------------------------------------------------------------------------------------------------------------
3,234,229 -
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER SERVICES (0.0%) (A)
American Medical Alert Corp.* 83,100 495,276 - -
Famous Dave's of America, Inc.* 7,000 126,490 - -
Gemstar-TV Guide International, Inc.* 244,700 1,025,293 - -
Hovnanian Enterprises, Inc.* 21,200 533,392 - -
Standard Pacific Corp. 28,700 598,969 - -
Universal Security Intruments* 7,200 247,320 - -
- ------------------------------------------------------------------------------------------------------------------------------------
3,026,740 -
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES (0.0%) (A)
Bankrate, Inc.* 46,000 1,621,040 - -
Thomas Weisel Partners Group, Inc.* 55,550 1,056,561 - -
- ------------------------------------------------------------------------------------------------------------------------------------
2,677,601 -
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS (0.0%) (A)
Ladish Co., Inc.* 27,550 1,036,982 - -
Landec Corp.* 4,500 63,810 - -
Multi-Color Corp. 12,900 452,403 - -
- ------------------------------------------------------------------------------------------------------------------------------------
1,553,195 -
- ------------------------------------------------------------------------------------------------------------------------------------
SERVICE-BUSINESS SERVICES (0.0%) (A)
Deluxe Corp. 43,400 1,455,202 - -
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES (0.0%) (A)
Jones Soda Co.* 30,000 606,600 - -
National Beverage Corp.* 23,100 405,174 - -
NutraCea* 59,000 177,590 - -
SunOpta, Inc.* 16,700 198,730 - -
- ------------------------------------------------------------------------------------------------------------------------------------
1,388,094 -
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST (0.0%) (A)
Redwood Trust, Inc. 18,950 988,811
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL TRADE (0.0%) (A)
Casual Male Retail Group, Inc.* 34,500 408,135 - -
PC Mall, Inc.* 20,700 206,379 - -
Rentrak Corp.* 15,500 242,265 - -
REX Stores Corp.* 5,200 85,072 - -
- ------------------------------------------------------------------------------------------------------------------------------------
941,851 -
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES (0.0%) (A)
Eschelon Telecom, Inc.* 21,100 609,790 - -
Telestone Technologies Corp.* 11,900 97,342 - -
- ------------------------------------------------------------------------------------------------------------------------------------
707,132 -
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES (0.0%) (A)
U.S. Home Systems, Inc.* 37,900 483,225 - -
- ------------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY (0.0%) (A)
PMC-Sierra, Inc.* 63,500 445,135 - -
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION (0.0%) (A)
Midwest Air Group, Inc.* 1,000 13,510 - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS 61,268,189 11,918,518
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT FUNDS (4.4%) (A)
BBH Securities Lending Fund 16,676,886 16,676,886 - -
Touchstone Institutional Money Market Fund^ 1,217,649 1,217,649 366,382 366,382
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS 17,894,535 366,382
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES (100.0%) (A) $ 79,162,724 $ $ 12,284,900
(COST $64,132,135) ================== ==================
PRO FORMA COMBINED
PRO FORMA TOUCHSTONE STRATEGIC TRUST
ADJUSTMENTS DIVERSIFIED SMALL CAP GROWTH FUND
SHARES MARKET VALUE SHARES MARKET VALUE
-------------------------------------------------------------------------------------
COMMERCIAL/INDUSTRIAL SERVICES (0.0%) (A)
Concur Technologies, Inc.* (31,600) (551,736) (B) - -
Matrix Service Co.* (31,300) (633,199) (B) - -
Medical Staffing Network Holdings, Inc.* (3,900) (24,765) (B) - -
Perficient, Inc.* (30,000) (593,400) (B) - -
Standard Parking Corp.* (10,800) (381,996) (B) - -
SumTotal Systems, Inc.* (80,300) (640,794) (B) - -
Team, Inc.* (800) (30,520) (B) - -
TheStreet.com, Inc. (38,200) (467,950) (B) - -
Thomas Group, Inc. (7,750) (92,380) (B) - -
VA Software Corp.* (158,600) (639,158) (B) - -
Varian, Inc.* (30,150) (1,756,539) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
(5,812,437) -
- ------------------------------------------------------------------------------------------------------------------------------------
