UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
|X| Pre-Effective Amendment No. 1 |_| Post-Effective Amendment No.
(Check appropriate box or boxes)
Touchstone Funds Group 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 900
Cincinnati, OH 45202
513-878-4066
(Name and Address of Agent for Service)
Copies to:
John 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.
August 1, 2008
NAVELLIER MILLENNIUM FUNDS
Navellier International Growth Portfolio
Dear Shareholder:
The Prospectus/Proxy Statement that accompanies this letter describes a
proposed reorganization of the Navellier International Growth Portfolio, a
series of Navellier Millennium Funds, into the Touchstone International Growth
Fund, a new series of Touchstone Funds Group Trust (the "Reorganization"). You
are being asked to vote on this proposal. The Board of Trustees of the Navellier
Millennium Funds has approved the proposal and recommends that you vote FOR the
proposal.
The Prospectus/Proxy Statement contains details about the Touchstone
International Growth Fund's investment objective, policies, management and costs
that are important for you to know. I urge you to take the time to review it
carefully. The Touchstone International Growth Fund's investment objective and
policies are substantially identical to those of the Navellier International
Growth Portfolio. Navellier & Associates, Inc., the current investment adviser
to the Navellier International Growth Portfolio, is the sub-advisor for the
Touchstone International Growth Fund. As such, Navellier & Associates, Inc.
manages the Touchstone International Growth Fund substantially in the same way
it manages the Navellier International Growth Portfolio. Your vote is important
no matter how many shares you own. I would like, in addition, to answer some
initial basic questions about the proposed Reorganization.
WHY ARE YOU DOING THIS?
The Reorganization is being proposed in order to achieve operating
efficiencies, lower operating expenses, and to provide the opportunity for a
more efficient investment management process. The Reorganization may benefit you
by achieving operating efficiencies and reducing operating expenses by utilizing
the distribution capabilities of Touchstone Securities, Inc., the distributor of
the Touchstone International Growth Fund. Your current operating expenses will
be reduced immediately as the Touchstone International Growth Fund has a lower
expense ratio than that of the Navellier International Growth Portfolio.
WHAT WILL HAPPEN TO MY EXISTING SHARES?
If you currently own shares of the Navellier International Growth
Portfolio you will receive Class A shares of the Touchstone International Growth
Fund. You will not pay any sales charges or redemption fees in connection with
the Reorganization. Because Touchstone is a new series, you will receive the
same amount of Touchstone International Growth Funds shares as you hold of
Navellier International Growth Portfolio as of the date of the Reorganization.
WILL I HAVE TO PAY TAXES AS A RESULT OF THE REORGANIZATION?
No. The Reorganization is intended to qualify for federal income tax
purposes as a tax-free reorganization.
WHAT ARE MY CHOICES?
On the enclosed proxy card you have three options. You may vote YES, as
the Trustees and management of the Navellier Millennium Funds recommend. You may
vote NO, or you may ABSTAIN. It is important that you know that a majority of
the shares voting in the Navellier International Growth Portfolio must vote YES
for the proposal to pass and be implemented. In other words, an abstain vote is
not a neutral response; it is the equivalent of a No vote.
Shares will be voted at a Special Meeting of Shareholders to be held on or
about September 26, 2008, at the offices of the Navellier Millennium Funds, One
East Liberty Street, Third Floor, Reno, Nevada, 89501. If you attend the
meeting, you may vote your shares in person. If you do not expect to attend the
meeting, please complete, date, sign, and return the enclosed proxy card in the
enclosed postage paid envelope. Or you may follow the instructions on your proxy
card to call in your vote or vote through the Internet.
If you have any questions about the proxy card, please call Navellier
Millennium Funds at 1-800-887-8671. If we do not receive your vote within a few
days, you may be contacted by Broadridge, our proxy solicitor, who will remind
you to vote.
Thank you for considering the proposal carefully.
Sincerely,
/s/ Louis G. Navellier
Louis G. Navellier
Trustee of the Navellier International
Growth Portfolio of the Navellier
Millennium Funds
THE NAVELLIER MILLENIUM FUNDS
ONE EAST LIBERTY STREET, THIRD FLOOR
RENO, NEVADA 89501
NAVELLIER INTERNATIONAL GROWTH PORTFOLIO
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on September 26, 2008
To the Shareholders of the Navellier International Growth Portfolio:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the Shareholders of the
Navellier International Growth Portfolio of the Navellier Millennium Funds, will
be held at the offices of the Navellier Millennium Funds, One East Liberty
Street, Third Floor, Reno, Nevada, 89501 on September 26, 2008 at 11:00 a.m.
Pacific Time and any adjournments thereof (the "Special Meeting") for the
following purpose:
To consider and act upon an Agreement and Plan of Reorganization (the
"Plan") providing for the acquisition of all of the assets of the
Navellier International Growth Portfolio (the "Navellier Fund") by the
Touchstone International Growth Fund (the "Touchstone Fund"), a series of
the Touchstone Funds Group Trust, in exchange for shares of the Touchstone
Fund and the assumption by the Touchstone Fund of the liabilities of the
Navellier Fund. The Plan also provides for distribution of shares of the
Touchstone Fund to shareholders of the Navellier Fund in liquidation and
subsequent termination of the Navellier Fund. A vote in favor of the Plan
is a vote in favor of the liquidation and dissolution of the Navellier
Fund.
The Board of Trustees has fixed the close of business on July 28, 2008 as
the record date for determination of shareholders entitled to notice of and to
vote at the Special Meeting.
By order of the Board of Trustees
/s/ Louis G. Navellier
Louis G. Navellier
Trustee of the Navellier International
Growth Portfolio of the Navellier
Millennium Funds
August 1, 2008
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE SPECIAL MEETING ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED
ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. SHAREHOLDERS
MAY ALSO VOTE BY TELEPHONE OR VOTE THROUGH THE INTERNET. INSTRUCTIONS FOR THE
PROPER EXECUTION OF THE PROXY ARE SET FORTH IMMEDIATELY FOLLOWING THIS NOTICE
OR, WITH RESPECT TO TELEPHONE OR INTERNET VOTING, ON THE PROXY CARD. IT IS
IMPORTANT THAT YOU VOTE PROMPTLY.
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance
to you and avoid the time and expense to the Navellier Millennium Funds in
validating your vote if you fail to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party signing
should conform exactly to the name shown in the registration on the proxy
card.
3. All Other Accounts: The capacity of the individual signing the proxy card
should be indicated unless it is reflected in the form of registration.
For example:
REGISTRATION VALID SIGNATURE
------------ ---------------
CORPORATE ACCOUNTS
------------------
(1) ABC Corp .............................. ABC Corp.
(2) ABC Corp .............................. John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer ............... John Doe
(4) ABC Corp. Profit Sharing Plan ......... John Doe, Trustee
TRUST ACCOUNTS
--------------
(1) ABC Trust ............................. Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78 ........................ Jane B. Doe
CUSTODIAL OR ESTATE ACCOUNTS
----------------------------
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA ......... John B. Smith
(2) Estate of John B. Smith ............... John B. Smith, Jr., Executor
PROSPECTUS/PROXY STATEMENT
Acquisition of Assets and Liabilities of
NAVELLIER INTERNATIONAL GROWTH PORTFOLIO
a series of
NAVELLIER MILLENNIUM FUNDS
One East Liberty Street, Third Floor
Reno, Nevada 89501
(800) 887-8671
By and In Exchange For Shares of
TOUCHSTONE INTERNATIONAL GROWTH FUND
a series of
TOUCHSTONE FUNDS GROUP TRUST
303 Broadway, Suite 1100
Cincinnati, Ohio 45202
(800) 543-0407
August 1, 2008
This Prospectus/Proxy Statement is being furnished in connection with the
proposed Agreement and Plan of Reorganization (the "Plan") which will be
submitted to shareholders of the Navellier International Growth Portfolio
("Navellier") for consideration at a Special Meeting of Shareholders of
Navellier Millennium Funds to be held on September 26, 2008 at 11:00 a.m.
Pacific Time at the offices of the Navellier Millennium Funds, One East Liberty
Street, Third Floor, Reno, Nevada 89501, and any adjournments thereof (the
"Meeting"). The statement of additional information which relates to this
Prospectus/Proxy Statement and the Reorganization is available upon oral or
written request and without charge by calling (800) 543-0407 or by writing to
Touchstone Funds Group Trust at P.O. Box 5354, Cincinnati, OH 45201-5354.
GENERAL
The Board of Trustees of the Navellier Millennium Funds has approved the
proposed reorganization of Navellier into the Touchstone International Growth
Fund ("Touchstone"), a new series of Touchstone Funds Group Trust. Navellier and
Touchstone are sometimes referred to in this Prospectus/Proxy Statement
individually as a "Fund" and collectively as the "Funds." Navellier Millennium
Funds and Touchstone Funds Group Trust are sometimes referred to in this
Prospectus/Proxy Statement individually as a "Trust" and collectively as the
"Trusts."
In the reorganization, all of the assets of Navellier will be acquired by
Touchstone in exchange for Class A shares of Touchstone and the assumption by
Touchstone of all the liabilities of Navellier (the "Reorganization"). If the
Reorganization is approved, shares of Touchstone will be distributed to
shareholders of Navellier in liquidation of Navellier, and Navellier will be
terminated as a series of the Navellier Millennium Funds. If you own shares of
Navellier, you will receive Class A shares of Touchstone. The number of shares
you hold and the total value of your investment will not change as a result of
the Reorganization. You will not incur any sales loads or similar transaction
charges as a result of the Reorganization. The Reorganization is intended to
qualify for Federal Income Tax purposes as a tax-free reorganization.
Navellier does not charge an initial sales charge or a contingent deferred
sales charge ("CDSC"). Navellier does have a 2.00% redemption fee and exchange
fee on shares held less than 60 days. Navellier shareholders are charged an
annual Rule 12b-1 distribution fee ("12b-1 fee") of 0.25% of average daily net
assets.
Class A shares of Touchstone charge an initial sales charge of up to 5.75%
or a CDSC of 1% if shares of the Fund are redeemed within one year of purchase
and compensation was paid to an unaffiliated broker-dealer. Class A shares of
Touchstone are charged an annual 12b-1 fee of up to 0.25% of average daily net
assets attributed to Class A shares.
Upon completion of the Reorganization you will hold that number of full
and fractional shares of Touchstone that have an aggregate net asset value equal
to the aggregate net asset value of your shares of Navellier in which you are
currently a shareholder.
The investment objectives of Navellier and Touchstone are as follows:
- --------------------------------------------------------------------------------
FUND INVESTMENT OBJECTIVES
- --------------------------------------------------------------------------------
Navellier The Fund seeks long-term capital growth by
investing in foreign stocks with the
potential to rise in price.
- --------------------------------------------------------------------------------
Touchstone The Fund seeks long-term capital growth.
- --------------------------------------------------------------------------------
The investment strategies for Navellier and Touchstone are substantially
identical. See "How do the Funds' investment objectives, principal investment
strategies and risks compare?"
This Prospectus/Proxy Statement explains concisely the information about
Touchstone that you should know before voting on the Reorganization. Please read
it carefully and keep it for future reference. Additional information concerning
Navellier and the Reorganization is contained in the documents described below,
all of which have been filed with the Securities and Exchange Commission
("SEC"):
- ------------------------------------------------------------------------------------------------------------------------------------
INFORMATION ABOUT NAVELLIER: HOW TO OBTAIN THIS INFORMATION:
- ------------------------------------------------------------------------------------------------------------------------------------
Prospectus of the Navellier Millennium Funds relating to Copies are available upon request and without charge if
the Fund dated May 1, 2008 (which accompanies this you:
Prospectus/Proxy Statement).
o Write to the Navellier Millennium Funds at the address
Statement of Additional Information of the Navellier listed on the cover page of this Prospectus/Proxy
Millennium Funds relating to the Fund dated May 1, 2008 Statement; or
Annual Report of the Navellier Millennium Funds relating o Call (800) 887-8671 toll-free.
to the Fund for the year ended December 31, 2007
- ------------------------------------------------------------------------------------------------------------------------------------
INFORMATION ABOUT THE REORGANIZATION AND TOUCHSTONE: HOW TO OBTAIN THIS INFORMATION:
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of Additional Information dated August 1, 2008, A copy is available upon request and without charge if you:
which relates to this Prospectus/Proxy Statement and the
Reorganization
o Write to the Touchstone Funds Group Trust at P.O. Box 5354,
Cincinnati, OH 45201-5354; or
o Call (800) 543-0407 toll-free.
- ------------------------------------------------------------------------------------------------------------------------------------
You can also obtain copies of any of these documents without charge on the
EDGAR database on the SEC's Internet site at http://www.sec.gov. Copies are
available for a fee by electronic request at the following E-mail address:
publicinfo@sec.gov, or from the Public Reference Section, Securities and
Exchange Commission, Washington, D.C. 20549-0102.
Information relating to Navellier contained in the Prospectus and
Statement of Additional Information of the Navellier Millennium Funds dated May
1, 2008 (SEC File No. 811-08995) is 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
August 1, 2008 relating to this Prospectus/Proxy Statement and the
Reorganization, which includes the financial statements of the Navellier
Millennium Funds relating to the Fund for the year ended December 31, 2007 is
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 TOUCHSTONE:
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 your original
investment
TABLE OF CONTENTS
SUMMARY ....................................................................
Why is the Reorganization being proposed? ............................
What are the key features of the Reorganization?......................
After the Reorganization, what shares of Touchstone will I own?.......
How will the Reorganization affect me?................................
How do the Trustees recommend that I vote?............................
How do the Funds' investment objectives, principal investment
strategies and risks compare?......................................
How do the Funds' fees and expenses compare?..........................
How do the Funds' performance records compare?........................
Will I be able to purchase, exchange and redeem shares and
receive distributions the same way?................................
Who will be the Advisor, Sub-Advisor and Portfolio Manager of
my Fund after the Reorganization? .................................
What will be the primary federal tax consequences of the
Reorganization?....................................................
RISKS
Are the risk factors for the Funds similar?...........................
What are the primary risks of investing in each Fund?.................
Are there any other risks of investing in each Fund?..................
INFORMATION ABOUT THE REORGANIZATION
Reasons for the Reorganization........................................
Agreement and Plan of Reorganization..................................
Federal Income Tax Consequences.......................................
Pro-forma Capitalization..............................................
Distribution of Shares................................................
Purchase and Redemption Procedures....................................
Exchange Privileges...................................................
Dividend Policy.......................................................
INFORMATION ON SHAREHOLDERS' RIGHTS
Form of Organization..................................................
Capitalization........................................................
Shareholder Liability.................................................
Shareholder Meetings and Voting Rights................................
Liquidation...........................................................
Liability and Indemnification of Trustees.............................
VOTING INFORMATION CONCERNING THE MEETING
Shareholder Information...............................................
Control Persons and Principal Holders of Securities...................
FINANCIAL STATEMENTS AND EXPERTS............................................
LEGAL MATTERS...............................................................
ADDITIONAL INFORMATION......................................................
OTHER BUSINESS..............................................................
EXHIBIT A Form of Agreement and Plan of Reorganization...................
SUMMARY
This section summarizes the primary features and consequences of the
Reorganization. It may not contain all of the information that is important to
you. To understand the Reorganization, you should read this entire
Prospectus/Proxy Statement and the exhibits.
This summary is qualified in its entirety by reference to the additional
information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectus and Statement of Additional Information relating to both Funds and a
form of the Agreement and Plan of Reorganization, which is attached to this
Prospectus/Proxy Statement as Exhibit A.
WHY IS THE REORGANIZATION BEING PROPOSED?
The Reorganization will combine two series with substantially identical
investment objectives into one. The Reorganization is being proposed in order to
achieve operating efficiencies, lower operating expenses and to provide the
opportunity for a more efficient investment management process. The
Reorganization may benefit you by achieving operating efficiencies and reducing
operating expenses by utilizing the distribution capabilities of Touchstone
Securities, Inc., Touchstone's distributor. Your current operating expenses will
be reduced immediately as Touchstone has a lower expense ratio than that of
Navellier. The Trustees believe that the Reorganization is in the best interests
of Navellier's shareholders.
WHAT ARE THE KEY FEATURES OF THE REORGANIZATION?
The Plan sets forth the key features of the Reorganization. A description
of the Reorganization is set out in the Plan, a form of which is attached as
Exhibit A. The Plan generally provides for the following:
o the transfer of all of the assets of Navellier to Touchstone in
exchange for shares of Touchstone;
o the assumption by Touchstone of all of the liabilities of Navellier;
o the liquidation of Navellier subsequent to the distribution of
shares of Touchstone to Navellier'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 September 27,
2008.
AFTER THE REORGANIZATION, WHAT SHARES OF TOUCHSTONE WILL I OWN?
If you own shares of Navellier, you will own Class A shares of Touchstone.
The new shares you receive will have the same total value as your shares of
Navellier as of the close of business on the day immediately prior to the
Reorganization. You will not pay any sales charges, CDSC or redemption fees in
connection with the Reorganization. After the Reorganization, if you purchase
additional Class A shares of Touchstone or open a new account in any series
within the Touchstone Family of Funds, you will not be subject to the Class A
front-end sales charge.
1
HOW WILL THE REORGANIZATION AFFECT ME?
It is anticipated that the Reorganization will affect you as follows:
o OPERATING EFFICIENCIES: Upon completion of the Reorganization, Touchstone
may achieve operating efficiencies because it will achieve a greater level
of assets through distribution and sales of the Fund.
o COST SAVINGS: The operating expenses of Touchstone are, and will be, less
than those of Navellier. Touchstone's current net operating expenses
(after fee waivers and expense reimbursements) are 1.35% of average daily
net assets for Class A shares. Navellier's current net operating expenses
(after fee waivers and expense reimbursements) are 1.50% of average daily
net assets. Navellier's operating expense limit is maintained on a
voluntary basis by Navellier & Associates, Inc. Touchstone Advisors, Inc.,
the investment advisor to Touchstone, has contractually agreed that the
expenses of Touchstone will not exceed 1.35% for Class A shares until at
least September 30, 2009. Touchstone Advisors, Inc. will also make every
attempt to increase the assets of the Fund once the Reorganization is
complete.
o RISKS: Upon completion of the Reorganization, you will be subject to the
risks of investing in Touchstone. Touchstone and Navellier have
substantially identical risks. For more information, see "How do the
Funds' investment objectives, principal investment strategies and risks
compare" and "Risks."
After the Reorganization, Touchstone will succeed to the financial history
and the historical performance of Navellier. Neither the Funds nor the
shareholders will bear any costs of the Meeting, this proxy solicitation or any
adjourned session. All of the costs of the Reorganization will be paid by
Touchstone Advisors, Inc. and Navellier & Associates, Inc. Such costs, including
costs of the Meeting and printing costs as well as proxy solicitation costs,
will be approximately $5,300.
Like Navellier, Touchstone will pay dividends from net investment income
annually and will distribute net realized capital gains, if any, at least
annually. You will receive dividends and distributions in the form of additional
Fund shares unless you elect to receive payment in cash. To elect cash payment,
you must notify Touchstone in writing prior to the date of the distribution.
Your election will be effective for dividends and distributions paid after the
written notice is received.
THE TRUSTEES RECOMMEND THAT YOU VOTE FOR THE PROPOSED REORGANIZATION.
HOW DO THE TRUSTEES RECOMMEND THAT I VOTE?
The Trustees of the Navellier Millennium Funds, including the Trustees who
are not "interested persons" (the "Disinterested Trustees"), as such term is
defined in the 1940 Act, have concluded that the Reorganization would be in the
best interest of the shareholders of Navellier and that their interests will not
be diluted as a result of the Reorganization. Accordingly, the Trustees have
submitted the Plan for the approval of shareholders of Navellier.
2
The Trustees of Touchstone Funds Group Trust have also unanimously
concluded that participating in the Reorganization is in the best interests of
Touchstone, that no dilution would occur as a result and have approved the Plan
on behalf of Touchstone.
HOW DO THE FUNDS' INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT STRATEGIES
AND RISKS COMPARE?
Because Touchstone is a new Fund organized specifically to receive all the
assets and carry on the business of Navellier, the investment objective of
Touchstone is substantially identical to that of Navellier, and the investment
strategies of each Fund are substantially identical. The investment objective of
each Fund is non-fundamental, which means that it may be changed by vote of the
Trustees and without shareholder approval. However, shareholders will be given
60 days' prior notice of any change in a Fund's investment objectives.
The following table summarizes a comparison of Navellier and Touchstone
with respect to their investment objectives and principal investment strategies,
as set forth in the Prospectus and Statement of Additional Information relating
to Navellier and in the "Additional Information" section of this
Prospectus/Proxy statement relating to Touchstone.
- --------------------------------------------------------------------------------
NAVELLIER
- --------------------------------------------------------------------------------
Investment The Fund seeks long-term capital growth by
Objective investing in foreign stocks with the potential to
rise in price.
- --------------------------------------------------------------------------------
Principal The Fund invests, under normal conditions, at
Investment least 80% of its total assets in foreign
Strategies securities and stocks (of companies located
outside of the United States and not traded on
United States Exchanges) and American Depositary
Receipts (ADRs) of companies without regard to
market capitalization (possibly including
investments in foreign securities of companies in
emerging markets). At times, the Fund may invest
up to 100% of its total assets in such securities.
The Fund attempts to uncover such stocks with
strong return potential and acceptable risk
characteristics by exploiting market
inefficiencies utilizing the Navellier value and
added quantitative stock selection model,
portfolio optimization and risk analysis.
The Fund may invest in common and/or preferred
stocks, securities convertible into common and/or
preferred stocks, and warrants to purchase common
and/or preferred stocks.
The Fund will invest in a variety of countries
throughout the world.
The Fund will consider an issuer located in a
country if it is organized under the laws of that
country and is principally traded in that country
or is domiciled and has its principal place of
business located in that country and is
principally traded in that country, or if the
investment advisor determines that the issuer has
more than 50% of its assets in or derives more
than 50% of its revenues from that country.
The Fund expects typically to invest in companies
located in ten or more countries outside of the
United States at any one time.
- --------------------------------------------------------------------------------
3
- --------------------------------------------------------------------------------
TOUCHSTONE
- --------------------------------------------------------------------------------
Investment The Fund seeks long-term capital growth.
Objective
- --------------------------------------------------------------------------------
Principal The Fund invests, under normal conditions, at
Investment least 80% of its total assets in foreign
Strategies securities and stocks (of companies located
outside of the United States and not traded on
United States Exchanges) and American Depositary
Receipts (ADRs) of companies without regard to
market capitalization possibly including
investments in foreign securities of companies in
emerging markets. At times, the Fund may invest up
to 25% of its total assets in emerging market
securities.
The Fund attempts to uncover such stocks with
strong return potential and acceptable risk
characteristics by exploiting market
inefficiencies utilizing the Navellier value and
added quantitative stock selection model,
portfolio optimization and risk analysis.
The Fund may invest in common and/or preferred
stocks, securities convertible into common and/or
preferred stocks, and warrants to purchase common
and/or preferred stocks.
The Fund will invest in a variety of countries
throughout the world.
- --------------------------------------------------------------------------------
Touchstone may depart from its principal investment strategies by taking
temporary defensive positions in response to adverse market, economic, political
or other conditions, including conditions when the Fund is unable to identify
attractive investment opportunities. During these times, the Fund may not
achieve its investment goal. Navellier may invest in other types of securities
(i.e., bonds, cash or cash equivalents) for temporary defensive purposes to
protect the Fund from potential losses or to meet shareholder redemptions.
The risks of investing in Navellier and Touchstone are the same. The
principal risks of investing in the Funds are as follows:
Market Risk
Equity Securities Risk
Small and Mid Cap Companies Risk
Non-diversified Investment Risk
Political Risk
Currency Risk
Limited Information Risk
Emerging Market Country Risk
Settlement and Clearance Risk
Liquidity Risk
Pricing Risk
4
o MARKET AND EQUITY SECURITIES RISK. Since both Funds purchase common
stocks, the Funds are subject to the risk that stock prices will fall over
short or extended periods of time. Historically, the equity markets have
moved in cycles. The value of the Fund's equity securities may fluctuate
from day to day. Individual companies may report poor results or be
negatively affected by industry and/or economic trends and developments.
The prices of securities issued by these companies may decline in response
to such developments, which could result in a decline in the value of the
Funds' shares. These factors contribute to price volatility, which is the
principal risk of investing in the Funds. The Funds are also subject to
the risk that its market segment, foreign equity securities, may
underperform other equity market segments or the equity markets as a
whole. In addition, common stocks represent a share of ownership in a
company, and rank after bonds and preferred stock in their claim on the
company's assets in the event of liquidation. Preferred stock represents
an equity or ownership interest in an issuer that pays dividends at a
specified rate and that has precedence over common stock in the payment of
dividends. In the event an issuer is liquidated or declares bankruptcy,
the claims of owners of bonds take precedence over the claims of those who
own preferred and common stock. If interest rates rise, the fixed dividend
on preferred stocks may be less attractive, causing the price of preferred
stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as provisions allowing the stock to be called or
redeemed prior to its maturity, which can have a negative impact on the
stock's price when interest rates decline.
o SMALL AND MID CAP COMPANIES RISK. The Funds are subject to the risk that
small and medium capitalization stocks may underperform other types of
stocks or the equity markets as a whole. Moreover, the medium and smaller
capitalization companies in which the Funds invest may be more vulnerable
to adverse business or economic events than larger, more established
companies. In particular, these medium and small companies may have more
limited product lines, markets and financial resources, and may depend
upon a relatively small management group. Therefore, medium and small cap
company stocks may be more volatile than stocks of larger companies.
o POLITICAL, CURRENCY, LIMITED INFORMATION, SETTLEMENT AND CLEARANCE, AND
LIQUIDITY RISK. Investing in foreign securities poses additional risks
since political and economic events unique in a country or region will
affect those markets and their issuers. These events will not necessarily
affect the U.S. economy or similar issuers located in the United States.
In addition, investments in foreign securities are generally denominated
in foreign currency. As a result, changes in the value of those currencies
compared to the U.S. dollar may affect (positively or negatively) the
value of the Funds' investments. These currency movements may happen
separately from, or in response to, events that do not otherwise affect
the value of the security in the issuer's home country. There is a risk
that foreign securities may not be subject to accounting standards or
governmental supervision comparable to U.S. companies and that less public
information about their operations may exist. There is risk associated
with the clearance and settlement procedures in non-U.S. markets, which
may be unable to keep pace with the volume of securities transactions and
may cause delays. Foreign markets may be less liquid and more volatile
than U.S. markets and offer less protection to investors. Over-the-counter
securities may also be less liquid than exchange-traded securities.
5
o EMERGING MARKET AND PRICING RISK. Emerging market countries are countries
that the World Bank or the United Nations considers to be emerging or
developing. Emerging markets may be more likely to experience political
turmoil or rapid changes in market or economic conditions than more
developed countries. In addition, the financial stability of issuers
(including governments) in emerging market countries may be more
precarious than in other countries. As a result, there will tend to be an
increased risk of price volatility associated with the Funds' investments
in emerging market countries, which may be magnified by currency
fluctuations relative to the U.S. dollar.
o NON-DIVERSIFED INVESTMENT RISK. The Funds are non-diversified, which means
that it may invest a greater percentage of its assets than other mutual
funds in the securities of a limited number of issuers. The use of a
non-diversified investment strategy may increase the volatility of the
Funds' investment performance, as the Funds may be more susceptible to
risks associated with a single economic, political or regulatory event
than a diversified fund.
For a detailed discussion of the Funds' risks, see the section entitled
"Risks" below.
The Funds have other investment policies, practices and restrictions,
which together with their related risks, are in Navellier's Prospectus and
Statement of Additional Information, the "Additional Information" section below
with respect to Touchstone and the Statement of Additional Information relating
to this Prospectus/Proxy Statement.
Because the Funds have substantially identical investment objectives and
substantially identical investment strategies, it is not anticipated that the
securities held by Navellier will be sold in order to comply with the policies
and investment practices of Touchstone in connection with the Reorganization.
HOW DO THE FUNDS' FEES AND EXPENSES COMPARE?
After the Reorganization, shares of Navellier will be exchanged for Class
A shares of Touchstone. You will not pay any front-end sales charge, CDSC or
other fees in connection with the Reorganization. After the Reorganization, if
you purchase additional Class A shares of Touchstone or open a new account in
any Fund within the Touchstone Family of Funds, you will not be subject to the
Class A front-end sales charge.
The following tables show the various sales charges, fees and expenses
that you may pay for buying, holding and redeeming shares of Navellier and
Touchstone (Pro Forma). The amounts for the shares of Navellier set forth in the
following table and in the examples are based on the expenses for the fiscal
year ended December 31, 2007. Touchstone is newly organized and has not
commenced operations to date. The amounts for shares of Touchstone (Pro Forma)
set forth in the following table and in the examples are based on what the
estimated expenses of Touchstone will be for the fiscal year ending September
30, 2008, assuming the Reorganization had taken place as of that date.
6
- --------------------------------------------------------------------------------
Touchstone
Navellier (Pro Forma)
- --------------------------------------------------------------------------------
Maximum Sales Charge Imposed on
Purchases (as a percentage of offering price) None 5.75%(1)
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge
(as a percentage of original
purchase price or the amount
redeemed, whichever is less) None None(2)
- --------------------------------------------------------------------------------
Wire Redemption Fee None Up to $15
- --------------------------------------------------------------------------------
Redemption Fee 2.00%(3) None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Management Fees 1.00% 0.90%
- --------------------------------------------------------------------------------
Distribution (12b-1) Fees 0.25% 0.25%
- --------------------------------------------------------------------------------
Other Expenses 7.63% 4.61%(4)
- --------------------------------------------------------------------------------
Total Annual Fund Operating Expenses 8.88%(5) 5.76%
- --------------------------------------------------------------------------------
Fee Waiver and/or Expense Reimbursement N/A 4.41%(6)
- --------------------------------------------------------------------------------
Net Expenses N/A 1.35%
- --------------------------------------------------------------------------------
(1) You will not be subject to any front-end sales charges for additional
shares of the Fund.
(2) Purchases 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.
(3) Based on a percentage of the amount redeemed or exchanged, on shares held
less than 60 days.
(4) "Other Expenses" are based on estimated amounts for the current fiscal
year.
(5) Navellier's voluntary limit of expense reimbursement of a portion of the
Fund's administration and other operating expenses was 7.38% for the year
ended December 31, 2007, resulting in Net Total Annual Portfolio Operating
Expenses of 1.50%. Navellier & Associates, Inc. has also agreed to future
partial limits of expense reimbursement in future fiscal years so that the
net total annual operating expenses after limit of expense reimbursements
for any such fiscal year does not exceed 1.50%. The limit on reimbursement
of expenses by Navellier & Associates, Inc. is voluntary and may be
withdrawn from year to year. If Navellier & Associates, Inc. does not seek
reimbursement within three (3) years of advancing expenses, then
reimbursement is forever waived and there will be no ability to recoup the
reimbursed amount. If reimbursement is made, it must be approved by the
Board of Trustees of the Fund. After the Reorganization, neither Navellier
& Associates, Inc. nor Touchstone Advisors, Inc. shall have the ability to
recoup any amounts from the Fund.
(6) Touchstone Advisors, Inc. and Touchstone Funds Group Trust have entered
into an Expense Limitation Agreement whereby Touchstone Advisors, Inc. has
contractually agreed to waive a portion of its advisory fee and/or
reimburse certain Fund expenses in order to limit "Net Expenses" to 1.35%
for Class A shares. This expense limitation will remain in effect until at
least September 30, 2009. Touchstone Advisors, Inc. has no ability to
recoup amounts waived or reimbursed. However, for purposes of these
waivers, the cost of "Acquired Fund Fees and Expenses," if any, is
excluded from Touchstone Advisors, Inc.'s waiver obligations.
The table below shows an example of the total expenses you would pay on a
$10,000 investment over one-, three-, five- and ten-year periods. The example is
intended to help you compare the cost of investing in Navellier versus
Touchstone (Pro Forma), assuming the Reorganization is completed. The example
assumes a 5% average annual return, that you redeem all of your shares at the
end of each time period, that the Funds' operating expenses remain the same,
that you reinvest all of your dividends and that the contractual expense
limitation agreement of Touchstone remains in effect until September 30, 2009.
The example is for illustration only, and your actual costs may be higher or
lower.
- --------------------------------------------------------------------------------
Example of Fund Expenses 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Navellier $904 $2,671 $4,304 $7,864
- --------------------------------------------------------------------------------
Touchstone - (Pro Forma) $705 $1,821 $2,921 $5,599
- --------------------------------------------------------------------------------
7
HOW DO THE FUNDS' PERFORMANCE RECORDS COMPARE?
The following chart shows the past performance of Navellier. Past
performance before and after taxes is not an indication of future results.
Touchstone is newly formed and has no operational history. Consequently, it does
not have an investment performance record. After the Reorganization, Touchstone,
as the successor to Navellier, will assume and publish the investment
performance record of Navellier.
YEAR-BY-YEAR TOTAL RETURN (%)
The chart below shows the percentage gain or loss for shares of Navellier
in each calendar year since inception. The chart should give you a general idea
of the risks of investing in the Fund by showing how the returns have varied
from year-to-year. The chart does not reflect any sales charges, which would
reduce your return. The Fund can also experience short-term performance swings
as indicated in the high and low quarter information at the bottom of the chart.
[BAR CHART OMITTED]
2001 2002 2003 2004 2005 2006 2007
- -19.38% -11.22% 35.82% 14.29% 14.57% 23.01% 22.77%
------------------------------------------
Best Quarter 2nd Quarter 2003: 21.06%
------------------------------------------
Worst Quarter 3rd Quarter 2001: -17.39%
------------------------------------------
The next table lists the average annual total returns and after-tax
returns of Navellier over the past one year, five years and since inception
(through 12/31/2007). The returns in the table have been adjusted to reflect the
maximum sales charge of 5.75% for Touchstone. The 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. Past performance, before and after taxes, is not an
indication of future results.
AVERAGE ANNUAL TOTAL RETURNS (FOR THE PERIOD ENDED 12/31/2007)
- ---------------------------------------------------------------------------------------------------------------------
NAVELLIER 1 YEAR(1) 5 YEARS SINCE INCEPTION(2)
- ---------------------------------------------------------------------------------------------------------------------
Return Before Taxes(3) 15.71% 14.84% -1.26%
- ---------------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions(3) 14.33% 14.28% -1.61%
- ---------------------------------------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of 9.07% 12.41% -1.98%
Fund Shares
- ---------------------------------------------------------------------------------------------------------------------
MSCI EAFE Index(4) 11.63% 22.08% 7.08%
- ---------------------------------------------------------------------------------------------------------------------
8
(1) For the year ending December 31, 2007.
(2) The inception date of the Navellier International Growth Portfolio was
September 5, 2000.
(3) After-tax returns shown in the table are calculated using the historical
highest individual federal marginal income tax rates and do not reflect
the impact of state and local taxes. Actual after-tax returns depend on an
investor's tax situation and may differ from those shown. The loss (if
any) in the "Return after taxes on distributions and sale of fund shares"
column above may be less than that shown in the "Return after taxes on
distributions only" column because it is assumed that the shareholder is
subject to the highest federal marginal tax rates and the loss will offset
other income that would have otherwise been subject to those higher
marginal tax rates. The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements
such as 401(k) plans or individual retirement accounts.
(4) The MSCI EAFE Index is an unmanaged index, designed by Morgan Stanley, of
equities in the developed countries of Europe, Australasia, and the Far
East. It is considered representative of the international stock market in
general. The Index reflects no deductions for fees, expenses or taxes. You
cannot invest directly in an index.
For a detailed discussion of the manner of calculating total return,
please see Navellier's Statement of Additional Information. Generally, the
calculations of total return assume the reinvestment of all dividends and
capital gain distributions on the reinvestment date and the deduction of all
recurring expenses that were charged to shareholders' accounts.
Important information about Navellier's performance is also contained in
the management discussion section of the Navellier Millennium Funds' most recent
Annual Report.
WILL I BE ABLE TO PURCHASE, EXCHANGE AND REDEEM SHARES AND RECEIVE
DISTRIBUTIONS THE SAME WAY?
Touchstone shares are sold in a continuous offering and are offered to the
public, and may be purchased through securities dealers or directly from
Touchstone's underwriter, Touchstone Securities, Inc. In the proposed
Reorganization, Navellier shareholders will receive Class A shares of
Touchstone. Because the Reorganization will be effected at net asset value
without the imposition of a sales charge, Navellier shareholders will receive
Touchstone Class A shares without paying any front-end sales charge or CDSC as a
result of the Reorganization.
The following is a summary description of sales charges for the Class A
shares of Touchstone which will be waived for Navellier shareholders in the
Reorganization. For more information, see "Purchase and Redemption Procedures,"
"Exchange Privileges" and "Dividend Policy" below.
Class A shares are sold at net asset value plus a front-end initial sales
charge of up to 5.75% of the offering price and, as indicated below, are subject
to distribution-related fees. For a description of the front-end sales charge
applicable to the purchase of Class A shares see the "Additional Information"
section of this Prospectus/Proxy statement relating to Touchstone. No front-end
sales charge will be imposed on Class A shares of Touchstone received by
Navellier shareholders as a result of the Reorganization.
9
Touchstone currently offers an exchange privilege, including telephone
exchange privileges, which, subject to certain restrictions, permit shares of
any of the other series of the Touchstone Family of Funds to be exchanged for
identical shares of Touchstone. These exchanges are based upon each series' net
asset value per share next computed following receipt of a properly-executed
exchange request without any sales charge. After the Reorganization, if you
purchase additional Class A shares of Touchstone or open a new account in any
series within the Touchstone Family of Funds, you will not be subject to the
Class A front-end sales charge. If the proposed Reorganization does not occur,
Navellier shareholders will not be able to exchange their Navellier shares for
shares of any series of the Touchstone Family of Funds. Except for the
foregoing, there would be no material differences between the exchange
privileges which shareholders of Navellier currently have and the exchange
privileges which such shareholders will have as shareholders of Touchstone upon
effectiveness of the Reorganization.
Touchstone has reserved the right to reject or refuse, at Touchstone's
discretion, any order for the purchase of its shares in whole or in part.
WHO WILL BE THE ADVISOR, SUB-ADVISOR AND PORTFOLIO MANAGER OF MY FUND
AFTER THE REORGANIZATION? WHAT WILL THE ADVISORY FEES BE AFTER THE
REORGANIZATION?
Management of the Funds
The overall management of each Fund is the responsibility of, and is
supervised by, the Board of Trustees of each of their respective Trusts.
Advisor
Touchstone Advisors, Inc. is the investment advisor of Touchstone.
Pursuant to an Investment Advisory Agreement with the Touchstone Funds Group
Trust, Touchstone Advisors, Inc. selects each Fund's sub-advisor, subject to
approval by the Board of Trustees. Touchstone Advisors, Inc. pays the fees to
each sub-advisor and monitors each sub-advisor's investment program. Touchstone
Advisors, Inc. is a wholly owned subsidiary Western - Southern Mutual Holding
Company ("Western-Southern").
Facts about Touchstone Advisors, Inc.:
--------------------------------------------------------------------------
o As of December 31, 2007, Touchstone Advisors, Inc. had assets under
management of approximately $8.3 billion.
o Touchstone Advisors, Inc. is located at 303 Broadway, Suite 1100,
Cincinnati, Ohio 45202.
--------------------------------------------------------------------------
Touchstone Advisors, Inc. has received an order from the SEC that permits
it, under certain conditions, to select or change unaffiliated sub-advisors,
enter into new sub-advisory agreements or amend existing sub-advisory agreements
without first obtaining shareholder approval. The Fund must still obtain
shareholder approval of any sub-advisory agreement with a sub-advisor affiliated
with Touchstone Funds Group Trust or Touchstone Advisors, Inc. other than by
reason of serving as a sub-advisor to one or more funds.
Navellier & Associates, Inc. is the investment advisor of Navellier.
Facts about Navellier & Associates, Inc.:
10
--------------------------------------------------------------------------
o As of December 31, 2007, Navellier & Associates, Inc. had assets
under management of approximately $4.7 billion.
o Navellier & Associates, Inc. is located at One East Liberty Street,
Third Floor, Reno, Nevada, 89501.
--------------------------------------------------------------------------
Sub-Advisor
Navellier & Associates, Inc. is the sub-advisor of Touchstone. Pursuant to
a Sub-Advisory Agreement with Touchstone Advisors, Inc., Navellier & Associates,
Inc. continuously furnishes an investment program for Touchstone, makes the
day-to-day investment decisions on behalf of Touchstone and arranges the
execution of Fund transactions. Navellier & Associates, Inc. does not have a
sub-advisory contract with any other investment advisor.
Portfolio Management
The Funds have the same portfolio managers as follows:
LOUIS G. NAVELLIER has been the CEO and Chief Investment Officer of
Navellier & Associates, Inc. since 1988. Mr. Navellier developed a computer
model based on an existing proven model, which identifies attractive stocks to
meet the goals of the Funds and other portfolios managed by Navellier&
Associates, Inc. He has been advising investors based on his investment
technique since 1987.
JAMES O'LEARY, CFA, has thirty four years' experience in the areas of
investment management and institutional marketing in the securities industry. He
joined Navellier & Associates, Inc. in 1996.
PHILLIP MITTELDORF, Portfolio Manager, joined Navellier& Associates, Inc.
in 1995. He has thirteen years of investment experience.
Advisory Fees
For its management and supervision of the daily business affairs of
Navellier, Navellier & Associates, Inc. receives a monthly fee at the annual
rate of 1.00% of Navellier's average daily net assets. For its management and
supervision of the daily business affairs of Touchstone, Touchstone Advisors,
Inc. receives a monthly fee at the annual rate of 0.90% of Touchstone's average
daily net assets. Out of this fee, Touchstone Advisors, Inc. pays Navellier &
Associates, Inc. a sub-advisory fee for its services for Touchstone.
Touchstone Advisors, Inc. may, at its discretion, reduce or waive its fee
or reimburse a Fund for certain of its other expenses in order to reduce the
expense ratios. Unless otherwise agreed upon, Touchstone Advisors, Inc. may also
reduce or cease these voluntary waivers and reimbursements at any time.
Touchstone Funds Group Trust and Touchstone Advisors, Inc. have entered into an
expense limitation agreement whereby Touchstone's total operating expenses will
be contractually limited to no more than 1.35% for Class A shares until at least
September 30, 2009.
11
Sub-Advisory Fees
Under the terms of the Sub-Advisory Agreement between Touchstone Advisors,
Inc., on behalf of Touchstone and Navellier & Associates, Inc., Navellier &
Associates, Inc. receives a monthly fee from Touchstone Advisors, Inc. of 0.40%
of average daily net assets up to $1 billion; 0.35% of assets over $1 billion.
Touchstone does not pay a fee to Navellier & Associates, Inc.
WHAT WILL BE THE PRIMARY FEDERAL TAX CONSEQUENCES OF THE REORGANIZATION?
Prior to or at the completion of the Reorganization, Touchstone and
Navellier will have each received an opinion from the law firm of Morgan, Lewis
& Bockius LLP that the Reorganization will constitute a tax-free reorganization
within the meaning of section 368(a) of the U.S. Internal Revenue Code of 1986,
as amended (the "Code"). Accordingly, it is believed that no gain or loss
generally will be recognized by Navellier or Touchstone or their respective
shareholders (see "Information About the Reorganization-Federal Income Tax
Consequences").
RISKS
ARE THE RISK FACTORS FOR THE FUNDS SIMILAR?
The risks of investing in Navellier and Touchstone are substantially the
same. The risks of each Fund are described in greater detail in Navellier's
Prospectus and in the "Additonal Information" section of this Prospectus/Proxy
statement relating to Touchstone.
WHAT ARE THE PRIMARY RISKS OF INVESTING IN EACH FUND?
An investment in each Fund is subject to certain risks. There is no
assurance that the investment performance of either Navellier or Touchstone will
be positive or that the Funds will meet their investment objectives. The
following discussions highlight the primary risks associated with an investment
in each of the Funds.
EACH FUND IS SUBJECT TO MARKET AND EQUITY SECURITIES RISK.
Since it purchases common stocks, each Fund is subject to the risk that
stock prices will fall over short or extended periods of time. Historically, the
equity markets have moved in cycles. The value of the Fund's equity securities
may fluctuate from day to day. Individual companies may report poor results or
be negatively affected by industry and/or economic trends and developments. The
prices of securities issued by these companies may decline in response to such
developments, which could result in a decline in the value of the Fund's shares.
These factors contribute to price volatility, which is the principal risk of
investing in the Fund. The Fund is also subject to the risk that its market
segment, foreign equity securities, may underperform other equity market
segments or the equity markets as a whole. In addition, common stocks represent
a share of ownership in a company, and rank after bonds and preferred stock in
their claim on the company's assets in the event of liquidation. Preferred stock
represents an equity or ownership interest in an issuer that pays dividends at a
specified rate and that has precedence over common stock in the payment of
dividends. In the event an issuer is liquidated or declares bankruptcy, the
claims of owners of bonds take precedence over the claims of those who own
preferred and common stock. If interest rates rise, the fixed dividend on
preferred stocks may be less attractive, causing the price of preferred stocks
to decline. Preferred stock may have mandatory sinking fund provisions, as well
as provisions allowing the stock to be called or redeemed prior to its maturity,
which can have a negative impact on the stock's price when interest rates
decline.
12
EACH FUND IS SUBJECT TO SMALL AND MID CAP COMPANIES RISK.
Each Fund is subject to the risk that small and medium capitalization
stocks may underperform other types of stocks or the equity markets as a whole.
Moreover, the medium and smaller capitalization companies in which the Fund
invests may be more vulnerable to adverse business or economic events than
larger, more established companies. In particular, these medium and small
companies may have more limited product lines, markets and financial resources,
and may depend upon a relatively small management group. Therefore, medium and
small cap company stocks may be more volatile than stocks of larger companies.
EACH FUND IS SUBJECT TO POLITICAL, CURRENCY, LIMITED INFORMATION,
SETTLEMENT AND CLEARANCE, AND LIQUIDITY RISK.
Investing in foreign securities poses additional risks since political and
economic events unique in a country or region will affect those markets and
their issuers. These events will not necessarily affect the U.S. economy or
similar issuers located in the United States. In addition, investments in
foreign securities are generally denominated in foreign currency. As a result,
changes in the value of those currencies compared to the U.S. dollar may affect
(positively or negatively) the value of the Fund's investments. These currency
movements may happen separately from, or in response to, events that do not
otherwise affect the value of the security in the issuer's home country. There
is a risk that foreign securities may not be subject to accounting standards or
governmental supervision comparable to U.S. companies and that less public
information about their operations may exist. There is risk associated with the
clearance and settlement procedures in non-U.S. markets, which may be unable to
keep pace with the volume of securities transactions and may cause delays.
Foreign markets may be less liquid and more volatile than U.S. markets and offer
less protection to investors. Over-the-counter securities may also be less
liquid than exchange-traded securities.
EACH FUND IS SUBJECT TO EMERGING MARKET AND PRICING RISK.
Emerging market countries are countries that the World Bank or the United
Nations considers to be emerging or developing. Emerging markets may be more
likely to experience political turmoil or rapid changes in market or economic
conditions than more developed countries. In addition, the financial stability
of issuers (including governments) in emerging market countries may be more
precarious than in other countries. As a result, there will tend to be an
increased risk of price volatility associated with the Fund's investments in
emerging market countries, which may be magnified by currency fluctuations
relative to the U.S. dollar.
EACH FUND IS SUBJECT TO NON-DIVERSIFIED INVESTMENT RISK.
Each Fund is non-diversified, which means that it may invest a greater
percentage of its assets than other mutual funds in the securities of a limited
number of issuers. The use of a non-diversified investment strategy may increase
the volatility of the Fund's investment performance, as the Fund may be more
susceptible to risks associated with a single economic, political or regulatory
event than a diversified fund.
ARE THERE ANY OTHER RISKS OF INVESTING IN EACH FUND?
13
Because Touchstone engages a sub-advisor to make investment decisions on
behalf of the Fund, there is a risk that Touchstone Advisors, Inc. may be unable
to identify and retain sub-advisors who achieve superior investment returns
relative to other similar sub-advisors.
INFORMATION ABOUT THE REORGANIZATION
REASONS FOR THE REORGANIZATION
The Reorganization will combine two Funds with substantially identical
investment objectives into one and is designed to achieve operating efficiencies
due to the spreading of fixed costs over a larger pool of assets and increased
distribution by Touchstone's distributor, Touchstone Securities, Inc.
At a regular meeting held on June 19, 2008, all of the Trustees of the
Navellier Millennium Funds, including the Disinterested Trustees, considered and
approved the Reorganization; they determined that the Reorganization was in the
best interests of shareholders of Navellier and that the interests of existing
shareholders of Navellier will not be diluted as a result of the transactions
contemplated by the Reorganization.
Before approving the Plan, the Trustees evaluated extensive information
provided by the management of the Navellier Millennium Funds, and reviewed
various factors about the Funds and the proposed Reorganization.
In addition, the Trustees considered, among other things:
o the terms and conditions of the Reorganization;
o the fact that the Reorganization would not result in the dilution of
shareholders' interests;
o the expense ratios, fees and expenses of Navellier and the anticipated
expense ratios, fees and expenses of Touchstone;
o the fact that Touchstone Advisors, Inc. has contractually agreed to limit
the total annual operating expenses of Touchstone until at least September
30, 2009;
o the fact that both Funds have substantially similar investment objectives
and policies;
o the investment personnel, expertise and resources of Touchstone Advisors,
Inc.;
o the fact that the Reorganization will provide continuity of money
management for shareholders because the portfolio managers for Touchstone
are the same portfolio managers for Navellier;
o the fact that Touchstone Advisors, Inc. and Navellier & Associates, Inc.
will bear the expenses incurred by Navellier and Touchstone in connection
with the Reorganization;
o the potential benefits to shareholders, including operating efficiencies,
which may be achieved from the Reorganization;
o the fact that Touchstone will assume all of the liabilities of Navellier;
14
o the fact that the Reorganization is expected to be a tax free transaction
for federal income tax purposes; and
o alternatives available to shareholders of Navellier, including the ability
to redeem their shares.
During their consideration of the Reorganization, the Disinterested
Trustees of the Navellier Millennium Funds discussed with counsel the legal
issues involved.
After consideration of the factors noted above, together with other
factors and information considered to be relevant, and recognizing that there
can be no assurance that any operating efficiencies or other benefits will in
fact be realized, the Trustees of the Navellier Millennium Funds concluded that
the proposed Reorganization would be in the best interests of Navellier and its
shareholders. Consequently, they approved the Plan and directed that the Plan be
submitted to shareholders of Navellier for approval.
The Trustees of Touchstone Funds Group Trust have also approved the Plan
on behalf of Touchstone.
AGREEMENT AND PLAN OF REORGANIZATION
The following summary is qualified in its entirety by reference to the
Plan (the form of which is attached as Exhibit A to this Prospectus/Proxy
Statement).
The Plan provides that all of the assets of Navellier will be acquired by
Touchstone in exchange for shares of Touchstone and the assumption by Touchstone
of all of the liabilities of Navellier immediately prior to the opening of
business on September 29, 2008 or such other date as may be agreed upon by the
parties (the "Closing Date"). Prior to the Closing Date, Navellier will endeavor
to discharge all of its known liabilities and obligations. Navellier will
prepare an unaudited statement of its assets and liabilities as of the close of
regular trading on the NYSE, normally 4:00 p.m. Eastern Time, on the business
day immediately prior to the Closing Date (the "Valuation Time").
At or prior to the Valuation Time, for tax reasons, Navellier 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).
The number of full and fractional shares of Touchstone to be received by
the shareholders of Navellier will be determined by multiplying the number of
outstanding full and fractional shares of Navellier by a factor which shall be
computed by dividing the net asset value per share of Navellier by the net asset
value per share of Touchstone. These computations will take place as of the
Valuation Time. For Navellier, the net asset value per share will be determined
by dividing assets, less liabilities, by the total number of outstanding shares.
JPMorgan Chase Bank, N.A, the accounting agent for Navellier, will compute
the value of Navellier's portfolio of securities. The method of valuation
employed will be consistent with the procedures set forth in the Prospectus and
Statement of Additional Information relating to Touchstone, Rule 22c-1 under the
1940 Act, and with the interpretations of that Rule by the SEC's Division of
Investment Management.
15
As soon after the Closing Date as conveniently practicable, Navellier will
liquidate and distribute pro rata to shareholders of record as of the close of
business on the Closing Date the full and fractional shares of Touchstone
received by Navellier. The liquidation and distribution will be accomplished by
the establishment of accounts in the names of Navellier's shareholders on
Touchstone's share records of its transfer agent. Each account will represent
the respective pro rata number of full and fractional shares of Touchstone due
to Navellier's shareholders. All issued and outstanding shares of Navellier will
be canceled. Shares of Touchstone 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, Navellier will be terminated.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by Navellier's shareholders, accuracy of
various representations and warranties and receipt of opinions of counsel.
Notwithstanding approval by Navellier's shareholders, the Plan may be terminated
(a) by the mutual agreement of Navellier and Touchstone; 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 10 days, or (2) by written
notice to the other Party following a determination by the terminating Party's
Board that the consummation of the Reorganization is not in the best interest of
its shareholders; or (3) if the Closing Date does not occur by December 31,
2008.
Whether or not the Reorganization is consummated, Touchstone Advisors,
Inc. and Navellier & Associates, Inc. will pay the expenses incurred by
Navellier and Touchstone in connection with the Reorganization (including the
cost of proxy solicitation).
If Navellier's shareholders do not approve the Reorganization, the
Trustees will consider other possible courses of action that may be 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, Touchstone and Navellier will have each
received an opinion from Morgan, Lewis & Bockius LLP 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 Reorganization will constitute a tax-free reorganization
within the meaning of Section 368(a) of the Code, and Touchstone and Navellier
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 Navellier upon the transfer
of all of its assets to Touchstone in exchange solely for the Touchstone's
shares and the assumption by Touchstone of all of Navellier's liabilities or
upon the distribution of Touchstone's shares to the Navellier's shareholders in
exchange for their shares of Navellier.
3. No gain or loss will be recognized by Touchstone upon the receipt
by it of all of the assets of Navellier in exchange solely for Touchstone's
shares and the assumption by Touchstone of all of the liabilities of the
Navellier.
16
4. The adjusted tax basis of the assets of Navellier received by
Touchstone will be the same as the adjusted tax basis of such assets to
Navellier immediately prior to the Reorganization.
5. The holding period of the assets of Navellier received by
Touchstone will include the holding period of those assets in the hands of
Navellier immediately prior to the Reorganization.
6. No gain or loss will be recognized by the shareholders of
Navellier upon the exchange of their Navellier shares for shares (including
fractional shares to which they may be entitled) of Touchstone and the
assumption by Touchstone of all of the liabilities of Navellier.
7. The aggregate adjusted tax basis of the Touchstone shares
received by the shareholders of Navellier (including fractional shares to which
they may be entitled) pursuant to the Reorganization will be the same as the
aggregate tax basis of the Navellier shares held by Navellier's shareholders
immediately prior to the Reorganization.
8. The holding period of the Touchstone shares received by the
shareholders of Navellier (including fractional shares to which they may be
entitled) will include the holding period of the Navellier shares surrendered in
exchange therefor, provided that the Navellier shares were held as a capital
asset as of the closing of the Reorganization.
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, each shareholder of Navellier would
recognize a taxable gain or loss equal to the difference between his or her tax
basis in his or her Navellier shares and the fair market value of the shares of
Touchstone he or she received.
PRO-FORMA CAPITALIZATION
The following table sets forth the capitalization of Navellier and
Touchstone as of December 31, 2007 and the capitalization of Touchstone on a pro
forma basis as of that date, giving effect to the proposed acquisition of assets
of Navellier at net asset value. As a newly created series, Touchstone,
immediately preceding the Closing Date, will have nominal assets and
liabilities. The pro forma data reflects an exchange ratio of approximately 1.00
share of Touchstone for each share of Navellier.
CAPITALIZATION OF NAVELLIER AND TOUCHSTONE
- --------------------------------------------------------------------------------
TOUCHSTONE PRO
FORMA -
NAVELLIER TOUCHSTONE AFTER REORGANIZATION
- --------------------------------------------------------------------------------
NET ASSETS $3,829,017 $0 $3,829,017
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE 11.88 0 11.88
- --------------------------------------------------------------------------------
SHARES OUTSTANDING 322,205 0 322,205
- --------------------------------------------------------------------------------
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.
17
DISTRIBUTION OF SHARES
IFS Fund Distributors, Inc. is Navellier's principal underwriter and
exclusive agent for distribution of Navellier's shares. IFS Fund Distributors,
Inc. is obligated to sell shares of the Fund on a best efforts basis only
against purchase orders for the shares. Shares of the Fund are offered to the
public on a continuous basis. IFS Fund Distributors, Inc. is a wholly owned
subsidiary of Western-Southern.
Touchstone Securities, Inc. is the principal underwriter of Touchstone
and, as such, the exclusive agent for distribution of the Touchstone's shares.
Shares of the Fund are sold in a continuous offering directly through Touchstone
Securities, Inc., through financial advisors and financial intermediaries or
through processing organizations. Touchstone Securities, Inc. allows concessions
to dealers who sell shares of the Fund. Touchstone Securities, Inc. receives
that portion of the sales charge that is not reallowed to dealers and retains
the entire sales charge on all direct investments and accounts with no
designated dealer of record. Touchstone Securities, Inc. is a wholly owned
subsidiary of Western-Southern.
PURCHASE AND REDEMPTION PROCEDURES
The minimum initial purchase requirement for Touchstone is $2,500. The
minimum for subsequent purchases of the Fund is $50. Touchstone provides for
telephone, Internet, mail or wire redemption of shares at net asset value as
next determined after receipt of a redemption request on each day the NYSE is
open for trading. For more information, see the "Additional Information" section
of this Prospectus/Proxy statement relating to Touchstone.
The minimum initial purchase requirement for Navellier is $2,000. The
minimum for subsequent purchases of the Fund is $100. Navellier provides for
telephone, Internet, mail or wire redemption of shares at net asset value as
next determined after receipt of a redemption request on each day the NYSE is
open for trading. For more information, see "How to Buy, Sell and Exchange
shares" in the Navellier's Prospectus.
EXCHANGE PRIVILEGES
You may exchange shares of Touchstone for shares of the same class of
another series of the Touchstone Family of Funds at net asset value or any
Touchstone money market fund, except the Institutional Money Market Fund and the
Ohio Tax-Free Money Market Fund's Institutional Class. You do not have to pay
any fee for your exchange.
Shares of Navellier may be exchanged for shares of other series in the
Navellier Millennium Funds at net asset value without a charge. An exchange will
be subject to a 2% redemption fee, as a percentage of the amount redeemed, on
shares held less than 60 days.
Additional information concerning the Funds' exchange privileges is
contained in Navellier's Prospectus and in the "Additional Information" section
of this Prospectus/Proxy statement relating to Touchstone.
DIVIDEND POLICY
The Funds distribute their income annually. The Funds distribute their net
realized gains, if any, at least annually to shareholders of record on the
dividend record date. Dividends and distributions are reinvested in additional
shares of the respective Fund, or paid in cash, as a shareholder has elected.
Additional information concerning dividends and distributions is contained in
Navellier's Prospectus and in the "Additional Information" section of this
Prospectus/Proxy statement relating to Touchstone.
18
After the Reorganization, shareholders will receive dividends and
distributions in the form of additional Fund shares unless you elect to receive
payment in cash. To elect cash payment, you must notify Touchstone in writing
prior to the date of the distribution. Your election will be effective for
dividends and distributions paid after the written notice is received.
Each Fund has qualified to be treated as a regulated investment company
under the Code. To remain qualified as a regulated investment company, a Fund
must distribute 90% of its taxable and tax-exempt income and diversify its
holdings as required by the 1940 Act and the Code. While so qualified, so long
as each Fund distributes all of its net investment company taxable and
tax-exempt income and any net realized gains to the shareholders, it is expected
that a Fund will not be required to pay any federal income taxes on the amounts
distributed to the shareholders.
INFORMATION ON SHAREHOLDERS' RIGHTS
FORM OF ORGANIZATION
Both the Navellier Millennium Funds and Touchstone Funds Group Trust are
open-end management investment companies registered with the SEC under the 1940
Act that continuously offer shares to the public. Each Trust is organized as a
Delaware statutory trust and is governed by its Declaration of Trust, By-Laws, a
Board of Trustees and by applicable Delaware and federal law.
CAPITALIZATION
The beneficial interests in the Navellier Millennium Funds and Touchstone
Funds Group Trust are represented by an unlimited number of transferable shares
of beneficial interest, without par value per share for Navellier Millennium
Funds and $0.01 par value per share for Touchstone Funds Group Trust, of one or
more series. The Declaration of Trust of each of the Trusts permits the Trustees
to allocate shares into one or more series, and classes thereof, with rights
determined by the Trustees, all without shareholder approval. Fractional shares
may be issued by each Fund.
Shares of Navellier are offered in only one class and represent an equal
proportionate interest in the Fund. Touchstone offers three classes of shares:
Class A, Class B and Class Y. Shares of the classes represent an equal
proportionate interest in the Fund. Shareholders of each Fund are entitled to
receive dividends and other amounts as determined by the Trustees.
Shareholders of each Fund vote separately, by Fund, as to matters that
affect only their particular Fund, such as changes in fundamental investment
restrictions, approval of or amendments to investment advisory agreements or
proposed mergers.
SHAREHOLDER LIABILITY
Touchstone Funds Group Trust
Under Delaware law, shareholders of a Delaware statutory trust are
entitled to the same limitation of personal liability extended to stockholders
of Delaware corporations. To the extent that a Trust or a shareholder is subject
to the jurisdiction of courts in other states, it is possible that a court may
not apply Delaware law and may thereby subject shareholders of the Trust to
liability. To guard against that risk, Touchstone Funds Group Trust's
Declaration of Trust states that neither the Trust nor the Trustees, nor any
officer, employee or agent of the Trust has any power to bind personally any
shareholder nor to call upon any shareholder for payment of any sum of money or
assessment whatsoever other than such as the shareholder may personally agree to
pay. If any shareholder (or former shareholder) is exposed to liability by
reason of a claim or demand relating to his or her being or having been a
shareholder and not because of his or her acts or omissions, the shareholder (or
former shareholder) is entitled to be held harmless from and indemnified out of
the assets of the applicable series of the Trust against all loss and expense
arising from such claim or demand.
19
Navellier Millennium Funds
Delaware law and the Declaration of Trust for Navellier Millennium Funds
provides that all consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange, or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall be held
and accounted for separately from the other assets of the Trust and of every
other Series and may be referred to herein as "assets belonging to" that Series.
The assets belonging to a particular Series shall belong to that Series for all
purposes, and to no other Series, subject only to the rights of creditors of
that Series. The assets belonging to each particular Series shall be charged
with the liabilities of that Series and all expenses, costs, charges, and
reserves attributable to that Series. The debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular Series shall be enforceable against the assets of such Series only,
and not against the assets of the Trust generally. Notice of this contractual
limitation on inter-Series liabilities is set forth in the certificate of trust
of the Navellier Millennium Funds as filed in the Office of the Secretary of
State of the State of Delaware and, pursuant to Section 3804 of the Delaware
Act, has the effect of limiting recovery for liability for Navellier's
obligations to only the assets of Navellier. Any person extending credit to,
contracting with, or having any claim against Navellier may look only to the
assets of that Series to satisfy or enforce any debt, liability, obligation or
expense incurred, contracted for, or otherwise existing with respect to
Navellier. Pursuant to Section 3803(a) of the Delaware Act, each Shareholder of
Navellier shall not be personally liable for the debts, liabilities, obligations
and expenses incurred by, contracted for, or otherwise existing with respect to
Navellier. Navellier shall indemnify and hold each Shareholder harmless from and
against any claim or liability to which such Shareholder may become subject
solely by reason of his being or having been a Shareholder and not because of
such Shareholder's acts or omissions or for some other reason, and shall
reimburse such Shareholder for all legal and other expenses reasonably incurred
by him in connection with any such claim or liability (upon proper and timely
request by the Shareholder).
SHAREHOLDER MEETINGS AND VOTING RIGHTS
Neither Trust is required to hold an annual meeting of shareholders.
Neither Trust currently intends to hold regular shareholder meetings.
Touchstone Funds Group Trust
20
For Touchstone Funds Group Trust, except when a larger quorum is required
by applicable law, the By-Laws or the Trust's Declaration of Trust, 40% of the
shares entitled to vote constitute a quorum at a shareholder's meeting. When any
one or more series (or classes) is to vote as a single class separate from any
other shares, 40% of the shares of each such series (or classes) entitled to
vote constitute a quorum at a shareholder meeting of that series. Any
shareholder meeting may be adjourned by a majority of the votes cast upon the
question of adjourning a meeting to another date and time whether or not a
quorum is present. When a quorum is present, a majority of the shares voted will
decide any questions and a plurality will elect a trustee except when a larger
vote is required by the Trust's Declaration of Trust, By-Laws or applicable law.
A shareholder meeting for the purpose of electing or removing one or more
Trustees may be called (i) by the Trustees upon their own vote, or (ii) upon the
demand of shareholders owning 10% or more of the shares of the Trust in the
aggregate. Cumulative voting is not permitted in the election of Trustees of the
Trust. A Trustee of the Trust may be removed at a meeting of shareholders by a
vote of two-thirds of the outstanding shares of the Trust, or with or without
cause by vote of a majority of the then Trustees. Under the Declaration of Trust
of the Trust, each whole share of beneficial interest of a Fund is entitled to
one vote, and each fractional share is entitled to a proportionate vote. The
Declaration of Trust provides that the Board of Trustees may, to the extent
consistent with applicable law, cause the Trust or a Fund to be merged or
consolidated with another trust or company, provided such merger or
consolidation is authorized by vote of a majority of the outstanding shares of
the Trust or any affected series, as applicable.
Navellier Millennium Funds
For Navellier Millennium Funds, except when a larger quorum is required by
applicable law, the By-Laws or the Trust's Declaration of Trust, one-third of
the shares entitled to vote constitute a quorum at a shareholder's meeting. When
any one or more series (or classes) is to vote as a single class separate from
any other shares, one-third of the shares of each such series (or classes)
entitled to vote constitute a quorum at a shareholder meeting of that series. If
quorum is not met, the shareholder meeting may be adjourned. Approval of a
reorganization will require the affirmative of the lesser of (i) 67% of
Navellier's shares represented at the Meeting if more than 50% of the
outstanding shares is represented, or (ii) shares representing more than 50% of
Navellier's outstanding shares. Any Trustee may be removed at any meeting of
shareholders by a vote of two-thirds of the outstanding shares of the Trust, or
with or without cause by vote of a majority of the then Trustees. Cumulative
voting is not permitted in the election of Trustees of the Trust. A meeting of
the shareholders of any Series may be called by the Trustees and shall be called
by the Trustees upon the written request of shareholders owning at least 10% of
the outstanding shares entitled to vote. Under the Declaration of Trust of the
Trust, each whole share of beneficial interest of a Fund is entitled to one
vote, and each fractional share is entitled to a proportionate vote.
LIQUIDATION
In the event of the liquidation of either Trust or 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. In either case, the assets so distributable to shareholders
of the Fund will be distributed among the shareholders in proportion to the
number of shares of the Fund held by them on the date of distribution.
LIABILITY AND INDEMNIFICATION OF TRUSTEES
21
Touchstone Funds Group Trust
The Declaration of Trust of Touchstone Funds Group Trust provides that no
Trustee or officer shall be liable in any event for any neglect or wrong-doing
of any officer, agent, employee, investment adviser or principal underwriter of
the Trust nor for the actor omission of any other Trustee except for his or her
own willful misfeasance, bad faith, gross negligence or reckless disregard of
his or her duties involved in the conduct of his or her office. The Trust, out
of its assets, will indemnify and hold harmless each and every Trustee from and
against any and all claims and demands whatsoever arising out of or related to
each Trustee's performance of his or her duties as a Trustee unless he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office.
Navellier Millennium Funds
The Declaration of Trust of Navellier Millennium Funds provides that no
Trustee or officer shall be liable in any event for any neglect or wrong-doing
of any officer, agent, employee, investment adviser or principal underwriter of
the Trust nor for the actor omission of any other Trustee except for his or her
own willful misfeasance, bad faith, gross negligence or reckless disregard of
his or her duties involved in the conduct of his or her office. The Trust, out
of its assets, will indemnify and hold harmless each and every Trustee from and
against any and all claims and demands whatsoever arising out of or related to
each Trustee's performance of his or her duties as a Trustee unless he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office. The Declaration of Trust provides that present and former Trustees
or officers are generally entitled to indemnification against liabilities and
expenses with respect to claims related to their position with the Funds unless,
in the case of any liability to the Funds or their shareholders, such Trustee or
officer is liable by reason of his or her willful misfeasance, bad faith, gross
negligence or reckless disregard of his or her duties involved in the conduct of
his or her office.
The foregoing is only a summary of the material characteristics of the
operations of the Declaration of Trust of each Trust, their By-Laws and Delaware
law and is not a complete description of those documents or law. Shareholders
should refer to the provisions of such Declaration of Trust and By-Laws directly
for more complete information.
VOTING INFORMATION CONCERNING THE MEETING
This Prospectus/Proxy Statement is being sent to shareholders of Navellier
in connection with a solicitation of proxies by the Trustees of the Navellier
Millennium Funds, to be used at the Meeting to be held at 11:00 a.m. Pacific
Time, September 26, 2008, at the offices of the Navellier Millennium Funds, One
East Liberty Street, Third Floor, Reno, Nevada, 89501, 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 Navellier on or about
August 4, 2008.
The Board of Trustees of the Navellier Millennium Funds has fixed the
close of business on July 28, 2008 as the record date (the "Record Date") for
determining the shareholders of Navellier entitled to receive notice of the
Meeting and to vote, and for determining the number of shares that may be voted,
with respect to the Meeting or any adjournment thereof.
22
In voting for the Reorganization, each shareholder of Navellier is
entitled to one vote for each full share owned and a fractional vote for each
fractional share held.
Proxies may be revoked by executing and delivering a later-dated signed
proxy to the Secretary of the Navellier Millennium Funds at the address set
forth on the cover page of this Prospectus/Proxy Statement, or by attending the
Meeting in person and voting your shares. Unless revoked, all valid proxies will
be voted in accordance with the specifications thereon or, in the absence of
such specifications, FOR approval of the Plan and the Reorganization
contemplated thereby.
If you wish to participate in the Meeting, you may submit the proxy card
included with this Prospectus/Proxy Statement, vote by telephone, vote through
the Internet, or attend in person. (Guidelines on voting by proxy card are
immediately after the Notice of Special Meeting. Instructions for telephone and
Internet voting are set forth on the proxy card.)
If the enclosed proxy is properly executed and returned in time to be
voted at the Meeting, the proxies named thereon will vote the shares of
beneficial interest represented by the proxy in accordance with the instructions
marked on the returned proxy.
Proxies that are properly executed and returned but are not marked with
voting instructions will be voted FOR the proposed Reorganization and FOR any
other matters deemed appropriate.
Approval of the Reorganization will require the affirmative of the lesser
of (i) 67% of Navellier's shares represented at the Meeting if more than 50% of
the outstanding shares is represented, or (ii) shares representing more than 50%
of Navellier's outstanding shares.
Proxy solicitations will be made primarily by mail, but beginning on or
about August 4, 2008 proxy solicitations may also be made by telephone, or
personal solicitations may be conducted by officers and employees of Navellier &
Associates, Inc., its affiliates or other representatives of Navellier (who will
not be paid for their soliciting activities). In addition, proxy solicitations
may be made by Broadridge, Navellier's proxy solicitor. The estimated cost of
the proxy solicitation is approximately $1,900. The costs of solicitation and
the expenses incurred in connection with preparing this Prospectus/Proxy
Statement and its enclosures (totaling approximately $3,400) will be paid by
Touchstone Advisors, Inc. and Navellier Associates, Inc. whether or not the
Reorganization is approved by shareholders.
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 shall not be deemed to be represented
at the meeting for the purposes of calculating the number of shares present in
person or by proxy and will have no effect on the vote regarding the Plan.
If shareholders of Navellier do not vote to approve the Reorganization,
the Trustees of the Navellier Millennium Funds 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 proxies. In determining whether to adjourn the Meeting, the following factors
may be considered: the percentage of votes actually cast, the percentage of
negative votes actually cast, the nature of any further solicitation and the
information to be provided to shareholders with respect to the reasons for the
solicitation. Any adjournment will require an affirmative vote of a majority of
those shares represented at the Meeting in person or by proxy. The persons named
as proxies will vote upon such adjournment after consideration of all
circumstances that may bear upon a decision to adjourn the Meeting.
23
A shareholder of Navellier who objects to the proposed Reorganization will
not be entitled under either Delaware law or the Trust's 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. If
the Reorganization is consummated, shareholders will be free to redeem the
shares of Touchstone that they receive in the transaction at their then-current
net asset value. Shares of Navellier may be redeemed at any time prior to the
consummation of the Reorganization. Shareholders of Navellier may wish to
consult their tax advisors as to any different consequences of redeeming Fund
shares prior to the Reorganization or exchanging such shares in the
Reorganization.
The Trusts do not hold annual shareholder meetings. If the Reorganization
is not approved, shareholders wishing to submit proposals to be considered for
inclusion in a proxy statement for a subsequent shareholder meeting should send
their written proposals to the Secretary of the Trust at the address set forth
on the cover of this Prospectus/Proxy Statement so that they will be received by
the Trust in a reasonable period of time prior to that meeting.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise Navellier 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 be supplied to the beneficial owners of the
respective shares.
The votes of the shareholders of Touchstone are not being solicited by
this Prospectus/Proxy Statement and are not required to carry out the
Reorganization.
SHAREHOLDER INFORMATION
The shareholders of Navellier at the close of business on the Record Date
will be entitled to be present and vote at the Meeting with respect to shares of
Navellier owned as of the Record Date. As of the Record Date, the total number
of shares of Navellier outstanding and entitled to vote was as follows:
--------------------------------------------------------------------------
NUMBER OF SHARES
--------------------------------------------------------------------------
NAVELLIER 532,023.709
--------------------------------------------------------------------------
As of July 28, 2008, the officers and Trustees of Navellier Millennium
Funds beneficially owned as a group 3.06% of the outstanding shares of
Navellier.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On July 28, 2008 to the knowledge of the Trustees and management of
Navellier Millennium Funds, other than as set forth below, no person owned
beneficially or of record more than 5% of Navellier's outstanding shares.
24
- --------------------------------------------------------------------------------
Name and Address Number of Shares Percent of Fund
- --------------------------------------------------------------------------------
Charles Schwab & Company Inc 150,721.084 28.33%
101 Montgomery Street
San Francisco, CA 94104
- --------------------------------------------------------------------------------
Orchard Trust Company LLC 71,144.441 13.37%
8515 East Orchard Road 2T2
Centennial, CO 80111
- --------------------------------------------------------------------------------
NFS LLC FBO John A. Mikulski 27,010.938 5.08%
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS AND EXPERTS
The Annual Report of the Navellier Millennium Funds relating to Navellier
for the year ended as of December 31, 2007, and the financial statements and
financial highlights for the periods indicated therein, has been incorporated by
reference herein in reliance upon the report of Tait, Weller & Baker LLP,
independent registered public accounting firm, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the issuance of Touchstone's
Shares will be passed upon by Morgan, Lewis & Bockius LLP, located at 1701
Market Street, Philadelphia, Pennsylvania, 19103.
ADDITIONAL INFORMATION
The Trusts are subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance therewith files 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.
The following additional information supplements information about
Touchstone contained elsewhere in the Prospectus/Proxy Statement.
INFORMATION ABOUT THE FUND
TOUCHSTONE FUNDS GROUP TRUST
Touchstone Funds Group Trust is a group of 11 mutual funds, including
Touchstone. The Trust is part of the Touchstone Family of Funds which also
consists of Touchstone Investment Trust, a group of taxable bond and money
market mutual funds, Touchstone Strategic Trust, a group of equity mutual funds,
Touchstone Tax-Free Trust, a group of tax-free bond and money market mutual
funds, Touchstone Variable Series Trust, a group of variable series funds and
Touchstone Institutional Funds Trust (formerly Constellation Institutional
Portfolios), a group of institutional equity mutual funds. Each Fund has a
different investment goal and risk level.
25
The Fund is managed by Touchstone Advisors, Inc. Touchstone Advisors, Inc. has
selected Navellier & Associates, Inc. to manage the Fund's investments on a
daily basis.
THE FUND'S INVESTMENT GOAL
Touchstone seeks long-term capital growth.
ITS PRINCIPAL INVESTMENT STRATEGIES
Touchstone invests, under normal conditions, at least 80% of its total assets in
foreign stocks and ADRs of companies without regard to market capitalization.
The Fund may invest in common and/or preferred stocks, securities convertible
into common and/or preferred stocks, and warrants to purchase common and/or
preferred stocks. This is a non-fundamental policy that the Fund can change upon
60 days' prior notice to shareholders.
The Fund is non-diversified and may invest a significant percentage of its
assets in the securities of one issuer. The Fund may invest up to 10% of its
total assets in the securities of one company and up to 25% of its total assets
in the securities of one industry. The Fund's investments may include companies
in the technology sector.
Navellier & Associates, Inc. seeks to identify and select inefficiently priced
securities with strong appreciation potential by employing a proprietary
investment process. Navellier & Associates, Inc.'s proprietary investment
process is primarily a disciplined quantitative, objective, "bottom-up," process
and contains the following three steps. In the first step of the investment
process, Navellier & Associates, Inc. calculates and analyzes a "reward/risk
ratio" for each potential investment. The reward/risk ratio is designed to
identify stocks with above average potential returns and adjusted for risk. In
the second step of the investment process, Navellier & Associates, Inc. applies
two or more sets of fundamental criteria to identify attractive stocks among
those with favorable reward/risk ratios. Examples of these criteria include
earnings growth, profit margins, reasonable price/earnings ratios based on
expected future earnings, and various other fundamental criteria. Stocks with a
combination of the applicable criteria are further considered in the third and
final step of the investment process. The third step of the investment process
addresses the construction of the portfolio. Firstly, countries are analyzed for
their reward/risk potential and weighted accordingly. Secondly, stocks are
weighted utilizing a disciplined methodology.
Every quarter Navellier & Associates, Inc. evaluates the fundamental criteria
used in the second step of the investment process. The criteria included in this
step and the relative weightings of each fundamental criterion are adjusted as
necessary. This allows Navellier & Associates, Inc. to monitor which criteria
appear to be in favor in the financial markets. If a security does not meet the
requirements of each step of Navellier & Associates, Inc.'s investment process,
then Navellier & Associates, Inc. will evaluate the security and, if necessary,
replace it.
THE KEY RISKS
MARKET AND EQUITY SECURITIES RISK. Since it purchases common stocks, the Fund is
subject to the risk that stock prices will fall over short or extended periods
of time. Historically, the equity markets have moved in cycles. The value of the
Fund's equity securities may fluctuate from day to day. Individual companies may
report poor results or be negatively affected by industry and/or economic trends
and developments. The prices of securities issued by these companies may decline
in response to such developments, which could result in a decline in the value
of the Fund's shares. These factors contribute to price volatility, which is the
principal risk of investing in the Fund. The Fund is also subject to the risk
that its market segment, foreign equity securities, may underperform other
equity market segments or the equity markets as a whole. In addition, common
stocks represent a share of ownership in a company, and rank after bonds and
preferred stock in their claim on the company's assets in the event of
liquidation. Preferred stock represents an equity or ownership interest in an
issuer that pays dividends at a specified rate and that has precedence over
common stock in the payment of dividends. In the event an issuer is liquidated
or declares bankruptcy, the claims of owners of bonds take precedence over the
claims of those who own preferred and common stock. If interest rates rise, the
fixed dividend on preferred stocks may be less attractive, causing the price of
preferred stocks to decline. Preferred stock may have mandatory sinking fund
provisions, as well as provisions allowing the stock to be called or redeemed
prior to its maturity, which can have a negative impact on the stock's price
when interest rates decline.
26
SMALL AND MID CAP COMPANIES RISK. The Fund is subject to the risk that small and
medium capitalization stocks may underperform other types of stocks or the
equity markets as a whole. Moreover, the medium and smaller capitalization
companies in which the Fund invests may be more vulnerable to adverse business
or economic events than larger, more established companies. In particular, these
medium and small companies may have more limited product lines, markets and
financial resources, and may depend upon a relatively small management group.
Therefore, medium and small cap company stocks may be more volatile than stocks
of larger companies.
POLITICAL, CURRENCY, LIMITED INFORMATION, SETTLEMENT AND CLEARANCE, AND
LIQUIDITY RISK. Investing in foreign securities poses additional risks since
political and economic events unique in a country or region will affect those
markets and their issuers. These events will not necessarily affect the U.S.
economy or similar issuers located in the United States. In addition,
investments in foreign securities are generally denominated in foreign currency.
As a result, changes in the value of those currencies compared to the U.S.
dollar may affect (positively or negatively) the value of the Fund's
investments. These currency movements may happen separately from, or in response
to, events that do not otherwise affect the value of the security in the
issuer's home country. There is a risk that foreign securities may not be
subject to accounting standards or governmental supervision comparable to U.S.
companies and that less public information about their operations may exist.
There is risk associated with the clearance and settlement procedures in
non-U.S. markets, which may be unable to keep pace with the volume of securities
transactions and may cause delays. Foreign markets may be less liquid and more
volatile than U.S. markets and offer less protection to investors.
Over-the-counter securities may also be less liquid than exchange-traded
securities.
EMERGING MARKET AND PRICING RISK. Emerging market countries are countries that
the World Bank or the United Nations consider to be emerging or developing.
Emerging markets may be more likely to experience political turmoil or rapid
changes in market or economic conditions than more developed countries. In
addition, the financial stability of issuers (including governments) in emerging
market countries may be more precarious than in other countries. As a result,
there will tend to be an increased risk of price volatility associated with the
Fund's investments in emerging market countries, which may be magnified by
currency fluctuations relative to the U.S. dollar.
NON-DIVERSIFIED INVESTMENT RISK. The Fund is non-diversified, which means that
it may invest a greater percentage of its assets than other mutual funds in the
securities of a limited number of issuers. The use of a non-diversified
investment strategy may increase the volatility of the Fund's investment
performance, as the Fund may be more susceptible to risks associated with a
single economic, political or regulatory event than a diversified fund.
27
Frequent and active trading may result in greater expenses to the Fund and may
generate more taxable short-term gains for shareholders, which may lower the
Fund's performance.
This Fund should only be purchased by investors seeking long-term capital
appreciation who can withstand the share price volatility of international
equity investing. As with any mutual fund, there is no guarantee that the Fund
will achieve its investment goal.
PERFORMANCE NOTE
Since the Fund has not commenced operations, there is no performance information
included.
WHAT ARE SOME OF THE OTHER RISKS OF INVESTING IN THE FUND?
TEMPORARY DEFENSIVE STRATEGIES. The investments and strategies described
throughout this Prospectus/Proxy Statement are those that the Fund uses under
normal conditions. During unusual economic or market conditions, or for
temporary defensive or liquidity purposes, the Fund may invest up to 100% of its
assets in cash, repurchase agreements and short-term obligations (i.e., fixed
and variable rate securities and high quality debt securities of corporate and
government issuers) that would not ordinarily be consistent with the Fund's
objectives. This defensive investing may increase the Fund's taxable income. The
Fund will do so only if Touchstone Advisors, Inc. or Navellier & Associates,
Inc. believes that the risk of loss using the Fund's normal strategies and
investments outweighs the opportunity for gains. Of course, there can be no
guarantee that the Fund will achieve its investment objective.
MANAGER OF MANAGERS' RISK. Touchstone Advisors, Inc. engages Navellier &
Associates, Inc. to make investment decisions on its behalf for the Fund. There
is a risk that Touchstone Advisors, Inc. may be unable to identify and retain
sub-advisors who achieve superior investment returns relative to other similar
sub-advisors.
INVESTMENTS IN EXCHANGE-TRADED FUNDS. The Fund may invest in shares of
exchange-traded funds ("ETFs"). An ETF is a registered investment company that
seeks to track the performance of a particular market index. Investing in an ETF
generally offers instant exposure to an index or a broad range of markets,
sectors, geographic regions or industries. The risks of owning shares of an ETF
generally reflect the risks of owning the underlying securities the ETF is
designed to track.
When investing in ETFs, shareholders bear their proportionate share of the
Fund's expenses and their proportionate share of ETF expenses which are similar
to the Fund's expenses. Also, although ETFs seek to provide investment results
that correspond generally to the price and yield performance of a particular
market index, the price movement of an ETF may not track the underlying index.
LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities to
brokers, dealers and financial institutions under guidelines adopted by the
Board of Trustees, including a requirement that the Fund must receive collateral
equal to no less than 100% of the market value of the securities loaned. The
Fund's lending limit is 33 1/3% of total assets, including the value of the loan
collateral. The risk in lending portfolio securities, as with other extensions
of credit, consists of possible loss of rights in the collateral should the
borrower fail financially. In determining whether to lend securities, Navellier
& Associates, Inc. will consider all relevant facts and circumstances, including
the creditworthiness of the borrower. The Fund lends portfolio securities in
order to earn income for the Fund.
28
PORTFOLIO TURNOVER. The Fund may sell its portfolio securities, regardless of
the length of time that they have been held, if Navellier & Associates, Inc.
determines that it would be in the Fund's best interest to do so. It may be
appropriate to buy or sell portfolio securities due to economic, market, or
other factors that are not within Navellier & Associates, Inc.'s control. These
transactions will increase the Fund's portfolio turnover. A 100% portfolio
turnover rate would occur if all of the securities in the Fund were replaced
during a given period. High turnover rates generally result in higher brokerage
costs to the Fund and higher taxable distributions for shareholders, and may
reduce the Fund's returns.
DERIVATIVES. The Fund may, but is not required to, use derivative instruments
for any of the following purposes:
o To hedge against adverse changes -- caused by changing interest
rates, stock market prices or currency exchange rates -- in the
market value of securities held by or to be bought for the Fund;
o As a substitute for purchasing or selling securities;
o To shorten or lengthen the effective portfolio maturity or duration
of tax-exempt bonds;
o To enhance the Fund's potential gain in non-hedging or speculative
situations; or
o To lock in a substantial portion of the unrealized appreciation in a
stock without selling it.
A derivative instrument will obligate or entitle the Fund to deliver or receive
an asset or a cash payment that is based on the change in value of a designated
security, currency or index. Even a small investment in derivative instruments
can have a large impact on a portfolio's yield, stock prices and currency
exposure. Therefore, using derivatives can disproportionately increase losses
and reduce opportunities for gains when interest rates, stock prices or currency
rates are changing. The Fund may not fully benefit from or may lose money on
derivatives if changes in their value do not correspond accurately to changes in
the value of the Fund's holdings.