PRODUCER MANUFACTURING (0.0%) (A)
AAON, Inc. (7,800) (203,814) (B) - -
Amerigon, Inc.* (33,400) (415,830) (B) - -
Fuel-Tech N.V.* (25,000) (616,250) (B) - -
Kadant, Inc.* (17,700) (448,872) (B) - -
K-Tron International, Inc.* (7,100) (509,283) (B) - -
Magnetek, Inc.* (9,600) (48,384) (B) - -
Powell Industries, Inc.* (4,700) (150,400) (B) - -
Smith & Wesson Holding Corp.* (45,000) (589,050) (B) - -
Tat Technologies Ltd. (23,000) (483,690) (B) - -
Virco Manufacturing Corp.* (13,600) (91,800) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
(3,557,373) -
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCE (0.0%) (A)
Affirmative Insurance Holdings, Inc. (5,500) (95,150) (B) - -
American Physicians Capital, Inc.* (12,150) (486,972) (B) - -
CompuCredit Corp.* (44,050) (1,375,241) (B) - -
Consumer Portfolio Services, Inc.* (1,700) (10,455) (B) - -
James River Group, Inc. (15,100) (472,781) (B) - -
Marlin Business Services, Inc.* (19,000) (415,720) (B) - -
Mercer Insurance Group, Inc. (19,000) (377,910) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
(3,234,229) -
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER SERVICES (0.0%) (A)
American Medical Alert Corp.* (83,100) (495,276) (B) - -
Famous Dave's of America, Inc.* (7,000) (126,490) (B) - -
Gemstar-TV Guide International, Inc.* (244,700) (1,025,293) (B) - -
Hovnanian Enterprises, Inc.* (21,200) (533,392) (B) - -
Standard Pacific Corp. (28,700) (598,969) (B) - -
Universal Security Intruments* (7,200) (247,320) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
(3,026,740) -
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL SERVICES (0.0%) (A)
Bankrate, Inc.* (46,000) (1,621,040) (B) - -
Thomas Weisel Partners Group, Inc.* (55,550) (1,056,561) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
(2,677,601) -
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS (0.0%) (A)
Ladish Co., Inc.* (27,550) (1,036,982) (B) - -
Landec Corp.* (4,500) (63,810) (B) - -
Multi-Color Corp. (12,900) (452,403) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
(1,553,195) -
- ------------------------------------------------------------------------------------------------------------------------------------
SERVICE-BUSINESS SERVICES (0.0%) (A)
Deluxe Corp. (43,400) (1,455,202) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER NON-DURABLES (0.0%) (A)
Jones Soda Co.* (30,000) (606,600) (B) - -
National Beverage Corp.* (23,100) (405,174) (B) - -
NutraCea* (59,000) (177,590) (B) - -
SunOpta, Inc.* (16,700) (198,730) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
(1,388,094) -
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST (0.0%) (A)
Redwood Trust, Inc. (18,950) (988,811) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
RETAIL TRADE (0.0%) (A)
Casual Male Retail Group, Inc.* (34,500) (408,135) (B) - -
PC Mall, Inc.* (20,700) (206,379) (B) - -
Rentrak Corp.* (15,500) (242,265) (B) - -
REX Stores Corp.* (5,200) (85,072) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
(941,851) -
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES (0.0%) (A)
Eschelon Telecom, Inc.* (21,100) (609,790) (B) - -
Telestone Technologies Corp.* (11,900) (97,342) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
(707,132) -
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER DURABLES (0.0%) (A)
U.S. Home Systems, Inc.* (37,900) (483,225) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY (0.0%) (A)
PMC-Sierra, Inc.* (63,500) (445,135) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION (0.0%) (A)
Midwest Air Group, Inc.* (1,000) (13,510) (B) - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (1,709,658) 71,477,049
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT FUNDS (4.4%) (A)
BBH Securities Lending Fund (16,676,886) (16,676,886) (C) - -
Touchstone Institutional Money Market Fund^ 1,709,658 1,709,658 (B) 3,293,689 3,293,689
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT FUNDS (14,967,228) 3,293,689
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES (100.0%) (A) (16,676,886) $ 74,770,738
(COST $64,132,135) ================== ==================
* Non-income producing security.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
(A) Calculated based on total investment securities at market value of the Pro
Forma Combined Touchstone Diversified Small Cap Growth Fund.
(B) Represents reallocation of portfolio holdings resulting from the merger.
(C) Represents the elimination of securities on loan (and associated collateral)
from the Touchstone Strategic Trust Small Cap Growth Fund. The Diversified Small
Cap Growth Fund does not engage in securities lending.
See accompanying pro forma notes to combining financial statements.
6
TOUCHSTONE STRATEGIC TRUST
TOUCHSTONE DIVERSIFIED SMALL CAP GROWTH FUND
PRO FORMA NOTES TO COMBINING FINANCIAL STATEMENTS
MARCH 31, 2007
(UNAUDITED)
DESCRIPTION OF THE FUND
The acquiring fund, Touchstone Strategic Trust Diversified Small Cap Growth Fund
(the "Acquiring Fund"), is registered under the Investment Company Act of 1940,
as amended, as an open-end, management investment company portfolio consisting
of Class A and Class Y shares. The target fund, Touchstone Strategic Trust Small
Cap Growth Fund (the "Target Fund"), is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company portfolio
consisting of Class A, B, C, and Y shares.
BASIS OF COMBINATION
The accompanying unaudited pro forma financial statements are presented to show
the effect of the transfer of assets and liabilities of the Target Fund in
exchange for shares of the Acquiring Fund (for purposes of maintaining the
financial statements and performance).
Under the terms of the Plan of Reorganization, the combination of the Acquiring
Fund and the Target Fund will be accounted for by the method of accounting for
tax-free mergers of investment companies. The statement of assets and
liabilities and the related statement of operations of the Acquiring Fund and
the Target Fund have been combined as of and for the twelve months ended March
31, 2007. In accordance with U.S. generally accepted accounting principles
("GAAP"), the historical cost of investment securities will be carried forward
to the Acquiring Fund and the results of operations for pre-combination periods
of the Acquiring Fund will not be restated.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements of the Acquiring Fund and the Target Fund included
in their respective annual reports dated March 31, 2007.
The following notes refer to the accompanying pro forma financial statements as
if the above-mentioned acquisition of the Target Fund by the Acquiring Fund had
taken place as of April 1, 2006.
PORTFOLIO VALUATION
Equity securities listed on national securities exchanges are valued at the last
sale price as of the close of business on the day the securities are being
valued. Over-the-counter securities are valued at the last sales price. Debt
securities with maturities of 60 days or less are valued at amortized cost. In
the absence of readily available market quotations, securities are valued at
fair value under procedures established by and under the general supervision of
the Board of Trustees.
CAPITAL SHARES
The pro forma net asset value per share assumes the issuance of shares of the
Acquiring Fund that would have been issued at March 31, 2007, in connection with
the proposed reorganization. The number of shares assumed to be issued is equal
to the net asset value of shares of the Target Fund, as of March 31, 2007,
divided by the net asset value per share of the shares of the Acquiring Fund as
of March 31, 2007.
7
The pro forma number of shares outstanding for the combined fund consists of the
following at March 31, 2007:
- --------------------------------------------------------------------------------
SHARES OF ADDITIONAL SHARES TOTAL OUTSTANDING
CLASS OF ACQUIRING FUND ASSUMED ISSUED SHARES
SHARES PRE-COMBINATION IN REORGANIZATION POST-COMBINATION
- --------------------------------------------------------------------------------
Class A 502,296 3,224,950 3,727,246
- --------------------------------------------------------------------------------
Class C - 540,540 540,540
- --------------------------------------------------------------------------------
Class Y 525,756 1,372,754 1,898,510
- --------------------------------------------------------------------------------
ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
FEDERAL INCOME TAXES
Each Fund has elected to be taxed as a "regulated investment company" under the
Internal Revenue Code. After the acquisition, the Acquiring Fund intends to
continue to qualify as a regulated investment company, if such qualification is
in the best interest of its shareholders, by complying with the provisions
available to certain investment companies, as defined in applicable sections of
the Internal Revenue Code, and to make distributions of taxable income
sufficient to relieve it from all, or substantially all, Federal income taxes.