Counterparties to over-the-counter derivative contracts present the same types
of credit risk as issuers of fixed income securities. Derivatives can also make
the Fund's holdings less liquid and harder to value, especially in declining
markets. In addition, much of the income and gains generated by derivatives will
be taxed as ordinary income. Under normal circumstances, the Fund will not
invest in derivatives. There is no limit to how much of the Fund's assets can be
invested in derivatives, including derivatives for speculative purposes.
THE FUND'S MANAGEMENT
Touchstone Advisors, Inc. has been a registered investment advisor since 1994.
As of December 31, 2007, Touchstone Advisors, Inc. had approximately $8.3
billion in assets under management. As the Fund's advisor, Touchstone Advisors,
Inc. continuously reviews, supervises and administers the Fund's investment
programs and also ensures compliance with the Fund's investment policies and
guidelines.
Touchstone Advisors, Inc. is responsible for selecting the Fund's sub-advisor,
subject to approval by the Board of Trustees. Touchstone Advisors, Inc. selects
a sub-advisor that has shown good investment performance in its areas of
expertise. Touchstone Advisors, Inc. considers various factors in evaluating a
sub-advisor, including:
o Level of knowledge and skill o Level of compliance with investment
rules and strategies
29
o Performance as compared to its o Employees facilities and financial
peers or benchmark strength
o Consistency of performance over o Quality of service
5 years or more
Touchstone Advisors, Inc. will also continually monitor Navellier & Associates,
Inc.'s performance through various analyses and through in-person, telephone and
written consultations with Navellier & Associates, Inc. Touchstone Advisors,
Inc. discusses its expectations for performance with Navellier & Associates,
Inc. and provides evaluations and recommendations to the Board of Trustees,
including whether or not Navellier & Associates, Inc.'s contract should be
renewed, modified or terminated.
The SEC has granted an exemptive order that permits Touchstone Advisors, Inc.,
under certain conditions, to select or change unaffiliated sub-advisors, enter
into new sub-advisory agreements or amend existing sub-advisory agreements
without first obtaining shareholder approval. The Fund must still obtain
shareholder approval of any sub-advisory agreement with a sub-advisor affiliated
with the Trust or Touchstone Advisors, Inc. other than by reason of serving as a
sub-advisor to one or more funds. Shareholders of the Fund will be notified of
any changes in its sub-advisory arrangements.
For its services, Touchstone Advisors, Inc. is entitled to receive a base
investment advisory fee from the Fund at an annualized rate, based on the
average daily net assets of the Fund. The fee to be paid to Touchstone Advisors,
Inc. by the Fund during its current fiscal year is 0.90% on the Fund's average
daily net assets for which it serves as the investment advisor. Touchstone
Advisors, Inc. pays a sub-advisory fee to Navellier & Associates, Inc. from its
advisory fee.
FUND SUB-ADVISOR
Navellier & Associates, Inc. will make the daily decisions regarding buying and
selling specific securities for the Fund. Navellier & Associates, Inc. will
manage the investments held by the Fund according to the Fund's applicable
investment goals and strategies. For its services, Navellier & Associates, Inc.
is entitled to receive a base investment advisory fee from Touchstone Advisors,
Inc. at an annualized rate, based on the average daily net assets of the Fund.
The fee to be paid to Navellier & Associates, Inc. by Touchstone Advisors, Inc.
is expected to be 0.40% on the Fund's average daily net assets for which it
serves as the sub-advisor.
Navellier & Associates, Inc. has been a registered investment advisor since 1987
and has managed the Fund since its inception. A team of Louis Navellier, James
O'Leary, and Phillip Mitteldorf has managed the Fund since its inception.
INVESTING WITH TOUCHSTONE
CLASS A SHARES
The offering price of Class A shares of the Fund is equal to its net asset value
plus a front-end sales charge that shareholders pay when they buy Class A shares
of the Fund. The front-end sales charge is generally deducted from the amount of
your investment. Class A shares are subject to a 12b-1 fee. HOWEVER, YOU WILL
NOT BE SUBJECT TO ANY FRONT-END SALES CHARGES FOR THE SHARES YOU WILL RECEIVE IN
CONNECTION WITH THIS REORGANIZATION AND ANY FUTURE PURCHASES IN TOUCHSTONE
FAMILY OF FUNDS.
30
CLASS A SALES CHARGE. The following table shows the amount of front-end sales
charge shareholders will pay on purchases of Class A shares of the Fund. The
amount of front-end sales charge is shown as a percentage of (1) offering price
and (2) the net amount invested after the charge has been subtracted. Note that
the front-end sales charge gets lower as shareholders' investment amount gets
larger.
Sales Charge as % of Sales Charge as % of
Amount of Your Investment Offering Price Net Amount Invested
- --------------------------------------------------------------------------------
Under $50,000 5.75% 6.10%
$50,000 but less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.50% 3.63%
$250,000 but less than $500,000 2.95% 3.04%
$500,000 but less than $1 million 2.25% 2.30%
$1 million or more 0.00% 0.00%
- --------------------------------------------------------------------------------
WAIVER OF CLASS A SALES CHARGE. There is no front-end sales charge if
shareholders invest $1 million or more in Class A shares of the Fund. If
shareholders redeem shares that were part of the $1 million breakpoint purchase
within one year, sharholders may pay a CDSC of 1% on the shares redeemed, if a
commission was paid by Touchstone Securities, Inc. to a participating
unaffiliated dealer. There is no front-end sales charge on exchanges between
funds or dividends reinvested in the Fund. In addition, there is no front-end
sales charge on the following purchases:
o Purchases by registered representatives or other employees (and
their immediate family members*) of broker-dealers, banks, or other
financial institutions having agreements with Touchstone Securities,
Inc.
o Purchases in accounts as to which a broker-dealer or other financial
intermediary charges an asset management fee economically comparable
to a sales charge, provided the broker-dealer or other financial
intermediary has an agreement with Touchstone Securities, Inc.
o Purchases by a trust department of any financial institution in its
capacity as trustee to any trust.
o Purchases through processing organizations described in this
Prospectus/Proxy Statement.
o Purchases by an employee benefit plan having more than 25 eligible
employees or a minimum of $250,000 invested in the Touchstone Family
of Funds.
o Purchases by an employee benefit plan that is provided
administrative services by a third party administrator that has
entered into a special service arrangement with Touchstone
Securities, Inc.
o Purchases by shareholders who owned shares of the Trust as of
November 17, 2006 who are purchasing additional shares for their
accounts or opening new accounts in any Touchstone Fund. If
sharholders are purchasing shares through a financial intermediary,
shareholders must notify the intermediary at the time of purchase
that a purchase qualifies for a sales load waiver and shareholders
may be required to provide copies of account statements verifying
shareholders' qualification.
o PURCHASES BY SHAREHOLDERS WHO OWNED SHARES OF NAVELLIER AS OF
SEPTEMBER 26, 2008 WHO ARE PURCHASING ADDITIONAL SHARES FOR THEIR
ACCOUNTS OR OPENING NEW ACCOUNTS IN ANY TOUCHSTONE FAMILY OF FUNDS.
IF YOU ARE PURCHASING SHARES THROUGH A FINANCIAL INTERMEDIARY, YOU
MUST NOTIFY THE INTERMEDIARY AT THE TIME OF PURCHASE THAT A PURCHASE
QUALIFIES FOR A SALES LOAD WAIVER AND YOU MAY BE REQUIRED TO PROVIDE
COPIES OF ACCOUNT STATEMENTS VERIFYING YOUR QUALIFICATION.
31
o Reinvestment of redemption proceeds from Class A shares of any
Touchstone Fund if the reinvestment occurs within 90 days of
redemption.
* Immediate family members are defined as the spouse, parents,
siblings, domestic partner, natural or adopted children,
mother-in-law, father-in-law, brother-in-law and sister-in-law of a
registered representative or employee. The term "employee" is deemed
to include current and retired employees.
Sales charge waivers must be qualified in advance by Touchstone Securities, Inc.
by marking the appropriate section on the investment application and completing
the "Eligibility for Exemption from Sales Charge" form. Shareholders can obtain
the application and form by calling Touchstone Securities, Inc. at
1.800.543.0407 or by visiting the touchstoneinvestments.com website. Purchases
at net asset value may be made for investment only, and the shares may not be
resold except through redemption by or on behalf of the Fund. At the option of
the Fund, the front-end sales charge may be included on future purchases.
REDUCED CLASS A SALES CHARGE. Shareholders may also purchase Class A shares of
the Fund at the reduced sales charges shown in the table above through the
Rights of Accumulation Program or by signing a Letter of Intent. The following
purchasers ("Qualified Purchasers") may qualify for a reduced sales charge under
the Rights of Accumulation Program or Letter of Intent:
o an individual, an individual's spouse, an individual's children
under the age of 21; or
o a trustee or other fiduciary purchasing shares for a single
fiduciary account although more than one beneficiary is involved; or
o employees of a common employer, provided that economies of scale are
realized through remittances from a single source and quarterly
confirmation of such purchases are provided; or
o an organized group, provided that the purchases are made through a
central administrator, a single dealer or other means which result
in economy of sales effort or expense.
The following accounts ("Qualified Accounts") held in Class A shares of any
Touchstone Fund sold with a front-end sales charge may be grouped together to
qualify for the reduced sales charge under the Rights of Accumulation Program or
Letter of Intent:
o Individual accounts
o Joint tenant with rights of survivorship accounts
o Uniform gift to minor accounts ("UGTMA")
o Trust accounts
o Estate accounts
o Guardian/Conservator accounts
o IRA accounts, including Traditional, Roth, SEP, SIMPLE and 403(b)(7)
custodial accounts
o Coverdell Education Savings Accounts
RIGHTS OF ACCUMULATION PROGRAM. Under the Rights of Accumulation Program,
shareholders may qualify for a reduced sales charge by aggregating all of
shareholders' investments held in Qualified Accounts. Shareholders or their
dealer must notify Touchstone Securities, Inc. at the time of purchase that a
purchase qualifies for a reduced sales charge under the Rights of Accumulation
Program and must provide either a list of account numbers or copies of account
statements verifying shareholders' qualification. If shareholders' shares are
held directly in a Touchstone Fund or through a dealer, shareholders may combine
the historical cost or current net asset value (whichever is higher) of
shareholders' existing Class A shares of any Touchstone Fund sold with a
front-end sales charge with the amount of shareholders' current purchase in
order to take advantage of the reduced sales charge. Historical cost is the
price shareholders actually paid for the shares shareholders own, plus
shareholders' reinvested dividends and capital gains. If shareholders are using
historical cost to qualify for a reduced sales charge, shareholders should
retain any records to substantiate their historical costs since the Fund, its
transfer agent or their broker-dealer may not maintain this information.
32
If shareholders' shares are held through financial intermediaries and/or in a
retirement account (such as a 401(k) or employee benefit plan), shareholders may
combine the current net asset value of their existing Class A shares of any
Touchstone Fund sold with a front-end sales charge with the amount of
shareholders current purchase in order to take advantage of the reduced sales
charge. Shareholders or their financial intermediary must notify Touchstone
Securities, Inc. at the time of purchase that a purchase qualifies for a reduced
sales charge under the Rights of Accumulation Program and must provide copies of
account statements dated within three months of shareholders' current purchase
verifying their qualification.
Upon receipt of the above referenced supporting documentation, Touchstone
Securities, Inc. will calculate the combined value of all of the Qualified
Purchaser's Qualified Accounts to determine if the current purchase is eligible
for a reduced sales charge. Purchases made for nominee or street name accounts
(securities held in the name of a dealer or another nominee such as a bank trust
department instead of the customer) may not be aggregated with purchases for
other accounts and may not be aggregated with other nominee or street name
accounts unless otherwise qualified as described above.
LETTER OF INTENT. If shareholders plan to invest at least $50,000 (excluding any
reinvestment of dividends and capital gains distributions) during the next 13
months in Class A shares of any Touchstone Fund sold with a front-end sales
charge, shareholders may qualify for a reduced sales charge by completing the
Letter of Intent section of their account application. A Letter of Intent
indicates their intent to purchase at least $50,000 in Class A shares of any
Touchstone Fund sold with a front-end sales charge over the next 13 months in
exchange for a reduced sales charge indicated on the above chart. The minimum
initial investment under a Letter of Intent is $10,000. Shareholders are not
obligated to purchase additional shares if they complete a Letter of Intent.
However, if shareholders do not buy enough shares to qualify for the projected
level of sales charge by the end of the 13-month period (or when shareholders
sell their shares, if earlier), their sales charge will be recalculated to
reflect their actual purchase level. During the term of the Letter of Intent,
shares representing 5% of shareholders' intended purchase will be held in
escrow. If shareholders do not purchase enough shares during the 13-month period
to qualify for the projected reduced sales charge, the additional sales charge
will be deducted from shareholders' escrow account. If shareholders have
purchased Class A shares of any Touchstone Fund sold with a front-end sales
charge within 90 days prior to signing a Letter of Intent, they may be included
as part of shareholders' intended purchase. Shareholders must provide either a
list of account numbers or copies of account statements verifying their
purchases within the past 90 days.
33
INITIAL ADDITIONAL
MINIMUM INVESTMENT REQUIREMENTS INVESTMENT INVESTMENT
- --------------------------------------------------------------------------------
Regular Account $ 2,500 $ 50
- --------------------------------------------------------------------------------
Retirement Account or Custodial Account under
the Uniform Gifts/Transfers to Minors Act ("UGTMA") $ 1,000 $ 50
Investments through the Automatic Investment Plan $ 100 $ 50
- --------------------------------------------------------------------------------
INVESTOR ALERT: Touchstone Securities, Inc. may change these initial and
additional investment minimums at any time.
OPENING AN ACCOUNT
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING AN ACCOUNT
Federal law requires all financial institutions to obtain, verify and record
information that identifies each person who opens an account. What this means
for you: When you open an account, we will ask for your name, residential
address, date of birth, government identification number and other information
that will allow us to identify you. We may also ask to see your driver's license
or other identifying documents. If we do not receive these required pieces of
information, there may be a delay in processing your investment request, which
could subject your investment to market risk. If we are unable to immediately
verify your identity, the Fund may restrict further investment until your
identity is verified. However, if we are unable to verify your identity, the
Fund reserves the right to close your account without notice and return your
investment to you at the price determined at the end of business (usually 4:00
p.m. Eastern Time), on the day your account is closed. If we close your account
because we are unable to verify your identity, your investment will be subject
to market fluctuation, which could result in a loss of a portion of your
principal investment.
INVESTING IN THE FUND
BY MAIL OR THROUGH YOUR FINANCIAL ADVISOR
o Please make your check (drawn on a U.S. bank and payable in U.S. dollars)
payable to the Touchstone Funds. We do not accept third party checks for
initial investments.
o Send your check with the completed investment application by regular mail
to Touchstone, P.O. Box 5354, Cincinnati, Ohio 45201-5354, or by overnight
mail to Touchstone, c/o JPMorgan Chase Bank, N.A., 303 Broadway, Suite
900, Cincinnati, Ohio 45202.
o Your application will be processed subject to your check clearing. If your
check is returned for insufficient funds or uncollected funds, you may be
charged a fee and you will be responsible for any resulting loss to the
Fund.
o You may also open an account through your financial advisor.
BY EXCHANGE
o Class A shares may be exchanged into any other Touchstone Class A Fund at
net asset value and may be exchanged into any Touchstone money market
fund, except the Institutional Money Market Fund and the Ohio Tax-Free
Money Market Fund's Institutional Class.
o You do not have to pay any exchange fee for your exchange.
o Shares otherwise subject to a CDSC will not be charged a CDSC in an
exchange. However, when you redeem the shares acquired through the
exchange, the shares you redeem may be subject to a CDSC, depending on
when you originally purchased the exchanged shares. For purposes of
computing the CDSC, the length of time you have owned your shares will be
measured from the date of original purchase and will not be affected by
any exchange.
34
o If you purchased Class A shares for $1 million or more at net asset value
and compensation was paid to an unaffiliated dealer and you exchange all
or a portion of the shares into any Touchstone money market fund within 12
months of the original purchase, the amount of time you hold shares of the
money market fund will not be added to the holding period of your original
shares for the purpose of calculating the CDSC, if you later redeem the
exchanged shares. However if you exchange back into Class A shares, the
prior holding period of your Class A shares will be added to your current
holding period of Class A shares in calculating the CDSC.
o You should carefully review the disclosure provided in the Prospectus
relating to the exchanged-for shares before making an exchange of your
Fund shares.
THROUGH RETIREMENT PLANS
You may invest in the Fund through various retirement plans. These include
individual retirement plans and employer sponsored retirement plans.
INDIVIDUAL RETIREMENT PLANS
o Traditional Individual Retirement Accounts ("IRAs")
o Savings Incentive Match Plan for Employees ("SIMPLE IRAs")
o Spousal IRAs
o Roth Individual Retirement Accounts ("Roth IRAs")
o Coverdell Education Savings Accounts ("Education IRAs")
o Simplified Employee Pension Plans ("SEP IRAs")
EMPLOYER SPONSORED RETIREMENT PLANS
o Defined benefit plans
o Defined contribution plans (including 401(k) plans, profit sharing plans
and money purchase plans)
o 457 plans
THROUGH A PROCESSING ORGANIZATION
You may also purchase shares of the Fund through a "processing organization,"
(e.g., a mutual fund supermarket) which is a broker-dealer, bank or other
financial institution that purchases shares for its customers. Some of the
Touchstone Funds have authorized certain processing organizations ("Authorized
Processing Organizations") to receive purchase and sales orders on their behalf.
Before investing in the Fund through a processing organization, you should read
any materials provided by the processing organization together with this
Prospectus. You should also ask the processing organization if they are
authorized by Touchstone Securities, Inc. to receive purchase and sales orders
on their behalf. If the processing organization is not authorized, then there
could be a delay as to when the purchase or sales order is received for
processing. When shares are purchased this way, there may be various
differences. The Authorized Processing Organization may:
o Charge a fee for its services
o Act as the shareholder of record of the shares
o Set different minimum initial and additional investment requirements
o Impose other charges and restrictions
o Designate intermediaries to accept purchase and sales orders on the Fund's
behalf
35
o Touchstone Securities, Inc. considers a purchase or sales order as
received when an authorized processing organization, or its authorized
designee, receives the order in proper form. These orders will be priced
based on the Fund's net asset value (or offering price, if applicable)
next computed after such order is received in proper form. A purchase or
sales order transmitted through an entity that is not an Authorized
Processing Organization may affect the effective date of your transaction.
o Shares held through a processing organization may be transferred into your
name following procedures established by your processing organization and
Touchstone Securities, Inc. Certain processing organizations may receive
compensation from the Fund, Touchstone Securities Inc., Touchstone
Advisors, Inc. or their affiliates.
o It is the responsibility of the processing organization to transmit
properly completed orders so that they will be received by Touchstone
Securities, Inc. in a timely manner.
PRICING OF PURCHASES
We price direct purchases in the Fund based upon the next determined public
offering price (net asset value plus any applicable sales charge) after your
order is received. Direct purchase orders received by Touchstone Securities,
Inc., or an Authorized Processing Organization, by the close of the regular
session of trading on the NYSE, generally 4:00 p.m. Eastern Time, are processed
at that day's public offering price. Direct purchase orders received by
Touchstone Securities, Inc., or an Authorized Processing Organization, after the
close of the regular session of trading on the NYSE, generally 4:00 p.m. Eastern
Time, are processed at the public offering price next determined on the
following business day. It is the responsibility of Touchstone Securities Inc.'s
Authorized Processing Organization agent to transmit orders that will be
received by Touchstone Securities, Inc. in proper form and in a timely manner.
ADDING TO YOUR ACCOUNT
BY CHECK
o Complete the investment form provided at the bottom of a recent account
statement.
o Make your check (drawn on a U.S. bank and payable in U.S. dollars) payable
to the Touchstone Funds
o Write your account number on the check.
o Either: (1) Mail the check with the investment form to Touchstone
Securities, Inc.; or (2) Mail the check directly to your financial advisor
at the address printed on your account statement. Your financial advisor
is responsible for forwarding payment promptly to Touchstone Securities,
Inc.
o If your check is returned for insufficient funds or uncollected funds, you
may be charged a fee and you will be responsible for any resulting loss to
the Fund.
BY WIRE
o Contact Touchstone Securities, Inc. or your financial advisor for further
instructions.
o Contact your bank and ask it to wire federal funds to Touchstone
Securities, Inc. Specify your name and account number when remitting the
funds.
o Your bank may charge a fee for handling wire transfers.
o Purchases in the Fund will be processed at that day's net asset value (or
public offering price, if applicable) if Touchstone Securities, Inc.
receives a properly executed wire by the close of the regular session of
trading on the NYSE, generally 4:00 p.m. Eastern Time, on a day when the
NYSE is open for regular trading.
36
BY EXCHANGE
o You may add to your account by exchanging shares from another Touchstone
Fund.
o For information about how to exchange shares among the Touchstone Funds,
see "Opening an Account - by Exchange" in this Prospectus.
PURCHASES WITH SECURITIES
o Shares may be purchased by tendering payment in-kind in the form of
marketable securities, including but not limited to, shares of common
stock, provided the acquisition of such securities is consistent with the
Fund's investment goal and is otherwise acceptable to Touchstone Advisors,
Inc.
AUTOMATIC INVESTMENT OPTIONS
The various ways that you can automatically invest in the Fund are outlined
below. Touchstone Securities, Inc. does not charge any fees for these services.
For further details about these services, call Touchstone Securities, Inc. at
1.800.543.0407.
AUTOMATIC INVESTMENT PLAN. You can pre-authorize monthly investments in the Fund
of $50 or more to be processed electronically from a checking or savings
account. You will need to complete the appropriate section in the investment
application to do this. Amounts that are automatically invested in the Fund will
not be available for redemption until three business days after the automatic
reinvestment.
REINVESTMENT/CROSS REINVESTMENT. Dividends and capital gains can be
automatically reinvested in the Fund or in another Touchstone Fund within the
same class of shares without a fee or sales charge. Dividends and capital gains
will be reinvested in the Fund, unless you indicate otherwise on your investment
application. You may also choose to have your dividends or capital gains paid to
you in cash. If you elect to receive dividends and distributions in cash and the
payment (1) is returned and marked as "undeliverable" or (2) is not cashed for
six months, your cash election will be changed automatically and future
dividends will be reinvested in the Fund at the per share net asset value
determined as of the date of payment. In addition, any undeliverable checks or
checks that are not cashed for six months will be cancelled and then reinvested
in the Fund at the per share net asset value determined as of the date of
cancellation.
DIRECT DEPOSIT PURCHASE PLAN. You may automatically invest Social Security
checks, private payroll checks, pension pay outs or any other pre-authorized
government or private recurring payments in the Fund.
DOLLAR COST AVERAGING. Our dollar cost averaging program allows you to diversify
your investments by investing the same amount on a regular basis. You can set up
periodic automatic exchanges of at least $50 from one Touchstone Fund to any
other Touchstone Fund. The applicable sales charge, if any, will be assessed.
37
SELLING YOUR SHARES
You may sell some or all of your shares on any day that the Fund calculates its
NAV. If your request is received by Touchstone Securities, Inc., or an
Authorized Processing Organization, in proper form by the close of regular
trading on the NYSE (usually 4:00 p.m. Eastern Time), you will receive a price
based on that day's net asset value for the shares you sell. Otherwise, the
price you receive will be based on the net asset value that is next calculated.
BY TELEPHONE
o You can sell or exchange your shares over the telephone, unless you have
specifically declined this option. If you do not wish to have this
ability, you must mark the appropriate section of the investment
application. You may only sell shares over the telephone if the amount is
less than $100,000.
o To sell your Fund shares by telephone, call Touchstone Securities, Inc. at
1.800.543.0407.
o Shares held in IRA accounts and qualified retirement plans cannot be sold
by telephone.
o If we receive your sale request by the close of the regular session of
trading on the NYSE, generally 4:00 p.m. Eastern Time, on a day when the
NYSE is open for regular trading, the sale of your shares will be
processed at the next determined net asset value on that day. Otherwise it
will occur on the next business day.
o Interruptions in telephone service could prevent you from selling your
shares by telephone when you want to. When you have difficulty making
telephone sales, you should mail to Touchstone Securities, Inc. (or send
by overnight delivery), a written request for the sale of your shares.
o In order to protect your investment assets, Touchstone Securities, Inc.
will only follow instructions received by telephone that it reasonably
believes to be genuine. However, there is no guarantee that the
instructions relied upon will always be genuine and Touchstone Securities,
Inc. will not be liable, in those cases. Touchstone Securities, Inc. has
certain procedures to confirm that telephone instructions are genuine. If
it does not follow such procedures in a particular case, it may be liable
for any losses due to unauthorized or fraudulent instructions. Some of
these procedures may include:
o Requiring personal identification
o Making checks payable only to the owner(s) of the account shown on
Touchstone Securities, Inc.'s records
o Mailing checks only to the account address shown on Touchstone
Securities Inc.'s records
o Directing wires only to the bank account shown on Touchstone
Securities Inc.'s records
o Providing written confirmation for transactions requested by
telephone
o Digitally recording instructions received by telephone
BY MAIL
o Write to Touchstone Securities, Inc.
o Indicate the number of shares or dollar amount to be sold.
o Include your name and account number.
o Sign your request exactly as your name appears on your investment
application.
o You may be required to have your signature guaranteed (See "Signature
Guarantees" in this Prospectus for more information).
38
BY WIRE
o Complete the appropriate information on the investment application.
o You may be charged a fee by the Fund or Fund's agent for wiring redemption
proceeds. You may also be charged a fee by your bank.
o Redemption proceeds will only be wired to a commercial bank or brokerage
firm in the United States.
o Your redemption proceeds may be deposited without a charge directly into
your bank account through an ACH transaction. Contact Touchstone
Securities, Inc. for more information.
THROUGH A SYSTEMATIC WITHDRAWAL PLAN
o You may elect to receive, or send to a third party, withdrawals of $50 or
more if your account value is at least $5,000.
o Withdrawals can be made monthly, quarterly, semiannually or annually.
o There is no fee for this service.
o There is no minimum account balance required for retirement plans.
* SPECIAL TAX CONSIDERATION
Systematic withdrawals may result in the sale of your shares at a loss or may
result in taxable investment gains.
THROUGH YOUR FINANCIAL ADVISOR OR PROCESSING ORGANIZATION
o You may also sell shares by contacting your financial advisor or
processing organization, which may charge you a fee for this service.
Shares held in street name must be sold through your financial advisor or,
if applicable, the processing organization.
o Your financial advisor or processing organization is responsible for
making sure that sale requests are transmitted to Touchstone Securities,
Inc. in proper form and in a timely manner.
* SPECIAL TAX CONSIDERATION
Selling your shares may cause you to incur a taxable gain or loss.
INVESTOR ALERT: Unless otherwise specified, proceeds will be sent to the record
owner at the address shown on Touchstone Securities, Inc.'s records.
CONTINGENT DEFERRED SALES CHARGE ("CDSC")
If you purchase $1 million or more Class A shares at NAV, a CDSC of 1.00% may be
charged on redemptions made within 1 year of your purchase. The CDSC will not
apply to redemptions of shares you received through reinvested dividends or
capital gains distributions and may be waived under certain circumstances
described below. The CDSC will be assessed on the lesser of your shares' net
asset value at the time of redemption or the time of purchase. The CDSC is paid
to Touchstone Securities, Inc. to reimburse expenses incurred in providing
distribution-related services to the Fund.
No CDSC is applied if:
o The redemption is due to the death or post-purchase disability of a
shareholder.
o The redemption is from a systematic withdrawal plan and represents no more
than 10% of your annual account value.
o The redemption is a benefit payment made from a qualified retirement plan,
unless the redemption is due to termination of the plan or transfer of the
plan to another financial institution.
39
o The redemption is for a mandatory withdrawal from a traditional IRA
account after age 70 1/2.
The above mentioned CDSC waivers do not apply to redemptions made within one
year for purchases of $1 million or more in A Shares of the Touchstone Funds
where a commission was paid by Touchstone Securities, Inc. to a participating
unaffiliated dealer.
When we determine whether a CDSC is payable on a redemption, we assume that:
o The redemption is made first from amounts not subject to a CDSC; then
o From the earliest purchase payment(s) that remain invested in the Fund
RECEIVING SALE PROCEEDS
Touchstone Securities, Inc. will forward the proceeds of your sale to you (or to
your financial advisor or processing organization) within 7 days (normally
within 3 business days) after receipt of a proper request.
PROCEEDS SENT TO FINANCIAL ADVISORS OR PROCESSING ORGANIZATIONS. Proceeds that
are sent to your financial advisor or processing organization will not usually
be reinvested for you unless you provide specific instructions to do so.
Therefore, the financial advisor or processing organization may benefit from the
use of your money.
FUND SHARES PURCHASED BY CHECK. We may delay mailing your redemption proceeds
for shares you recently purchased by check until your check clears, which may
take up to 15 days. If you need your money sooner, you should purchase shares by
bank wire.
REINSTATEMENT PRIVILEGE. You may, within 90 days of redemption, reinvest all or
part of your sale proceeds by sending a written request and a check to
Touchstone Securities, Inc. If the redemption proceeds were from the sale of
your Class A shares, you can reinvest into Class A shares of any Touchstone Fund
at NAV. Reinvestment will be at the net asset value next calculated after
Touchstone Securities, Inc. receives your request. If the proceeds were from the
sale of your Class C shares, you can reinvest those proceeds into Class C shares
of any Touchstone Fund. If you paid a CDSC on the reinstated amount, that CDSC
will be reimbursed to you upon reinvestment.
* SPECIAL TAX CONSIDERATION
You should contact your tax advisor if you use the Reinstatement Privilege.
LOW ACCOUNT BALANCES. If your balance falls below the minimum amount required
for your account, based on actual amounts you have invested (as opposed to a
reduction from market changes), your account may be subject to an annual account
maintenance fee or Touchstone Securities, Inc. may sell your shares and send the
proceeds to you. This involuntary sale does not apply to retirement accounts or
custodian accounts under the Uniform Gifts/Transfers to Minors Act ("UGTMA").
Touchstone Securities, Inc. will notify you if your shares are about to be sold
and you will have 30 days to increase your account balance to the minimum
amount.
DELAY OF PAYMENT. It is possible that the payment of your sale proceeds could be
postponed or your right to sell your shares could be suspended during certain
circumstances. These circumstances can occur:
40
o When the NYSE is closed on days other than customary weekends and
holidays.
o When trading on the NYSE is restricted.
o When an emergency situation causes Navellier & Associates, Inc. to not be
reasonably able to dispose of certain securities or to fairly determine
the value of the Fund's net assets.
o During any other time when the SEC, by order, permits.
REDEMPTION IN KIND. Under unusual circumstances, when the Board of Trustees
deems it appropriate, the Fund may make payment for shares redeemed in portfolio
securities of the Fund taken at current value. Shareholders who receive
portfolio securities bear market risk until those securities are sold.
Shareholders may also incur transactions and brokerage costs when they sell the
securities.
PRICING OF FUND SHARES
The Fund's share price (also called "NAV") and offering price (NAV plus a sales
charge, if applicable) is determined as of the close of trading (normally 4:00
p.m. Eastern Time) every day the NYSE is open. The Fund calculates its NAV per
share, generally using market prices, by dividing the total value of its net
assets by the number of shares outstanding. Shares are purchased or sold at the
next offering price determined after your purchase or sale order is received in
proper form by Touchstone Securities, Inc. or its authorized agent.
The Fund's equity investments are valued based on market value or, if no market
value is available, based on fair value as determined by the Board of Trustees
(or under their direction). The Fund may use pricing services to determine
market value for investments. Some specific pricing strategies follow:
o All short-term dollar-denominated investments that mature in 60 days or
less are valued on the basis of amortized cost.
o Securities mainly traded on a U.S. exchange are valued at the last sale
price on that exchange or, if no sales occurred during the day, at the
current quoted bid price.
Any foreign securities held by the Fund will be priced as follows:
o All assets and liabilities initially expressed in foreign currency values
will be converted into U.S. dollar values.
o Securities mainly traded on a non-U.S. exchange are generally valued
according to the preceding closing values on that exchange. However, if an
event that may change the value of a security occurs after the time that
the closing value on the non-U.S. exchange was determined, the security
may be priced based on fair value. This may cause the value of the
security on the books of the Fund to be significantly different from the
closing value on the non-U.S. exchange and may affect the calculation of
the NAV.
o Because portfolio securities that are primarily listed on a non-U.S.
exchange may trade on weekends or other days when the Fund does not price
its shares, the Fund's NAV may change on days when shareholders will not
be able to buy or sell shares.
Securities held by the Fund that do not have readily available market
quotations, or securities for which the available market quotation is not
reliable, are priced at their fair value using procedures approved by the Board
of Trustees. The Fund may use fair value pricing under the following
circumstances, among others:
o If the value of a security has been materially affected by events
occurring before the Fund's pricing time but after the close of the
primary markets on which the security is traded.
41
o If reliable market quotations are unavailable due to infrequent trading.
o If the exchange on which a portfolio security is principally traded closes
early or if trading in a particular portfolio security was halted during
the day and did not resume prior to the Fund's NAV calculation.
The use of fair value pricing has the effect of valuing a security based upon
the price the Fund might reasonably expect to receive if it sold that security
but does not guarantee that the security can be sold at the fair value price.
With respect to any portion of the Fund's assets that is invested in other
mutual funds, that portion of the Fund's NAV is calculated based on the NAV of
that mutual fund. The prospectus for the other mutual fund explains the
circumstances and effects of fair value pricing for that fund.
DISTRIBUTION AND TAX INFORMATION
The Fund intends to distribute to its shareholders substantially all of its
income and capital gains. The Fund distributes its income annually as a dividend
to shareholders. The Fund makes distributions of capital gains, if any, at least
annually. If you own shares on the Fund's record date, you will be entitled to
receive the distribution.
You will receive dividends and distributions in the form of additional Fund
shares unless you elect to receive payment in cash. To elect cash payment, you
must notify the Fund in writing or by phone prior to the date of distribution.
Your election will be effective for dividends and distributions paid after we
receive your notice. To cancel your election, simply send written notice to
Touchstone, P.O. Box 5354, Cincinnati, Ohio 45201-5354, or by overnight mail to
Touchstone, c/o JPMorgan Chase Bank, N.A., 303 Broadway, Suite 900, Cincinnati,
Ohio 45202-4203, or call Touchstone at 1.800.543.0407.
DISTRIBUTIONS. The Fund may make distributions of dividends that may be taxed at
different rates depending on the length of time the Fund holds its assets. The
dividends and distributions you receive may be subject to federal, state and
local taxation, depending upon your tax situation. If so, they are taxable
whether or not you reinvest such dividends in additional shares of the Fund or
choose to receive cash.
ORDINARY INCOME. Income distributions are generally taxable at ordinary income
tax rates except to the extent they are designated as qualified dividend income.
Dividends that are qualified dividend income are eligible for the reduced
maximum rate to individuals of 15% (5% for individuals in lower tax brackets) to
the extent that the Fund receives qualified dividend income. Short-term capital
gains that are distributed to you are taxable as ordinary income for federal
income tax purposes regardless of how long you have held your Fund shares.
LONG-TERM CAPITAL GAINS. Long-term capital gains distributed to you are taxable
as long-term capital gains for federal income tax purposes regardless of how
long you have held your Fund shares. The maximum individual tax rate on net
long-term capital gains is 15%.
BACKUP WITHHOLDING. The Fund may be required to withhold U.S. federal income tax
on all taxable distributions and sales payable to shareholders who fail to
provide their correct taxpayer identification number or to make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. The current backup withholding rate is
28%.
42
STATEMENTS AND NOTICES. You will receive an annual statement outlining the tax
status of your distributions. You will also receive written notices of certain
distributions paid by the Fund during the prior taxable year.
MARKET TIMING POLICY
Market timing or excessive trading in accounts that you own or control may
disrupt portfolio investment strategies, may increase brokerage and
administrative costs, and may negatively impact investment returns for all
shareholders, including long-term shareholders who do not generate these costs.
Touchstone Funds Group Trust will take reasonable steps to discourage excessive
short-term trading and will not knowingly accommodate frequent purchases and
redemptions of Touchstone shares by shareholders. The Board of Trustees has
adopted the following policies and procedures with respect to market timing of
Touchstone Funds by shareholders. Touchstone Funds will monitor selected trades
on a daily basis in an effort to deter excessive short-term trading. If a fund
has reason to believe that a shareholder has engaged in excessive short-term
trading, the fund may ask the shareholder to stop such activities or restrict or
refuse to process purchases or exchanges in the shareholder's accounts. While a
fund cannot assure the prevention of all excessive trading and market timing, by
making these judgments the fund believes it is acting in a manner that is in the
best interests of its shareholders. However, because the funds cannot prevent
all market timing, shareholders may be subject to the risks described above.
Generally, a shareholder may be considered a market timer if he or she has (i)
requested an exchange or redemption out of any of the Touchstone Funds within 2
weeks of an earlier purchase or exchange request out of any Touchstone Fund, or
(ii) made more than 2 "round-trip" exchanges within a rolling 90 day period. A
"round-trip" exchange occurs when a shareholder exchanges from one Touchstone
Fund to another Touchstone Fund and back to the original Touchstone Fund. If a
shareholder exceeds these limits, the funds may restrict or suspend that
shareholder's exchange privileges and subsequent exchange requests during the
suspension will not be processed. The funds may also restrict or refuse to
process purchases by the shareholder. These policies and procedures generally do
not apply to purchases and redemptions of Money Market Funds (except in the case
of an exchange request into a Touchstone non-money market fund), exchanges
between Money Market Funds and systematic purchases and redemptions.
Financial intermediaries (such as investment advisors and broker-dealers) often
establish omnibus accounts in the funds for their customers through which
transactions are placed. In accordance with Rule 22c-2 under the 1940 Act, the
funds have entered into information sharing agreements with certain financial
intermediaries. Under these agreements, a financial intermediary is obligated
to: (1) enforce during the term of the agreement, the funds' market-timing
policy; (2) furnish the funds, upon their request, with information regarding
customer trading activities in shares of the funds; and (3) enforce the funds'
market-timing policy with respect to customers identified by the funds as having
engaged in market timing. When information regarding transactions in the funds'
shares is requested by a fund and such information is in the possession of a
person that is itself a financial intermediary to a financial intermediary (an
"indirect intermediary"), any financial intermediary with whom the funds have an
information sharing agreement is obligated to obtain transaction information
from the indirect intermediary or, if directed by the funds, to restrict or
prohibit the indirect intermediary from purchasing shares of the funds on behalf
of other persons. The funds apply these policies and procedures uniformly to all
shareholders believed to be engaged in market timing or excessive trading. The
funds have no arrangements to permit any investor to trade frequently in shares
of the funds, nor will they enter into any such arrangements in the future.
43
OTHER BUSINESS
The Trustees of the Navellier Millennium Funds do not intend to present
any other business at the Meeting. If, however, any other matters are properly
brought before the Meeting, the persons named in the accompanying form of proxy
will vote thereon in accordance with their judgment.
THE TRUSTEES OF THE TRUST RECOMMEND APPROVAL OF THE PLAN. ANY SIGNED
BUT UNMARKED PROXIES WITHOUT INSTRUCTIONS WILL BE VOTED IN FAVOR OF
APPROVAL OF THE PLAN.
August 1, 2008
44
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") dated as of
June 19, 2008, by and between Navellier International Growth Portfolio, a
Delaware statutory trust (the "International Fund") and the Touchstone Funds
Group Trust, a Delaware statutory trust ("TFGT" and, together with International
Fund, the "Parties" and each a "Party"), on behalf of its investment portfolio
the Touchstone International Growth Fund (the "TFGT Fund"). Navellier &
Associates, Inc., a Nevada corporation ("Navellier"), joins this Agreement
solely for purposes of paragraphs 9.2, 10.5, 10.13 and 10.14 and Article VII;
Touchstone Advisors, Inc., an Ohio corporation ("Touchstone"), joins this
Agreement solely for purposes of paragraphs 9.2, 10.5, 10.13 and 10.14 and
Article VII. Capitalized terms not otherwise defined herein shall have the
meaning set forth in Article XI hereof.
RECITALS:
International Fund issues shares of beneficial interest representing the
interests in International Fund. Likewise, TFGT issues a separately designated
series of shares of beneficial interest representing the interests in the TFGT
Fund.
The Parties wish to conclude a business combination transaction under the
terms set forth in this Agreement in which: (1) all of the Fund Assets of
International Fund will be transferred to the TFGT Fund in exchange for Class A
shares of the TFGT Fund and the assumption by that TFGT Fund of all of
International Fund's Liabilities, and (2) Class A shares of the TFGT Fund will
be distributed to holders of shares of International Fund in complete
liquidation of International Fund, all upon the terms and conditions set forth
in this Agreement (the "Reorganization").
The Parties intend this Agreement to be, and adopt it as, a plan of
reorganization within the meaning of the regulations under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
The Board of Trustees of International Fund (the "International Fund
Board"), including a majority of trustees who are not "interested persons" (as
defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended
(the "1940 Act")) ("Independent Trustees") of International Fund, has determined
with respect to International Fund that: (1) participation in the Reorganization
is in the best interests of International Fund, and (2) the interests of
existing shareholders of International Fund will not be diluted as a result of
its effecting the Reorganization.
The Board of Trustees of TFGT (the "TFGT Board"), including a majority of
Independent Trustees of TFGT, has determined with respect to the TFGT Fund that:
(1) participation in the Reorganization is in the best interests of the TFGT
Fund, and (2) the interests of existing shareholders of the TFGT Fund will not
be diluted as a result of its effecting the Reorganization.
NOW THEREFORE, in consideration of the mutual promises, representations,
and warranties made herein, covenants and agreements hereinafter contained, and
for other good and valuable consideration, the receipt and sufficiency of which
are acknowledged, the Parties, and Navellier and Touchstone to the extent
indicated above, intending to be legally bound hereby, agree as follows:
A-1
ARTICLE I
THE REORGANIZATION
1.1 The Reorganization. In accordance with the Declaration of Trust and
by-laws, as they may be amended from time to time, of International Fund
("International Fund Governing Documents"), at the Effective Time (as defined
below), upon the terms and subject to the conditions of this Agreement, and on
the basis of the representations and warranties contained herein, International
Fund shall assign, deliver and otherwise transfer all Fund Assets, subject to
all of the Liabilities of International Fund, to TFGT on behalf of the TFGT
Fund, and TFGT shall assume all of the Liabilities of International Fund on
behalf of the TFGT Fund. In consideration of the foregoing, TFGT shall, on
behalf of the TFGT Fund, at the Effective Time deliver to International Fund
full and fractional (to the third decimal place) Class A shares of the TFGT
Fund. The number of shares of the TFGT Fund shall be determined as set forth in
paragraph 2.3 by dividing (a) the value of the Fund Assets attributable to
International Fund, net of International Fund's Known Liabilities (computed as
of the Valuation Time (as defined below) in the manner set forth in paragraph
2.1), by (b) the net asset value of one Class A share of TFGT Fund (computed as
of the Valuation Time in the manner set forth in paragraph 2.2). At and after
the Effective Time, all of the Fund Assets of International Fund shall become
and be included in the Fund Assets of the TFGT Fund and the Liabilities of
International Fund shall become and be the Liabilities of and shall attach to
the TFGT Fund. At and after the Effective Time, the Liabilities of International
Fund may be enforced only against the TFGT Fund to the same extent as if such
Liabilities had been incurred by the TFGT Fund subject to any defense and/or set
off that International Fund was entitled to assert immediately prior to the
Effective Time and further subject to any defense and/or setoff that TFGT or the
TFGT Fund may from time to time be entitled to assert.