The identified cost of investments for the Funds is substantially the same for
both financial accounting and Federal income tax purposes. The tax cost of
investments will remain unchanged for the combined Fund.
8
PART C: OTHER INFORMATION
ITEM 15. INDEMNIFICATION
Article VI of the Registrant's Restated Agreement and Declaration of Trust
provides for indemnification of officers and Trustees as follows:
The Trust shall indemnify each of its Trustees and officers, including
persons who serve at the Trust's request as directors, officers or trustees of
another organization in which the Trust has any interest as a shareholder,
creditor or otherwise (hereinafter referred to as a "Covered Person") against
all liabilities, including but not limited to amounts paid in satisfaction of
judgments, in compromise or as fines and penalties, and expenses, including
reasonable accountants' and counsel fees, incurred by any Covered Person in
connection with the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or administrative or
legislative body, in which such Covered Person may be or may have been involved
as a party or otherwise or with which such person may be or may have been
threatened, while in office or thereafter, by reason of being or having been
such a Trustee or officer, director or trustee, and except that no Covered
Person shall be indemnified against any liability to the Trust or its
Shareholders to which such Covered Person would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office ("disabling
conduct"). Anything herein contained to the contrary notwithstanding, no Covered
Person shall be indemnified for any liability to the Trust or its Shareholders
to which such Covered Person would otherwise be subject unless (1) a final
decision on the merits is made by a court or other body before whom the
proceeding was brought that the Covered Person to be indemnified was not liable
by reason of disabling conduct or, (2) in the absence of such a decision, a
reasonable determination is made, based upon a review of the facts, that the
Covered Person was not liable by reason of disabling conduct, by (a) the vote of
a majority of a quorum of Trustees who are neither "interested persons" of the
Company as defined in the Investment Company Act of 1940 nor parties to the
proceeding "disinterested, non-party Trustees"), or (b) an independent legal
counsel in a written opinion.
Section 6.5. Advances of Expenses.
The Trust shall advance attorneys' fees or other expenses incurred by a
Covered Person in defending a proceeding, upon the undertaking by or on behalf
of the Covered Person to repay the advance unless it is ultimately determined
that such Covered Person is entitled to indemnification, so long as one of the
following conditions is met: (i) the Covered Person shall provide security for
his undertaking, (ii) the Trust shall be insured against losses arising by
reason of any lawful advances, or (iii) a majority of a quorum of the
disinterested non-party Trustees of the Trust, or an independent legal counsel
in a written opinion, shall determine, based on a review of readily available
facts (as opposed to a full trial-type inquiry), that there is reason to believe
that the Covered Person ultimately will be found entitled to indemnification.
Section 6.6. Indemnification Not Exclusive, etc.
(a) The right of indemnification provided by this Article VI shall not be
exclusive of or affect any other rights to which any such Covered Person may be
entitled. As used in this Article VI, "Covered Person" shall include such
person's heirs, executors and administrators, an "interested Covered Person" is
one against whom the action, suit or other proceeding in question or another
action, suit or other proceeding on the same or similar grounds is then or has
been pending or threatened, and a "disinterested" person is a person against
whom none of such actions, suits or other proceedings or another action, suit or
other proceeding on the same or similar grounds is then or has been pending or
threatened. Nothing contained in this article shall affect any rights to
indemnification to which personnel of the Trust, other than Trustees and
officers, and other persons may be entitled by contract or otherwise under law,
nor the power of the Trust to purchase and maintain liability insurance on
behalf of any such person.
(b) The Registrant maintains a mutual fund and investment advisory
professional and directors and officer's liability policy. The policy provides
coverage to the Registrant, its trustees and officers and includes losses by
reason of any act, error, omission, misstatement, misleading statement, neglect
or breach of duty. The Registrant may not pay for insurance that protects the
Trustees and officers against liabilities rising from action involving willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of their offices.