1.2 International Fund Assets.
(i) At least fifteen Business Days prior to the Valuation
Time, International Fund will provide TFGT with a schedule of the securities and
other assets and Known Liabilities of International Fund. Prior to the execution
of this Agreement, TFGT has provided International Fund with a copy of the
current investment objective, investment policies, principal investment
strategies, and restrictions applicable to the TFGT Fund and TFGT will provide
International Fund with a written notice of any changes thereto until the
Valuation Time. International Fund reserves the right to sell any of the
securities or other assets shown on the list for International Fund prior to the
Valuation Time but will not, without the prior approval of TFGT, acquire any
additional securities other than securities which the TFGT Fund may purchase in
accordance with its stated investment objective and policies.
(b) At least ten Business Days prior to the Valuation Time, TFGT
will advise International Fund of any investments of International Fund shown on
International Fund's schedule provided pursuant to paragraph (a) which the TFGT
Fund would not be permitted to hold (i) under its investment objective,
principal investment strategies or investment restrictions; (ii) under
applicable Law; or (iii) because the transfer of such investments would result
in material operational or administrative difficulties to TFGT in connection
with facilitating the orderly transition of International Fund's Fund Assets.
Under such circumstances, to the extent practicable, International Fund will, if
requested by TFGT and, to the extent permissible and consistent with its own
investment objectives and policies and the fiduciary duties of the investment
adviser responsible for the portfolio management of International Fund, dispose
of such investments prior to the Valuation Time. Notwithstanding the foregoing,
nothing herein will require International Fund to dispose of any portfolio
securities or other investments, if, in the reasonable judgment of International
Funds' Board or International Fund's investment adviser, such disposition would
adversely affect the tax-free nature of the Reorganization for federal income
tax purposes or would otherwise not be in the best interests of International
Fund.
A-2
1.3 Assumption of Liabilities. International Fund will, to the extent
permissible and consistent with its own investment objectives and policies, use
its best efforts to discharge all of the Known Liabilities of International Fund
prior to or at the Effective Time. TFGT, on behalf of the TFGT Fund, will assume
all of the Liabilities of International Fund. If prior to the Effective Time
either Party identifies a Liability that the Parties mutually agree should not
be assumed by TFGT, such Liability shall be excluded from the definition of
Liabilities hereunder and shall be listed on a Schedule of Excluded Liabilities
to be signed by the Parties at the Closing (the "Excluded Liabilities"). TFGT
shall not assume any Liability for any obligation of International Fund to file
reports with the SEC, Internal Revenue Service or other regulatory or tax
authority covering any reporting period ending prior to or at the Effective Time
with respect to the International Fund.
1.4 Distribution of TFGT Shares. Immediately upon receipt, International
Fund will distribute the Class A shares of the TFGT Fund received by
International Fund from TFGT pursuant to paragraph 1.1 (the "TFGT Shares"), pro
rata to the record holders of shares of International Fund. Such distribution
will be accomplished by an instruction, signed by an appropriate officer of
International Fund, to transfer the TFGT Shares then credited to International
Fund's account on the Books and Records of TFGT and to open accounts on the
Books and Records of TFGT established and maintained by TFGT's transfer agent in
the names of record holders of International Fund and representing the
respective pro rata number of TFGT Shares due to such record holder. All issued
and outstanding International Fund shares will be cancelled promptly by
International Fund on International Fund's Books and Records. Any such shares
issued and outstanding prior to such cancellation shall thereafter represent
only the right to receive the TFGT Shares issued to International Fund in
accordance with paragraph 1.1 above. In addition, each record holder of
International Fund shall have the right to receive any unpaid dividends or other
distributions which were declared with respect to his/her or its shares of
International Fund at or before the Valuation Time.
1.5 Liquidation of International Fund. As soon as conveniently practicable
after the distribution of TFGT Shares pursuant to paragraph 1.4 has been made,
International Fund shall take, in accordance with Delaware law, the 1940 Act and
International Fund's governing documents, all such other steps as may be
necessary or appropriate to effect a complete liquidation and termination of
International Funds.
1.6 Transfer Taxes. Any transfer taxes payable on issuance of TFGT Shares
in a name other than that of the record holder of International Fund shares on
International Fund's Books and Records shall be paid by the Person to whom such
TFGT Shares are issued and transferred, as a condition of that transfer.
ARTICLE II
VALUATION
2.1 Net Asset Value of International Fund. The net asset value of a share
of each class of International Fund shall be the net asset value computed as of
the Valuation Time, after the declaration and payment of any dividends and/or
other distributions on the date thereof, using the valuation procedures
described in the then-current prospectus and statement of additional information
of the TFGT Fund as supplemented from time to time.
A-3
2.2 Net Asset Value of the TFGT Funds. The net asset value of a Class A
share of the TFGT Fund shall be the net asset value of International Fund as of
the Effective Time (as defined below).
2.3 Calculation of Number of TFGT Shares. The number of TFGT Shares to be
issued (including fractional shares (to the third decimal place), if any) in
connection with the Reorganization shall be determined by dividing the value of
the net assets of International Fund participating therein attributable to Class
A shares, determined in accordance with the valuation procedures referred to in
paragraph 2.1 by the net asset value per Class A share of the TFGT Fund
determined in accordance with the valuation procedures referred to in paragraph
2.2.
2.4 Determination of Net Asset Value. All computations of net asset value
and the value of securities transferred under this Article II shall be made by
JPMorgan Chase Bank, N.A. ("JPMorgan"), sub-administrator for TFGT, in
accordance with its regular practice and the requirements of the 1940 Act.
International Fund and TFGT agree to use all commercially reasonable efforts to
resolve prior to the Valuation Time any material pricing differences between the
prices of portfolio securities determined in accordance with the pricing
policies and procedures of International Fund and those determined in accordance
with the pricing policies and procedures of TFGT.
2.5 "Valuation Time" shall mean 4:00 PM Eastern Time of the business day
preceding the Effective Time (as defined below).
ARTICLE III
EFFECTIVE TIME AND CLOSING
3.1 Effective Time and Closing. Subject to the terms and conditions set
forth herein, the Reorganization shall occur immediately prior to the opening of
business on September 29, 2008, or on such other date as may be mutually agreed
in writing by an authorized officer of each Party (the "Effective Time"). To the
extent any Fund Assets are, for any reason, not transferred at the Effective
Time, International Fund shall cause such Fund Assets to be transferred in
accordance with this Agreement at the earliest practical date thereafter. The
closing of the Fund Transactions will take place at the offices of JPMorgan, 303
Broadway, Cincinnati, OH 45202-4133, or at such other place as may be mutually
agreed in writing by an authorized officer of each Party, at the Effective Time
(the "Closing").
3.2 Transfer and Delivery of Fund Assets. International Fund shall direct
JPMorgan, as custodian for International Fund, to deliver to TFGT at the Closing
a certificate of an authorized officer certifying that: (a) JPMorgan delivered
the Fund Assets of International Fund to the TFGT Fund at the Effective Time;
and (b) all necessary taxes in connection with the delivery of such Fund Assets,
including all applicable foreign, federal and state stock transfer stamps and
any other stamp duty taxes, if any, have been paid or provision (as reasonably
estimated) for payment has been made.
3.3 TFGT Share Records. TFGT shall deliver to the Secretary of
International Fund at the Closing a confirmation evidencing that: (a) the
appropriate number of TFGT Shares have been credited to the account of
International Fund on the Books and Records of the TFGT Fund pursuant to
paragraph 1.1 prior to the actions contemplated by paragraph 1.4, and (b) the
appropriate number of TFGT Shares have been credited to the accounts of record
holders of International Fund shares on the Books and Records of TFGT pursuant
to paragraph 1.4.
A-4
3.4 Postponement of Valuation Time and Effective Time. If immediately
prior to the Valuation Time: (a) the NYSE or another primary trading market for
portfolio securities of TFGT Fund or International Fund is closed to trading, or
trading thereupon is restricted, or (b) trading or the reporting of trading on
such market is disrupted so that, in the judgment of an appropriate officer of
International Fund or TFGT, accurate appraisal of the value of the net assets of
the TFGT Fund or International Fund is impracticable, the Valuation Time and
Effective Time shall be postponed until the first Business Day that is a Friday
after the day when trading shall have been fully resumed and reporting shall
have been restored or such later date as may be mutually agreed in writing by an
authorized officer of each Party.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of International Fund. International
Fund hereby represents and warrants to TFGT, on behalf of the TFGT Fund, as
follows, which representations and warranties shall be true and correct on the
date hereof:
(a) International Fund is a business trust duly organized, validly
existing and in good standing under the Laws of the State of Delaware and is
duly qualified, licensed or admitted to do business and is in good standing as a
foreign association under the Laws of each jurisdiction in which the nature of
the business conducted by it makes such qualification, licensing or admission
necessary, except in such jurisdictions where the failure to be so qualified,
licensed or admitted and in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on its properties or assets.
International Fund has full power under International Fund's Governing Documents
to conduct its business as it is now being conducted and to own the properties
and assets it now owns. International Fund has all necessary authorizations,
licenses and approvals from any applicable Governmental or Regulatory Body
necessary to carry on its business as such business is now being carried on
except authorizations, licenses and approvals that the failure to so obtain
would not have a Material Adverse Effect on International Fund.
(b) The execution, delivery and performance of this Agreement by
International Fund and the consummation of the transactions contemplated herein
will have been duly and validly authorized by the International Fund Board, and
the International Fund Board has approved the Reorganization and has resolved to
recommend the Reorganization to the shareholders of International Fund and to
call a special meeting of shareholders of International Fund for the purpose of
approving this Agreement and the Reorganization contemplated hereby. Other than
the approval by the requisite vote of the shareholders of the outstanding shares
of International Fund in accordance with the provisions of Growth Governing
Documents, applicable Delaware Law and the 1940 Act, no other action on the part
of International Fund or its shareholders is necessary to authorize the
execution, delivery and performance of this Agreement by International Fund on
behalf of International Fund or the consummation of the Reorganization
contemplated herein. This Agreement has been duly and validly executed and
delivered by International Fund, and assuming due authorization, execution and
delivery hereof by TFGT, is a legal, valid and binding obligation of
International Fund, enforceable in accordance with its terms (subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other Laws
relating to or affecting creditors' rights, to general equity principles and to
any limitations on indemnity as may be required under federal and state
securities Laws).
A-5
(c) The authorized capital of International Fund consists of an
unlimited number of shares of beneficial interest with a par value of one-tenth
of one cent ($0.001) per share. Each share represents a fractional undivided
interest in International Fund. The issued and outstanding International Fund
shares of each class and series are duly authorized, validly issued, fully paid
and non-assessable. There are no outstanding options, warrants or other rights
of any kind to acquire from International Fund any shares of any series or
equity interests of International Fund or securities convertible into or
exchangeable for, or which otherwise confer on the holder thereof any right to
acquire, any such additional shares, nor is International Fund committed to
issue any share appreciation or similar rights or options, warrants, rights or
securities in connection with any series of shares. International Fund has no
share certificates outstanding.
(d) International Fund has no subsidiaries.
(e) Except for consents, approvals, or waivers to be received prior
to the Effective Time, including shareholder approval by International Fund, and
upon the effectiveness of the Registration Statement (as defined below), the
execution, delivery and performance of this Agreement by International Fund for
itself and on behalf of International Fund does not, and the consummation of the
transactions contemplated herein will not: (i) violate or conflict with the
terms, conditions or provisions of International Fund's Governing Documents, or
of any material contract, agreement, indenture, instrument, or other undertaking
to which it is a party or by which it or International Fund is bound, (ii)
result in the acceleration of any obligation, or the imposition of any penalty,
under any material agreement, indenture, instrument, contract, lease or other
undertaking to which International Fund is a party or by which it or
International Fund is bound, (iii) result in a breach or violation by
International Fund of any terms, conditions, or provisions of any Law or Order,
or (iv) require any consent or approval of, filing with or notice to, any
Governmental or Regulatory Body.
(f) (i) Prior to the execution of this Agreement, International Fund
has delivered to TFGT true and complete copies of its audited statements of
assets and liabilities of as of December 31, 2007 or a later date if available
prior to the date hereof, and the related audited schedules of investments,
statements of income and changes in net assets and financial highlights for the
periods then ended.
(ii) Except as set forth in the notes thereto, all such
financial statements were prepared in accordance with U.S. generally accepted
accounting principles, consistently applied throughout the periods then ended,
and fairly present the financial condition and results of operations of
International Fund as of the respective dates thereof and for the respective
periods covered thereby subject, in the case of the unaudited financial
statements, to normal year-end audit adjustments.
(iii) To the best of International Fund's Knowledge, except as
reflected or reserved against in the statement of assets and liabilities
included in International Fund's audited financial statements as of December 31,
2007, or in the notes thereto, or as previously disclosed in writing to TFGT,
there are no liabilities against, relating to or affecting International Fund or
any of its properties and assets, other than those incurred in the ordinary
course of business consistent with past practice, which, individually or in the
aggregate, would have a Material Adverse Effect on International Fund or its
properties or assets. In particular, since December 31, 2007 to the best of
International Fund's Knowledge and except as disclosed in writing to TFGT or in
International Fund's prospectus and statement of additional information as in
effect on the date of this Agreement, there has not been any change in the
financial condition, properties, assets, liabilities or business of
International Fund that would have a Material Adverse Effect on International
Fund or its properties or assets other than changes occurring in the ordinary
course of business.
A-6
(iv) As of the date hereof, except as previously disclosed to
TFGT in writing or as disclosed in International Fund's prospectuses and
statements of additional information as in effect on the date of this Agreement,
and except as have been corrected as required by applicable Law, and to the best
of International Fund's Knowledge, there have been no material miscalculations
of the net asset value of International Fund during the twelve-month period
preceding the date hereof which would have a Material Adverse Effect on
International Fund or its properties or assets, and all such calculations have
been made in accordance with the applicable provisions of the 1940 Act.
(g) The minute books and other similar records of International Fund
as made available to TFGT prior to the execution of this Agreement contain a
true and complete record in all material respects of all action taken at all
meetings and by all written consents in lieu of meetings of the shareholders of
International Fund, the International Fund Board and committees of the
International Fund Board. The stock transfer ledgers and other similar records
of International Fund and of International Fund as made available to TFGT prior
to the execution of this Agreement accurately reflect all record transfers prior
to the execution of this Agreement in the shares of International Fund.
(h) International Fund has maintained, or caused to be maintained on
its behalf, in all material respects, all Books and Records required of a
registered investment company in compliance with the requirements of Section 31
of the 1940 Act and rules thereunder.
(i) Except as set forth in writing to TFGT, there is no Action or
Proceeding pending against International Fund or, to the best of International
Fund's Knowledge, threatened against, relating to or affecting, International
Fund.
(j) No agent, broker, finder or investment or commercial banker, or
other Person or firm engaged by or acting on behalf of International Fund in
connection with the negotiation, execution or performance of this Agreement or
any other agreement contemplated hereby, or the consummation of the transactions
contemplated hereby, is or will be entitled to any broker's or finder's or
similar fees or other commissions as a result of the consummation of such
transactions.
(k) International Fund is registered with the SEC as an open-end
management investment company under the 1940 Act, and its registration with the
SEC as such an investment company is in full force and effect and International
Fund is in compliance in all material respects with the 1940 Act and its rules
and regulations;
(l) As of the date hereof, all federal and other tax returns,
dividend reporting forms, and other tax-related reports of International Fund
required by Law to have been filed by such date (including any extensions) have
been filed and are correct in all material respects, and all federal and other
taxes shown as due on such returns and reports have been paid or provision has
been made on the respective Fund's Books and Records for the payment thereof
and, to the best of International Fund's Knowledge, no such return is currently
under audit or has been threatened with an audit and no assessment has been
asserted with respect to such returns. To International Fund's Knowledge, there
are no levies, liens, or other encumbrances relating to taxes existing,
threatened or pending with respect to the properties or assets of International
Fund. As of the date hereof, International Fund has adequately provided for all
tax liabilities on its Books and Records.
A-7
(m) For each taxable year of its operation (including its last
completed taxable year), International Fund has met (or will meet) the
requirements of Subchapter M of Chapter 1 of the Code for qualification as a
regulated investment company and has elected to be such, and has been (or will
be) eligible to and has computed (or will compute) its federal income tax under
Section 852 of the Code. International Fund currently qualifies, and from the
date of this Agreement until the Effective Time shall not take any action
inconsistent with such qualification as a regulated investment company under the
Code.
(n) All issued and outstanding shares of International Fund have
been offered and sold in compliance in all material respects with applicable
registration requirements of the 1933 Act and state securities Laws, are
registered under the 1933 Act and under the Laws of all jurisdictions in which
registration is or was required, except as may have been previously disclosed to
TFGT in writing. Such registrations are, in all material respects, complete,
current and have been continuously effective, and all fees required to be paid
have been paid. International Fund is not subject to any "stop order" and is,
and was, fully qualified to sell its shares in each jurisdiction in which such
shares are being, or were, registered and sold.
(o) The current prospectus and statement of additional information
of International Fund, including amendments and supplements thereto, and each
prospectus and statement of additional information of International Fund used at
all times during the past three years prior to the date of this Agreement
conform, or conformed at the time of its or their use, in all material respects
to the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the SEC thereunder, and do not, or did not, as of their dates
of distribution to the public, 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 materially misleading. International Fund currently complies in all
material respects with all investment objectives, policies, guidelines and
restrictions and any compliance procedures established by International Fund.
(p) The combined proxy statement and prospectus and statement of
additional information (collectively, the "Proxy Statement/Prospectus") to be
included in TFGT's registration statement on Form N-14 (the "Registration
Statement") and filed in connection with this Agreement, and the documents
incorporated therein by reference and any amendment or supplement thereto
insofar as they relate to International Fund, each comply or will comply in all
material respects with the applicable requirements of the 1933 Act, 1934 Act and
the 1940 Act and the applicable rules and regulations of the SEC thereunder on
the effective date of such Registration Statement. Each of the Proxy
Statement/Prospectus, Registration Statement and the documents incorporated
therein by reference and any amendment or supplement thereto, insofar as it
relates to International Fund, does not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not materially misleading on the effective date of such Registration Statement;
provided, however, that International Fund makes no representations or
warranties as to the information contained in the Proxy Statement/Prospectus,
Registration Statement and the documents incorporated therein by reference and
any amendment or supplement thereto in reliance upon and in conformity with
information relating to TFGT or the TFGT Fund and furnished by TFGT to
International Fund specifically for use in connection with the Proxy
Statement/Prospectus, Registration Statement and the documents incorporated
therein by reference and any amendment or supplement thereto.
A-8
(q) Except as previously disclosed in writing to TFGT, at the
Effective Time, International Fund will have good and marketable title to its
Fund Assets and full right, power, and authority to sell, assign, transfer and,
upon delivery and payment for the Fund Assets, deliver such Fund Assets, free
and clear of all liens, mortgages, pledges, encumbrances, charges, claims and
equities, and subject to no restrictions on the subsequent transfer thereof
(other than any Fund Assets consisting of restricted securities) or as otherwise
disclosed to TFGT at least fifteen business days prior to the Effective Time.
(r) International Fund has adopted and implemented written policies
and procedures in accordance with Rule 38a-1 under the 1940 Act.
(s) Except as disclosed in writing to TFGT, to the best of
International Fund's Knowledge, no events have occurred and no issues,
conditions or facts have arisen which either individually or in the aggregate
have had a Material Adverse Effect on the International Fund.
14.2 Representations and Warranties of TFGT. TFGT, on behalf of the TFGT
Fund, hereby represents and warrants to International Fund, as follows, which
representations and warranties shall be true and correct on the date hereof:
(a) TFGT is a statutory trust duly organized, validly existing and
in good standing under the Laws of the State of Delaware and is duly qualified,
licensed or admitted to do business and is in good standing as a foreign
association under the Laws of each jurisdiction in which the nature of the
business conducted by it makes such qualification, licensing or admission
necessary, except in such jurisdictions where the failure to be so qualified,
licensed or admitted and in good standing would not, individually or in the
aggregate, have a Material Adverse Effect on its properties or assets or the
properties or assets of the TFGT Fund. TFGT has full power under its Agreement
and Declaration of Trust, as amended from time to time, and amended and restated
by-laws ("TFGT Governing Documents") to conduct its business as it is now being
conducted and to own the properties and assets it now owns for itself and on
behalf of the TFGT Fund. TFGT has all necessary authorizations, licenses and
approvals from any applicable Governmental or Regulatory Body necessary to carry
on its business as such business is now being carried on except authorizations,
licenses and approvals that the failure to so obtain would not have a Material
Adverse Effect on TFGT.
(b) The execution, delivery and performance of this Agreement by
TFGT on behalf of the TFGT Fund and the consummation of the transactions
contemplated herein have been duly and validly authorized by the TFGT Board and
the TFGT Board has approved the Reorganization. No other action on the part of
TFGT or its shareholders, or the shareholders of the TFGT Fund, is necessary to
authorize the execution, delivery and performance of this Agreement by TFGT on
behalf of the TFGT Fund or the consummation of each Fund Transaction
contemplated herein. This Agreement has been duly and validly executed and
delivered by TFGT on behalf of the TFGT Fund, and assuming due authorization,
execution and delivery hereof by International Fund, is a legal, valid and
binding obligation of TFGT, as it relates to the TFGT Fund, enforceable in
accordance with its terms (subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other Laws relating to or affecting creditors'
rights, to general equity principles and to any limitations on indemnity as may
be required under federal and state securities Laws).
A-9
(c) The authorized capital of TFGT consists of an unlimited number
of shares of beneficial interest without par value. Each class and series of
shares has been duly established and represents a fractional undivided interest
in one of the TFGT Funds. The issued and outstanding TFGT Fund shares of each
class and series are duly authorized, validly issued, fully paid and
non-assessable. Before the Closing, there will be no (i) issued and outstanding
TFGT Fund shares, (ii) options, warrants, or other rights to subscribe for or
purchase TFGT Fund shares, (iii) security convertible into TFGT Fund shares, or
(iv) any other securities issued by the TFGT Fund, except the shares issued
pursuant to section 6.3(g).
(d) TFGT has no subsidiaries.
(e) Except for consents, approvals, or waivers to be received prior
to the Effective Time, including shareholder approval by International Fund, and
upon the effectiveness of the Registration Statement, the execution, delivery
and performance of this Agreement by TFGT for itself and on behalf of the TFGT
Fund does not, and the consummation of the transactions contemplated herein will
not: (i) violate or conflict with the terms, conditions or provisions of the
TFGT Governing Documents, or of any material contract, agreement, indenture,
instrument, or other undertaking to which it is a party or by which it or the
TFGT Fund is bound, (ii) result in the acceleration of any obligation, or the
imposition of any penalty, under any material agreement, indenture, instrument,
contract, lease or other undertaking to which TFGT is a party or by which it or
the TFGT Fund is bound, (iii) result in a breach or violation by TFGT or the
TFGT Fund of any terms, conditions, or provisions of any Law or Order, or (iv)
require any consent or approval of, filing with or notice to, any Governmental
or Regulatory Body.
(f) Except as set forth in writing to International Fund, there is
no Action or Proceeding pending against TFGT or the TFGT Fund or, to the best of
TFGT's Knowledge, threatened against, relating to or affecting, TFGT or the TFGT
Fund.
(g) No agent, broker, finder or investment or commercial banker, or
other Person or firm engaged by or acting on behalf of TFGT or the TFGT Fund in
connection with the negotiation, execution or performance of this Agreement or
any other agreement contemplated hereby, or the consummation of the transactions
contemplated hereby, is or will be entitled to any broker's or finder's or
similar fees or other commissions as a result of the consummation of such
transactions.
(h) TFGT is registered with the SEC as an open-end management
investment company under the 1940 Act, and its registration with the SEC as such
an investment company is in full force and effect, and the TFGT Fund is a
separate series of TFGT duly designated in accordance with the applicable
provisions of the TFGT Governing Documents and the 1940 Act;
(i) The TFGT Fund was formed for the purpose of effecting a Fund
Transaction with International Fund (an "F Reorganization"), has not engaged in
any business prior to such Fund Transaction, does not own any assets, has never
held, directly or indirectly, any shares in International Fund, and, for its
taxable year that includes the Effective Time, will meet the requirements of
Subchapter M of Chapter 1 of the Code for qualification as a regulated
investment company and will be eligible to and will compute its federal income
tax under Section 852 of the Code.
(j) The shares of the TFGT Fund to be issued and delivered to
International Fund for the account of International Fund (and to be distributed
immediately thereafter to its shareholders) pursuant to the terms of this
Agreement will have been duly authorized at the Effective Time and, when so
issued and delivered, will be registered under the 1933 Act, duly and validly
issued, fully paid and non-assessable and no shareholder of the TFGT Fund shall
have any statutory or contractual preemptive right of subscription or purchase
in respect thereof.
A-10
(k) The current prospectus and statement of additional information
of the TFGT Fund, including amendments and supplements thereto, conform, or
conformed at the time of its use, in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations of
the SEC thereunder, and do not, or did not, as of their dates of distribution to
the public, 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
materially misleading.
(l) The Proxy Statement/Prospectus to be included in the
Registration Statement and filed in connection with this Agreement, and the
documents incorporated therein by reference and any amendment or supplement
thereto insofar as they relate to TFGT and the TFGT Fund, each comply or will
comply in all material respects with the applicable requirements of the 1933
Act, 1934 Act and the 1940 Act and the applicable rules and regulations of the
SEC thereunder on the effective date of such Registration Statement. Each of the
Proxy Statement/Prospectus, Registration Statement and the documents
incorporated therein by reference and any amendment or supplement thereto,
insofar as it relates to TFGT and the TFGT Fund, does not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not materially misleading on the effective date of such Registration
Statement; provided, however, that TFGT makes no representations or warranties
as to the information contained in the Proxy Statement/Prospectus, Registration
Statement and the documents incorporated therein by reference and any amendment
or supplement thereto in reliance upon and in conformity with information
relating to International Fund and furnished by International Fund to TFGT
specifically for use in connection with the Proxy Statement/Prospectus,
Registration Statement and the documents incorporated therein by reference and
any amendment or supplement thereto.
(m) TFGT has adopted and implemented written policies and procedures
in accordance with Rule 38a-1 under the 1940 Act.
(n) Except as disclosed in writing to International Fund, to the
best of TFGT's Knowledge, no events have occurred and no issues, conditions or
facts have arisen which either individually or in the aggregate have had a
Material Adverse Effect on TFGT or the TFGT Fund.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Conduct of Business. After the date of this Agreement and at or prior
to the Effective Time, International Fund and TFGT will conduct the businesses
of International Fund and the TFGT Fund, respectively, only in the ordinary
course and in accordance with this Agreement and the current prospectuses and
statements of additional information of International Fund or TFGT, as
applicable. It is understood that such ordinary course of business shall include
(a) the declaration and payment of customary dividends and other distributions;
(b) shareholder purchases and redemptions; and (c) the continued good faith
performance by the investment adviser, sub-advisers, administrator, distributor
and other service providers of their respective responsibilities in accordance
with their agreements with International Fund or TFGT, as applicable, and
applicable Law. No Party shall take any action that would, or would reasonably
be expected to, result in any of its representations and warranties set forth in
this Agreement being or becoming untrue in any material respect.
A-11
5.2 Shareholders' Meeting. International Fund will call, convene and hold
a meeting of shareholders of International Fund as soon as practicable, in
accordance with applicable Law and International Fund Governing Documents, for
the purpose of approving this Agreement and the transactions contemplated herein
as set forth in the Proxy Statement/Prospectus, and for such other purposes as
may be necessary or desirable. In the event that, insufficient votes are
received from shareholders, the meeting may be adjourned as permitted under
International Fund Governing Documents and applicable Law, and as set forth in
the Proxy Statement/Prospectus in order to permit further solicitation of
proxies.
5.3 Proxy Statement/Prospectus and Registration Statement. International
Fund and TFGT each will cooperate with each other in the preparation of the
Proxy Statement/Prospectus and Registration Statement and cause the Registration
Statement to be filed with the SEC in a form satisfactory to TFGT and
International Fund and their respective counsel as promptly as practicable. Upon
effectiveness of the Registration Statement, International Fund will cause the
Proxy Statement/Prospectus to be delivered to shareholders of International Fund
entitled to vote on this Agreement and the transactions contemplated herein in
accordance with International Fund Governing Documents. Each Party will provide
the materials and information necessary to prepare the Registration Statement,
for inclusion therein, in connection with the shareholder meeting of
International Fund to consider the approval of this Agreement and the
transactions contemplated herein. If, at any time prior to the Effective Time, a
Party becomes aware of any untrue statement of material fact or omission to
state a material fact required to be stated therein or necessary to make the
statements made not misleading in light of the circumstances under which they
were made, the Party discovering the item shall notify the other Party and the
Parties shall cooperate in promptly preparing, filing and clearing with the SEC
and, if appropriate, distributing to shareholders appropriate disclosure with
respect to the item.
5.4 Information. International Fund and TFGT will furnish to one another,
and the other's accountants, legal counsel and other representatives, throughout
the period prior to the Effective Time, all such documents and other information
concerning International Funds and the TFGT Funds, respectively, and their
business and properties as may reasonably be requested by the other Party. Such
cooperation shall include providing copies of reasonably requested documents and
other information. Each Party shall make its employees and officers available on
a mutually convenient basis to provide an explanation of any documents or
information provided hereunder to the extent, if any, that such Party's
employees are familiar with such documents or information.
5.5 Notice of Material Changes. Each Party will notify the other Party of
any event causing a Material Adverse Effect to such Party as soon as practicable
following such Party's Knowledge of any event causing such a Material Adverse
Effect.
5.6 Financial Statements. At the Closing, International Fund will deliver
to TFGT an unaudited statement of assets and liabilities of International Fund,
together with a schedule of portfolio investments as of and for the interim
period ending at the Valuation Time. These financial statements will present
fairly the financial position and portfolio investments of International Fund as
of the Valuation Time in conformity with U.S. generally accepted accounting
principles applied on a consistent basis, and there will be no material
contingent liabilities of International Fund not disclosed in said financial
statements. These financial statements shall be certified by the treasurer of
International Fund as, to the best of his or her Knowledge, complying with the
requirements of the preceding sentence. International Fund also will deliver to
TFGT at or before the Effective Time, the detailed tax-basis accounting records
for each security or other investment to be transferred to TFGT hereunder, which
shall be prepared in accordance with the requirements for specific
identification tax-lot accounting and clearly reflect the basis used for
determination of gain and loss realized on the partial sale of any security to
be transferred to the TFGT Fund.
A-12
5.7 Other Necessary Action. International Fund and TFGT will each take all
necessary action and use its reasonable best efforts to complete all filings,
obtain all governmental and other consents and approvals and satisfy any other
provision required for consummation of the transactions contemplated by this
Agreement.
5.8 Dividends. For International Fund's taxable years ending prior to the
Valuation Time, International Fund shall have declared and at or before the
Valuation Time shall have paid a dividend for such preceding years, which,
together with all previous dividends, shall have had the effect of distributing
to its shareholders all of the International Fund's investment company taxable
income (within the meaning of Section 852(b)(2) of the Code, computed without
regard to any deduction for dividends paid), if any, plus any excess of its
interest income excludible from gross income under Section 103(a) of the Code
over its deductions disallowed under Sections 265 and 171(a)(2) of the Code for
all taxable years ending at or before the Effective Time, and all of
International Fund's net capital gain (as defined in Section 1222(11) of the
Code), if any, after reduction for any capital loss carryforwards, recognized in
all taxable years ending at or before the Effective Time.
5.9 Books and Records. Upon reasonable notice, each Party will make
available to the other Party for review any Books and Records which are
reasonably requested by such other Party in connection with this Reorganization.
5.10 Issued Shares. The TFGT Shares to be issued and delivered to
International Fund for the account of International Fund (and to be distributed
immediately thereafter to its shareholders) pursuant to this Agreement, will
have been duly authorized at the Effective Time. Said shares when issued and
delivered will be registered under the 1933 Act, will be duly and validly
issued, fully paid and non-assessable. No shareholder of the TFGT Fund shall
have any statutory or contractual preemptive right of subscription or purchase
in respect thereof. The shareholders of International Fund shall not pay any
front-end or deferred sales charge in connection with the Fund Transaction.
5.11 Post-Effective Amendment to Registration Statement on Form N-1A. TFGT
shall use its reasonable best efforts in seeking to ensure that the
post-effective amendment to TFGT's registration statement on Form N-1A (File
Nos. 33-70958 and 811-8104), which registers the Class A shares of the TFGT
Fund, shall have become effective under the 1933 Act at or before the Effective
Time.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Obligations of International Fund. The
obligation of International Fund to conclude the transactions provided for
herein shall be subject, at its election, to the performance by TFGT of all of
the obligations to be performed by it hereunder at or before the Effective Time,
and, in addition thereto, to the following further conditions unless waived by
International Fund in writing:
A-13
(a) All representations and warranties of TFGT, on behalf of itself
and the TFGT Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Effective Time with
the same force and effect as if made at and as of the Effective Time; provided
that TFGT shall be given a period of 30 Business Days from the date on which any
such representation or warranty shall not be true and correct in all material
respects to cure such condition.
(b) TFGT shall have furnished to International Fund the opinion of
Morgan, Lewis & Bockius LLP dated as of the Effective Time, substantially to the
effect that:
(i) TFGT is a statutory trust, validly existing and in good
standing under Delaware Law, and has power under the TFGT Governing Documents to
conduct its business and own its assets as described in its currently effective
registration statement on Form N-1A;
(ii) TFGT is registered with the SEC under the 1940 Act as an
open-end management investment company and its registration with the SEC is in
full force and effect;
(iii) the TFGT Fund shares to be issued and delivered by TFGT
pursuant to this Agreement have been duly authorized for issuance and, when
issued and delivered as provided herein, will be validly issued, fully paid and
non-assessable under Delaware Law and no preemptive rights of shareholders exist
with respect to any such shares or the issue or delivery thereof;
(iv) except as disclosed in writing to International Fund,
such counsel knows of no material legal proceedings pending or threatened
against TFGT;
(v) this Agreement has been duly authorized, executed and
delivered under the applicable Laws of the State of Delaware by TFGT and,
assuming due authorization, execution and delivery by International Fund,
constitutes a valid and legally binding obligation of TFGT, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other Laws relating to or affecting creditors'
rights generally and to general equity principles;
(vi) the Registration Statement has become effective under the
1933 Act and, to the Knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued under the 1933 Act
and no proceedings for that purpose have been instituted or threatened by the
SEC;
(vii) the execution and delivery of this Agreement did not and
the consummation of the transactions herein contemplated will not conflict with
or result in a material breach of the terms or provisions of, or constitute a
material default under, the TFGT Governing Documents or any material agreement
or instrument known to such counsel to which TFGT is a party or by which any
properties belonging to TFGT may be bound;
(viii) the execution and delivery of this Agreement did not
and the consummation of the transactions herein contemplated will not conflict
with or result in a material violation by TFGT or a TFGT Fund of any terms,
conditions, or provisions of any federal securities Law or Delaware Law; and
A-14
(ix) to the Knowledge of such counsel, no consent, approval,
authorization, or other action by or filing with any Governmental or Regulatory
Body is required in connection with the consummation of the transactions herein
contemplated, except such as have been obtained or made under the 1933 Act, 1934
Act and the 1940 Act and the applicable rules and regulations of the SEC
thereunder and Delaware Law and except such as may be required under state
securities Laws.
In rendering such opinion, Morgan, Lewis & Bockius LLP may rely upon
certificates of officers of TFGT and of public officials as to matters of fact.
(c) TFGT shall have furnished to International Fund a certificate of
TFGT, signed by the president and treasurer of TFGT, dated as of the Effective
Time, to the effect that they have examined the Proxy Statement/Prospectus and
the Registration Statement (and any supplement thereto) and this Agreement and
that:
(i) the representations and warranties of TFGT in this
Agreement are true and correct in all material respects on and as of the
Effective Time and TFGT has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to the
Effective Time; and
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose are
pending or, to TFGT's Knowledge, threatened in writing.
(d) The Secretary of International Fund shall have received the
confirmation from TFGT required under paragraph 3.3 of this Agreement.
(e) TFGT shall have duly executed and delivered to International
Fund, on behalf of the TFGT Fund, such assumptions of Liabilities and other
instruments as International Fund may reasonably deem necessary or desirable to
evidence the transactions contemplated by this Agreement, including the
assumption of all of the Liabilities of International Fund by the respective
Transaction Party of International Fund, other than the Excluded Liabilities.
6.2 Conditions Precedent to Obligations of TFGT. The obligation of TFGT to
conclude the transactions provided for herein shall be subject, at its election,
to the performance by International Fund of all of the obligations to be
performed by it hereunder at or before the Effective Time, and, in addition
thereto, to the following further conditions unless waived by TFGT in writing:
(a) All representations and warranties of International Fund
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of the Effective Time with the same force and
effect as if made at and as of the Effective Time; provided that International
Fund shall be given a period of 30 Business Days from the date on which any such
representation or warranty shall not be true and correct in all material
respects to cure such condition.
(b) International Fund shall have furnished to TFGT the opinion of
The Law Offices of Samuel Kornhauser dated as of the Effective Time,
substantially to the effect that:
A-15
(i) International Fund is a trust, validly existing and in
good standing under Delaware Law, and has power under the International Fund
Governing Documents to conduct its business and own its assets as described in
its currently effective registration statement on Form N-1A;
(ii) International Fund is registered with the SEC under the
1940 Act as an open-end management investment company and its registration with
the SEC is in full force and effect;
(iii) all issued and outstanding International Fund shares of
each series as of the Effective Time are duly authorized, validly issued, fully
paid and non-assessable under Delaware Law and no preemptive rights of
shareholders exist with respect to any such shares or the issue or delivery
thereof;
(iv) except as disclosed in writing to TFGT, such counsel
knows of no material legal proceedings pending or threatened against
International Fund;
(v) this Agreement has been duly authorized, executed and
delivered under the applicable Laws of the State of Delaware by International
Fund and, assuming due authorization, execution and delivery by TFGT,
constitutes a valid and legally binding obligation of International Fund,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other Laws relating to or affecting
creditors' rights generally and to general equity principles;
(vi) to the Knowledge of such counsel, as of the date of its
mailing, the Proxy Statement/Prospectus, and as of the date of its filing, the
Registration Statement (other than the financial statements and other financial
and statistical information contained therein, as to which such counsel need
express no opinion) comply as to form in all material respects with the
applicable requirements of the 1933 Act, 1934 Act and the 1940 Act and the
applicable rules and regulations of the SEC thereunder;
(vii) the execution and delivery of this Agreement did not and
the consummation of the transactions herein contemplated will not conflict with
or result in a material breach of the terms or provisions of, or constitute a
material default under, the International Fund Governing Documents or any
material agreement or instrument known to such counsel to which International
Fund is a party or by which any properties belonging to International Fund may
be bound;
(viii) the execution and delivery of this Agreement did not
and the consummation of the transactions herein contemplated will not conflict
with or result in a material violation by International Fund or International
Fund of any terms, conditions, or provisions of any federal securities Law or
Delaware Law; and
(ix) to the Knowledge of such counsel, no consent, approval,
authorization or other action by or filing with any Governmental or Regulatory
Body is required in connection with the consummation of the transactions herein
contemplated, except such as have been obtained or made under the 1933 Act, 1934
Act and the 1940 Act and the applicable rules and regulations of the SEC
thereunder and Delaware Law and except such as may be required under state
securities Laws.
In rendering such opinion, The Law Offices of Samuel Kornhauser may rely
upon certificates of officers of International Fund and of public officials as
to matters of fact.
A-16
(c) International Fund shall have furnished to TFGT the unaudited
statements required by paragraph 5.6.
(d) International Fund shall have furnished to TFGT a certificate of
International Fund, signed by the president and treasurer of International Fund,
dated as of the Effective Time, to the effect that they have examined the Proxy
Statement/Prospectus and the Registration Statement (and any supplement thereto)
and this Agreement and that:
(i) the representations and warranties of International Fund
in this Agreement are true and correct in all material respects on and as of the
Effective Time and International Fund has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Effective Time; and
(ii) since the date of the most recent financial statements of
International Funds included in the Proxy Statement/Prospectus (or any
supplement thereto), there has been no Material Adverse Effect on the business
or properties of any of International Funds (other than changes in the ordinary
course of business, including, without limitation, dividends and other
distributions in the ordinary course and changes in net asset value per share),
except as set forth in or contemplated in the Proxy Statement/Prospectus (or any
supplement thereto).
(e) International Fund shall have duly executed and delivered to
TFGT, on behalf of International Fund, such bills of sale, assignments,
certificates and other instruments of transfer, including transfer instructions
to International Fund's custodian and instructions to TFGT's transfer agent
("Transfer Documents") as TFGT may reasonably deem necessary or desirable to
evidence the transfer to the respective Transaction Party of International Fund
all of the right, title and interest of International Fund in and to the
respective Fund Assets of International Fund. In each case, the Fund Assets of
International Fund shall be accompanied by all necessary state stock transfer
stamps or cash for the appropriate purchase price therefor.
(f) TFGT shall have received: (i) a certificate of an authorized
signatory of JPMorgan, as custodian for International Fund, stating that the
Fund Assets of International Fund have been delivered to TFGT; (ii) a
certificate of an authorized signatory from Brown Brothers Harriman & Co., as
custodian for TFGT, stating that the Fund Assets of International Fund have been
received; and (iii) a certificate of an authorized signatory of International
Fund confirming that International Fund has delivered its records containing the
names and addresses of the record holders of each series of International Fund
shares and the number and percentage (to three decimal places) of ownership of
each series of International Fund Shares owned by each such holder as of the
close of business at the Valuation Time.
(g) At the Valuation Time and Effective Time, except as previously
disclosed to TFGT in writing, and except as have been corrected as required by
applicable Law, and to the best of International Fund's Knowledge, there shall
have been no material miscalculations of the net asset value of International
Fund during the twelve-month period preceding the Valuation Time and Effective
Time, and all such calculations shall have been made in accordance with the
applicable provisions of the 1940 Act. At the Valuation Time and Effective Time,
all Liabilities chargeable to the International Fund which are required to be
reflected in the net asset value per share of a share class of International
Fund in accordance with applicable Law will be reflected in the net asset value
per share of International Fund.
A-17
(h) TFGT shall have completed to its satisfaction its due diligence
review of International Fund.
(i) International Fund's agreements with each of its service
contractors shall have terminated at the Effective Time with respect to
International Fund, and each Party has received assurance that no claims for
damages (liquidated or otherwise) will arise as a result of such termination.
6.3 Other Conditions Precedent. Unless waived in writing by the Parties
with the consent of their respective boards of trustees, the consummation of
each Fund Transaction is subject to the fulfillment, prior to or at the
Effective Time, of each of the following conditions:
(a) This Agreement and the transactions contemplated herein, with
respect to a particular Fund Transaction, shall have been approved by the
requisite vote of the holders of the outstanding shares of International Fund in
accordance with the provisions of the International Fund Governing Documents,
applicable Delaware Law and the 1940 Act. Notwithstanding anything herein to the
contrary, neither International Fund nor TFGT may waive the conditions set forth
in this paragraph 6.3(a).
(b) The Registration Statement shall have become effective under the
1933 Act, and no stop order suspending effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been pending or threatened in writing.
(c) International Fund and TFGT shall have received an opinion or
opinions from Morgan, Lewis & Bockius LLP (based upon certain facts,
qualifications, assumptions and representations) that with respect to the
Reorganization, for federal income tax purposes:
(i) The Reorganization 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.
(ii) No gain or loss will be recognized by the TFGT Fund upon
the receipt of the Fund Assets of International Fund solely in exchange for the
TFGT Fund shares and the assumption by TFGT on behalf of the TFGT Fund of all of
the Liabilities of International Fund.