The Advisory Agreement and the Subadvisory Agreements provide that
Touchstone Advisors, Inc. (or a Subadvisor) shall not be liable for any act or
omission in the course of rendering services, absent willful misfeasance, bad
faith or gross negligence or reckless disregard by Touchstone (or a Subadvisor)
of its obligations under the Agreement.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to the Trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable in the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
ITEM 16. EXHIBITS
(1) CHARTER OF THE REGISTRANT
(a) Restated Agreement and Declaration of Trust dated May 19, 1993, Amendment
No. 1 dated May 24, 1994, Amendment No. 2 dated February 28, 1997 and
Amendment No. 3 dated August 11, 1997, are herein incorporated by
reference to Exhibit (b)(1) of Post- Effective Amendment No. 36 to
Registrant's Registration Statement on Form N-1A (File No. 002-80859),
filed with the SEC on July 31, 1998.
(b) Amendment No. 4 to Restated Agreement and Declaration of Trust dated
February 12, 1998 and Amendments to Restated Agreement and Declaration of
Trust dated March 16, 2000 and April 6, 2000 are herein incorporated by
reference to Exhibit (a) of Post- Effective Amendment No. 42 to
Registrant's Registration Statement on Form N-1A (File No. 002-80859),
filed with the SEC on August 1, 2000.
(c) Amendments to Restated Agreement and Declaration of Trust dated September
21, 2000 and March 27, 2001 are herein incorporated by reference to
Exhibit (a) of Post- Effective Amendment No. 45 to Registrant's
Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651),
filed with the SEC on August 1, 2001.
(d) Amendment to Restated Agreement and Declaration of Trust dated August 28,
2002 is herein incorporated by reference to Exhibit (a) of Post-Effective
Amendment No. 48 to Registrant's Registration Statement on Form N-1A (File
Nos. 002-80859 and 811-03651), filed with the SEC on September 6, 2002.
(e) Amendment to Restated Agreement and Declaration of Trust dated November 7,
2002 is herein incorporated by reference to Exhibit (a) of Post-Effective
Amendment No. 49 to Registrant's Registration Statement on Form N-1A (File
Nos. 002-80859 and 811- 03651), filed with the SEC on August 1, 2003.
(f) Amendment to Restated Agreement and Declaration of Trust dated April 14,
2004 is herein incorporated by reference to Exhibit (1) of Post-Effective
Amendment No. 54 to Registrant's Registration Statement on Form N-1A (File
Nos. 002-80859 and 811- 03651), filed with the SEC on July 30, 2004.
(g) Amendment to Restated Agreement and Declaration of Trust dated January 3,
2006 is herein incorporated by reference to Exhibit (a) of Post-Effective
Amendment No. 60 to Registrant's Registration Statement on Form N-1A (File
Nos. 002-80859 and 811-03651), filed with the SEC on March 1, 2006.
(2) BYLAWS OF THE REGISTRANT
By-Laws and Amendments to By-Laws dated July 17, 1984 and April 5, 1989
are herein incorporated by reference to Exhibit (b)(2) of Post-Effective
Amendment No. 36 to Registrant's Registration Statement on Form N-1A (File
Nos. 002-80859 and 811- 03651), filed with the SEC on July 31, 1998.
(3) VOTING TRUST AGREEMENT
Not applicable.
(4) AGREEMENT AND PLAN OF REORGANIZATION
The Agreement and Plan of Reorganization is filed herewith.
(5) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
Instruments Defining Rights of Security Holders are herein incorporated by
reference to Exhibit (c) of Post-Effective Amendment No. 65 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on November 20, 2006.
(6) INVESTMENT ADVISORY CONTRACTS
(a) Advisory Agreement with Touchstone Advisors, Inc. is herein incorporated
by reference to Exhibit (d)(1) of Post-Effective Amendment No. 67 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on August 1, 2007.
(b) Sub-Advisory Agreement between Touchstone Advisors, Inc. and TCW
Investment Management Company dated May 1, 2001 with respect to the Mid
Cap Growth Fund (formerly the Emerging Growth Fund) is herein incorporated
by reference to Exhibit (d)(iv) of Post-Effective Amendment No. 45 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on August 1, 2001.
(c) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Westfield
Capital Management, Inc. with respect to the Mid Cap Growth Fund (formerly
the Emerging Growth Fund) ) is herein incorporated by reference to Exhibit
(d)(iv) of Post-Effective Amendment No. 57 to Registrant's Registration
Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the
SEC on June 2, 2005.
(d) Form of Subadvisory Agreement between Touchstone Advisors, Inc. and
Navellier & Associates, Inc. for the Large Cap Growth Fund is herein
incorporated by reference to Exhibit (3) of Post-Effective Amendment No.
54 to Registrant's Registration Statement on Form N-1A (File Nos.
002-80859 and 811-03651), filed with the SEC on July 30, 2004.
(e) Amendment to Sub-Advisory Agreement with Navellier & Associates, Inc. is
herein incorporated by reference to Exhibit (d)(vi)(b) of Post-Effective
Amendment No. 57 to Registrant's Registration Statement on Form N-1A (File
Nos. 002-80859 and 811-03651), filed with the SEC on June 2, 2005.
(f) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Todd
Investment Advisors, Inc. for the Large Cap Core Equity Fund is herein
incorporated by reference to Exhibit (d)(vii) of Post-Effective Amendment
No. 49 to Registrant's Registration Statement on Form N-1A (File Nos.
002-80859 and 811-03651), filed with the SEC on August 1, 2003.
(g) Amendment to Sub-Advisory Agreement between Touchstone Advisors, Inc. and
Todd Investment Advisors, Inc. with respect to the Large Cap Core Equity
Fund is herein incorporated by reference to Exhibit (d)(7) of
Post-Effective Amendment No. 67 to Registrant's Registration Statement on
Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on
August 1, 2007.
(h) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Bjurman,
Barry & Associates with respect to the Small Cap Growth Fund is herein
incorporated by reference to Exhibit (d)(ix) of Post-Effective Amendment
No. 48 to Registrant's Registration Statement on Form N-1A (File Nos.
002-80859 and 811-03651), filed with the SEC on September 6, 2002.
(i) Addendum to Sub-Advisory Agreement between Touchstone Advisors, Inc. and
Bjurman, Barry & Associates with respect to the Small Cap Growth Fund is
herein incorporated by reference to Exhibit (d)(9) of Post-Effective
Amendment No. 67 to Registrant's Registration Statement on Form N-1A (File
Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2007.
(j) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Longwood
Investment Advisors, Inc. with respect to the Small Cap Growth Fund is
herein incorporated by reference to Exhibit (d)(x) of Post-Effective
Amendment No. 48 to Registrant's Registration Statement on Form N-1A (File
Nos. 002-80859 and 811-03651), filed with the SEC on September 6, 2002.
(k) Addendum to Sub-Advisory Agreement between Touchstone Advisors, Inc. and
Longwood Investment Advisors, Inc. with respect to the Small Cap Growth
Fund is herein incorporated by reference to Exhibit (d)(11) of
Post-Effective Amendment No. 67 to Registrant's Registration Statement on
Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on
August 1, 2007.
(l) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Bjurman,
Barry & Associates for the Micro Cap Growth Fund is herein incorporated by
reference to Exhibit (4) of Post-Effective Amendment No. 54 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on July 30, 2004.
(m) Form of Sub-Advisory Agreement between Touchstone Advisors, Inc. and JS
Asset Management LLC is herein incorporated by reference to Exhibit
(d)(xi) of Post-Effective Amendment No. 60 to Registrant's Registration
Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the
SEC on March 1, 2006.
(n) Sub-Advisory Agreement between Touchstone Advisor, Inc. and Westfield
Capital Management Company, Inc. with respect to the Growth Opportunity
Fund is herein incorporated by reference to Exhibit (d)(xi) of
Post-Effective Amendment No. 63 to Registrant's Registration Statement on
Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on
August 15, 2006.
(o) Sub-Advisory Agreement between Touchstone Advisor, Inc. and Fort
Washington Investment Advisors, Inc. with respect to the Diversified Small
Cap Growth Fund is herein incorporated by reference to Exhibit (d)(15) of
Post-Effective Amendment No. 67 to Registrant's Registration Statement on
Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on
August 1, 2007.