(iii) No gain or loss will be recognized by International Fund
upon the transfer of the Fund Assets of International Fund to the TFGT Fund
solely in exchange for the TFGT Fund shares and the assumption TFGT on behalf of
the TFGT Fund of all of the Liabilities of International Fund or upon the
distribution of the TFGT Fund shares to shareholders of International Fund.
(iv) No gain or loss will be recognized by the shareholders of
the International Fund upon the exchange of their shares of International Fund
for the TFGT Fund shares (including fractional shares to which they may be
entitled).
(v) The aggregate tax basis of the TFGT Fund shares received
by each shareholder of International Fund (including fractional shares to which
they may be entitled) will be the same as the aggregate tax basis of the
International Fund shares exchanged therefor.
(vi) The holding period of the TFGT Fund Shares received by
the shareholders of International Fund (including fractional shares to which
they may be entitled) will include the holding period of the International Fund
shares surrendered in exchange therefor, provided that the International Fund
shares were held as a capital asset as of the Effective Time.
A-18
(vii) The adjusted basis of the Fund Assets of International
Fund received by the TFGT Fund will be the same as the tax basis of such assets
to International Fund immediately prior to the exchange.
(viii) The holding period of the Fund Assets of International
Fund received by the TFGT Fund will include the period during which such assets
were held by International Fund.
(ix) The TFGT 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 International 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
International Fund or the TFGT 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
International 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
International Fund and the TFGT 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 International Fund nor TFGT may waive the conditions set forth in this
paragraph 6.3(c).
(d) At the Effective Time, the SEC shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, and there shall be no
proceedings pending that would seek to enjoin the consummation of the
transactions contemplated by this Agreement under Section 25(c) of the 1940 Act.
No Action or Proceeding against International Fund or TFGT or their respective
officers or trustees shall be threatened in writing or pending before any court
or other Governmental or Regulatory Body in which it will seek, or seeks to
restrain or prohibit any of the transactions contemplated by this Agreement or
to obtain damages or other relief in connection with this Agreement or the
transactions contemplated hereby.
(e) The post-effective amendment to TFGT's registration statement on
Form N-1A (File Nos. 33-70958 and 811-8104) which registers the Class A shares,
Class C shares and Class Y shares of the TFGT Fund shall have become effective
under the 1933 Act, and no stop order suspending effectiveness of the Form N-1A
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened.
(f) Before the Effective Time, the TFGT Board shall have authorized
the issuance of, and the TFGT Fund shall have issued, one TFGT Share in each
class to Touchstone or an Affiliate thereof to vote on the contracts, plans, and
other agreements referred to in the next sentence and to take whatever other
action it may be required to take as each the TFGT Fund's sole shareholder. TFGT
(on behalf of and with respect to each Shell TFGT Fund) shall have entered into,
or adopted, as appropriate, an investment management contract, a sub-advisory
contract, a distribution and service plan pursuant to Rule 12b-1 under the 1940
Act, and other agreements and plans necessary for the TFGT Fund's operation as a
series of an open-end investment company. Each such contract, plan, and
agreement shall have been approved by the TFGT Board and, to the extent required
by Law (as interpreted by SEC staff positions), by its Independent Trustees and
by the TFGT Fund's sole shareholder.
A-19
(g) Touchstone and TFGT have entered into an expense limitation
agreement whereby Touchstone has contractually agreed to waive a portion of its
advisory fee and/or reimburse certain TFGT Fund expenses in order to limit "Net
Expenses" to 1.35% for Class A shares of the TFGT Fund (the "Expense Limitation
Agreement"). The Expense Limitation Agreement will (i) remain in effect until at
least September 30, 2009, and (ii) provide that Touchstone will not seek to
obtain reimbursement of fees or expenses waived by Navellier & Associates, Inc.
for which it could seek reimbursement prior to the Effective Date of the
Reorganization.
ARTICLE VII
EXPENSES
Touchstone (or any Affiliate thereof) and/or Navellier (or any Affiliate
thereof) will bear and pay all fees and expenses associated with International
Fund's and TFGT's participation in the Reorganization without regard to whether
the Reorganization is consummated (and, except as provided in the following
proviso, in no event shall either International Fund or TFGT bear such
expenses); provided, however, that the TFGT Fund shall bear its expenses
associated with the qualification of shares for sale in the various states and
International Fund will bear its own expenses related to transactions in its
portfolio securities in anticipation of the Reorganization. Reorganization
expenses include, without limitation: (a) expenses associated with the
preparation and filing of the Registration Statement; (b) postage; (c) printing;
(d) accounting fees; (e) legal fees incurred by each Fund; (f) solicitation
costs of the transaction; and (g) other related administrative or operational
costs.
All such fees and expenses so borne and paid by Touchstone, Navellier and/or
their Affiliates shall be solely and directly related to the transactions
contemplated by this Agreement and shall be paid directly by Touchstone,
Navellier and/or their affiliates 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. The responsibility for payment shall
be allocated between Touchstone and Navellier (or any Affiliate thereof) as
Touchstone and Navellier have agreed as reflected in the Asset Purchase
Agreement.
ARTICLE VIII
AMENDMENTS AND TERMINATION
8.1 Amendments. The Parties may amend this Agreement in such manner as may
be agreed upon, whether before or after the meetings of shareholders of
International Funds at which action upon this Agreement and the transactions
contemplated hereby is to be taken; provided, however, that after the requisite
approval of the shareholders of International Fund has been obtained, this
Agreement shall not be amended or modified so as to change the provisions with
respect to the transactions herein contemplated in any manner that would
materially and adversely affect the rights of such shareholders without their
further shareholder approval. Nothing in this paragraph 8.1 shall be construed
to prohibit the Parties from amending this Agreement to change the Valuation
Time or Effective Time.
A-20
8.2 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement may be terminated at any time prior to the Effective
Time:
(a) by the mutual written consent of the Parties;
(b) by International Fund (i) following a material breach by TFGT of
any of its representations, warranties or covenants contained in this Agreement,
provided that TFGT shall have been given a period of 10 Business Days from the
date of the occurrence of such material breach to cure such breach and shall
have failed to do so; (ii) if any of the conditions set forth in paragraphs 6.1
and 6.3 are not satisfied as specified in said paragraphs on or before the
Effective Time; or (iii) upon the occurrence of an event which has a Material
Adverse Effect upon TFGT or the TFGT Fund;
(c) by TFGT (i) following a material breach by International Fund of
any of its representations, warranties or covenants contained in this Agreement,
provided that International Fund shall have been given a period of 10 Business
Days from the date of the occurrence of such material breach to cure such breach
and shall have failed to do so; (ii) if any of the conditions set forth in
paragraphs 6.2 and 6.3 are not satisfied as specified in said paragraphs on or
before the Effective Time; or (iii) upon the occurrence of an event which has a
Material Adverse Effect upon the International Fund;
(d) by either Party by written notice to the other Party following a
determination by the terminating Party's Board that the consummation of the
Reorganization is not in the best interest of its shareholders; or
(e) by either Party if the Effective Time does not occur by December
31, 2008.
If a Party terminates this Agreement in accordance with this paragraph
8.2, there shall be no liability for damages on the part of any Party, or the
trustees or officers of such Party.
ARTICLE IX
PUBLICITY; CONFIDENTIALITY
9.1 Publicity. Any public announcements or similar publicity with respect
to this Agreement or the transactions contemplated herein will be made at such
time and in such manner as the Parties mutually shall agree in writing, provided
that nothing herein shall prevent either Party from making such public
announcements as may be required by Law, in which case the Party issuing such
statement or communication shall advise the other Party prior to such issuance.
9.2 Confidentiality. (a) The Parties, Touchstone and Navellier (for
purposes of this paragraph 9.2, the "Protected Persons") will hold, and will
cause their board members, officers, employees, representatives, agents and
Affiliated Persons to hold, in strict confidence, and not disclose to any other
Person, and not use in any way except in connection with the transactions herein
contemplated, without the prior written consent of the other Protected Persons,
all confidential information obtained from the other Protected Persons in
connection with the transactions contemplated by this Agreement, except such
information may be disclosed: (i) to Governmental or Regulatory Bodies, and,
where necessary, to any other Person in connection with the obtaining of
consents or waivers as contemplated by this Agreement; (ii) if required by court
order or decree or applicable Law; (iii) if it is publicly available through no
act or failure to act of such Party; (iv) if it was already known to such Party
on a non-confidential basis on the date of receipt; (v) during the course of or
in connection with any litigation, government investigation, arbitration, or
other proceedings based upon or in connection with the subject matter of this
Agreement, including, without limitation, the failure of the transactions
contemplated hereby to be consummated; or (vi) if it is otherwise expressly
provided for herein.
A-21
(b) In the event of a termination of this Agreement, the Parties,
Touchstone and Navellier agree that they along with their board members,
employees, representative agents and Affiliated Persons shall, and shall cause
their Affiliates to, except with the prior written consent of the other
Protected Persons, keep secret and retain in strict confidence, and not use for
the benefit of itself or themselves, nor disclose to any other Persons, any and
all confidential or proprietary information relating to the other Protected
Persons and their related parties and Affiliates, whether obtained through their
due diligence investigation, this Agreement or otherwise, except such
information may be disclosed: (i) if required by court order or decree or
applicable Law; (ii) if it is publicly available through no act or failure to
act of such Party; (iii) if it was already known to such Party on a
non-confidential basis on the date of receipt; (iv) during the course of or in
connection with any litigation, government investigation, arbitration, or other
proceedings based upon or in connection with the subject matter of this
Agreement, including, without limitation, the failure of the transactions
contemplated hereby to be consummated; or (v) if it is otherwise expressly
provided for herein.
ARTICLE X
MISCELLANEOUS
10.1 Entire Agreement. This Agreement (including any schedules delivered
pursuant hereto, which are a part hereof) constitutes the entire agreement of
the Parties with respect to the matters covered by this Agreement. This
Agreement supersedes any and all prior understandings, written or oral, between
the Parties and may be amended, modified, waived, discharged or terminated only
by an instrument in writing signed by an authorized executive officer of the
Party against which enforcement of the amendment, modification, waiver,
discharge or termination is sought.
10.2 Notices. All notices or other communications under this Agreement
shall be in writing and sufficient if delivered personally, by overnight
courier, by facsimile, telecopied (if confirmed) or sent via registered or
certified mail, postage prepaid, return receipt requested, addressed as follows
(notices or other communication sent via e-mail shall not constitute notice):
If to International Fund:
Navellier & Associates
1 E Liberty, 3rd Fl
Reno, NV 89501
Attention: Arjen Kuyper
Telephone No.: (800) 365-8471
Facsimile No.: (775) 562-8215
E-mail: ArjenK@Navellier.com
A-22
With copies (which shall not constitute notice) to:
The Law Offices of Samuel Kornhauser (counsel to International Fund)
155 Jackson Street, Suite 1807
San Francisco, CA 94111
Attention: Samuel Kornhauser
Telephone No.: (415) 981-6281
Facsimile No.:
E-mail: skornhauser@earthlink.net
If to TFGT:
Touchstone Funds Group Trust
303 Broadway, Suite 1100
Cincinnati, OH 45202
Attention: Jay S. Fitton, Esq.
Telephone No.: (513) 878-4066
Facsimile No.: (513) 878-4190
E-mail: jay.fitton@jpmorgan.com
With a copy (which shall not constitute notice) to:
Morgan, Lewis & Bockius LLP (counsel to TFGT)
1701 Market Street
Philadelphia, PA 19103
Attention: John M. Ford, Esq.
Telephone No.: (215) 963-5110
Facsimile No.: (215) 963-5001
E-mail: jmford@morganlewis.com
10.3 Waiver. The failure of either Party hereto to enforce at any time any
of the provisions of this Agreement shall in no way be construed to be a waiver
of any such provision, nor in any way to affect the validity of this Agreement
or any part hereof or the right of either Party thereafter to enforce each and
every such provision. No waiver of any breach of this Agreement shall be held to
be a waiver of any other or subsequent breach. Except as provided in paragraph
6.3(a), a Party may waive any condition to its obligations hereunder (such
waiver to be in writing and authorized by an authorized officer of the waiving
Party).
10.4 Assignment. This Agreement shall inure to the benefit of and be
binding upon 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 either Party without the written consent of the other Party. Nothing
herein express or implied is intended to or shall confer any rights, remedies or
benefits upon any Person other than the Parties hereto.
10.5 Survival. Except as provided in the next sentence, the respective
representations, warranties and covenants contained in this Agreement and in any
certificates or other instruments exchanged at the Effective Time as provided in
Article VI hereto shall not survive the consummation of the transactions
contemplated hereunder. The covenants in paragraphs 1.3, 1.5, 5.6, 5.11, 9.2,
10.9 and 10.14, this paragraph 10.5 and Article VII shall survive the
consummation of the transactions contemplated hereunder.
A-23
10.6 Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
10.7 Counterparts. 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 agreement.
10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Delaware, except for its indemnity
provision. Indemnity shall be governed by the indemnity provisions set forth in
the Asset Purchase Agreement executed as part of this reorganization without
regard to its principles of conflicts of Laws.
10.9 Further Assurances. Subject to the terms and conditions herein
provided, each of the Parties hereto shall use its reasonable best efforts to
take, or cause to be taken, such action to execute and deliver, or cause to be
executed and delivered, such additional documents and instruments and to do, or
cause to be done, all things necessary, proper or advisable under the provisions
of this Agreement and under applicable Law to consummate and make effective the
Reorganization contemplated by this Agreement, including, without limitation,
delivering and/or causing to be delivered to the other Party hereto each of the
items required under this Agreement as a condition to such Party's obligations
hereunder. In addition, International Fund shall deliver or cause to be
delivered to TFGT at the Closing, the Books and Records of International Fund
(regardless of whose possession they are in).
10.10 Beneficiaries. Nothing contained in this Agreement shall be deemed
to create rights in Persons not Parties (including, without limitation, any
shareholder of TFGT or International Fund) except that the International Fund
Independent Trustees are intended third-party beneficiaries of the provisions of
paragraphs 1.3 and 10.14 herein.
10.11 Validity. Whenever possible, each provision and term of this
Agreement shall be interpreted in a manner to be effective and valid, but if any
provision or term of this Agreement is held to be prohibited by Law or invalid,
then such provision or term shall be ineffective only in the jurisdiction or
jurisdictions so holding and only to the extent of such prohibition or
invalidity, without invalidating or affecting in any manner whatsoever the
remainder of such provision or term or the remaining provisions or terms of this
Agreement.
10.12 Effect of Facsimile Signature. A facsimile signature of an
authorized officer of a Party hereto on any Transfer Document shall have the
same effect as if executed in the original by such officer.
10.13 TFGT Liability. The name "Touchstone Funds Group Trust" is the
designation of the trustees for the time being under an Amended and Restated
Agreement and Declaration of Trust dated October 8, 1998, as amended from time
to time, and all Persons dealing with TFGT or the TFGT Fund must look solely to
the property of TFGT or the TFGT Fund for the enforcement of any claims as none
of its trustees, officers, agents or shareholders assume any personal liability
for obligations entered into on behalf of TFGT. No TFGT Fund shall be liable for
any claims against any other TFGT Fund. Both Parties along with Touchstone and
Navellier specifically acknowledge and agree that any liability of TFGT under
this Agreement with respect to the TFGT Fund, or in connection with the
transactions contemplated herein with respect to the TFGT Fund, shall be
discharged only out of the assets of the TFGT Fund and that no other portfolio
of TFGT shall be liable with respect thereto.
A-24
10.14 International Fund Liability. The name "Navellier International
Growth Portfolio" is the designation of the trustees for the time being under a
Declaration of Trust dated September 9, 1998 and amended August 23, 2000, and
all Persons dealing with International Fund must look solely to the property of
International Fund for the enforcement of any claims as none of its trustees,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of International Fund.
ARTICLE XI
DEFINITIONS
As used in this Agreement, the following terms have the following
meanings:
"Action or Proceeding" means any action, suit or proceeding by any Person,
or any investigation or audit by any Governmental or Regulatory Body.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such first Person.
"Agreement" has the meaning specified in the preamble.
"Asset Purchase Agreement" has the meaning specified in paragraph 6.3(e).
"Books and Records" means International Fund's or TFGT's accounts, books,
records or other documents (including but not limited to minute books, stock
transfer ledgers, financial statements, tax returns and related work papers and
letters from accountants, and other similar records) required to be maintained
by International Fund or TFGT with respect to the TFGT Fund, as applicable,
pursuant to Section 31(a) of the 1940 Act and Rules 31a-1 to 31a-3 thereunder.
"Business Day" means a day other than Saturday, Sunday or a day on which
banks located in New York City are authorized or obligated to close.
"Closing" has the meaning specified in paragraph 3.1.
"Code" has the meaning specified in the recitals.
"Effective Time" has the meaning specified in paragraph 3.1.
"International Fund" has the meaning specified in the preamble.
"International Fund Board" has the meaning specified in the recitals.
"Excluded Liabilities" has the meaning specified in paragraph 1.3.
"Fund Assets" means all properties and assets of every kind and
description whatsoever, including, without limitation, all cash, cash
equivalents, securities, claims (whether absolute or contingent, known or
unknown, accrued or unaccrued and including, but not limited to, any claims that
International Fund may have against any Person) and receivables (including
dividend and interest receivable), goodwill and other intangible property, Books
and Records, and all interests, rights, privileges and powers, owned by
International Fund, and any prepaid expenses shown on International Fund's books
at the Valuation Time, excluding (a) the estimated costs of extinguishing any
Excluded Liability; (b) cash in an amount necessary to pay dividends pursuant to
paragraph 5.8, and (c) International Fund's rights under this Agreement.
A-25
"Governmental or Regulatory Body" means any court, tribunal, or government
or political subdivision, whether federal, state, county, local or foreign, or
any agency, authority, official or instrumentality of any such government or
political subdivision.
"Independent Trustees" has the meaning specified in the recitals.
"Knowledge" means (i) with respect to International Fund, the actual
knowledge after reasonable inquiry of International Fund's trustees or officers
and Navellier in its capacity as adviser to International Fund and (ii) with
respect to TFGT and the TFGT Fund, the actual knowledge after reasonable inquiry
of TFGT's trustees or officers, or Touchstone in its respective capacity as a
service provider to TFGT.
"Known Liabilities" means, with respect to International Fund, those
Liabilities of which International Fund's trustees or officers, Navellier, or
any applicable sub-advisor, sub-administrator, distributor, transfer agent,
shareholder servicing agent, auditor, or custodian has Knowledge.
"Law" means any law, statute, rule, regulation or ordinance of any
Governmental or Regulatory Body.
"Liabilities" means all existing liabilities of International Fund
reflected on the unaudited statement of assets and liabilities of International
Fund prepared by International Fund or its agent as of the Valuation Time in
accordance with U.S. generally accepted accounting principles consistently
applied from the prior audited reporting period and reviewed and approved by the
respective treasurers of TFGT and International Fund at the Effective Time.
"Liabilities" does not include, and TFGT and the TFGT Funds shall not assume,
any Excluded Liabilities.
"Material Adverse Effect" as to any Person means a material adverse effect
on the business, results of operations or financial condition of such Person.
For purposes of this definition, a decline in net asset value of International
Fund or TFGT Fund arising out of its investment operations or declines in market
values of securities in its portfolio, the discharge of liabilities, or the
redemption of shares representing interests in such fund, shall not constitute a
"Material Adverse Effect."
"NYSE" means New York Stock Exchange.
"1940 Act" has the meaning specified in the recitals.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Order" means any writ, judgment, decree, injunction or similar order of
any Government or Regulatory Body, in each case whether preliminary or final.
"Party" and "Parties" each has the meaning specified in the preamble.
"Person" means any individual, corporation, partnership, limited liability
company, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental or Regulatory Body or other entity.
A-26
"Protected Persons" has the meaning specified in paragraph 9.2.
"Proxy Statement/Prospectus" has the meaning specified in paragraph
4.1(p).
"Registration Statement" has the meaning specified in paragraph 4.1(p).
"Reorganization" has the meaning specified in the recitals.
"SEC" means the U.S. Securities and Exchange Commission.
"JPMorgan" has the meaning specified in paragraph 2.4.
"TFGT" has the meaning specified in the preamble.
"TFGT Board" has the meaning specified in the recitals.
"TFGT Fund" each has the meaning specified in the preamble.
"TFGT Governing Documents" has the meaning specified in paragraph 4.2(a).
"TFGT Shares" has the meaning specified in paragraph 1.4.
"Transfer Documents" has the meaning specified in paragraph 6.2(e).
"Valuation Time" has the meaning specified in paragraph 2.5.
A-27
IN WITNESS WHEREOF, the Parties, Touchstone and Navellier have caused this
Agreement to be duly executed and delivered by their duly authorized officers,
as of the day and year first above written.
NAVELLIER INTERNATIONAL GROWTH PORTFOLIO
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
TOUCHSTONE FUNDS GROUP TRUST
By:
--------------------------------------------
Name: Jill T. McGruder
Title: President
NAVELLIER & ASSOCIATES, INC.
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
Solely for purposes of Article VII and
Paragraphs 9.2, 10.5, 10.13 and 10.14
TOUCHSTONE ADVISORS, INC.
By:
--------------------------------------------
Name: William Dent
Title: Senior Vice President
Soley for purposes of Article VII and
Paragraphs 9.2, 10.5, 10.13 and 10.14
A-28
PROXY TABULATOR To vote by Internet
P.O. BOX 9112
FARMINGDALE, NY 11735 1) Read the Proxy Statement and have the proxy card below at hand.
2) Go to website www.proxyvote.com
3) Follow the instructions provided on the website.
To vote by Telephone
1) Read the Proxy Statement and have the proxy card below at hand.
2) Call 1-800-690-6903
3) Follow the instructions.
To vote by Mail
1) Read the Proxy Statement.
2) Check the appropriate boxes on the proxy card below.
3) Sign and date the proxy card.
4) Return the proxy card in the envelope provided.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: NVLRM1 KEEP THIS PORTION FOR YOUR RECORDS
- ------------------------------------------------------------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
====================================================================================================================================
NAVELLIER MILLENNIUM FUNDS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES, WHICH UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE REORGANIZATION.
For Against Abstain
Proposal To approve the reorganization of the Navellier International Growth Portfolio into the |_| |_| |_|
Touchstone International Growth Fund.
PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
Please date and sign exactly as the name or names appear on this card. When signing as attorney, trustee, executor, administrator,
custodian, guardian or corporate officer, please give full title. If shares are held jointly, each shareholder should sign.
- -------------------------------------------- --------------------------------------------
============================================ ============================================
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
- ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 26, 2008
NAVELLIER MILLENNIUM FUNDS
NAVELLIER INTERNATIONAL GROWTH PORTFOLIO
The undersigned shareholder(s) of the Fund, revoking previous proxies, hereby appoint Arjen Kuyper, the attorney and proxy of the
undersigned, with full power of substitution and resubstitution, to vote, as indicated herein, all of the shares of the Fund
standing in the name of the undersigned at the Special Meeting of Shareholders (the "Meeting"), and at any adjournment thereof,
with all of the powers the undersigned would possess if then and there personally present and especially (but without limiting the
general authorization and power hereby given) to vote as indicated on the Proposal, as more fully described in the
Prospectus/Proxy Statement.
The purpose of the Meeting is to consider the Proposal set forth on reverse and to transact such other business as may be properly
brought before the Meeting or any adjournment(s) thereof. If you simply sign the proxy WITHOUT SPECIFYING A VOTE, YOUR SHARES WILL
BE VOTED IN ACCORDANCE WITH THE RECOMMENDATION OF THE BOARD OF TRUSTEES. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED. The undersigned acknowledges receipt with this proxy of a copy of the Notice of the
Meeting and the Prospectus/Proxy Statement.
PLEASE SLGN AND DATE ON THE REVERSE SIDE.
====================================================================================================================================
STATEMENT OF ADDITIONAL INFORMATION
August 1, 2008
Acquisition of Assets of
NAVELLIER INTERNATIONAL GROWTH PORTFOLIO
a series of
NAVELLIER MILLENNIUM FUNDS
One East Liberty Street, Third Floor
Reno, Nevada 89501
(800) 887-8671
By and In Exchange For Shares of
TOUCHSTONE INTERNATIONAL GROWTH FUND
a series of
TOUCHSTONE FUNDS GROUP TRUST
303 Broadway, Suite 1100
Cincinnati, Ohio 45202
(800) 543-0407
This Statement of Additional Information ("SAI"), which is not a
prospectus, supplements and should be read in conjunction with the
Prospectus/Proxy Statement dated August 1, 2008, relating specifically to the
proposed transfer of the assets and liabilities of Navellier International
Growth Portfolio ("Navellier International"), a series of Navellier Millennium
Funds, to Touchstone International Growth Fund ("Touchstone"), a series of
Touchstone Funds Group Trust, in exchange for shares of beneficial interest of
Touchstone (to be issued to holders of shares of Navellier International). The
transfer is to occur pursuant to an Agreement and Plan of Reorganization. This
SAI consists of this cover page and the following documents attached hereto and
incorporated by reference herein:
(1) The Statement of Additional Information of Navellier International
dated May 1, 2008; and
(2) Annual Report of Navellier International, for the year ended
December 31, 2007
A copy of the Prospectus/Proxy Statement may be obtained without charge by
calling or writing to Navellier Millennium Funds at the telephone number or
address set forth above.
The Pro Forma Financial Statements for the Reorganization and additional
information regarding the Registrant and Touchstone are provided on the
following pages.
TABLE OF CONTENTS
PRO FORMA STATEMENTS.......................................................
THE TRUST..................................................................
PERMITTED INVESTMENTS AND RISK FACTORS.....................................
INVESTMENT LIMITATIONS.....................................................
THE ADVISOR AND SUB-ADVISORS...............................................
THE ADMINISTRATOR..........................................................
DISTRIBUTION AND SHAREHOLDER SERVICES......................................
TRUSTEES AND OFFICERS OF THE TRUST.........................................
PURCHASE AND REDEMPTION OF SHARES..........................................
DETERMINATION OF NET ASSET VALUE...........................................
TAXES......................................................................
PORTFOLIO TRANSACTIONS.....................................................
DISCLOSURE OF PORTFOLIO HOLDINGS...........................................
VOTING.....................................................................
DESCRIPTION OF SHARES......................................................
SHAREHOLDER LIABILITY......................................................
LIMITATION OF TRUSTEES' LIABILITY..........................................
CODE OF ETHICS.............................................................
PROXY VOTING...............................................................
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS.................................
CUSTODIAN..................................................................
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..............................
LEGAL COUNSEL..............................................................
FINANCIAL STATEMENTS.......................................................
APPENDIX A - DESCRIPTION OF CORPORATE BOND RATINGS.........................
APPENDIX B - PROXY VOTING POLICIES.........................................
2
TOUCHSTONE FUNDS GROUP TRUST
INTERNATIONAL GROWTH FUND
PRO FORMA COMBINING
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2007
(UNAUDITED)
PRO FORMA
COMBINED
NAVELLIER TOUCHSTONE FUNDS
MILLENNIUM FUNDS GROUP TRUST
INTERNATIONAL PRO FORMA INTERNATIONAL
GROWTH PORTFOLIO ADJUSTMENTS GROWTH FUND
---------------- ---------------- ----------------
ASSETS
Securities at Cost $ 4,076,298 $ -- $ 4,076,298
================ ================
Securities at Value $ 4,680,329 $ -- $ 4,680,329
Investment Income Receivable 2,722 -- 2,722
Receivable for Securities Sold 9,027 -- 9,027
Receivable for Shares Sold 21,635 -- 21,635
Receivable from Adviser 38,011 -- 38,011
Other Assets 8,518 -- 8,518
---------------- ----------------
Total Assets 4,760,242 -- 4,760,242
---------------- ----------------
LIABILITIES
Payable for Securities Purchased 857,012 -- 857,012
Payable for Shares Redeemed 20,929 -- 20,929
Distribution Fees Payable 3,492 -- 3,492
Trustees Fees Payable 4,500 -- 4,500
Professional Fees 19,242 -- 19,242
Other Liabilities 26,050 -- 26,050
---------------- ----------------
Total Liabilities 931,225 -- 931,225
---------------- ----------------
NET ASSETS $ 3,829,017 -- $ 3,829,017
================ ================
NET ASSETS CONSIST OF:
Paid-in Capital $ 3,143,363 -- $ 3,143,363
Accumulated Net Realized Gain on Investments 81,623 -- 81,623
Net Unrealized Appreciation of Investments 604,031 -- 604,031
---------------- ----------------
NET ASSETS $ 3,829,017 -- $ 3,829,017
================ ================
BY CLASS:
NET ASSETS:
Class A $ 3,829,017 $ -- $ 3,829,017
OUTSTANDING SHARES:
Class A 322,205 -- 322,205
NET ASSET VALUE PER SHARE:
Class A $ 11.88 $ -- $ 11.88
See accompanying pro forma notes to combining financial statements.
3
TOUCHSTONE FUNDS GROUP TRUST
INTERNATIONAL GROWTH FUND
PRO FORMA COMBINING
STATEMENT OF OPERATIONS
DECEMBER 31, 2007
(UNAUDITED)
PRO FORMA
COMBINED
NAVELLIER TOUCHSTONE FUNDS
MILLENNIUM FUNDS GROUP TRUST
INTERNATIONAL PRO FORMA INTERNATIONAL
GROWTH PORTFOLIO ADJUSTMENTS GROWTH FUND
------------------- ---------------- --------------------
INVESTMENT INCOME
Interest $ 2,614 $ -- $ 2,614
Dividends (A) 62,622 -- 62,622
------------------- ---------------- --------------------
Total Investment Income 65,236 -- 65,236
------------------- ---------------- --------------------
EXPENSES
Investment Advisory Fee 23,086 (2,256)(A) 20,830
Administration Fees -- 4,630 (A) 4,630
Accounting and Pricing Fees 74,365 (74,365)(B) -
Distribution Plan Fees, Class A 5,772 -- 5,772
Transfer Agent Fees, Class A 1,974 -- 1,974
Printing Expense 16,747 -- 16,747
Trustees' Fees 18,000 -- 18,000
Custodian Fees 8,283 -- 8,283
Legal Expense 12,500 -- 12,500
Registration Fees 17,970 -- 17,970
Audit Fees 19,300 -- 19,300
Compliance Fees 120 -- 120
Pricing Expense 1,690 -- 1,690
Underwriting Fees 3,569 -- 3,569
Other Expenses 1,734 -- 1,734
------------------- ---------------- --------------------
TOTAL EXPENSES 205,110 (71,991) 133,119
Less Expenses Reimbursed by Investment Adviser (170,469) 68,590 (101,879)
------------------- ---------------- --------------------
NET EXPENSES 34,641 (3,401) 31,240
------------------- ---------------- --------------------
NET INVESTMENT INCOME 30,595 3,401 33,996
------------------- ---------------- --------------------
Net Realized Gain on Investments 217,507 -- 217,507
Change in Net Unrealized Appreciation/Depreciation
of Investments 197,015 -- 197,015
------------------- ---------------- --------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 414,522 -- 414,522
------------------- ---------------- --------------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 445,117 $ 3,401 $ 448,518
=================== ================ ====================
(A) Net of foreign tax withholding of: $ 4,407 $ -- $ 4,407
(A) Based on contract in effect for the legal suriving fund.
(B) Services are now provided under the Administration Fee contract in effect
for the legal surviving fund.
See accompanying pro forma notes to combining financial statements.
4
TOUCHSTONE FUNDS GROUP TRUST
INTERNATIONAL GROWTH FUND
PRO FORMA COMBINING
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2007
(UNAUDITED)
PRO FORMA
COMBINED
NAVELLIER TOUCHSTONE FUNDS
MILLENNIUM FUNDS GROUP TRUST
INTERNATIONAL PRO FORMA INTERNATIONAL
GROWTH PORTFOLIO ADJUSTMENTS GROWTH FUND
------------------------- ------------------------- -------------------------
SHARES MARKET VALUE SHARES MARKET VALUE SHARES MARKET VALUE
---------- ------------ ---------- ------------ ---------- ------------
COMMON STOCKS - 79.8%(A)
Aerospace/Defense - 1.0%(A)
BAE Systems plc ADR (Britain) 1,133 $ 44,782 -- $ -- 1,133 $ 44,782
---------- ---------- ---------- ----------
Automobiles - 1.3%(A)
HONDA MOTOR CO., LTD. ADR (Japan) 1,870 61,972 -- -- 1,870 61,972
---------- ---------- ---------- ----------
Banking - 7.0%(A)
ABB Ltd. ADR (Switzerland) 2,573 74,102 -- -- 2,573 74,102
Banco Sandander Central S.A. ADR (Spain) 4,461 96,090 -- -- 4,461 96,090
Credit Suisse Group ADR (Switzerland) 739 44,414 -- -- 739 44,414
HSBC Holdings plc ADR (Britain) 601 50,310 -- -- 601 50,310
National Australia Bank Ltd. ADR (Australia) 392 64,815 -- -- 392 64,815
---------- ---------- ---------- ----------
329,731 -- 329,731
---------- ---------- ---------- ----------
Building Materials & Products - 1.9%(A)
Chicago Bridge & Iron Co. N.V. ADR
(Netherlands) 1,476 89,209 -- -- 1,476 89,209
---------- ---------- ---------- ----------
Chemicals - 1.6%(A)
Potash Corp. of Saskatchewan, Inc. (Canada) 520 74,859 -- -- 520 74,859
---------- ---------- ---------- ----------
Computer Equipment, Software &
Services - 5.6%(A)
KONAMI Corp. ADR (Japan) 1,313 42,712 -- -- 1,313 42,712
Logitech International S.A. ADR
(Switzerland)* 2,029 74,343 -- -- 2,029 74,343
SAP AG ADR (Germany) 1,340 68,407 -- -- 1,340 68,407
Trend Micro, Inc. ADR (Japan) 2,141 76,058 -- -- 2,141 76,058
---------- ---------- ---------- ----------
261,520 -- 261,520
---------- ---------- ---------- ----------
Electric Services - 1.5%(A)
Enel S.p.A. ADR (Italy) 1,212 71,084 -- -- 1,212 71,084
---------- ---------- ---------- ----------
Electronic Instruments & Controls - 1.0%(A)
Garmin Ltd. (Cayman Islands) 504 48,888 -- -- 504 48,888
---------- ---------- ---------- ----------
Electronics - 7.2%(A)
Canon, Inc. ADR (Japan) 1,049 48,076 -- -- 1,049 48,076
Matsushita Electric Industrial Co., Ltd.
ADR (Japan) 4,241 86,686 -- -- 4,241 86,686
Nintendo Co., Ltd. ADR (Japan) 1,991 147,682 -- -- 1,991 147,682
SONY CORP. ADR (Japan) 1,026 55,712 -- -- 1,026 55,712
---------- ---------- ---------- ----------
338,156 -- 338,156
---------- ---------- ---------- ----------
Financial Services - 1.2%(A)
Allianz SE ADR (Germany) 2,596 55,165 -- -- 2,596 55,165
---------- ---------- ---------- ----------
Food, Beverage & Tobacco - 6.2%(A)
British American Tobacco plc ADR (Britain) 1,088 85,473 -- -- 1,088 85,473
Diageo plc ADR (Britain) 928 79,650 -- -- 928 79,650
nestle S.A. ADR (Switzerland) 645 73,853 -- -- 645 73,853
Tesco plc ADR (Britain) 1,895 53,250 -- -- 1,895 53,250
---------- ---------- ---------- ----------
292,226 -- 292,226
---------- ---------- ---------- ----------
Healthcare Products & Services - 1.7%(A)
Bayer AG ADR (Germany) 865 78,239 -- -- 865 78,239
---------- ---------- ---------- ----------
Industrial - 2.8%(A)
Companhia Vale do Rio Doce ADR (Brazil) 1,190 38,877 -- -- 1,190 38,877
KUBOTA CORP. ADR (Japan) 1,349 45,326 -- -- 1,349 45,326
Siemens AG ADR (Germany) 309 48,625 -- -- 309 48,625
---------- ---------- ---------- ----------
132,828 -- 132,828
---------- ---------- ---------- ----------
5
TOUCHSTONE FUNDS GROUP TRUST
INTERNATIONAL GROWTH FUND
PRO FORMA COMBINING
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2007
(UNAUDITED)
PRO FORMA
COMBINED
NAVELLIER TOUCHSTONE FUNDS
MILLENNIUM FUNDS GROUP TRUST
INTERNATIONAL PRO FORMA INTERNATIONAL
GROWTH PORTFOLIO ADJUSTMENTS GROWTH FUND
------------------------- ------------------------- -------------------------
SHARES MARKET VALUE SHARES MARKET VALUE SHARES MARKET VALUE
---------- ------------ ---------- ------------ ---------- ------------
Insurance - 2.1%(A)
Axa ADR (France) 1,441 57,222 -- -- 1,441 57,222
ING Groep N.V. ADR (Netherlands) 1,046 40,700 -- -- 1,046 40,700
---------- ---------- ---------- ----------
97,922 -- 97,922
---------- ---------- ---------- ----------
Medical Equipment & Supplies - 0.9%(A)
Smith & Nephew plc ADR (Britain) 714 40,998 -- -- 714 40,998
---------- ---------- ---------- ----------
Miscellaneous Fabricated Products - 1.0%(A)
ArcelorMittal ADR (Luxembourg) 599 46,333 -- -- 599 46,333
---------- ---------- ---------- ----------
Oil/Gas - 10.1%(A)
BASF AG ADR (Germany) 386 56,549 -- -- 386 56,549
E. ON AG ADR (Germany) 1,379 96,874 -- -- 1,379 96,874
EnCana Corp. (Canada) 1,123 76,319 -- -- 1,123 76,319
Schlumberger Ltd. (United States) 391 38,463 -- -- 391 38,463
Statiol ASA ADR (Norway) 1,675 51,121 -- -- 1,675 51,121
Total S.A. ADR (France) 566 46,752 -- -- 566 46,752
Transocean, Inc. (United States) 442 63,272 -- -- 442 63,272
Ultrapar Participacoes S.A. ADR (Brazil) 1,290 44,686 -- -- 1,290 44,686
---------- ---------- ---------- ----------
474,036 -- 474,036
---------- ---------- ---------- ----------
Pharmaceuticals - 7.6%(A)
Alcon, Inc. (Switzerland) 460 65,798 -- -- 460 65,798
GlaxoSmithKline plc ADR (Britain) 1,047 52,758 -- -- 1,047 52,758
ICON plc ADR (Ireland)* 974 60,252 -- -- 974 60,252
Novo-Nordisk A/S ADR (Denmark) 1,711 110,975 -- -- 1,711 110,975
Teva Pharmaceutical Industries Ltd.
ADR (Israel) 1,368 63,585 -- -- 1,368 63,585
---------- ---------- ---------- ----------
353,368 -- 353,368
---------- ---------- ---------- ----------
Semiconductors - 1.9%(A)
ARM Holdings plc ADR (Britain) 6,715 49,691 -- -- 6,715 49,691
Infineon Technologies AG ADR (Germany)* 3,377 39,308 -- -- 3,377 39,308
---------- ---------- ---------- ----------
88,999 -- 88,999
---------- ---------- ---------- ----------
Telecommunications Equipment &
Services - 13.3%(A)
America Movil ADR (Mexico) 970 59,548 -- -- 970 59,548
BT Group plc ADR (Britain) 821 44,268 -- -- 821 44,268
China Mobile Ltd. ADR (Hong Kong) 563 48,908 -- -- 563 48,908
Nokia Oyj ADR (Finland) 2,934 112,637 -- -- 2,934 112,637
Research In Motion Ltd. (Canada)* 601 68,153 -- -- 601 68,153
Telefonica S.A. ADR (Spain) 960 93,686 -- -- 960 93,686
Telenor ASA ADR (Norway) 1,041 74,562 -- -- 1,041 74,562
Vimpel-Communications ADR (Russia) 1,530 63,648 -- -- 1,530 63,648
Vodafone Group plc ADR (Britain) 1,537 57,361 -- -- 1,537 57,361
---------- ---------- ---------- ----------
622,771 -- 622,771
---------- ---------- ---------- ----------
Tools & Hardware - 1.0%(A)
Makita Corp. ADR (Japan) 1,075 45,451 -- -- 1,075 45,451
---------- ---------- ---------- ----------
Utilities - 1.9%(A)
Veolia Environment ADR (France) 964 87,705 -- -- 964 87,705
---------- ---------- ---------- ----------
TOTAL COMMONS STOCKS - 79.8%(A) $3,736,242 $ -- $3,736,242
---------- ---------- ---------- ----------
MONEY MARKET FUNDS - 20.2%(A)
JPMorgan 100% U.S. Treasury Securities
Money Market Fund 944,087 $ 944,087 (944,087) $ (944,087)(A) -- $ --
Touchstone Institutional Money Market Fund^ -- -- 944,087 944,087 (A) 944,087 944,087
---------- ---------- ---------- ----------
944,087 -- -- 944,087
---------- ---------- ---------- ----------
TOTAL INVESTMENTS - 100.0%(A) (COST $4,076,298) $4,680,329 $ -- $4,680,329
========== ========== ==========
* Non-Income producing.
^ Affiliated Fund sub-advised by Fort Washington Investment Advisors, Inc.
ADR - American Depositary Receipt
(A) Calculated based on total investment securities at market value of the Pro
Forma Combined Touchstone Funds Group Trust International Growth Fund.
See accompanying pro forma notes to combining financial statements.
6
TOUCHSTONE FUNDS GROUP TRUST
INTERNATIONAL GROWTH FUND
PRO FORMA NOTES TO COMBINING FINANCIAL STATEMENTS
DECEMBER 31, 2007
(UNAUDITED)
DESCRIPTION OF THE FUND
The acquiring fund, Touchstone Funds Group Trust International Growth Fund
("Acquiring Fund"), is registered under the Investment Company Act of 1940, as
amended, as an open-end, management investment company portfolio consisting of
Class A, Class C and Class Y shares. The target fund, Navellier Millennium Funds
International Growth Portfolio ("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 shares.
BASIS OF COMBINATION
The accompanying unaudited pro forma financial statements are presented to
show the effect of the transfer of assets and liabilities of the Target Fund in
exchange for shares of the Acquiring Fund (for purposes of maintaining the
financial statements and performance).
Under the terms of the Plan of Reorganization, the combination of the
Acquiring Fund and Target Fund will be accounted for by the method of accounting
for tax-free mergers of investment companies. The statement of assets and
liabilities and the related statement of operations of the Acquiring Fund and
Target Fund have been combined as of and for the twelve months ended December
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 Target Fund included in its annual
report dated December 31, 2007.
The following notes refer to the accompanying pro forma financial
statements as if the above-mentioned acquisition of Target Fund by Acquiring
Fund had taken place as of January 1, 2007.
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.