(p) Interim Sub-Advisory Agreement between Touchstone Advisors, Inc. and Fort
Washington Investment Advisors, Inc. with respect to the Small Cap Growth
Fund is filed herewith.
(7) UNDERWRITING AND DISTRIBUTION CONTRACTS
(a) Distribution Agreement with Touchstone Securities, Inc. is herein
incorporated by reference to Exhibit (e)(i) of Post-Effective Amendment
No. 45 to Registrant's Registration Statement on Form N-1A (File Nos.
002-80859 and 811-03651), filed with the SEC on August 1, 2001.
(b) Form of Underwriter's Dealer Agreement is herein incorporated by reference
to Exhibit (e) of Post-Effective Amendment No. 56 to Registrant's
Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651),
filed with the SEC on September 10, 2004.
(8) BONUS OR PROFIT SHARING PLAN
Not applicable.
(9) CUSTODIAN AGREEMENTS
(a) Custodian Agreement with Brown Brothers Harriman & Co. is herein
incorporated by reference to Exhibit (g)(i) of Post-Effective Amendment
No. 49 to Registrant's Registration Statement on Form N-1A (File Nos.
002-80859 and 811-03651), filed with the SEC on August 1, 2003.
(b) Form of Securities Lending Agreement is herein incorporated by reference
to Exhibit (g)(ii) of Post-Effective Amendment No. 49 to Registrant's
Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651),
filed with the SEC on August 1, 2003.
(c) Custody Fee Offset Agreement with Brown Brothers Harriman & Co. is herein
incorporated by reference to Exhibit (g)(iii) of Post-Effective Amendment
No. 58 to Registrant's Registration Statement on Form N-1A (File Nos.
002-80859 and 811-03651), filed with the SEC on August 1, 2005.
(10) RULE 12B-1 PLAN AND RULE 18F-3 PLAN
(a) Registrant's Plans of Distribution Pursuant to Rule 12b-1 for Class A
Shares and Class C Shares are herein incorporated by reference to Exhibit
(m)(1) of Post-Effective Amendment No. 42 to Registrant's Registration
Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the
SEC on August 1, 2000.
(b) Registrant's Plan of Distribution Pursuant to Rule 12b-1 for Class B
Shares is herein incorporated by reference to Exhibit (m)(ii) of
Post-Effective Amendment No. 45 to Registrant's Registration Statement on
Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on
August 1, 2001.
(c) Amended Rule 18f-3 Plan Adopted with Respect to the Multiple Class
Distribution System is herein incorporated by reference to Exhibit (n) of
Post-Effective Amendment No. 56 to Registrant's Registration Statement on
Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on
September 10, 2004.
(11) AN OPINION AND CONSENT OF COUNSEL (AS TO LEGALITY OF SECURITIES BEING
REGISTERED)
Opinion and consent of Morgan, Lewis & Bockius LLP is filed herewith.
(12) AN OPINION AND CONSENT OF COUNSEL (AS TO CERTAIN TAX CONSEQUENCES)
Form of opinion and consent of Morgan, Lewis & Bockius LLP is filed
herewith. Opinion and consent of Morgan, Lewis & Bockius LLP is to be
filed by post-effective amendment.
(13) OTHER MATERIAL CONTRACTS OF THE REGISTRANT
(a) Form of Accounting Services Agreement dated December 31, 2002 with
Integrated Fund Services, Inc. is herein incorporated by reference to
Exhibit (h)(i) of Post- Effective Amendment No. 49 to Registrant's
Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651),
filed with the SEC on August 1, 2003.
(b) Form of Transfer Agency Agreement dated December 31, 2002 with Integrated
Fund Services, Inc. is herein incorporated by reference to Exhibit (h)(ii)
of Post-Effective Amendment No. 49 to Registrant's Registration Statement
on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on
August 1, 2003.
(c) Recordkeeping Agreement is herein incorporated by reference to Exhibit
(h)(vii) of Post-Effective Amendment No. 51 to Registrant's Registration
Statement on Form N- 1A (File Nos. 002-80859 and 811-03651), filed with
the SEC on March 5, 2005.
(d) Integrated Fund Services Anti-Money Laundering Compliance Program Service
Agreement Addendum is herein incorporated by reference to Exhibit
(h)(viii) of Post- Effective Amendment No. 51 to Registrant's Registration
Statement onForm N-1A (File Nos. 002-80859 and 811-03651), filed with the
SEC on March 5, 2005.
(e) Addendum to Transfer Agency Agreements is herein incorporated by reference
to Exhibit (h)(i)(d) of Post-Effective Amendment No. 60 to Registrant's
Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651),
filed with the SEC on March 1, 2006.
(f) Transfer Agency Agreement dated January 1, 2007 is herein incorporated by
reference to Exhibit (h)(6) of Post-Effective Amendment No. 67 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on August 1, 2007.
(g) Administration Agreement dated December 31, 2002 with Integrated Fund
Services, Inc. is herein incorporated by reference to Exhibit (h)(iii) of
Post-Effective Amendment No. 49 to Registrant's Registration Statement on
Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on
August 1, 2003.
(h) Administration Agreement dated January 1, 2007 is herein incorporated by
reference to Exhibit (h)(8) of Post-Effective Amendment No. 67 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on August 1, 2007.
(i) Sub-Administration Agreement dated January 1, 2007 is herein incorporated
by reference to Exhibit (h)(9) of Post-Effective Amendment No. 67 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on August 1, 2007.
(j) Allocation Agreement for Allocation of Fidelity Bond Proceeds is herein
incorporated by reference to Exhibit (h)(10) of Post-Effective Amendment
No. 67 to Registrant's Registration Statement on Form N-1A (File Nos.
002-80859 and 811-03651), filed with the SEC on August 1, 2007.
(k) Amended Expense Limitation Agreement with Touchstone Advisors, Inc. is
herein incorporated by reference to Exhibit (h)(11) of Post-Effective
Amendment No. 67 to Registrant's Registration Statement on Form N-1A (File
Nos. 002-80859 and 811-03651), filed with the SEC on August 1, 2007.
(l) Amended i-Compliance Services Agreement with Integrated Fund Services,
Inc. is herein incorporated by reference to Exhibit (h)(12) of
Post-Effective Amendment No. 67 to Registrant's Registration Statement on
Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on
August 1, 2007.
(14) CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Consent of Ernst & Young LLP is filed herewith.
(15) OMITTED FINANCIAL STATEMENTS
Not applicable.
(16) POWERS OF ATTORNEY
Powers of Attorney for Jill T. McGruder, John F. Barrett,
H. Jerome Lerner, and Robert E. Stautberg are filed herewith.
(17) ADDITIONAL EXHIBITS
Not applicable.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part of this
registration statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act of 1933, as amended (the
"1933 Act"), the reoffering prospectus will contain the information called for
by the applicable registration form for the reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to the registration
statement and will not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
(3) The undersigned Registrant agrees to file by Post-Effective Amendment the
opinion of counsel regarding the tax consequences of the proposed reorganization
required by Item 16(12) of Form N-14 as soon as practical after receipt of such
opinion.
SIGNATURES
As required by the Securities Act of 1933, this registration statement has been
signed on behalf of the registrant, in the City of Cincinnati and State of Ohio,
on the 18th day of September, 2007.
TOUCHSTONE STRATEGIC TRUST By: /s/ Jill T. McGruder
- -------------------------- ------------------------------------
Registrant Jill T. McGruder
President
As required by the Securities Act of 1933, this registration statement has been
signed by the following persons in the capacities and on the dates indicated.
/s/ Jill T. McGruder Trustee and September 18, 2007
- ------------------------------- President
Jill T. McGruder
/s/ Terrie A. Wiedenheft Controller and September 18, 2007
- ------------------------------- Treasurer
Terrie A. Wiedenheft
* Trustee September 18, 2007
- -------------------------------
John F. Barrett
* Trustee September 18, 2007
- -------------------------------
H. Jerome Lerner
* Trustee September 18, 2007
- -------------------------------
Robert E. Stautberg
* By: /s/ Jay S. Fitton
-----------------
Jay S. Fitton
(Attorney-in-Fact Pursuant to Power of Attorney)