7
CAPITAL SHARES
The pro forma net asset value per share assumes the issuance of shares of
Acquiring Fund that would have been issued at December 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 Target Fund, as of December 31, 2007,
divided by the net asset value per share of the shares of Acquiring Fund as of
December 31, 2007. The pro forma number of shares outstanding for the combined
fund consists of the following at December 31, 2007:
- --------------------------------------------------------------------------------
SHARES OF ADDITIONAL SHARES TOTAL OUTSTANDING
CLASS OF ACQUIRING FUND ASSUMED ISSUED SHARES
SHARES PRE-COMBINATION IN REORGANIZATION POST-COMBINATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class A - 322,205 322,205
- --------------------------------------------------------------------------------
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
THE TRUST
This SAI relates only to the Touchstone Value Opportunities Fund ("Value
Opportunities Fund") (formerly Constellation Clover Core Value Fund), Touchstone
Diversified Small Cap Value Fund ("Diversified Small Cap Value Fund") (formerly
Constellation Clover Small Cap Value Fund), Touchstone Clover Core Fixed Income
Fund ("Clover Core Fixed Income Fund") (formerly Constellation Clover Core Fixed
Income Fund), Touchstone Ultra Short Duration Fixed Income Fund ("Ultra Short
Duration Fund") (formerly Constellation Chartwell Ultra Short Duration Fixed
Income Fund), Touchstone Short Duration Fixed Income Fund ("Short Duration
Fund") (formerly Constellation Chartwell Short Duration Fixed Income Fund),
Touchstone Sands Capital Select Growth Fund ("Sands Capital Select Growth Fund")
(formerly Constellation Sands Capital Select Growth Fund), Touchstone Mid Cap
Fund ("Mid Cap Fund") (formerly Constellation TIP Mid Cap Fund), Touchstone
Healthcare and Biotechnology Fund ("Healthcare and Biotechnology Fund")
(formerly TIP Healthcare and Biotechnology Fund), Touchstone Small Cap Value
Opportunities Fund ("Small Cap Value Opportunities Fund") (formerly
Constellation TIP Small Cap Value Opportunities Fund), Touchstone Premium Yield
Equity Fund ("Premium Yield Equity Fund") and Touchstone International Growth
Fund ("International Growth Fund"), (each a "Fund" and, together the "Funds").
Each is a separate series of the Touchstone Funds Group Trust (formerly,
Constellation Funds, formerly Alpha Select Funds) (the "Trust"), an open-end
management investment company established as a Delaware business trust under an
Agreement and Declaration of Trust dated October 25, 1993, as amended through
March 24, 2004, and November 20, 2006 (the "Declaration of Trust"), which
consists of both diversified and non-diversified Funds. Prior to November 20,
2006, the name of the Trust was Constellation Funds. Effective November 20,
2006, the Trust's name changed to Touchstone Funds Group Trust. The Declaration
of Trust permits the Trust to offer separate series of units of beneficial
interest (the "shares") and separate classes of funds. Each Fund is a separate
mutual fund and each share of each Fund represents an equal proportionate
interest in that Fund.
The Trust offers five separate classes of shares: Class A, Class C, Class Z,
Class Y and Class I shares. The shares of a Fund represent an interest in the
same assets of such Fund, have the same rights and are identical in all material
respects except that: (i) each class of shares may bear different (or no)
distribution fees; (ii) each class of shares may be subject to different (or no)
sales charges; (iii) certain other class specific expenses will be borne solely
by the class to which such expenses are attributable, including transfer agent
fees attributable to a specific class of shares, printing and postage expenses
related to preparing and distributing materials to current shareholders of a
specific class, registration fees incurred by a specific class of shares, the
expenses of administrative personnel and services required to support the
shareholders of a specific class, litigation or other legal expenses relating to
a class of shares, Trustees' fees or expenses incurred as a result of issues
relating to a specific class of shares and accounting fees and expenses relating
to a specific class of shares; (iv) each class has exclusive voting rights with
respect to matters relating to its own distribution arrangements; and (v)
certain classes offer different features and services to shareholders. The Board
of Trustees may classify and reclassify the shares of a Fund into additional
classes of shares at a future date.
9
The Trust's Funds and Classes thereof that are currently offered are listed
below:
- -------------------------------------------------------------------------------------------------------
FUNDS CLASS I CLASS A CLASS C CLASS Y CLASS Z
- -------------------------------------------------------------------------------------------------------
Touchstone Healthcare and Biotechnology Fund x x
- -------------------------------------------------------------------------------------------------------
Touchstone Small Cap Value Opportunities Fund x
- -------------------------------------------------------------------------------------------------------
Touchstone Value Opportunities Fund x x x
- -------------------------------------------------------------------------------------------------------
Touchstone Diversified Small Cap Value Fund x x x
- -------------------------------------------------------------------------------------------------------
Touchstone Clover Core Fixed Income Fund x
- -------------------------------------------------------------------------------------------------------
Touchstone Ultra Short Duration Fixed Income Fund x
- -------------------------------------------------------------------------------------------------------
Touchstone Short Duration Fixed Income Fund x
- -------------------------------------------------------------------------------------------------------
Touchstone Mid Cap Fund x x x x
- -------------------------------------------------------------------------------------------------------
Touchstone Sands Capital Select Growth Fund x x
- -------------------------------------------------------------------------------------------------------
Touchstone Premium Yield Equity Fund x x x
- -------------------------------------------------------------------------------------------------------
Touchstone International Growth Fund x x x
- -------------------------------------------------------------------------------------------------------
Effective as of the close of business on May 7, 2004, the Value Opportunities
Fund, Diversified Small Cap Value Fund, Clover Core Fixed Income Fund, Ultra
Short Duration Fixed Income Fund, Short Duration Fixed Income Fund, Small Cap
Value Opportunities Fund and Healthcare and Biotechnology Fund acquired all of
the assets and liabilities of the Turner Funds' Turner Core Value Fund, Turner
Small Cap Value Fund, Turner Core Fixed Income Fund, Turner Ultra Short Duration
Fixed Income Fund, Turner Short Duration Fixed Income Fund, Turner Small Cap
Value Opportunities Fund and Turner Healthcare and Biotechnology Fund (each a
"Constellation Turner Fund"), respectively. Performance information relating to
an aforementioned Fund presented through May 7, 2004 refers to the Fund's
performance as a predecessor Constellation Turner Fund.
Effective as of the close of business on July 30, 2004, the Sands Capital Select
Growth Fund acquired all of the assets and liabilities of the Pitcairn Select
Growth Fund. Performance information relating to an aforementioned Fund
presented through July 30, 2004 refers to the Fund's performance as the Pitcairn
Select Growth Fund.
Effective as of the close of business on April 14, 2005, the Mid Cap Fund
acquired all of the assets and liabilities of the Constellation Institutional
Portfolios' Midcap Core Portfolio (the "predecessor CIP Midcap Core Portfolio").
Performance information presented through April 15, 2005 refers to the Fund's
performance as the predecessor CIP Midcap Core Portfolio.
10
Effective as of the close of business on September 27, 2008, the International
Growth Fund acquired all of the assets and liabilities of the Navellier
International Growth Portfolio (the "predecessor Navellier International
Portfolio"). Performance information presented through September 27, 2008 refers
to the Fund's performance as the predecessor Navellier International Portfolio.
PERMITTED INVESTMENTS AND RISK FACTORS
Unless otherwise indicated, each Fund may invest in each of the investments
listed below, or engage in each of the investment techniques listed below as a
non-principal investment strategy.
AMERICAN DEPOSITARY RECEIPTS ("ADRS")
ADRs are securities, typically issued by a U.S. financial institution (a
"depositary"), that evidence ownership interests in a security or a pool of
securities issued by a foreign issuer and deposited with the depositary. ADRs
may be available through "sponsored" or "unsponsored" facilities. A sponsored
facility is established jointly by the issuer of the security underlying the
receipt and a depositary, whereas an unsponsored facility may be established by
a depositary without participation by the issuer of the underlying security.
Holders of unsponsored depositary receipts generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently is
under no obligation to distribute shareholder communications received from the
issuer of the deposited security or to pass through, to the holders of the
receipts, voting rights with respect to the deposited securities.
The Clover Core Fixed Income Fund, Ultra Short Duration Fund and Short Duration
Fund do not invest in ADRs.
ASSET-BACKED SECURITIES
Asset-backed securities are secured by non-mortgage assets such as company
receivables, truck and auto loans, leases and credit card receivables. Such
securities are generally issued as pass-through certificates, which represent
undivided fractional ownership interests in the underlying pools of assets. Such
securities also may be debt instruments, which are also known as collateralized
obligations and are generally issued as the debt of a special purpose entity,
such as a trust, organized solely for the purpose of owning such assets and
issuing such debt.
BORROWING
The Funds may borrow money from a bank equal to 5% of their total assets for
temporary purposes to meet redemptions or to pay dividends. Borrowing may
exaggerate changes in the net asset value of a Fund's shares and in the return
on the Fund's portfolio. Although the principal of any borrowing will be fixed,
a Fund's assets may change in value during the time the borrowing is
outstanding. The Funds may be required to liquidate portfolio securities at a
time when it would be disadvantageous to do so in order to make payments with
respect to any borrowing. The Funds may be required to earmark or segregate
liquid assets in an amount sufficient to meet their obligations in connection
with such borrowings. In an interest rate arbitrage transaction, a Fund borrows
money at one interest rate and lends the proceeds at another, higher interest
rate. These transactions involve a number of risks, including the risk that the
borrower will fail or otherwise become insolvent or that there will be a
significant change in prevailing interest rates.
11
BUSINESS DEVELOPMENT COMPANIES
Business development companies ("BDCs") are a type of closed-end fund regulated
under the Investment Company Act of 1940, as amended (the "1940 Act"). BDCs are
publicly traded mezzanine/private equity funds that typically invest in and lend
to small and medium-sized private companies that may not have access to public
equity markets for capital raising. BDCs are unique in that at least 70% of
their investments must be made to private U.S. businesses, and BDCs are required
to make available significant managerial assistance to their portfolio
companies. BDCs are not taxed on income distributed to shareholders provided
they comply with the applicable requirements of the Internal Revenue Code of
1986, as amended (the "Code"). BDCs have expenses associated with their
operations. Accordingly, the Fund will indirectly bear its proportionate share
of any management and other expenses, and of any performance based fees, charged
by the BDCs in which it invests.
Investments in BDCs are subject to various risks, including management's ability
to meet the BDC's investment objective, and to manage the BDC's portfolio when
the underlying securities are redeemed or sold, during periods of market turmoil
and as investors' perceptions regarding a BDC or its underlying investments
change. BDC shares are not redeemable at the option of the BDC shareholder and,
as with shares of other closed-end funds, they may trade in the secondary market
at a discount to their net asset value. The Premium Yield Equity Fund may invest
up to 10% of its net assets in BDCs.
CANADIAN INCOME TRUSTS
Canadian Income Trusts are a qualified income trust as designated by the Canada
Revenue Agency that operates as a profit-seeking corporation. This type of
income trust, which pays out all earnings to unit holders before paying taxes,
is usually traded publicly on a securities exchange. Canadian income trusts
enjoy special corporate tax privileges. The Premium Yield Equity Fund may invest
up to 10% of its net assets in Canadian Income Trusts.
CONVERTIBLE SECURITIES
Convertible securities are corporate securities that are exchangeable for a set
number of another security at a prestated price. Convertible securities
typically have characteristics of both fixed income and equity securities.
Because of the conversion feature, the market value of a convertible security
tends to move with the market value of the underlying stock. The value of a
convertible security is also affected by prevailing interest rates, the credit
quality of the issuer and any call provisions.
The Ultra Short Duration Fund and Short Duration Fund do not invest in
convertible securities.
12
DERIVATIVES
Derivatives are securities that derive their value from other securities,
financial instruments or indices. The following are considered derivative
securities: options on futures, futures, options on securities (e.g., puts and
calls), swap agreements, mortgage-backed securities (e.g., collateralized
mortgage obligations ("CMOs"), real estate mortgage investment conduits
("REMICs"), interest-only ("IOs") and principal-only ("POs"), when issued
securities and forward commitments, floating and variable rate securities,
convertible securities, "stripped" U.S. Treasury securities (e.g., receipts and
separately traded registered interested and principal securities ("STRIPs"),
privately issued stripped securities (e.g., TGRs, TRs, and CATs). These various
instruments are discussed later in this section.
EQUITY-LINKED WARRANTS
Equity-linked warrants provide a way for investors to access markets where entry
is difficult and time consuming due to regulation. Typically, a broker issues
warrants to an investor and then purchases shares in the local market and issues
a call warrant hedged on the underlying holding. If the investor exercises his
call and closes his position, the shares are sold and the warrant is redeemed
with the proceeds.
Each warrant represents one share of the underlying stock. Therefore, the price,
performance and liquidity of the warrant are all directly linked to the
underlying stock. The warrants can be redeemed for 100% of the value of the
underlying stock (less transaction costs). Being American style warrants, they
can be exercised at any time. The warrants are U.S. dollar denominated and
priced daily on several international stock exchanges.
EUROBONDS
A Eurobond is a bond denominated in U.S. dollars or another currency and sold to
investors outside of the country whose currency is used. Eurobonds may be issued
by government or corporate issuers, and are typically underwritten by banks and
brokerage firms from numerous countries. While Eurobonds typically pay principal
and interest in Eurodollars (U.S. dollars held in banks outside of the United
States), they may pay principal and interest in other currencies.
EXCHANGE TRADED FUNDS
Exchange traded funds ("ETFs") represent shares of ownership in either mutual
funds, unit investment trusts, or depositary receipts that hold portfolios of
common stocks which closely track the performance and dividend yield of specific
indices, either broad market, sector or international. ETFs allow an investor to
buy or sell an entire portfolio of stocks in a single security which is priced
and can be bought and sold throughout the trading day. A Fund could purchase an
ETF to gain exposure to a portion of the U.S. or foreign market, or while
awaiting an opportunity to purchase securities directly. The risks of owning an
ETF generally reflect the risks of owning the underlying securities it is
designed to track, although lack of liquidity in an ETF could result in it being
more volatile than the underlying portfolio of securities and ETFs have
management fees and other fees and expenses that are incurred directly by the
Fund that increase their costs versus the costs of owning the underlying
securities directly.
13
For hedging or other purposes, each Fund may invest in ETFs that seek to track
the composition and/or performance of specific indices or portions of specific
indices. Certain ETFs are traded on a securities exchange. The market prices of
index-based investments will fluctuate in accordance with changes in the
underlying portfolio securities of the investment company and also due to supply
and demand of the investment company's shares on the exchange upon which the
shares are traded. Index-based investments may not replicate or otherwise match
the composition or performance of their specified index due to transaction
costs, among other things. Examples of ETFs include SPDRs(R), Select Sector
SPDRs(R), DIAMONDS(SM), NASDAQ 100 Shares, and iShares.
ETFs are considered investment companies under the Investment Company Act of
1940, as amended ("1940 Act"). Ordinarily, investments in ETFs are subject to
the limitations on investments in other investment companies, as described in
the section entitled "Investment Companies". However, pursuant to an order
issued by the SEC to the iShares Funds and the iShares Trust, and procedures
approved by the Board of Trustees, each Fund, except the predecessor
Constellation Turner Funds and Mid Cap Fund may invest in iShares ETFs in excess
of the 5% and 10% limits, provided that the Fund invests in ETFs and other
short-term investments pursuant to the policies and procedures adopted by the
Board of Trustees and otherwise complies with the conditions of the SEC
exemptive order, as it may be amended, and any other applicable investment
limitations. See also "Investment Company Shares."
FORWARD FOREIGN CURRENCY CONTRACTS
The Funds may enter into forward foreign currency contracts to manage foreign
currency exposure and as a hedge against possible variations in foreign exchange
rates. The Funds may enter into forward foreign currency contracts to hedge a
specific security transaction or to hedge a portfolio position. These contracts
may be bought or sold to protect the Funds, to some degree, against possible
losses resulting from an adverse change in the relationship between foreign
currencies and the U.S. dollar. The Funds also may invest in foreign currency
futures and in options on currencies. A forward contract involves an obligation
to purchase or sell a specific currency amount at a future date, agreed upon by
the parties, at a price set at the time of the contract. A Fund may enter into a
contract to sell, for a fixed amount of U.S. dollars or other appropriate
currency, the amount of foreign currency approximating the value of some or all
of a Fund's securities denominated in such foreign currency.
By entering into forward foreign currency contracts, a Fund will seek to protect
the value of its investment securities against a decline in the value of a
currency. However, these forward foreign currency contracts will not eliminate
fluctuations in the underlying prices of the securities. Rather, they simply
establish a rate of exchange which one can obtain at some future point in time.
Although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, they also tend to limit any potential gain
which might result should the value of such currency increase. At the maturity
of a forward contract, a Fund may either sell a portfolio security and make
delivery of the foreign currency, or it may retain the security and terminate
its contractual obligation to deliver the foreign currency by purchasing an
"offsetting" contract with the same currency trader, obligating it to purchase,
on the same maturity date, the same amount of the foreign currency. A Fund may
realize a gain or loss from currency transactions.
14
When entering into a contract for the purchase or sale of a security in a
foreign currency, a Fund may enter into a forward foreign currency contract for
the amount of the purchase or sale price to protect against variations, between
the date the security is purchased or sold and the date on which payment is made
or received, in the value of the foreign currency relative to the U.S. dollar or
other foreign currency.
Also, when a Fund's portfolio manager anticipates that a particular foreign
currency may decline substantially relative to the U.S. dollar or other leading
currencies, in order to reduce risk, a Fund may enter into a forward contract to
sell, for a fixed amount, the amount of foreign currency approximating the value
of its securities denominated in such foreign currency. With respect to any such
forward foreign currency contract, it will not generally be possible to match
precisely the amount covered by that contract and the value of the securities
involved due to changes in the values of such securities resulting from market
movements between the date the forward contract is entered into and the date it
matures. In addition, while forward foreign currency contracts may offer
protection from losses resulting from declines in value of a particular foreign
currency, they also limit potential gains which might result from increases in
the value of such currency. A Fund will also incur costs in connection with
forward foreign currency contracts and conversions of foreign currencies into
U.S. dollars. A Fund will place assets in a segregated account or otherwise
earmark assets as cover to assure that its obligations under forward foreign
currency contracts are covered.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of a specific security at a specified future
time and at a specified price. An option on a futures contract gives the
purchaser the right, in exchange for a premium, to assume a position in a
futures contract at a specified exercise price during the term of the option. A
Fund may use futures contracts and related options for bona fide hedging
purposes, to offset changes in the value of securities held or expected to be
acquired or be disposed of, to minimize fluctuations in foreign currencies, or
to gain exposure to a particular market or instrument. A Fund will minimize the
risk that it will be unable to close out a futures contract by only entering
into futures contracts which are traded on national futures exchanges. In
addition, a Fund will only sell covered futures contracts and options on futures
contracts.
Stock and bond index futures are futures contracts for various stock and bond
indices that are traded on registered securities exchanges. Stock and bond index
futures contracts obligate the seller to deliver (and the purchaser to take) an
amount of cash equal to a specific dollar amount times the difference between
the value of a specific stock or bond index at the close of the last trading day
of the contract and the price at which the agreement is made.
Stock and bond index futures contracts are bilateral agreements pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock or bond index
value at the close of trading of the contract and the price at which the futures
contract is originally struck. No physical delivery of the stocks or bonds
comprising the index is made; generally contracts are closed out prior to the
expiration date of the contracts.
15
No price is paid upon entering into futures contracts. Instead, a Fund would be
required to deposit an amount of cash or U.S. Treasury securities known as
"initial margin." Subsequent payments, called "variation margin," to and from
the broker, would be made on a daily basis as the value of the futures position
varies (a process known as "marking to market"). The margin is in the nature of
a performance bond or good-faith deposit on a futures contract.
There are risks associated with these activities, including the following: (1)
the success of a hedging strategy may depend on an ability to predict movements
in the prices of individual securities, fluctuations in markets and movements in
interest rates; (2) there may be an imperfect or no correlation between the
changes in market value of the securities held by the Fund and the prices of
futures and options on futures; (3) there may not be a liquid secondary market
for a futures contract or option; (4) trading restrictions or limitations may be
imposed by an exchange; and (5) government regulations may restrict trading in
futures contracts and futures options.
A Fund may buy and sell futures contracts and related options to manage its
exposure to changing interest rates and securities prices. Some strategies
reduce a Fund's exposure to price fluctuations, while others tend to increase
its market exposure. Futures and options on futures can be volatile instruments
and involve certain risks that could negatively impact a Fund's return. In order
to avoid leveraging and related risks, when a Fund purchases futures contracts,
it will collateralize its position by depositing an amount of cash or liquid
securities, equal to the market value of the futures positions held, less margin
deposits, in a segregated account with its custodian or otherwise earmark assets
as cover. Collateral equal to the current market value of the futures position
will be marked to market on a daily basis.
GOVERNMENT PASS-THROUGH SECURITIES
Government Pass-Through Securities are securities that are issued or guaranteed
by a U.S. government agency representing an interest in a pool of mortgage
loans. The primary issuers or guarantors of these mortgage-backed securities are
the Government National Mortgage Association (GNMA), Fannie Mae and Freddie Mac.
GNMA, Fannie Mae and Freddie Mac guarantee timely distributions of interest to
certificate holders. GNMA and Fannie Mae also guarantee timely distributions of
scheduled principal. Freddie Mac generally guarantees only the ultimate
collection of principal of the underlying mortgage loan. Certain federal
agencies, such as the GNMA, have been established as instrumentalities of the
United States government to supervise and finance certain types of activities.
Issues of these agencies, while not direct obligations of the United States
government, are either backed by the full faith and credit of the United States
(e.g., GNMA securities) or supported by the issuing agencies' right to borrow
from the U.S. Treasury. The issues of other agencies are supported by the credit
of the instrumentality (e.g., Fannie Mae securities). Government and private
guarantees do not extend to the securities' value, which is likely to vary
inversely with fluctuations in interest rates.
16
There are a number of important differences among the agencies and
instrumentalities of the U.S. government that issue mortgage-backed securities
and among the securities that they issue. Mortgage-backed securities issued by
GNMA include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie
Maes") that are guaranteed as to the timely payment of principal and interest by
GNMA and are backed by the full faith and credit of the United States. GNMA is a
wholly owned U.S. government corporation within the Department of Housing and
Urban Development. GNMA certificates also are supported by the authority of GNMA
to borrow funds from the U.S. Treasury to make payments under its guarantee.
Mortgage-backed securities issued by Fannie Mae include Fannie Mae Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes") that are solely
the obligations of Fannie Mae and are not backed by or entitled to the full
faith and credit of the United States. Fannie Mae is a government-sponsored
organization owned entirely by private stockholders. Fannie Maes are guaranteed
as to timely payment of the principal and interest by Fannie Mae.
Mortgage-backed securities issued by Freddie Mac include Freddie Mac Mortgage
Participation Certificates (also known as "Freddie Macs" or "PC's"). Freddie Mac
is a corporate instrumentality of the United States, created pursuant to an Act
of Congress, which is owned entirely by Federal Home Loan Banks. Freddie Macs
are not guaranteed by the United States or by any Federal Home Loan Banks and do
not constitute a debt or obligation of the United States or of any Federal Home
Loan Bank. Freddie Macs entitle the holder to timely payment of interest, which
is guaranteed by Freddie Mac. Freddie Mac guarantees either ultimate collection
or timely payment of all principal payments on the underlying mortgage loans.
When Freddie Mac does not guarantee timely payment of principal, Freddie Mac may
remit the amount due on account of its guarantee of ultimate payment of
principal at any time after default on an underlying mortgage, but in no event
later than one year after it becomes payable. For Freddie Mac REMIC
Certificates, Freddie Mac guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are required to be made on the
underlying mortgage participation certificates. Fannie Mae REMIC Certificates
are issued and guaranteed as to timely distribution of principal and interest by
Fannie Mae.
MORTGAGE DOLLAR ROLLS
Mortgage "dollar rolls" are transactions in which mortgage-backed securities are
sold for delivery in the current month and the seller simultaneously contracts
to repurchase substantially similar securities on a specified future date. The
difference between the sale price and the purchase price (plus any interest
earned on the cash proceeds of the sale) is netted against the interest income
foregone on the securities sold to arrive at an implied borrowing rate.
Alternatively, the sale and purchase transactions can be executed at the same
price, with a Fund being paid a fee as consideration for entering into the
commitment to purchase. Mortgage dollar rolls may be renewed prior to cash
settlement and initially may involve only a firm commitment agreement by a Fund
to buy a security. If the broker-dealer to whom a Fund sells the security
becomes insolvent, the Fund's right to repurchase the security may be
restricted. Other risks involved in entering into mortgage dollar rolls include
the risk that the value of the security may change adversely over the term of
the mortgage dollar roll and that the security a Fund is required to repurchase
may be worth less than the security that the Fund originally held. To avoid any
leveraging concerns, a Fund will place U.S. government or other liquid
securities in a segregated account or otherwise earmark assets as cover in an
amount sufficient to cover its repurchase obligation.
17
ILLIQUID SECURITIES
Illiquid securities are securities that cannot be disposed of within seven
business days at approximately the price at which they are being carried on a
Fund's books. Illiquid securities include demand instruments with demand notice
periods exceeding seven days, securities for which there is no active secondary
market, and repurchase agreements with maturities of over seven days in length.
The Funds may invest in securities that are neither listed on a stock exchange
nor traded over-the-counter, including privately placed securities. Investing in
such unlisted emerging country equity securities, including investments in new
and early stage companies, may involve a high degree of business and financial
risk that can result in substantial losses. As a result of the absence of a
public trading market for these securities, they may be less liquid than
publicly traded securities. Because these types of securities are thinly traded,
if at all, and market prices for these types of securities are generally not
readily available, the Fund typically determines the price for these types of
securities in good faith in accordance with policies and procedures adopted by
the Board of Trustees. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by the Fund, or less than what may be considered the fair
value of such securities. Further, companies whose securities are not publicly
traded may not be subject to the disclosure and other investor protection
requirements which might be applicable if their securities were publicly traded.
If such securities are required to be registered under the securities laws of
one or more jurisdictions before being resold, the Fund may be required to bear
the expenses of registration.
In addition, the Funds believe that carefully selected investments in joint
ventures, cooperatives, partnerships, private placements, unlisted securities
and other similar situations (collectively, "special situations") could enhance
the Funds' capital appreciation potential. To the extent these investments are
deemed illiquid, the Funds' investment in them will be consistent with their
applicable restriction on investment in illiquid securities. Investments in
special situations and certain other instruments may be liquid, as determined by
the Funds' advisers based on criteria approved by the Board of Trustees.
INITIAL PUBLIC OFFERINGS ("IPOS")
Due to the typically small size of the IPO allocation available to the Funds and
the nature and market capitalization of the companies involved in IPOs, a Fund's
Advisor and/or Sub-Advisors will often purchase IPO shares that would qualify as
a permissible investment for a Fund but will, instead, decide to allocate those
IPO purchases to other funds they advise. Any such allocation will be done on a
non-discriminatory basis. Because IPO shares frequently are volatile in price,
the Funds may hold IPO shares for a very short period of time. This may increase
the turnover of a Fund's portfolio and may lead to increased expenses to a Fund,
such as commissions and transaction costs. By selling shares of an IPO, a Fund
may realize taxable capital gains that it will subsequently distribute to
shareholders.
18
Most IPOs involve a high degree of risk not normally associated with offerings
of more seasoned companies. Companies involved in IPOs generally have limited
operating histories, and their prospects for future profitability are uncertain.
These companies often are engaged in new and evolving businesses and are
particularly vulnerable to competition and to changes in technology, markets and
economic conditions. They may be dependent on certain key managers and third
parties, need more personnel and other resources to manage growth and require
significant additional capital. They may also be dependent on limited product
lines and uncertain property rights and need regulatory approvals. Investors in
IPOs can be affected by substantial dilution in the value of their shares, by
sales of additional shares and by concentration of control in existing
management and principal shareholders. Stock prices of IPOs can also be highly
unstable, due to the absence of a prior public market, the small number of
shares available for trading and limited investor information.
INVESTMENT COMPANY SHARES
Each Fund may invest in shares of other investment companies, to the extent
permitted by applicable law and subject to certain restrictions. Each Fund
currently intends to limit its investments so that, as determined immediately
after a securities purchase is made, except as noted below in the discussion of
the exemptive order from the SEC: (a) not more than 5% of the value of its total
assets will be invested in the securities of any one investment company; (b) not
more than 10% of the value of its total assets will be invested in the aggregate
in securities of investment companies as a group; and (c) not more than 3% of
the outstanding voting stock of any one investment company will be owned by any
of the Funds. These investment companies typically incur fees that are separate
from those fees incurred directly by the Fund. A Fund's purchase of such
investment company securities results in the layering of expenses, such that
shareholders would indirectly bear a proportionate share of the operating
expenses of such investment companies, including advisory fees, in addition to
paying Fund expenses.
The Advisor has received an exemptive order from the Securities and Exchange
Commission ("SEC") that permits the funds it manages to invest their uninvested
cash or cash collateral in one or more affiliated money market funds. Each Fund
(subject to its investment limitations) may invest up to 25% of its total assets
in affiliated money market funds.
See also "Investment Limitations" and "Exchange Traded Funds."
LEVERAGING
Leveraging a Fund creates an opportunity for increased net income, but, at the
same time, creates special risk considerations. For example, leveraging may
exaggerate changes in the net asset value of a Fund's shares and in the yield on
the Fund's portfolio. Although the principal amount of such borrowings will be
fixed, a Fund's assets may change in value during the time the borrowing is
outstanding. Leveraging creates interest expenses for a Fund which could exceed
the income from the assets retained. To the extent the income derived from
securities purchased with borrowed funds exceeds the interest that a Fund will
have to pay, the Fund's net income will be greater than if leveraging were not
used. Conversely, if the income from the assets retained with borrowed funds is
not sufficient to cover the cost of leveraging, the net income of the Fund will
be less than if leveraging were not used, and therefore the amount available for
distribution to stockholders as dividends will be reduced.
19
Because the Securities and Exchange Commission (the "SEC") staff believes that,
among other transactions, reverse repurchase agreements and dollar roll
transactions are collateralized borrowings, the SEC staff believes that they
create leverage. The requirement that such transactions be fully collateralized
by assets segregated by the Funds' custodian or otherwise subject to "covering"
techniques imposes a practical limit on the leverage these transactions create.
As a matter of operating policy, no Fund will purchase additional securities
when borrowings exceed 5% of total assets. In addition, the Short Duration Fixed
Income Fund will not use leverage if, as a result, the effective duration of its
portfolio would not be comparable or less than that of a three-year U.S.
Treasury note.
LOWER-RATED SECURITIES
The Funds, except for the Clover Core Fixed Income Fund, Ultra Short Duration
Fund and Short Duration Fund, may invest in lower-rated bonds commonly referred
to as "junk bonds" or high-yield/high-risk securities. Lower-rated securities
are defined as securities rated below the fourth highest rating category by a
nationally recognized statistical rating organization (NRSRO). Such obligations
are speculative and may be in default. There may be no bottom limit on the
ratings of high-yield securities that may be purchased or held by a Fund.
Lower-rated or unrated (i.e., high-yield) securities are more likely to react to
developments affecting issuers than are more highly rated securities, which
primarily react to movements in the general level of interest rates. The market
values of fixed-income securities tend to vary inversely with the level of
interest rates. Yields and market values of high-yield securities will fluctuate
over time, reflecting not only changing interest rates but the market's
perception of credit quality and the outlook for economic growth. When economic
conditions appear to be deteriorating, medium to lower-rated securities may
decline in value due to heightened concern over credit quality, regardless of
prevailing interest rates. Investors should carefully consider the relative
risks of investing in high-yield securities and understand that such securities
are not generally meant for short-term investing.
Adverse economic developments can disrupt the market for high-yield securities,
and severely affect the ability of issuers, especially highly leveraged issuers,
to service their debt obligations or to repay their obligations upon maturity
which may lead to a higher incidence of default on such securities. In addition,
the secondary market for high-yield securities, which is concentrated in
relatively few market makers, may not be as liquid as the secondary market for
more highly rated securities. As a result, a Fund could find it more difficult
to sell these securities or may be able to sell the securities only at prices
lower than if such securities were widely traded. Furthermore, a Fund may
experience difficulty in valuing certain securities at certain times. Prices
realized upon the sale of such lower-rated or unrated securities, under these
circumstances, may be less than the prices used in calculating each Fund's net
asset value.
Lower-rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligations for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If the Fund experiences unexpected net
redemptions, it may be forced to sell its higher rated securities, resulting in
a decline in the overall credit quality of the Fund's investment portfolio and
increasing the exposure of the Fund to the risks of high-yield securities.
20
Growth of High-Yield, High-Risk Bond Market: The widespread expansion of
government, consumer and corporate debt within the U.S. economy has made the
corporate sector more vulnerable to economic downturns or increased interest
rates. Further, an economic downturn could severely disrupt the market for
lower-rated bonds and adversely affect the value of outstanding bonds and the
ability of the issuers to repay principal and interest. The market for
lower-rated securities may be less active, causing market price volatility and
limited liquidity in the secondary market. This may limit the Fund's ability to
sell such securities at their market value. In addition, the market for these
securities may be adversely affected by legislative and regulatory developments.
Credit quality in the junk bond market can change suddenly and unexpectedly, and
even recently issued credit ratings may not fully reflect the actual risks
imposed by a particular security.
Sensitivity to Interest Rate and Economic Changes: Lower-rated bonds are very
sensitive to adverse economic changes and corporate developments. During an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress that would adversely affect
their ability to service their principal and interest payment obligations, to
meet projected business goals, and to obtain additional financing. If the issuer
of a bond defaulted on its obligations to pay interest or principal or entered
into bankruptcy proceedings, a Fund may incur losses or expenses in seeking
recovery of amounts owed to it. In addition, periods of economic uncertainty and
change can be expected to result in increased volatility of market prices of
high-yield, high-risk bonds and a Fund's net asset value.
Payment Expectations: High-yield, high-risk bonds may contain redemption or call
provisions. If an issuer exercised these provisions in a declining interest rate
market, a Fund would have to replace the security with a lower yielding
security, resulting in a decreased return for investors. Conversely, a
high-yield, high-risk bond's value will decrease in a rising interest rate
market, as will the value of a Fund's assets. If a Fund experiences significant
unexpected net redemptions, this may force it to sell high-yield, high-risk
bonds without regard to their investment merits, thereby decreasing the asset
base upon which expenses can be spread and possibly reducing a Fund's rate of
return.
Taxes: A Fund may purchase debt securities (such as zero-coupon or pay-in-kind
securities) that contain original issue discount. Original issue discount that
accrues in a taxable year is treated as earned by a Fund and therefore is
subject to the distribution requirements of the Internal Revenue Code even
though the Fund has not received any interest payments on such obligations
during that period. Because the original issue discount earned by the Fund in a
taxable year may not be represented by cash income, the Fund may have to dispose
of other securities and use the proceeds to make distributions to shareholders.
MASTER LIMITED PARTNERSHIPS
Master limited partnerships ("MLPs") are limited partnerships in which the
ownership units are publicly traded. MLP units are registered with the SEC and
are freely traded on a securities exchange or in the over-the-counter market.
MLPs often own several properties or businesses (or own interests) that are
related to oil and gas industries, but they also may finance research and
development and other projects. Generally, a MLP is operated under the
supervision of one or more managing general partners. Limited partners (like the
Fund that invests in a MLP) are not involved in the day-to-day management of the
partnership. They are allocated income and capital gains associated with the
partnership project in accordance with the terms established in the partnership
agreement. Generally speaking, MLP investment returns are enhanced during
periods of declining/low interest rates and tend to be negatively influenced
when interest rates are rising. As an income vehicle, the unit price can be
influenced by general interest rate trends independent of specific underlying
fundamentals. In addition, most MLPs are fairly leveraged and typically carry a
portion of "floating" rate debt. As such, a significant upward swing in interest
rates would also drive interest expense higher. Furthermore, most MLPs grow by
acquisitions partly financed by debt, and higher interest rates could make it
more difficult to transact accretive acquisitions. To the extent that an MLP's
interests are all in a particular industry, the MLP will, accordingly, be
negatively impacted by economic events impacting that industry. The risks of
investing in a MLP are generally those involved in investing in a partnership as
opposed to a corporation. For example, state law governing partnerships is often
less restrictive than state law governing corporations. Accordingly, there may
be fewer protections afforded to investors in a MLP than investors in a
corporation. In addition, MLPs may be subject to state taxation in certain
jurisdictions which will have the effect of reducing the amount of income paid
by the MLP to its investors.
21
MONEY MARKET INSTRUMENTS
Money market securities are high-quality, dollar-denominated, short-term debt
instruments. They consist of: (i) bankers' acceptances, certificates of
deposits, notes and time deposits of highly-rated U.S. banks and U.S. branches
of foreign banks; (ii) U.S. Treasury obligations and obligations issued or
guaranteed by the agencies and instrumentalities of the U.S. government; (iii)
high-quality commercial paper issued by U.S. and foreign corporations; (iv) debt
obligations with a maturity of one year or less issued by corporations with
outstanding high-quality commercial paper ratings; and (v) repurchase agreements
involving any of the foregoing obligations entered into with highly-rated banks
and broker-dealers.
OBLIGATIONS OF SUPRANATIONAL ENTITIES
Obligations of supranational entities are obligations of entities established
through the joint participation of several governments, such as the Asian
Development Bank, the Inter-American Development Bank, International Bank of
Reconstruction and Development (World Bank), African Development Bank, European
Economic Community, European Investment Bank and the Nordic Investment Bank.
OPTIONS
A put option gives the purchaser of the option the right to sell, and the writer
of the option the obligation to buy, the underlying security at any time during
the option period. A call option gives the purchaser of the option the right to
buy, and the writer of the option the obligation to sell, the underlying
security at any time during the option period. The premium paid to the writer is
the consideration for undertaking the obligations under the option contract. The
initial purchase (sale) of an option contract is an "opening transaction." In
order to close out an option position, a Fund may enter into a "closing
transaction," which is simply the sale (purchase) of an option contract on the
same security with the same exercise price and expiration date as the option
contract originally opened. If a Fund is unable to effect a closing purchase
transaction with respect to an option it has written, it will not be able to
sell the underlying security until the option expires or the Fund delivers the
security upon exercise.
22
A Fund may purchase put and call options to protect against a decline in the
market value of the securities in its portfolio or to anticipate an increase in
the market value of securities that the Fund may seek to purchase in the future.
A Fund will pay a premium when purchasing put and call options. If price
movements in the underlying securities are such that exercise of the options
would not be profitable for a Fund, loss of the premium paid may be offset by an
increase in the value of the Fund's securities or by a decrease in the cost of
acquisition of securities by the Fund.
A Fund may write covered call options as a means of increasing the yield on its
portfolio and as a means of providing limited protection against decreases in
its market value. When a Fund sells an option, if the underlying securities do
not increase or decrease to a price level that would make the exercise of the
option profitable to the holder thereof, the option generally will expire
without being exercised and the Fund will realize as profit the premium received
for such option. When a call option written by a Fund is exercised, the Fund
will be required to sell the underlying securities to the option holder at the
strike price, and will not participate in any increase in the price of such
securities above the strike price. When a put option written by a Fund is
exercised, the Fund will be required to purchase the underlying securities at
the strike price, which may be in excess of the market value of such securities.
A Fund may purchase and write options on an exchange or over-the-counter.
Over-the-counter options ("OTC options") differ from exchange-traded options in
several respects. They are transacted directly with dealers and not with a
clearing corporation, and therefore entail the risk of non-performance by the
dealer. OTC options are available for a greater variety of securities and for a
wider range of expiration dates and exercise prices than are available for
exchange-traded options. Because OTC options are not traded on an exchange,
pricing is done normally by reference to information from a market maker. It is
the position of the SEC that OTC options are generally illiquid.
A Fund may purchase and write put and call options on foreign currencies (traded
on U.S. and foreign exchanges or over-the-counter markets) to manage its
exposure to exchange rates. Call options on foreign currency written by a Fund
will be "covered," which means that the Fund will own an equal amount of the
underlying foreign currency. With respect to put options on foreign currency
written by a Fund, the Fund will establish a segregated account with its
custodian consisting of cash or liquid, high grade debt securities in an amount
equal to the amount the Fund would be required to pay upon exercise of the put
or otherwise earmark assets as cover.
A Fund may purchase and write put and call options on indices and enter into
related closing transactions. Put and call options on indices are similar to
options on securities except that options on an index give the holder the right
to receive, upon exercise of the option, an amount of cash if the closing level
of the underlying index is greater than (or less than, in the case of puts) the
exercise price of the option. This amount of cash is equal to the difference
between the closing price of the index and the exercise price of the option,
expressed in dollars multiplied by a specified number. Thus, unlike options on
individual securities, all settlements are in cash, and gain or loss depends on
price movements in the particular market represented by the index generally,
rather than the price movements in individual securities. A Fund may choose to
terminate an option position by entering into a closing transaction. The ability
of a Fund to enter into closing transactions depends upon the existence of a
liquid secondary market for such transactions.
23
All options written on indices must be covered. When a Fund writes an option on
an index, it will establish a segregated account containing cash or liquid
securities with its custodian in an amount at least equal to the market value of
the option and will maintain the account while the option is open or will
otherwise cover the transaction.
Each Fund will not engage in transactions involving interest rate futures
contracts for speculation but only as a hedge against changes in the market
values of debt securities held or intended to be purchased by the Fund and where
the transactions are appropriate to reduce the Fund's interest rate risks. There
can be no assurance that hedging transactions will be successful. A Fund also
could be exposed to risks if it cannot close out its futures or options
positions because of any illiquid secondary market.
Futures and options have effective durations that, in general, are closely
related to the effective duration of the securities that underlie them. Holding
purchased futures or call option positions (backed by segregated cash or other
liquid securities) will lengthen the duration of a Fund's portfolio.
Risks associated with options transactions include: (1) the success of a hedging
strategy may depend on an ability to predict movements in the prices of
individual securities, fluctuations in markets and movements in interest rates;
(2) there may be an imperfect correlation between the movement in prices of
options and the securities underlying them; (3) there may not be a liquid
secondary market for options; and (4) while a Fund will receive a premium when
it writes covered call options, it may not participate fully in a rise in the
market value of the underlying security.
PAY-IN-KIND BONDS
Pay-in-kind bonds are securities which, at the issuer's option, pay interest in
either cash or additional securities for a specified period. Pay-in-kind bonds,
like zero coupon bonds, are designed to give an issuer flexibility in managing
cash flow. Pay-in-kind bonds are expected to reflect the market value of the
underlying debt plus an amount representing accrued interest since the last
payment. Pay-in-kind bonds are usually less volatile than zero coupon bonds, but
more volatile than cash pay securities.
PRIVATIZATION
24
Privatizations are foreign government programs for selling all or part of the
interests in government owned or controlled enterprises. The ability of a U.S.
entity to participate in privatizations in certain foreign countries may be
limited by local law, or the terms on which a Fund may be permitted to
participate may be less advantageous than those applicable for local investors.
There can be no assurance that foreign governments will continue to sell their
interests in companies currently owned or controlled by them or that
privatization programs will be successful.
RECEIPTS
Receipts are sold as zero coupon securities, which means that they are sold at a
substantial discount and redeemed at face value at their maturity date without
interim cash payments of interest or principal. This discount is accreted over
the life of the security, and such accretion will constitute the income earned
on a security for both accounting and tax purposes. Because of these features,
such securities may be subject to greater interest rate volatility than interest
paying investments.
REITS
The Funds may invest in REITs, which pool investors' money for investment in
income producing commercial real estate or real estate related loans or
interests.
A REIT is not taxed on income distributed to its shareholders or unitholders if
it complies with regulatory requirements relating to its organization,
ownership, assets and income, and with a regulatory requirement that it
distribute to its shareholders or unitholders at least 95% of its taxable income
for each taxable year. Generally, REITs can be classified as Equity REITs,
Mortgage REITs and Hybrid REITs. Equity REITs invest the majority of their
assets directly in real property and derive their income primarily from rents
and capital gains from appreciation realized through property sales. Mortgage
REITs invest the majority of their assets in real estate mortgages and derive
their income primarily from interest payments. Hybrid REITs combine the
characteristics of both Equity and Mortgage REITs. A shareholder in a Fund
should realize that by investing in REITs indirectly through the Fund, he or she
will bear not only his or her proportionate share of the expenses of the Fund,
but also indirectly, similar expenses of underlying REITs.
A Fund may be subject to certain risks associated with the direct investments of
the REITs. REITs may be affected by changes in their underlying properties and
by defaults by borrowers or tenants. Mortgage REITs may be affected by the
quality of the credit extended. Furthermore, REITs are dependent on specialized
management skills. Some REITs may have limited diversification and may be
subject to risks inherent in financing a limited number of properties. REITs
depend generally on their ability to generate cash flow to make distributions to
shareholders or unitholders, and may be subject to defaults by borrowers and to
self-liquidations. In addition, the performance of a REIT may be affected by its
failure to qualify for tax-free pass-through of income under the Internal
Revenue Code or its failure to maintain exemption from registration under the
1940 Act.
25
REPURCHASE AGREEMENTS
Repurchase agreements are agreements by which a Fund obtains a security and
simultaneously commits to return the security to the seller (a member bank of
the Federal Reserve System or primary securities dealer as recognized by the
Federal Reserve Bank) at an agreed upon price (including principal and interest)
on an agreed upon date within a number of days (usually not more than seven)
from the date of purchase. The resale price reflects the purchase price plus an
agreed upon market rate of interest which is unrelated to the coupon rate or
maturity of the underlying security. A repurchase agreement involves the
obligation of the seller to pay the agreed upon price, which obligation is in
effect secured by the value of the underlying security.
Repurchase agreements are considered to be loans by a Fund for purposes of its
investment limitations. The repurchase agreements entered into by a Fund will
provide that the underlying security at all times shall have a value at least
equal to 102% of the resale price stated in the agreement (Touchstone Advisors
monitors compliance with this requirement).
REVERSE REPURCHASE AGREEMENT, DOLLAR ROLL AND REVERSE DOLLAR ROLL TRANSACTIONS
A reverse repurchase agreement involves a sale by a Fund of securities that it
holds to a bank, broker-dealer or other financial institution concurrently with
an agreement by the Fund to repurchase the same securities at an agreed-upon
price and date. Reverse repurchase agreements are considered borrowing by the
Fund. A dollar roll transaction involves a sale by a Fund of an eligible
security to a financial institution concurrently with an agreement by the Fund
to repurchase a similar eligible security from the institution at a later date
at an agreed-upon price. A reverse dollar roll transaction involves a purchase
by a Fund of an eligible security from a financial institution concurrently with
an agreement by the Fund to resell a similar security to the institution at a
later date at an agreed-upon price. Each Fund will fully collateralize its
reverse repurchase agreements, dollar roll and reverse dollar roll transactions
in an amount at least equal to the Fund's obligations under the reverse
repurchase agreement, dollar roll or reverse dollar roll transaction by
segregating or otherwise earmarking cash or other liquid securities.
RIGHTS
Rights give existing shareholders of a corporation the right, but not the
obligation, to buy shares of the corporation at a given price, usually below the
offering price, during a specified period.
ROYALTY TRUSTS
Royalty trusts are structured similarly to REITs. A royalty trust generally
acquires an interest in natural resource companies or chemical companies and
distributes the income it receives to the investors of the royalty trust. A
sustained decline in demand for crude oil, natural gas and refined petroleum
products could adversely affect income and royalty trust revenues and cash
flows. Factors that could lead to a decrease in market demand include a
recession or other adverse economic conditions, an increase in the market price
of the underlying commodity, higher taxes or other regulatory actions that
increase costs, or a shift in consumer demand for such products. A rising
interest rate environment could adversely impact the performance of royalty
trusts. Rising interest rates could limit the capital appreciation of royalty
trusts because of the increased availability of alternative investments at more
competitive yields. The Premium Yield Equity Fund may invest up to 10% of its
net assets in royalty trusts.
26
RULE 144A SECURITIES
Rule 144A securities are securities exempt from registration on resale pursuant
to Rule 144A under the Securities Act of 1933, as amended ("1933 Act"). Rule
144A securities are traded in the institutional market pursuant to this
registration exemption, and, as a result, may not be as liquid as
exchange-traded securities since they may only be resold to certain qualified
institutional investors. Due to the relatively limited size of this
institutional market, these securities may affect the Fund's liquidity to the
extent that qualified institutional buyers become, for a time, uninterested in
purchasing such securities. Nevertheless, Rule 144A securities may be treated as
liquid securities pursuant to guidelines adopted by the Trust's Board of
Trustees.
SECURITIES LENDING
In order to generate additional income, a Fund may lend its securities pursuant
to agreements requiring that the loan be continuously secured by collateral
consisting of cash or securities of the U.S. government or its agencies equal to
at least 100% of the market value of the loaned securities. A Fund continues to
receive interest on the loaned securities while simultaneously earning interest
on the investment of cash collateral. Collateral is marked to market daily.
There may be risks of delay in recovery of the securities or even loss of rights
in the collateral should the borrower of the securities fail financially or
become insolvent. The SEC currently requires that the following conditions must
be met whenever the Fund's portfolio securities are loaned: (1) the Fund must
receive at least 100% cash collateral from the borrower; (2) the borrower must
increase such collateral whenever the market value of the securities rises above
the level of such collateral; (3) the Fund must be able to terminate the loan at
any time; (4) the Fund must receive reasonable interest on the loan, as well as
any dividends, interest or other distributions on the loaned securities, and any
increase in market value; (5) the Fund may pay only reasonable custodian fees
approved by the Board in connection with the loan; (6) while voting rights on
the loaned securities may pass to the borrower, the Board must terminate the
loan and regain the right to vote the securities if a material event adversely
affecting the investment occurs, and (7) the Fund may not loan its portfolio
securities so that the value of the loaned securities is more than one-third of
its total asset value, including collateral received from such loans.
SECURITIES OF FOREIGN ISSUERS
The Funds may invest in securities of foreign issuers and in sponsored and
unsponsored ADRs. Investments in the securities of foreign issuers may subject
the Funds to investment risks that differ in some respects from those related to
investments in securities of U.S. issuers. Such risks include future adverse
political and economic developments, possible imposition of withholding taxes on
income, possible seizure, nationalization or expropriation of foreign deposits,
possible establishment of exchange controls or taxation at the source or greater
fluctuation in value due to changes in exchange rates. Foreign issuers of
securities often engage in business practices different from those of domestic
issuers of similar securities, and there may be less information publicly
available about foreign issuers. In addition, foreign issuers are, generally
speaking, subject to less government supervision and regulation than are those
in the United States. Investments in securities of foreign issuers are
frequently denominated in foreign currencies and the value of a Fund's assets
measured in U.S. dollars may be affected favorably or unfavorably by changes in
currency rates and in exchange control regulations, and the Funds may incur
costs in connection with conversions between various currencies. Moreover,
investments in emerging market nations may be considered speculative, and there
may be a greater potential for nationalization, expropriation or adverse
diplomatic developments (including war) or other events that could adversely
affect the economies of such countries or investments in such countries.
27
The International Growth Fund invests in securities of foreign issuers as part
of its principal investment strategy as more fully described in the
Prospectus/Proxy Statement. The International Growth Fund may invest up to 20%
of its total assets in emerging market securities.
SHORT SALES
In a short sale, a Fund sells a security, which it does not own, in anticipation
of a decline in the market value of the security. To complete the sale, the Fund
must borrow the security (generally from the broker through which the short sale
is made) in order to make delivery to the buyer. The Fund must replace the
security borrowed by purchasing it at the market price at the time of
replacement. The Fund is said to have a "short position" in the securities sold
until it delivers them to the broker. The period during which the Fund has a
short position can range from one day to more than a year. Until the Fund
replaces the security, the proceeds of the short sale are retained by the
broker, and the Fund must pay to the broker a negotiated portion of any
dividends or interest, which accrue during the period of the loan.
A short sale is "against the box" if at all times during which the short
position is open, a Fund owns at least an equal amount of the securities or
securities convertible into, or exchangeable without further consideration for,
securities of the same issue as the securities that are sold short. A short sale
against the box is a taxable transaction to the Fund with respect to the
securities that are sold short.
In the view of the SEC, a short sale involves the creation of a "senior
security" as such term is defined in the 1940 Act, unless the sale is "against
the box" and the securities sold short are placed in a segregated account (not
with the broker), or unless the Fund's obligation to deliver the securities sold
short is "covered," whether by placing assets in a segregated account or
otherwise earmarking assets as cover in an amount equal to the difference
between the market value of the securities sold short at the time of the short
sale and any such collateral required to be deposited with a broker in
connection with the sale (not including the proceeds from the short sale), which
difference is adjusted daily for changes in the value of the securities sold
short, or otherwise. Any Fund that engages in short sales will comply with these
requirements.
SOVEREIGN DEBT
28
The cost of servicing sovereign debt will also generally be adversely affected
by rising international interest rates, because many external debt obligations
bear interest at rates that are adjusted based upon international interest
rates. The ability to service external debt will also depend on the level of the
relevant government's international currency reserves and its access to foreign
exchange. Currency devaluations may affect the ability of a sovereign obligor to
obtain sufficient foreign exchange to service its external debt.
As a result of the foregoing or other factors, a governmental obligor may
default on its obligations. If such an event occurs, a Fund may have limited
legal recourse against the issuer and/or guarantor. Remedies must, in some
cases, be pursued in the courts of the defaulting party itself, and the ability
of the holder of foreign sovereign debt securities to obtain recourse may be
subject to the political climate in the relevant country. In addition, no
assurance can be given that the holders of commercial bank debt will not contest
payments to the holders of other foreign sovereign debt obligations in the event
of default under their commercial bank loan agreements.
TIME DEPOSITS
Time deposits are non-negotiable receipts issued by a bank in exchange for the
deposit of funds. Like a certificate of deposit, it earns a specified rate of
interest over a definite period of time; however, it cannot be traded in the
secondary market. Time deposits with a withdrawal penalty are considered to be
illiquid securities.
U.S. GOVERNMENT SECURITIES
U.S. government securities are bills, notes and bonds issued by the U.S.
government and backed by the full faith and credit of the United States.
U.S. TREASURY OBLIGATIONS
U.S. Treasury Obligations are bills, notes and bonds issued by the U.S.
Treasury, and separately traded interest and principal component parts of such
obligations that are transferable through the federal book-entry system known as
separately traded registered interest and principal securities ("STRIPS") and
coupons under book entry safekeeping ("CUBES"). They also include Treasury
inflation-protection securities ("TIPS").
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain obligations may carry variable or floating rates of interest, and may
involve a conditional or unconditional demand feature. Such instruments bear
interest at rates which are not fixed, but which vary with changes in specified
market rates or indices. The interest rates on these securities may be reset
daily, weekly, quarterly or some other reset period, and may have a floor or
ceiling on interest rate changes. There is a risk that the current interest rate
on such obligations may not accurately reflect existing market interest rates. A
demand instrument with a demand notice exceeding seven days may be considered
illiquid if there is no secondary market for such security.
29
WARRANTS
Warrants are instruments giving holders the right, but not the obligation, to
buy equity or fixed income securities of a company at a given price during a
specified period.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
When-issued or delayed delivery securities are subject to market fluctuations
due to changes in market interest rates and it is possible that the market value
at the time of settlement could be higher or lower than the purchase price if
the general level of interest rates has changed. Although a Fund generally
purchases securities on a when-issued or forward commitment basis with the
intention of actually acquiring the securities for its investment portfolio, a
Fund may dispose of a when-issued security or forward commitment prior to
settlement if it deems appropriate.
YANKEE OBLIGATIONS
Yankee obligations ("Yankees") are U.S. dollar-denominated instruments of
foreign issuers who either register with the SEC or issue securities under Rule
144A of the 1933 Act. These consist of debt securities (including preferred or
preference stock of non-governmental issuers), certificates of deposit, fixed
time deposits and bankers' acceptances issued by foreign banks, and debt
obligations of foreign governments or their subdivisions, agencies and
instrumentalities, international agencies and supranational entities. Some
securities issued by foreign governments or their subdivisions, agencies and
instrumentalities may not be backed by the full faith and credit of the foreign
government. Yankee obligations, as obligations of foreign issuers, are subject
to the same types of risks discussed above in "Foreign Securities".
The Yankee obligations selected for the Funds will adhere to the same quality
standards as those utilized for the selection of domestic debt obligations.
ZERO COUPON SECURITIES
Zero coupon securities are securities that are sold at a discount to par value
and securities on which interest payments are not made during the life of the
security. Upon maturity, the holder is entitled to receive the par value of the
security. While interest payments are not made on such securities, holders of
such securities are deemed to have received "income" annually. Because a Fund
will distribute its "income" to shareholders, to the extent that shareholders
elect to receive dividends in cash rather than reinvesting such dividends in
additional shares, a Fund will have fewer assets with which to purchase income
producing securities. In the event of adverse market conditions, zero coupon
securities may be subject to greater fluctuations in value and may be less
liquid than comparably rated securities paying cash interest at regular interest
payment periods.
Corporate and Municipal Zero Coupon Securities: Corporate or Municipal zero
coupon securities are: (i) notes or debentures which do not pay current interest
and are issued at substantial discounts from par value, or (ii) notes or
debentures that pay no current interest until a stated date one or more years
into the future, after which date the issuer is obligated to pay interest until
maturity, usually at a higher rate than if interest were payable from the date
of issuance, and may also make interest payments in kind (e.g., with identical
zero coupon securities). Such corporate zero coupon securities, in addition to
the risks identified above, are subject to the risk of the issuer's failure to
pay interest and repay principal in accordance with the terms of the obligation.
30
INVESTMENT LIMITATIONS
FUNDAMENTAL POLICIES
The following investment limitations are fundamental policies of each Fund which
cannot be changed with respect to a Fund without the consent of the holders of a
majority of that Fund's outstanding shares. The term "majority of the
outstanding shares" means the vote of (i) 67% or more of a Fund's shares present
at a meeting, if more than 50% of the outstanding shares of a Fund are present
or represented by proxy, or (ii) more than 50% of a Fund's outstanding shares,
whichever is less. Except for the limitations on illiquid securities and bank
borrowings, if a percentage restriction on investment or use of assets set forth
below is adhered to at the time a transaction is effected, later changes in
percentage resulting from changing market values or other circumstances will not
be considered a deviation from this policy.
The Value Opportunities Fund, Diversified Small Cap Value Fund, Clover Core
Fixed Income Fund, Ultra Short Duration Fund, Short Duration Fund, Small Cap
Value Opportunities Fund, and Healthcare and Biotechnology Fund may not, except
as otherwise provided below:
1. With respect to 75% of the Fund's assets: (i) purchase securities of any
issuer (except securities issued or guaranteed by the United States
government, its agencies or instrumentalities and repurchase agreements
involving such securities) if, as a result, more than 5% of the total
assets of the Fund would be invested in the securities of such issuer; or
(ii) acquire more than 10% of the outstanding voting securities of any one
issuer. This does not apply to the Healthcare and Biotechnology Fund.
2. Invest more than 25% of the Fund's assets in securities issued by
companies in a single industry or related group of industries. This
limitation does not apply to the Healthcare and Biotechnology Fund (which
invests 25% or more of its assets in securities of issuers conducting
their principal business activities in the healthcare and/or biotechnology
industries). To that extent, the Fund is subject to legislative or
regulatory changes, adverse market conditions and/or increased competition
affecting that industry in greater proportion than funds that are more
diversified by industry.
3. Borrow money in an amount exceeding 33 1/3% of the value of its total
assets, provided that, for purposes of this limitation, investment
strategies which either obligate the Fund to purchase securities or
require the fund to segregate assets are not considered to be borrowings.
Asset coverage of at least 300% is required for all borrowings, except
where the Fund has borrowed money for temporary purposes in amounts not
exceeding 5% of its total assets. Each Fund will not purchase securities
while its borrowings exceed 5% of its total assets.
31
4. Make loans to other persons except through the lending of its portfolio
securities, provided that this limitation does not apply to the purchase
of debt securities and loan participations and/or engaging in direct
corporate loans or repurchase agreements in accordance with its investment
objectives and policies. The loans cannot exceed 33 1/3% of a Fund's
assets. A Fund may also make loans to other investment companies to the
extent permitted by the 1940 Act or any exemptions therefrom which may be
granted to the Fund by the SEC.
For example, at a minimum, the Fund will not make any such loans unless
all requirements regarding common control and ownership of Fund shares are
met.
5. Purchase or sell real estate, physical commodities, or commodities
contracts, except that each Fund may purchase (i) marketable securities
issued by companies which own or invest in real estate (including REITs),
commodities, or commodities contracts; and (ii) commodities contracts
relating to financial instruments, such as financial futures contracts and
options on such contracts.
6. Issue senior securities as defined in the 1940 Act except as permitted by
rule, regulation or order of the SEC.
For example, at a minimum, the Fund will not issue any senior security,
whether representing an indebtedness or a stock, unless the requirements
for asset coverage and declaration of any dividend or any other
distribution are met, and if a stock, unless the requirements for voting
the class of senior security are met.
7. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security.
8. Invest in interests in oil, gas, or other mineral exploration or
development programs and oil, gas or mineral leases.
The Sands Capital Select Growth Fund, Premium Yield Equity Fund and
International Growth Fund may not:
1. Purchase any securities which would cause 25% or more of the net assets of
the Fund to be invested in the securities of one or more issuers
conducting their principal business activities in the same industry,
provided that this limitation does not apply to investments in obligations
issued or guaranteed by the United States government, its agencies or
instrumentalities.
2. Borrow money from banks in an amount which exceeds 33 1/3% of the value of
its total assets (including the amount borrowed) less the Fund's
liabilities (other than borrowings), except that the Fund may borrow up to
an additional 5% of its total assets (not including the amount borrowed)
from a bank for temporary or emergency purposes.
32
3. Purchase or sell real estate, although it may purchase or sell securities
secured by real estate or interests therein, or securities issued by
companies which invest in real estate, or interests therein (including
REITs).
4. Purchase or sell physical commodities (which shall not, for purposes of
this restriction, include currencies), or commodities contracts, except
that each Fund may (i) purchase or sell marketable securities issued by
companies which own or invest in commodities (including currencies), or
commodities contracts; and (ii) enter into commodities and futures
contracts relating to securities, currencies, indexes or any other
financial instruments, such as financial futures contracts and options on
such contracts.
5. Make loans to other persons except through the lending of its portfolio
securities, provided that this limitation does not apply to the purchase
of debt securities and loan participations and/or engaging in direct
corporate loans or repurchase agreements in accordance with its investment
objectives and policies. The loans cannot exceed 33 1/3% of a Fund's
assets. A Fund may also make loans to other investment companies to the
extent permitted by the 1940 Act or any exemptions therefrom which may be
granted to the Fund by the SEC.
For example, at a minimum, the Fund will not make any such loans unless
all requirements regarding common control and ownership of Fund shares are
met.
6. Issue senior securities (as defined in the 1940 Act) except as permitted
by rule, regulation or order of the SEC, or SEC staff interpretation.
For example, at a minimum, the Fund will not issue any senior security,
whether representing an indebtedness or a stock, unless the requirements
for asset coverage and declaration of any dividend or any other
distribution are met, and if a stock, unless the requirements for voting
the class of senior security are met.
7. Act as an underwriter of securities of other issuers except as it may be
deemed an underwriter in selling a portfolio security or when selling its
own shares.
8. The Premium Yield Equity Fund may not, with respect to 75% of its total
assets, (i) purchase the securities of any issuer (except securities
issued or guaranteed by the United States government, its agencies or
instrumentalities or cash items) if, as a result, more than 5% of its
total assets would be invested in the securities of such issuer; or (ii)
acquire more than 10% of the outstanding voting securities of any one
issuer.
The Mid Cap Fund may not:
1. Invest 25% or more of the value of its total assets in the securities
(other than U.S. government securities) of issuers engaged in any single
industry.
33
2. Issue senior securities representing stock, except to the extent permitted
by the 1940 Act. In addition, the Fund will not issue senior securities
representing indebtedness, except as otherwise permitted under the 1940
Act.
For example, at a minimum, the Fund will not issue any senior security,
whether representing an indebtedness or a stock, unless the requirements
for asset coverage and declaration of any dividend or any other
distribution are met, and if a stock, unless the requirements for voting
the class of senior security are met.
3. Underwrite securities of other issuers, except insofar as the Fund may be
deemed an underwriter under the Securities Act in connection with the
disposition of its portfolio securities.
4. The Funds may not make loans to other persons except that a Fund may (1)
engage in repurchase agreements, (2) lend portfolio securities, (3)
purchase debt securities, (4) purchase commercial paper, and (5) enter
into any other lending arrangement permitted by the Investment Company Act
of 1940, any rule, regulation or order under the Act or any SEC staff
interpretation of the Act.
For example, at a minimum, the Fund will not make any such loans unless
all requirements regarding common control and ownership of Fund shares are
met.
5. Purchase or sell physical commodities or commodity contracts, except that
the Fund may (1) hold and sell physical commodities acquired as a result
of the Fund's ownership of securities or other instruments, (2) purchase
or sell securities or other instruments backed by physical commodities,
(3) purchase or sell options, and (4) purchase or sell futures contracts.
6. Purchase or sell real estate or interests therein, except that it may
invest in securities of issuers engaged in the real estate industry and
may invest in securities secured by real estate or interests therein.
7. The Funds may not purchase the securities of an issuer (other than
securities issued or guaranteed by the United States Government, its
agencies or its instrumentalities) if, as a result, more than 25% of the
Fund's total assets would be invested in the securities of companies whose
principal business activities are in the same industry.
8. Borrow money except from banks and then in an amount which does not exceed
33 1/3% of the value of its total assets (including the amount borrowed)
less the Fund's liabilities (other than borrowings), except that the Fund
may borrow up to an additional 5% of its total assets (not including the
amount borrowed) from a bank for temporary or emergency purposes.
NON-FUNDAMENTAL POLICIES
34
The following investment limitations are non-fundamental policies of each Fund
and may be changed with respect to a Fund by the Board of Trustees.
No Fund may:
1. Pledge, mortgage or hypothecate assets except to secure borrowings (not to
exceed 33 1/3% of a Fund's assets) permitted by the fund's fundamental
limitation on borrowing.
2. Purchase securities on margin or effect short sales, except that each Fund
may (i) obtain short-term credits as necessary for the clearance of
security transactions; (ii) provide initial and variation margin payments
in connection with transactions involving futures contracts and options on
such contracts; and (iii) make short sales "against the box" or in
compliance with the SEC's position regarding the asset segregation
requirements imposed by Section 18 of the 1940 Act.
3. Purchase or hold illiquid securities, i.e., securities that cannot be
disposed of for their approximate carrying value in seven days or less
(which term includes repurchase agreements and time deposits maturing in
more than seven days) if, in the aggregate, more than 15% (or 10%, with
respect to the Short Duration Funds) of its net assets would be invested
in illiquid securities. Unregistered securities sold in reliance on the
exemption from registration in Section 4(2) of the Securities Act of 1933
("the 1933 Act") and securities exempt from registration on re-sale
pursuant to Rule 144A of the 1933 Act may be treated as liquid securities
under procedures adopted by the Board of Trustees.
4. The predecessor Constellation Turner Funds and Mid Cap Fund may not invest
in companies for the purpose of exercising control.
5. The predecessor Constellation Turner Funds and Mid Cap Fund may not invest
its assets in securities of any investment company, except as permitted by
the 1940 Act.
6. The predecessor Constellation Turner Funds may not enter into futures
contracts and options on futures contracts except as permitted by
guidelines in the Funds' statement of additional information.
7. Make investments in securities when outstanding borrowings exceed 5% of
the Fund's total assets.
The following investment policies are non-fundamental policies of each Fund and
may be changed with respect to a Fund by the Board of Trustees without
shareholder approval.
1. Each Fund may purchase securities on a when-issued basis and borrow money.
2. Each Fund may enter into futures and options transactions.
3. Each Fund may hold up to 15% (10% for the Short Duration Funds) of its net
assets in illiquid securities.
35
4. Each Fund, except the Short Duration Funds, may purchase convertible
securities.
5. Each Fund may enter into repurchase agreements not to exceed 33 1/3% of a
Fund's assets.
6. Each Fund may purchase fixed income securities, including variable and
floating rate instruments and zero coupon securities.
7. Each Fund, except for the Mid Cap Fund, may purchase Rule 144A securities
and other restricted securities.
8. Each Fund may purchase obligations of supranational entities in an amount
totaling less than 25% of the Fund's total assets.
9. Each Fund may, for temporary defensive purposes, invest up to 100% of its
total assets in money market instruments (including U.S. government
securities, bank obligations, commercial paper rated in the highest rating
category by an NRSRO and repurchase agreements involving the foregoing
securities), shares of money market investment companies (to the extent
permitted by applicable law and subject to certain restrictions) and cash.
THE ADVISOR
Touchstone Advisors, Inc. (the "Advisor"), is the Funds' investment advisor
under the terms of an advisory agreement (the "Advisory Agreement") dated March
1, 2006. Under the Advisory Agreement, the Advisor continuously reviews,
supervises and administers the Funds' investment program, subject to the
supervision of, and policies established by, the Board of Trustees of the Trust
(the "Trustees"). The Advisor determines the appropriate allocation of assets to
each Fund's sub-advisor(s) (the "Sub-Advisors").
The Advisory Agreement provides that the Advisor shall not be liable for any
error of judgment or mistake of law or for any loss arising out of any
investment or for any act or omission in carrying out its duties, but shall not
be protected against any liability to the Trust or its shareholders by reason of
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard of its obligations or
duties thereunder. Prior to March 1, 2006, the Trust's advisor was Constellation
Investment Management Company, LP ("CIMCO").
The continuance of the Advisory Agreement as to the Funds after the first two
years must be specifically approved at least annually (i) by the vote of the
Trustees or by a vote of the shareholders of the Fund, and (ii) by the vote of a
majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" (as defined in the 1940 Act) of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval. The
Advisory Agreement will terminate automatically in the event of its assignment,
and is terminable at any time without penalty by the Trustees or, with respect
to a Fund, by a majority of the outstanding shares of the Fund, on not less than
30 days' nor more than 60 days' written notice to the Advisor, or by the Advisor
on 90 days' written notice to the Trust.
36
The Advisor is a wholly owned subsidiary of IFS Financial Services, Inc., which
is a wholly owned subsidiary of The Western and Southern Life Insurance Company.
The Western and Southern Life Insurance Company is a wholly owned subsidiary of
Western & Southern Financial Group, Inc., which is a wholly owned subsidiary of
Western-Southern Mutual Holding Company. Ms. Jill T. McGruder may be deemed to
be an affiliate of the Advisor because she is a Director of the Advisor and an
officer of affiliates of the Advisor. Ms. McGruder, by reason of these
affiliations, may directly or indirectly receive benefits from the advisory fees
paid to the Advisor.
MANAGER OF MANAGER'S STRUCTURE
The Trust, on behalf of each Fund, seeks to achieve its investment goal by using
a "manager of managers" structure. Under a manager of managers structure, the
Advisor acts as investment adviser, subject to direction from and oversight by
the Trustees, to allocate and reallocate the Fund's assets among Sub-Advisors,
and to recommend that the Trustees hire, terminate or replace unaffiliated
Sub-Advisors without shareholder approval. By reducing the number of shareholder
meetings that may have to be held to approve new or additional sub-advisors for
the Fund, the Trust anticipates that there will be substantial potential cost
savings, as well as the opportunity to achieve certain management efficiencies,
with respect to any fund in which the manager of managers approach is chosen.
For the fiscal years ended September 30, 2005, 2006 and 2007, the Trust paid
advisory fees and received waivers and reimbursements as shown in the following
table:
- ---------------------------------------------------------------------------------------------------------------------
ADVISORY FEES PAID
(EXPENSES REIMBURSED) ADVISORY FEES WAIVED
------------------------------------------------ -----------------------------------------
FUND 2005 2006 2007 2005 2006 2007
- ---------------------------------------------------------------------------------------------------------------------
Value Opportunities Fund $753,745 $894,368 $755,058 $0 $0 $52,231
- ---------------------------------------------------------------------------------------------------------------------
Diversified Small Cap
Value Fund $4,175,677 2,800,960 $1,927,264 $0 $0 $12,845
- ---------------------------------------------------------------------------------------------------------------------
Clover Core Fixed Income
Fund $115,666 $112,640 $91,543 $16,812 $10,218 $24,697
- ---------------------------------------------------------------------------------------------------------------------
Ultra Short Duration
Fixed Income Fund $753,422 $563,868 $390,257 $127,162 $4,326 $98,807
- ---------------------------------------------------------------------------------------------------------------------
Short Duration Fixed
Income Fund $274,892 $230,918 $165,561 $74,818 $14,882 $56,515
- ---------------------------------------------------------------------------------------------------------------------
Healthcare and
Biotechnology Fund $490,316 $693,675 $500,196 $0 $0 $66,492
- ---------------------------------------------------------------------------------------------------------------------
Small Cap Value
Opportunities Fund $111,849 $1,774,629 $2,175,657 $172,166 $40,282 $286,251
- ---------------------------------------------------------------------------------------------------------------------
Sands Capital Select
Growth Fund $1,234,930 $3,829,296 $4,376,477 $120,454 $551,403 $246,159
- ---------------------------------------------------------------------------------------------------------------------
37
Fees paid prior to March 1, 2006 represent fees paid to CIMCO.
The advisory fees for the Premium Yield Equity Fund are not included because the
Fund had not commenced operations prior to September 30, 2007.
For the fiscal year ended December 31, 2004, and the fiscal periods ended
September 30, 2005, 2006 and 2007, the Mid Cap Fund paid advisory fees and
received waivers and reimbursements as shown in the following table:
- ---------------------------------------------------------------------------------------------------------------------
ADVISORY FEES PAID
(EXPENSES REIMBURSED) ADVISORY FEES WAIVED
------------------------------------------------ -----------------------------------------
FUND 2004 2005 2006 2004 2005 2006
- ---------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $3,200* ($32,205) $70,372 $0 $4,160 $79,336
- ---------------------------------------------------------------------------------------------------------------------
2007 2007
- ---------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $2,470,376 $485,026
- ---------------------------------------------------------------------------------------------------------------------
* Reflects amount paid to CIMCO by the predecessor CIP Midcap Core Portfolio
pursuant to a unified fee structure for advisory and administrative services.
The unified management fee did not include the cost of any interest, taxes,
fees, or similar costs, brokerage or other transaction costs, or certain
extraordinary expenses.
For the fiscal years ended December 31, 2007, 2006 and 2005, the International
Growth Fund paid advisory fees and received waivers and reimbursements as shown
in the following table:
- ---------------------------------------------------------------------------------------------------------------------
ADVISORY FEES PAID
(EXPENSES REIMBURSED) ADVISORY FEES WAIVED
------------------------------------------------ -----------------------------------------
FUND 2005 2006 2007 2005 2006 2007
- ---------------------------------------------------------------------------------------------------------------------
International Growth Fund ($188,633)* ($171,704)* ($147,383)* $0 $0 $0
- ---------------------------------------------------------------------------------------------------------------------
* Reflects amount paid to Navellier & Associates, Inc. and Navellier Management,
Inc. by the predecessor Navellier International Portfolio pursuant to an
investment advisory agreement.
For its services, the Advisor is entitled to receive an investment advisory fee
from each Fund at an annualized rate, based on the average daily net assets of
the Fund, as set forth below. The Advisor pays sub-advisory fees to each
Sub-Advisor from its advisory fee.
- --------------------------------------------------------------------------------------------------------------------
NAME OF FUND ANNUAL FEE RATE
- --------------------------------------------------------------------------------------------------------------------
Touchstone Mid Cap Fund 0.80%
- --------------------------------------------------------------------------------------------------------------------
Touchstone Healthcare and Biotechnology Fund 1.00%
- --------------------------------------------------------------------------------------------------------------------
Touchstone Value Opportunities Fund 0.74%
- --------------------------------------------------------------------------------------------------------------------
Touchstone Small Cap Value Fund 0.85%
- --------------------------------------------------------------------------------------------------------------------
Touchstone Clover Core Fixed Income Fund 0.45%
- --------------------------------------------------------------------------------------------------------------------
Touchstone Ultra Short Duration Fixed Income Fund 0.25%
- --------------------------------------------------------------------------------------------------------------------
Touchstone Short Duration Fixed Income Fund 0.25%
- --------------------------------------------------------------------------------------------------------------------
Touchstone Small Cap Value Opportunities Fund 0.95%
- --------------------------------------------------------------------------------------------------------------------
Touchstone Premium Yield Equity Fund 0.70% on the first $100 million of assets; 0.65% on the
value of assets above that amount
- --------------------------------------------------------------------------------------------------------------------
Touchstone International Growth Fund 0.90%
- --------------------------------------------------------------------------------------------------------------------
The Sands Capital Select Growth Fund is subject to base investment advisory fees
that may be adjusted if the Fund outperforms or under-performs a stated
benchmark. The "Highest/Lowest Possible Advisory Fee" column represents the
maximum and minimum amount that the Advisor may receive pursuant to the
performance fee under the Advisory Agreement. Set forth below is information
about the advisory fee arrangements of the Sands Capital Select Growth Fund:
38
- ---------------------------------------------------------------------------------------------------------------------
HIGHEST /
LOWEST
ANNUAL POSSIBLE
BASE ADVISORY ADJUSTMENT ADVISORY
FUND BENCHMARK REQUIRED EXCESS PERFORMANCE FEE RATE FEE
- ---------------------------------------------------------------------------------------------------------------------
Sands Capital Select Russell 1000 1.00% /
Growth Fund Growth Index +/- 2.50% 0.85% +/- 0.15% 0.70%
- ---------------------------------------------------------------------------------------------------------------------
Each Fund's advisory fee is accrued daily and paid monthly, based on the Fund's
average net assets during the current month. The Sands Capital Select Growth
Fund's performance adjustment is calculated and paid monthly by comparing the
Fund's performance to the performance of the Fund's benchmark over a
"performance period." The performance period consists of a rolling 12-month
period that includes the most current month for which performance is available
plus the previous 11 months. The Fund's annual performance adjustment rate is
multiplied by the average net assets of the Fund over the performance period,
which is then multiplied by a fraction, the numerator of which is the number of
days in the current month and the denominator of which is 365 (366 in leap
years). The resulting amount is then added (in the case of overperformance) or
subtracted from (in the case of underperformance) to the Fund's base fee.
For example, assume that the Sands Capital Select Growth Fund's average net
assets as of March 31 were $55,000,000, the average net assets of the Fund over
the 12-month period ending March 31 was $50,000,000, and that it is not a leap
year. The Fund's base fee for March is $39,705 ($55,000,000 x 0.85%, x 31/365).
If the Fund outperformed (or underperformed) the Russell 1000 Growth Index by
less than 2.50% over this performance period, then there is no adjustment to the
Fund's base fee. If the Fund outperformed (or underperformed) the Russell 1000
Growth Index by 2.50% or more over this performance period, then the Advisor's
advisory fee would increase (or decrease) by $6,370 ($50,000,000 x 0.15%, x
31/365).
Because the adjustment to the Sands Capital Select Growth Fund's base advisory
fee is based upon the Fund's performance compared to the investment record of
its respective benchmark, the controlling factor as to whether a performance
adjustment will be made is not whether the Fund's performance is up or down per
se, but whether it is up or down more or less than the record of its respective
benchmark. Moreover, the comparative investment performance of the Fund is based
solely on the relevant performance period without regard to relative performance
over a longer or shorter period of time.
Pursuant to a Fee Waiver Agreement between the Advisor and the Trust, the
Advisor has agreed to limit certain Funds net operating expenses ("Net
Expenses") to the following levels. These expense limitations will remain in
effect until at least January 31, 2009, except the Premium Yield Equity Fund
Class Y which will remain in effect until at least August 12, 2009 and the three
classes of the International Growth Fund which will remain in effect until at
least September 30, 2009.
39
CONTRACTUAL LIMIT
FUND ON "NET EXPENSES"
- --------------------------------------------------------------------------------
Touchstone Mid Cap Fund Class A 1.15%
- --------------------------------------------------------------------------------
Touchstone Mid Cap Fund Class C 1.90%
- --------------------------------------------------------------------------------
Touchstone Mid Cap Fund Class Y 0.90%
- --------------------------------------------------------------------------------
Touchstone Mid Cap Fund Class Z 1.15%
- --------------------------------------------------------------------------------
Touchstone Small Cap Value Opportunities Fund Class Z 1.50%
- --------------------------------------------------------------------------------
Touchstone Value Opportunities Fund Class A 1.19%
- --------------------------------------------------------------------------------
Touchstone Value Opportunities Fund Class C 1.94%
- --------------------------------------------------------------------------------
Touchstone Value Opportunities Fund Class Z 1.19%
- --------------------------------------------------------------------------------
Touchstone Diversified Small Cap Value Fund Class A 1.45%
- --------------------------------------------------------------------------------
Touchstone Diversified Small Cap Value Fund Class C 2.20%
- --------------------------------------------------------------------------------
Touchstone Diversified Small Cap Value Fund Class Z 1.45%
- --------------------------------------------------------------------------------
Touchstone Healthcare and Biotechnology Fund Class A 1.55%
- --------------------------------------------------------------------------------
Touchstone Healthcare and Biotechnology Fund Class C 2.30%
- --------------------------------------------------------------------------------
Touchstone Short Duration Fixed Income Fund Class Z 0.74%
- --------------------------------------------------------------------------------
Touchstone Ultra Short Duration Fixed Income Fund Class Z 0.69%
- --------------------------------------------------------------------------------
Touchstone Clover Core Fixed Income Fund Class I 0.85%
- --------------------------------------------------------------------------------
Touchstone Premium Yield Equity Fund Class A 1.20%
- --------------------------------------------------------------------------------
Touchstone Premium Yield Equity Fund Class C 1.95%
- --------------------------------------------------------------------------------
Touchstone Premium Yield Equity Fund Class Y 0.95%
- --------------------------------------------------------------------------------
Touchstone International Growth Fund Class A 1.35%
- --------------------------------------------------------------------------------
Touchstone International Growth Fund Class C 2.10%
- --------------------------------------------------------------------------------
Touchstone International Growth Fund Class Y 1.10%
- --------------------------------------------------------------------------------
Pursuant to a Fee Waiver Agreement between the Advisor and the Trust, the
Advisor has agreed to limit certain Funds other operating expenses ("Other
Expenses") to the following levels. These expense limitations will remain in
effect until at least January 31, 2009.
CONTRACTUAL LIMIT
FUND ON "OTHER EXPENSES"
- --------------------------------------------------------------------------------
Touchstone Sands Capital Select Growth Fund Class Y 0.25%
- --------------------------------------------------------------------------------
Touchstone Sands Capital Select Growth Fund Class Z 0.25%
- --------------------------------------------------------------------------------
THE SUB-ADVISORS
The Advisor has selected Sub-Advisors to manage all or a portion of a Fund's
assets, which allocation is determined by the Advisor. The Sub-Advisors make the
investment decisions for the Fund assets allocated to them, and continuously
review, supervise and administer a separate investment program, subject to the
supervision of, and policies established by, the Trustees of the Trust.
Each Sub-Advisory Agreement provides that a Sub-Advisor shall not be protected
against any liability to the Trust or its shareholders by reason of willful
misfeasance, bad faith or gross negligence on its part in the performance of its
duties, or from reckless disregard of its obligations or duties thereunder.
40
For their respective services, the Sub-Advisors receive a fee from the Advisor.
Each Sub-Advisor receives base investment sub-advisory fees with respect to each
Fund that it sub-advises, except the Sands Capital Select Growth Fund receives a
base investment sub-advisory fee that may be adjusted if the Fund outperforms or
under-performs its stated benchmark. Each Sub-Advisor's base fee with respect to
each sub-advised Fund is accrued daily and paid monthly, based on the Fund's
average net assets allocated to the Sub-Advisor during the current month.
CLOVER CAPITAL MANAGEMENT, INC.
Clover Capital Management, Inc. ("Clover Capital"), 400 Meridian Centre, Ste
200, Rochester, New York 14618, serves as investment sub-advisor to the
Touchstone Value Opportunities, Touchstone Diversified Small Cap Value and
Touchstone Clover Core Fixed Income Funds. Clover Capital is a professional
investment management firm founded in 1984 by Michael Edward Jones, CFA, and
Geoffrey Harold Rosenberger, CFA. As of December 31, 2007, Clover Capital had
discretionary management authority with respect to approximately $2.5 billion of
assets. In addition to providing sub-advisory services to the Funds mentioned
above, Clover Capital provides advisory services to pension plans, religious and
educational endowments, corporations, 401(k) plans, profit sharing plans,
individual investors and trusts and estates.
Other Accounts. Michael E. Jones, CFA, is the co-portfolio manager on the
Diversified Small Cap Value and Value Opportunities Funds. As of September 30,
2007, Mr. Jones co-managed 1 other mutual fund with approximately $233 million
in total assets, and 6 unregistered pooled vehicles with total assets of
approximately $61 million. With respect to such accounts, 3 accounts, with
assets of approximately $53.1 million, pay Clover Capital a fee based upon the
performance of the account.
Lawrence R. Creatura, CFA, is the co-portfolio manager on the Diversified Small
Cap Value Fund. As of September 30, 2007, Mr. Creatura co-managed 1 other mutual
fund with approximately $233 million in total assets, and 3 unregistered pooled
vehicles with total assets of approximately $30 million. With respect to such
accounts, 1 account, with assets of approximately $23 million, pays Clover
Capital a fee based upon the performance of the account.
Matthew P. Kaufler, CFA, is the co-portfolio manager on the Value Opportunities
Fund. As of September 30, 2007, Mr. Kaufler also co-managed 4 unregistered
pooled vehicles with total assets of approximately $26 million, none of which
pays Clover Capital a fee based upon the performance of the account.
Joseph P. Cerqua, CFA, is the co-portfolio manager on the Clover Core Fixed
Income Fund. As of September 30, 2007, Mr. Cerqua also co-managed 3 unregistered
pooled vehicles with total assets of approximately $17 million, none of which
pays Clover Capital a fee based upon the performance of the account.
John F. Garnish, CFA, is the co-portfolio manager on the Clover Core Fixed
Income Fund. As of September 30, 2007, Mr. Garnish also co-managed 3
unregistered pooled vehicles with total assets of approximately $17 million,
none of which pays Clover Capital a fee based upon the performance of the
account.
41
Stephen K. Gutch is the co-portfolio manager on the Diversified Small Cap Value
Fund. As of September 30, 2007, Mr. Gutch also co-managed 2 unregistered pooled
vehicles with total assets of approximately $7 million, none of which pays
Clover Capital a fee based upon the performance of the account.
Paul W. Spindler, CFA, is the co-portfolio manager on the Value Opportunities
Fund. As of September 30, 2007, Mr. Spindler also co-managed 3 unregistered
pooled vehicles with approximately $43 million in total assets. With respect to
such accounts, 1 account, with assets of approximately $23 million pays Clover
Capital a fee based on the performance of the account.
Conflicts. While Clover Capital manages accounts that are entitled to receive
performance-based adjustments, it does not believe that such adjustments present
a significant incentive for Clover Capital to unfairly favor such accounts
because it has a policy to manage each account based on its investment
objectives and related restrictions. Clover Capital has adopted policies and
procedures reasonably designed to allocate investment opportunities across all
accounts, generally on a rotational basis.
With respect to potential conflicts between various types of portfolios managed
by Clover Capital, the firm avoids such conflict since its portfolios are broken
out by capitalization ranges, and the investment opportunities are allocated
accordingly. With respect to potential conflicts among accounts within a
specific portfolio, Clover Capital utilizes a rotational trading system among
the accounts, thereby ensuring fair and impartial treatment of the accounts.
Compensation. As Chief Executive Officer, Mr. Jones receives a base salary and
earns dividends through his ownership of Clover Capital Management, Inc. stock.
The other portfolio managers are compensated with a base salary and participate
in a bonus plan. The bonus varies based on performance of their respective
strategy(s) against the products stated benchmark. The bonus amount is
calculated and paid at the end of each calendar quarter. Portfolio managers are
also shareholders of Clover Capital Management, Inc., and they earn dividends
based upon their percentage ownership of the firm. Additionally, Mr. Creatura
and Mr. Spindler are entitled to a cash bonus based upon a combination of net
revenues and fund performance for a limited partnership managed by Clover
Capital.
Fund Ownership. The following table indicates for each Touchstone Clover Fund,
the dollar range of shares beneficially owned by each of the Fund's portfolio
managers as of September 30, 2007.
- ----------------------------------------------------------------------------------------------
PORTFOLIO MANAGER FUND DOLLAR RANGE OF FUND SHARES OWNED
- ----------------------------------------------------------------------------------------------
Michael Jones Diversified Small Cap Value Fund $500,001-$1,000,000
Value Opportunities Fund over $1,000,000
- ----------------------------------------------------------------------------------------------
Lawrence Creatura Diversified Small Cap Value Fund $100,001-$500,000
- ----------------------------------------------------------------------------------------------
Stephen Gutch Diversified Small Cap Value Fund $50,001-$100,000
- ----------------------------------------------------------------------------------------------
Matthew Kaufler Value Opportunities Fund $50,001-$100,000
- ----------------------------------------------------------------------------------------------
Joseph Cerqua Clover Core Fixed Income Fund $50,001-$100,000
- ----------------------------------------------------------------------------------------------
John Garnish Clover Core Fixed Income Fund $10,001-$50,000
- ----------------------------------------------------------------------------------------------
Paul Spindler Value Opportunities Fund $100,001-$500,000
- ----------------------------------------------------------------------------------------------
42
For its services, Clover Capital is entitled to receive base investment
sub-advisory fees at an annualized rate, based on the average daily net assets
of each Touchstone Clover Fund, as set forth below.
- --------------------------------------------------------------------------------
Fund Sub-Advisory Fee
- --------------------------------------------------------------------------------
Value Opportunities Fund 0.37% on the first $105 million of
assets; 0.35% on the value of assets
above that amount
- --------------------------------------------------------------------------------
Diversified Small Cap Value Fund 0.45%
- --------------------------------------------------------------------------------
Clover Core Fixed Income Fund 0.225%
- --------------------------------------------------------------------------------
CHARTWELL INVESTMENT PARTNERS
Chartwell Investment Partners ("Chartwell"), 1235 Westlakes Drive, Suite 400,
Berwyn, PA 19312, serves as investment sub-advisor to the Ultra Short Duration
and Short Duration Funds. Chartwell is a professional investment management firm
founded in 1997 by a team of experienced investment professionals who had been
employees of Delaware Management Company of Philadelphia, Pennsylvania. As of
December 31, 2007, Chartwell had discretionary management authority with respect
to approximately $6.1 billion of assets.
A core portfolio management team consisting of Christine Williams, Paul Matlack,
CFA and Andrew Toburen, CFA manages the Ultra Short Duration and Short Duration
Funds. Even though each person has separate sector responsibilities, the team
shares equally in the decision making and structuring process of the Funds.
Other Accounts. As of September 30, 2007, the portfolio management team that
manages the Ultra Short Duration and Short Duration Funds managed 3 registered
investment companies with approximately $273 million in total assets, 2
unregistered pooled vehicles with total assets of approximately $97 million and
56 other accounts with approximately $989.6 million in total assets. With
respect to the 2 unregistered pooled vehicles, both pay Chartwell a fee based
upon the performance of the account.
Conflicts. Chartwell does not face any material conflict in management of the
Funds. Chartwell has adopted policies to ensure the fair and appropriate
allocation of all investment opportunities across all client portfolios,
generally on a pro rata basis, using relative market values, with all portfolios
receiving the same average price on a particular trade. Finally, while Chartwell
is entitled to receive a performance-based adjustment with respect to certain
pooled investment vehicles, such adjustments do not present a significant
incentive for the portfolio managers to unfairly favor such accounts, as such
potential adjustments are not material to the firm's results or any portfolio
manager's compensation.
Compensation. The compensation paid to a Chartwell portfolio manager consists of
base salary, annual bonus, ownership distributions, and an annual profit-sharing
contribution to Chartwell's retirement plan.
43
A portfolio manager's fixed base salary is determined by Chartwell's
Compensation Committee and is reviewed at least annually. A portfolio manager's
experience, historical performance, and role in firm or product team management
are the primary considerations in determining the base salary. Industry
benchmarking is utilized by the Compensation Committee on an annual basis.
Annual bonuses are determined by the Compensation Committee based on a number of
factors. The primary factors are investment performance of client portfolios
during the calendar year, product profitability, and firm-wide profitability.
Investment performance is measured based on the gross (pre-tax) composite
performance of all accounts within a particular investment product versus the
appropriate benchmark. Portfolio construction, sector and security weighting,
and performance are reviewed by the Compliance Committee and Compensation
Committee to prevent a manager from taking undue risks. Additional factors used
to determine the annual bonus include the portfolio manager's contribution as an
analyst, product team management, and contribution to the strategic planning and
development of the investment group as well as the firm.
Ownership distributions are paid to a portfolio manager based on the portfolio
manager's ownership interest, or percentage limited partnership interest in
Chartwell multiplied by total net cash distributions paid during the year.
A profit-sharing contribution is paid to the retirement plan account of all
eligible Chartwell employees based solely on annual profitability of the firm.
Fund Ownership. The following table indicates for the Short Duration and Ultra
Short Duration Fixed Income Funds, the dollar range of shares beneficially owned
by each of the Fund's portfolio managers as of September 30, 2007:
- ----------------------------------------------------------------------------------------------
PORTFOLIO MANAGER FUND DOLLAR RANGE OF FUND SHARES OWNED
- ----------------------------------------------------------------------------------------------
Christine Williams Short Duration Fund None
Ultra Short Duration Fund None
- ----------------------------------------------------------------------------------------------
Paul Matlack Short Duration Fund None
Ultra Short Duration Fund None
- ----------------------------------------------------------------------------------------------
Andrew Toburen Short Duration Fund None
Ultra Short Duration Fund $50,001-$100,000
- ----------------------------------------------------------------------------------------------
For its services, Chartwell is entitled to receive base investment sub-advisory
fees at an annualized rate, based on the average daily net assets of each
Touchstone Chartwell Fund, as set forth below.
- --------------------------------------------------------------------------------
Fund Sub-Advisory Fee
- --------------------------------------------------------------------------------
Ultra Short Duration Fund 0.125%
- --------------------------------------------------------------------------------
Short Duration Fund 0.125%
- --------------------------------------------------------------------------------
44
TURNER INVESTMENT PARTNERS
Turner Investment Partners, Inc. ("Turner"), 1205 Westlakes Drive, Suite 100,
Berwyn, Pennsylvania 19312, serves as sub-advisor for the Mid Cap, Healthcare
and Biotechnology and Small Cap Value Opportunities Funds. As of December 31,
2007, Turner had approximately $29 billion in client assets under management.
Turner is a professional investment management firm founded in March 1990.
Robert E. Turner is the Chairman and controlling shareholder of Turner.
Other Accounts. Frank Sustersic, CFA, is the lead manager on the Healthcare and
Biotechnology Fund and has primary responsibility for the management of the
Fund. Heather McMeekin and Vijay Shankaran are co-managers on the Healthcare and
Biotechnology Fund. As of September 30, 2007, Mr. Sustersic managed 1 other
registered investment company with approximately $638 million in total assets, 1
unregistered pooled vehicle with total assets of approximately $248,00 million
and 12 other accounts with approximately $383 million in total assets, none of
which pays Turner a fee based upon the performance of the account. As of
September 30, 2007, Ms. McMeekin co-managed 5 other registered investment
company accounts with approximately $1.1 billion in total assets, 15
unregistered pooled vehicles with total assets of approximately $338 million and
28 other accounts with approximately $1.6 billion in total assets, none of which
pays Turner a fee based upon the performance of the account. As of September 30,
2007, Mr. Shankaran co-managed 0 other registered investment company accounts, 3
unregistered pooled vehicle with total assets of approximately $2 million and 4
other accounts with approximately $63 million in total assets, none of which pay
Turner a fee based upon the performance of the account.
Thomas DiBella, CFA, Steven Gold, CFA, and Joseph Krocheski are responsible for
the management of the Mid Cap Fund with Mr. DiBella acting as lead manager. Mr.
Kroscheski became a portfolio manger of the Mid Cap Fund on June 30, 2008. Mr.
DiBella, Mr. Gold, David J. Brenia and Robert S. Clark are responsible for the
management of the Small Cap Value Opportunities Fund with Mr. DiBella acting as
lead manager. Mr. Brenia and Mr. Clark became portfolio managers of the Small
Cap Value Opportunities Fund on June 30, 2008. As of September 30, 2007, Mr.
DiBella co-managed 2 other registered investment companies with approximately
$66 million in total assets, 24 unregistered pooled vehicles with total assets
of approximately $762 million and 25 other accounts with approximately $1.5
billion in total assets. With respect to other accounts, 1 account with assets
of approximately $10 million, pays Turner a fee based upon the performance of
the account. As of September 30, 2007, Mr. Gold co-managed 2 registered
investment companies with approximately $66 million in total assets, 24
unregistered pooled vehicles with total assets of approximately $762 million and
23 other account with approximately $1.4 billion in total assets, With respect
to other accounts, 1 account with assets of approximately $10 million pays
Turner a fee based upon the performance of the account. As of June 30, 2008, Mr.
Kroscheski co-managed 1 other registered investment company account with
approximately $563,000 in total assets, 12 unregistered pooled vehicles with
total assets of approximately $387 million and 5 other accounts with
approximately $179 million in total assets. With respect to other accounts, 1
account with assets of approximately $9 million pays Turner a fee based upon the
performance of the account. As of June 30, 2008, Mr. Brenia co-managed 0 other
registered investment company accounts, 0 unregistered pooled vehicles and 4
other accounts with approximately $113 million in total assets, none of which
pay Turner a fee based upon the performance of the account. As of June 30, 2008,
Mr. Clark co-managed 0 other registered investment company accounts, 0
unregistered pooled vehicles and 4 other accounts with approximately $113
million in total assets, none of which pay Turner a fee based upon the
performance of the account..
Conflicts. As is typical for many money managers, potential conflicts of
interest may arise relating to Turner's management of accounts where not all
accounts are able to participate in a desired IPO, or other limited opportunity;
Turner's use of soft dollars and other brokerage practices; the voting of
proxies; employee personal securities trading; the side by side management of
accounts with performance based fees and accounts with fixed fees; and a variety
of other circumstances. In all cases, however, Turner believes it has written
policies and procedures in place reasonably designed to prevent violations of
the federal securities laws and to prevent material conflicts of interest from
arising.
45
Compensation. Turner's investment professionals receive a base salary
commensurate with their level of experience. Turner's goal is to maintain
competitive base salaries through review of industry standards, market
conditions, and salary surveys. Bonus compensation, which is a multiple of base
salary, is computed annually based on the one-year performance of each
individual's sector and portfolio assignments relative to appropriate market
benchmarks. In addition, each employee is eligible for equity ownership; equity
owners share Turner's profits. Most of the members of the Investment Team and
all Portfolio Managers are equity owners of Turner. This compensation and
ownership structure provides incentive to attract and retain highly qualified
people, as each member of Turner has the opportunity to share directly in the
accomplishments of the business.
The objective performance criteria noted above accounts for 90% of the bonus
calculation. The remaining 10% is based upon subjective, "good will" factors
including teamwork, interpersonal relations, the individual's contribution to
overall success of Turner, media and client relations, presentation skills, and
professional development. Portfolio managers/analysts are reviewed on an annual
basis. Turner's Chief Investment Officer is responsible for setting base
salaries, bonus targets, and making all subjective judgments related to an
investment professionals' compensation. The Chief Investment Officer is also
responsible for identifying investment professionals that should be considered
for equity ownership on an annual basis.
Fund Ownership. The following table indicates for the Healthcare and
Biotechnology, Mid Cap, and Small Cap Value Opportunities Funds, the dollar
range of shares beneficially owned by each of the Fund's portfolio managers as
of September 30, 2007. The ownership information for Mr. Kroscheski, Mr. Brenia
and Mr. Clark is as of June 30, 2008.
- ----------------------------------------------------------------------------------------------
PORTFOLIO MANAGER FUND DOLLAR RANGE OF FUND SHARES OWNED
- ----------------------------------------------------------------------------------------------
Thomas DiBella Small Cap Value Opportunities Fund None
Mid Cap Fund $100,001-$500,000
- ----------------------------------------------------------------------------------------------
Steven Gold Mid Cap Fund $50,001-$100,000
Small Cap Value Opportunities Fund None
- ----------------------------------------------------------------------------------------------
Frank Sustersic Healthcare and Biotechnology Fund $100,001-$500,000
- ----------------------------------------------------------------------------------------------
Heather McMeekin Healthcare and Biotechnology Fund $50,001-$100,000
- ----------------------------------------------------------------------------------------------
Vijay Shankaran Healthcare and Biotechnology Fund None
- ----------------------------------------------------------------------------------------------
Joseph Krocheski Mid Cap Fund None
- ----------------------------------------------------------------------------------------------
David J. Brenia Small Cap Value Opportunities Fund None
- ----------------------------------------------------------------------------------------------
Robert S. Clark Small Cap Value Opportunities Fund None
- ----------------------------------------------------------------------------------------------
For its services, Turner is entitled to receive base investment sub-advisory
fees at an annualized rate, based on the average daily net assets of the Mid
Cap, Small Cap Value Opportunities and Healthcare and Biotechnology Funds, as
set forth below.
46
- --------------------------------------------------------------------------------
Fund Sub-Advisory Fee
- --------------------------------------------------------------------------------
Mid Cap Fund 0.50%
- --------------------------------------------------------------------------------
Small Cap Value Opportunities Fund 0.55%
- --------------------------------------------------------------------------------
Healthcare and Biotechnology Fund 0.50%
- --------------------------------------------------------------------------------
SANDS CAPITAL MANAGEMENT
Sands Capital Management, LLC ("Sands Capital Management"), located at 1101
Wilson Boulevard, Suite 2300, Arlington, VA 22209, serves as investment
sub-advisor to the Sands Capital Select Growth Fund. As a sub-advisor, Sands
Capital Management makes investment decisions for the Fund. As of December 31,
2007, Sands Capital Management had approximately $20.6 billion in assets under
management.
Other Accounts. Sands Capital employs a single investment strategy - the Sands
Capital Large Cap Growth Equity strategy - for its client portfolios, including
funds as well as institutional and individual accounts.
The Sands Capital Select Growth Fund is managed by Frank M. Sands, Sr., CFA;
Frank M. Sands, Jr., CFA; and David E. Levanson, CFA. Messrs. Sands, Sands and
Levanson also manage other mutual funds as well as separate accounts. As of
September 30, 2007, the investment team managed or sub-advised 6 registered
mutual funds with approximately $3.0 billion in total assets, and 1,077 separate
accounts totaling $17.5 billion in assets. This separate account number counts
each separately managed account program (or "wrap" program) as one account. As
of September 30, 2007, Sands Capital participated in 3 separately managed
account programs in which there were approximately 3,121 underlying accounts.
The investment team also managed 8 unregistered pooled vehicles with total
assets of approximately $1.8 billion. With respect to such accounts, 8 accounts,
with assets of approximately $1.8 billion, pays Sands Capital a fee based upon
the performance of the account in addition to a base fee.
Conflicts. As an investment adviser to a variety of clients, Sands Capital
recognizes there are actual or potential conflicts of interest inherent in our
business. For example, conflicts of interest could result from a portfolio
managers' management of multiple accounts for multiple clients, the allocation
and execution of investment opportunities, multiple fee arrangements, and
personal trading. Sands Capital has addressed these conflicts by developing
policies and procedures it believes are reasonably designed to treat all clients
in a fair and equitable manner over time. Sands Capital's policies and
procedures address such issues as execution of portfolio transactions,
aggregation and allocation of trades, directed brokerage and soft dollars.
Additionally, Sands Capital maintains a Code of Ethics that addresses rules on
personal trading and insider information.
Compensation. All Sands Capital employees receive a base salary commensurate
with their level of experience. Sands Capital's goal is to maintain competitive
base salaries through an ongoing review of industry standards, market
conditions, and salary surveys. Employees also receive a qualitative bonus based
on an annual evaluation of the employee's individual performance, based on their
job responsibilities. In addition, employees are eligible for equity ownership;
equity owners share in the profits of Sands Capital's profits. Employees also
may participate in a 401(k)/profit sharing plan. The 401(k)/profit sharing plan
is a discretionary vehicle funded by both the individual and Sands Capital.
47
Investment professionals may also receive an investment results bonus. The
investment results bonus is based upon one, three and five-year components,
calculated by reference to the relative performance of Sands Capital's Tax
Exempt Institutional Equity Composite and the Russell 1000 Growth index over
rolling one, three and five year periods.
Fund Ownership. As of September 30, 2007 Frank Sands, Sr., Frank Sands, Jr. and
David Levanson did not own any shares of the Sands Capital Select Growth Fund.
Set forth below is information about the sub-advisory fee arrangements of the
Sands Capital Select Growth Fund. The "Highest/Lowest Possible Sub-Advisory Fee"
column in the table that follows represents the maximum and minimum amount that
Sands Capital may receive pursuant to the sub-advisory agreement. Sands
Capital's performance adjustment with respect to the Sands Capital Select Growth
Fund's performance is calculated and paid monthly by comparing the Fund's
performance to the performance of the Fund's benchmark over a "performance
period." The performance period consists of a rolling 12-month period that
includes the current month for which performance is available plus the previous
11 months. The Fund's annual performance adjustment rate is multiplied by the
average net assets of the Fund over the performance period, which is then
multiplied by a fraction, the numerator of which is the number of days in the
current month and the denominator of which is 365 (366 in leap years). The
resulting amount is then added to (in the case of overperformance) or subtracted
from (in the case of underperformance) the Sands Capital's base fee.
- ---------------------------------------------------------------------------------------------------------------------------
HIGHEST/LOWEST
REQUIRED EXCESS ANNUAL POSSIBLE
FUND BENCHMARK PERFORMANCE BASE SUB-ADVISORY FEE ADJUSTMENT RATE SUB-ADVISORY FEE
- ---------------------------------------------------------------------------------------------------------------------------
0.50% on the first $100
million of assets;
Sands Capital Russell 1000 0.45% on the value of
Select Growth Fund Growth Index +/- 2.50% assets above that amount +/- 0.15% 0.65% / 0.35%
- ---------------------------------------------------------------------------------------------------------------------------
MILLER/HOWARD INVESTMENTS
Miller/Howard Investments Inc. ("Miller/Howard"), an SEC-registered investment
adviser located at 324 Upper Byrdcliffe Road, Woodstock, NY, 12498, serves as
sub-advisor to the Touchstone Premium Yield Equity Fund. Miller/Howard was
founded in 1984 and is owned by Lowell G. Miller, Helen Hamada, John E. Leslie
III, Lee S. Chun & Bryan J. Spratt. As of December 31, 2007, Miller/Howard had
approximately $1.1 billion in assets under management.
Lowell G. Miller, Bryan J. Spratt and John E. Leslie III are responsible for the
daily management of the Premium Yield Equity Fund.
Other Accounts. As of April 30, 2008, the portfolio management team that manages
the Premium Yield Equity Fund managed 1 registered investment company with
approximately $27.5 million in total assets, 2 unregistered pooled vehicles
(collective trusts) with total assets of approximately $64.5 million and 1,805
accounts with approximately $1.1 billion in total assets. None of the accounts
listed have a performance based fee.
48
Conflicts. As an investment advisor to multiple types of clients, Miller/Howard
recognizes that actual or potential conflicts of interest may arise. For
example, conflicts of interest could result from a portfolio managers'
management of multiple accounts for multiple clients, the allocation and
execution of investment opportunities, multiple fee arrangements, and personal
trading. Miller/Howard addresses potential conflicts by developing policies and
procedures it believes are reasonably designed to treat all clients in a fair
and equitable manner. Miller/Howard's policies and procedures cover such issues
as execution of portfolio transactions, aggregation and allocation of trades,
brokerage and soft dollars. Miller/Howard has adopted a Code of Ethics that
addresses rules on personal trading and insider information which all employees
are required to observe.
Compensation. Miller/Howard's investment professionals receive a base salary in
line with industry and geographic standards, bonus based on performance, company
contribution to a retirement plan, participation in the company health insurance
plan and profit sharing based on ownership. Investment professionals are
evaluated annually by the company's Board of Directors for their contribution to
portfolio performance as well as participation in proprietary research projects
that the firm conducts on an ongoing basis. All investment professionals are
currently equity owners in the firm, and each receives an annual share of firm
profits available after all expenses are paid. Each member of the Investment
Team shares in the progress of the firm and shares responsibility for that
progress through stock selection, monitoring, and the development of the firm's
information and research expertise. The firm makes no real distinction between
"portfolio manager" and "analyst," and each member of the Investment Team is
evaluated based on his or her performance with regard to management, analysis,
and basic research.
Fund Ownership. As of April 30, 2008, Mr. Miller, Mr. Spratt and Mr. Leslie did
not own any shares of the Premium Yield Equity Fund.
For its services, Miller/Howard is entitled to receive base investment
sub-advisory fees at an annualized rate, based on the average daily net assets
of the Premium Yield Equity Fund, as set forth below.
- --------------------------------------------------------------------------------
Fund Sub-Advisory Fee
- --------------------------------------------------------------------------------
Premium Yield Equity Fund 0.40% on the first $100 million of assets;
0.35% on the value of assets above that amount
- --------------------------------------------------------------------------------
NAVELLIER & ASSOCIATES
Navellier & Associates Inc. ("Navellier"), an SEC-registered investment adviser
located at One East Liberty, Third Floor, Reno, NV 89501, serves as sub-advisor
to the Touchstone International Growth Fund. Navellier was founded in 1987 and
Louis G. Navellier is the primary and majority owner of Navellier. As of
December 31, 2007, Navellier had approximately $4.7 billion in assets under
management.
49
Louis G. Navellier, James O'Leary and Phillip Mitteldorf are responsible for the
daily management of the International Growth Fund.
Other Accounts. As of August 31, 2008, the portfolio management team that
manages the International Growth Fund managed __ registered investment company
with approximately $_______ in total assets, __ unregistered pooled vehicles
with total assets of approximately $____________ and __ accounts with
approximately $___________ in total assets. _____ of the accounts listed have a
performance based fee.
Compensation. Portfolio managers receive a fixed base salary and incentive
compensation. Incentive compensation is based upon the asset growth of the
portfolio(s) for which they are responsible. Incentive compensation is based
upon reaching certain asset levels and is measured on a quarterly basis.
Incentive compensation is paid as a percentage of the management fees received
from those portfolios for which the portfolio manager is directly responsible.
Each portfolio manager is eligible to participate in Navellier's options
program. The number of options granted to a portfolio manager is dependent upon
various measures such as asset growth and performance.
Conflicts. Actual or potential conflicts of interest may arise when a portfolio
manager has management responsibilities to more than one account (including the
Fund), such as devotion of unequal time and attention to the management of the
accounts, inability to allocate limited investment opportunities across a broad
band of accounts and incentive to allocate opportunities to an account where the
portfolio manager has a greater financial incentive, such as a pooled investment
vehicle or other account with a performance based fee. Navellier manages
separate managed accounts that conform to the same investment model as the Fund;
however a portfolio manager is not compensated differently on other account
types. Additionally, the portfolio manager issues orders to buy and sell
securities to Navellier's Trading Department and does not give specific
instructions as to whether a particular account should receive priority in the
trading process.
Fund Ownership. The following table indicates, for the predecessor Navellier
International Portfolio, the dollar range of shares beneficially owned by the
portfolio managers as of August 31, 2008. The International Growth Fund will
keep the same portfolio manager structure as the predecessor Navellier
International Portfolio once the acquisition is complete.
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER DOLLAR RANGE OF FUND SHARES OWNED
- --------------------------------------------------------------------------------
Louis G. Navellier
- --------------------------------------------------------------------------------
Phillip Mitteldorf
- --------------------------------------------------------------------------------
James O'Leary
- --------------------------------------------------------------------------------
For its services, Navellier is entitled to receive base investment sub-advisory
fees at an annualized rate, based on the average daily net assets of the
International Growth Fund, as set forth below.
50
- --------------------------------------------------------------------------------
Fund Sub-Advisory Fee
- --------------------------------------------------------------------------------
International Growth Fund 0.40% on the first $1 billion of assets;
0.35% on the value of assets above that
amount
- --------------------------------------------------------------------------------
FEES PAID TO THE SUB-ADVISORS
For the fiscal year ended September 30, 2007 and the fiscal period from March 1,
2006 through September 30, 2006, the Advisor paid to the Sub-Advisors the
following amounts for each Fund during the periods indicated below:
- -----------------------------------------------------------------------------------------
SUB-ADVISORY FEES PAID
------------------------
FUND 2006 2007
- -----------------------------------------------------------------------------------------
Value Opportunities Fund - Clover Capital $212,724 $348,788
- -----------------------------------------------------------------------------------------
Diversified Small Cap Value Fund - Clover Capital $767,679 $1,020,271
- -----------------------------------------------------------------------------------------
Clover Core Fixed Income Fund - Clover Capital $31,853 $45,590
- -----------------------------------------------------------------------------------------
Ultra Short Duration Fixed Income Fund - Chartwell $142,729 $194,947
- -----------------------------------------------------------------------------------------
Short Duration Fixed Income Fund - Chartwell $61,276 $82,800
- -----------------------------------------------------------------------------------------
Sands Capital Select Growth Fund - Sands Capital Management $1,233,309 $2,844,805
- -----------------------------------------------------------------------------------------
Mid Cap Fund - Turner $37,935 $1,485,862
- -----------------------------------------------------------------------------------------
Healthcare and Biotechnology Fund - Turner $182,266 $249,106
- -----------------------------------------------------------------------------------------
Small Cap Value Opportunities Fund
- -----------------------------------------------------------------------------------------
Turner $376,068 $598,481
- -----------------------------------------------------------------------------------------
James Investment Research, Inc.* $0 $95,226
- -----------------------------------------------------------------------------------------
Diamond Hill Capital Management, Inc.* $320,951 $473,319
- -----------------------------------------------------------------------------------------
The sub-advisory fees for the Premium Yield Equity Fund are not included because
the Fund had not commenced operations prior to September 30, 2007.
* As of June 16, 2008, James Investment Research, Inc. and Diamond Hill Capital
Management, Inc. are no longer sub-advisors to the Small Cap Value Opportunities
Fund.
Prior to March 1, 2006, CIMCO paid fees to the sub-advisors of the Funds for
their services. The sub-advisory fees for the International Growth Fund for
periods prior to September __, 2008 are not shown because the predecessor
Navellier International Portfolio did not have a sub-advisor.
THE ADMINISTRATOR
The Trust and the Advisor have entered into an administration agreement (the
"Administration Agreement") that appoints the Advisor as the administrator (the
"Administrator") for the Trust. The Administration Agreement provides that the
Administrator shall perform or supervise the performance of other administrative
services, such as regulatory or performance reporting and fund accounting and
related accounting services, in connection with the operation of the Funds. The
Administrator shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Trust in connection with the matters to which the
Administration Agreement relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Administrator in
the performance of its duties or from reckless disregard by it of its duties and
obligations thereunder. The Administration Agreement provides that the Trust
will pay an administrative fee to the Advisor of 0.20% of aggregate net assets
up to $6 billion; 0.16% of the next $4 billion of aggregate net assets and 0.12%
on assets in excess of $10 billion. Aggregate net assets include the average
daily net assets of all series of the Trust, Touchstone Strategic Trust,
Touchstone Tax-Free Trust and Touchstone Investment Trust, except the TINT
Institutional Money Market Fund. However, the Trust and the Advisor have entered
into an Administration Fee Waiver Agreement that provides that the Advisor will
maintain an administration fee rate of 0.1460% for the Trust until March 1,
2008.
51
After the initial two-year period, the continuance of the Administration
Agreement must be specifically approved at least annually (i) by the vote of a
majority of the Trustees or by the vote of a majority of the outstanding voting
securities of the Trust, and (ii) by the vote of a majority of the Trustees of
the Trust who are not parties to the Administration Agreement or an "interested
person" (as that term is defined in the 1940 Act) of any party thereto, cast in
person at a meeting called for the purpose of voting on such approval.
Under the Administration Agreement, the Administrator may enter into agreements
with service providers to provide administration services to the Trust. The
Administrator has appointed JPMorgan Chase Bank, N.A. ("JPMorgan"), 303
Broadway, Cincinnati, Ohio 45202 as the Trust's sub-administrator. JPMorgan
prepares and effects regulatory filings for the Trust, prepares and distributes
materials for Board meetings, works with the Administrator to resolve any daily
pricing issues, reviews daily reports by existing service providers and performs
other duties as requested by the Administrator. JPMorgan also provides
accounting and pricing services to the Funds. The sub-administration fees for
JPMorgan are paid by the Administrator.
For the fiscal years ended September 30, 2005, 2006 and 2007, the Trust paid the
following administrative fees (net of waivers):
- --------------------------------------------------------------------------------
ADMINISTRATIVE FEES PAID
--------------------------------------
FUND 2005 2006 2007
- --------------------------------------------------------------------------------
Value Opportunities Fund $143,187 $163,704 $172,854
- --------------------------------------------------------------------------------
Diversified Small Cap Value Fund $759,991 $481,047 $405,827
- --------------------------------------------------------------------------------
Clover Core Fixed Income Fund $43,300 $36,534 $36,531
- --------------------------------------------------------------------------------
Ultra Short Duration Fixed Income Fund $518,013 $329,279 $280,675
- --------------------------------------------------------------------------------
Short Duration Fixed Income Fund $205,706 $134,834 $117,850
- --------------------------------------------------------------------------------
Healthcare and Biotechnology Fund $62,834 $92,454 $89,901
- --------------------------------------------------------------------------------
Small Cap Value Opportunities Fund $43,413 $267,141 $411,942
- --------------------------------------------------------------------------------
Sands Capital Select Growth Fund $231,147 $632,145 $1,010,955
- --------------------------------------------------------------------------------
52
The administration fees for the Premium Yield Equity Fund are not included
because the Fund had not commenced operations prior to September 30, 2007. The
administrative fees for the International Growth Fund for periods prior to
September 27, 2008 are not shown because the predecessor Navellier International
Portfolio had an agreement with Navellier to pay for certain administrative fees
(the fees were not a fund expense).
For the fiscal year ended December 31, 2004, the fiscal periods from January 1,
2005 through September 30, 2005 and the fiscal years ended September 30, 2006
and 2007, the Mid Cap Fund paid the following administrative fees (net of
waivers):
- -------------------------------------------------------------------------------
ADMINISTRATIVE FEES PAID
-------------------------------------
FUND 2004 2005 2006
- -------------------------------------------------------------------------------
Mid Cap Fund* N/A $508 $12,812
- -------------------------------------------------------------------------------
2007
- -------------------------------------------------------------------------------
Mid Cap Fund* $584,259
- -------------------------------------------------------------------------------
*The predecessor CIP Midcap Core Portfolio was not subject to separate
administrative fees under the previous unified fee structure.
For the fiscal year ended September 30, 2007 and the fiscal period from March 1,
2006 through September 30, 2006, the Administrator paid the following
sub-administrative fees:
- --------------------------------------------------------------------------------
SUB-ADMINISTRATIVE FEES PAID
-------------------------------------
FUND 2006 2007
- --------------------------------------------------------------------------------
Value Opportunities Fund $22,422 $75,889
- --------------------------------------------------------------------------------
Diversified Small Cap Value Fund $66,532 $166,633
- --------------------------------------------------------------------------------
Clover Core Fixed Income Fund $5,521 $13,728
- --------------------------------------------------------------------------------
Ultra Short Duration Fixed Income Fund $44,531 $115,157
- --------------------------------------------------------------------------------
Short Duration Fixed Income Fund $19,108 $48,838
- --------------------------------------------------------------------------------
Healthcare and Biotechnology Fund $14,217 $36,786
- --------------------------------------------------------------------------------
Small Cap Value Opportunities Fund $53,224 $168,808
- --------------------------------------------------------------------------------
Sands Capital Select Growth Fund $114,253 $412,147
- --------------------------------------------------------------------------------
Mid Cap Fund $3,288 $251,191
- --------------------------------------------------------------------------------
The sub-administrative fees for the Premium Yield Equity Fund are not included
because the Fund had not commenced operations prior to September 30, 2007. The
sub-administrative fees for the International Growth Fund for periods prior to
September 27, 2008 are not shown because the predecessor Navellier International
Portfolio did not have a sub-administrator.
Effective November 20, 2006, JPMorgan began serving as the Trust's transfer
agent (the "Transfer Agent"). JPMorgan maintains the records of each
shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of the Funds' shares, acts as
dividend and distribution disbursing agent and performs other shareholder
service functions. For providing transfer agent and shareholder services to the
Trust, JPMorgan receives a monthly per account fee from each Fund, plus out
of-pocket expenses. The Funds may also pay a fee to certain servicing
organizations (such as broker-dealers and financial institutions) that provide
sub-transfer agency services. These services include maintaining shareholder
records, processing shareholder transactions and distributing communications to
shareholders.
53
Effective November 20, 2006, JPMorgan began providing compliance program
development, implementation and administration services to the Trust pursuant to
a Compliance Services Agreement. For providing compliance services to the Trust,
the Funds pay an annual compliance administration fee. The Funds also pay other
costs and expenses incurred in connection with the services provided under the
Compliance Services Agreement.
For the fiscal period from November 20, 2006 through September 30, 2007, the
Trust paid the following compliance fees:
- --------------------------------------------------------------------------------
COMPLIANCE FEES PAID
--------------------------------------
FUND 2007
- --------------------------------------------------------------------------------
Value Opportunities Fund $1,029
- --------------------------------------------------------------------------------
Diversified Small Cap Value Fund $1,280
- --------------------------------------------------------------------------------
Clover Core Fixed Income Fund $864
- --------------------------------------------------------------------------------
Ultra Short Duration Fixed Income Fund $1,140
- --------------------------------------------------------------------------------
Short Duration Fixed Income Fund $958
- --------------------------------------------------------------------------------
Healthcare and Biotechnology Fund $921
- --------------------------------------------------------------------------------
Small Cap Value Opportunities Fund $1,286
- --------------------------------------------------------------------------------
Sands Capital Select Growth Fund $1,946
- --------------------------------------------------------------------------------
Mid Cap Fund $1,554
- --------------------------------------------------------------------------------
The compliance fees for the Premium Yield Equity Fund are not included because
the Fund had not commenced operations prior to September 30, 2007.
For the fiscal years ended December 31, 2005, 2006 and 2007, the International
Growth Fund paid the following compliance fees:
- --------------------------------------------------------------------------------
COMPLIANCE FEES PAID
--------------------------------------
FUND 2005 2006 2007
- --------------------------------------------------------------------------------
International Growth Fund* $3,750 $80 $120
- --------------------------------------------------------------------------------
*The predecessor Navellier International Portfolio paid compliance fess
pursuant to a compliance services agreement.
DISTRIBUTION AND SHAREHOLDER SERVICES
Touchstone Securities, Inc. (the "Distributor"), and the Trust are parties to a
distribution agreement (the "Distribution Agreement") with respect to the Funds.
The Distributor's principal place of business is 303 Broadway, Suite 1100,
Cincinnati Ohio 45202. The Distributor is a registered broker-dealer, and an
affiliate of the Advisor by reason of common ownership. The Distributor is
obligated to sell shares on a best efforts basis only against purchase orders
for the shares. Shares of the Funds are offered to the public on a continuous
basis. As compensation for providing the services under the Distribution
Agreement, the Distributor receives distribution and service fees, contingent
deferred sales charges and front-end sales charges. The Distributor may re-allow
any or all of the distribution or service fees, contingent deferred sales
charges or front-end sales charges to such brokers, dealers and other financial
institutions and intermediaries as the Distributor may from time to time
determine. Prior to March 1, 2006, the distributor was Constellation Investment
Distribution Company, Inc.
54
Ms. McGruder may be deemed to be an affiliate of the Distributor because she is
a Director of the Distributor and an officer of affiliates of the Distributor.
Ms. McGruder, by reason of such affiliations, may directly or indirectly receive
benefits from the underwriting fees paid to the Distributor.
The Distribution Agreement shall remain in effect for a period of two years
after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Trustees who are not interested persons and have no financial interest in
the Distribution Agreement or by a majority vote of the outstanding securities
of the Trust upon not more than 60 days' written notice by either party or upon
assignment by the Distributor.
The Distributor may from time to time pay from its own resources cash bonuses or
other incentives to selected dealers in connection with the sale of shares of
the Funds. On some occasions, such bonuses or incentives may be conditioned upon
the sale of a specified minimum dollar amount of the shares of the Funds and/or
other funds in the Touchstone Funds during a specific period of time. Such
bonuses or incentives may include financial assistance to dealers in connection
with conferences, sales or training programs for their employees, seminars for
the public, advertising, sales campaigns and other dealer-sponsored programs or
events. The Advisor, at its expense, may also provide additional compensation to
certain affiliated and unaffiliated dealers, financial intermediaries or service
providers for distribution, administrative and/or shareholder servicing
activities. The Advisor may also reimburse the Distributor for making these
payments.
The Funds may compensate dealers, including the Distributor and its affiliates,
based on the average balance of all accounts in the Funds for which the dealer
is designated as the party responsible for the account. See "Distribution Plans"
below.
DISTRIBUTION AND SHAREHOLDER SERVICE ARRANGEMENTS.
Certain Funds have adopted a distribution and/or shareholder servicing plan for
certain classes of Shares which permits a Fund to pay for expenses incurred in
the distribution and promotion of its shares pursuant to Rule 12b-1 under the
1940 Act and account maintenance and other shareholder services in connection
with maintaining such account. The Distributor may provide those services itself
or enter into arrangements under which third parties provide such services and
are compensated by the Distributor.
55
CLASS A SHARES. Certain Funds have adopted a plan of distribution and
shareholder service (the "Class A Plan") under which the Distributor is paid up
to, but not exceeding twenty-five basis points (0.25%) for distribution
payments. Of the total compensation authorized, the Fund may pay for shareholder
services in an amount up to 0.25%. Class A Shares of the following Funds are
subject to the Class A Plan: Diversified Small Cap Value Fund, Healthcare and
Biotechnology Fund, Mid Cap Fund, Value Opportunities Fund, Premium Yield Equity
Fund and International Growth Fund.
CLASS C SHARES. Certain Funds have adopted a plan of distribution and
shareholder service (the "Class C Plan") under which the Distributor is paid up
to, but not exceeding one hundred basis points (1.00%) in the aggregate, with
twenty-five basis points (0.25%) for shareholder service fees and seventy-five
basis points (0.75%) for distribution payments. Class C Shares of the following
Funds are subject to the Class C Plan: Diversified Small Cap Value Fund,
Healthcare and Biotechnology Fund, Mid Cap Fund, Value Opportunities Fund,
Premium Yield Equity Fund and International Growth Fund.
CLASS Z SHARES. Certain Funds have adopted a shareholder service plan (the
"Class Z Plan") under which the Distributor is paid up to, but not exceeding
twenty-five basis points (0.25%) for shareholder service fees. Class Z Shares of
the following Funds are subject to the Class Z Plan: Diversified Small Cap Value
Fund, Mid Cap Fund, Sands Capital Select Growth Fund, Short Duration Fixed
Income Fund, Small Cap Value Opportunities Fund, Ultra Short Duration Fixed
Income Fund and Value Opportunities Fund.
GENERAL INFORMATION. In connection with the distribution of Shares, the
Distributor may use the payments for: (i) compensation for its services in
distribution assistance; or (ii) payments to financial institutions and
intermediaries such as banks, savings and loan associations, insurance companies
and investment counselors, broker-dealers, mutual fund supermarkets and the
Distributor's affiliates and subsidiaries as compensation for services or
reimbursement of expenses incurred in connection with distribution assistance.
In addition, the Distributor may use payments to provide or enter into written
agreements with service providers who will provide shareholder services,
including: (i) maintaining accounts relating shareholders that invest in Shares;
(ii) arranging for bank wires; (iii) responding to client inquiries relating to
the services performed by the Distributor and/or service providers; (iv)
responding inquires from shareholders concerning their investment in shares; (v)
assisting shareholders in changing dividend options, account designations and
addresses; (vi) providing information periodically to shareholders showing their
position in shares; (vii) forwarding shareholder communications from the Funds
such as proxies, shareholder reports, annual reports, dividend distribution and
tax notices to shareholders; (viii) processing purchase, exchange and redemption
requests from shareholders and placing orders with the Funds or the service
providers; (ix) processing dividend payments from the Funds on behalf of
shareholders; and (x) providing such other similar services as the Fund may
reasonably request.
Agreements implementing the Plans (the "Implementation Agreements"), including
agreements with dealers wherein such dealers agree for a fee to act as agents
for the sale of the Funds' shares, are in writing and have been approved by the
Board of Trustees. All payments made pursuant to the Plans are made in
accordance with written agreements. Some financial intermediaries charge fees in
excess of the amounts available under the Plans, in which case the Advisor pays
the additional fees.
56
The continuance of the Plans and the Implementation Agreements must be
specifically approved at least annually by a vote of the Trust's Board of
Trustees and by a vote of the Independent Trustees who have no direct or
indirect financial interest in the Plans or any Implementation Agreement at a
meeting called for the purpose of voting on such continuance. A Plan may be
terminated at any time by a vote of a majority of the Independent Trustees or by
a vote of the holders of a majority of the outstanding shares of a Fund or the
applicable class of a Fund. In the event a Plan is terminated in accordance with
its terms, the affected Fund (or class) will not be required to make any
payments for expenses incurred by the Distributor after the termination date.
Each Implementation Agreement terminates automatically in the event of its
assignment and may be terminated at any time by a vote of a majority of the
Independent Trustees or by a vote of the holders of a majority of the
outstanding shares of a Fund (or the applicable class) on not more than 60 days'
written notice to any other party to the Implementation Agreement. The Plans may
not be amended to increase materially the amount to be spent for distribution
without shareholder approval. All material amendments to the Plans must be
approved by a vote of the Trust's Board of Trustees and by a vote of the
Independent Trustees.
In approving the Plans, the Trustees determined, in the exercise of their
business judgment and in light of their fiduciary duties as Trustees, that there
is a reasonable likelihood that the Plans will benefit the Funds and their
shareholders. The Board of Trustees believes that expenditure of the Funds'
assets for distribution expenses under the Plans should assist in the growth of
the Funds, which will benefit each Fund and its shareholders through increased
economies of scale, greater investment flexibility, greater portfolio
diversification and less chance of disruption of planned investment strategies.
The Plans will be renewed only if the Trustees make a similar determination for
each subsequent year of the Plans. There can be no assurance that the benefits
anticipated from the expenditure of the Funds' assets for distribution will be
realized. While the Plans are in effect, all amounts spent by the Funds pursuant
to the Plans and the purposes for which such expenditures were made must be
reported quarterly to the Board of Trustees for its review. Distribution
expenses attributable to the sale of more than one class of shares of a Fund
will be allocated at least annually to each class of shares based upon the ratio
in which the sales of each class of shares bears to the sales of all the shares
of the Fund. In addition, the selection and nomination of those Trustees who are
not interested persons of the Trust are committed to the discretion of the
Independent Trustees during such period.
Jill T. McGruder, as an interested person of the Trust, may be deemed to have a
financial interest in the operation of the Plans and the Implementation
Agreements.
For the fiscal years ended September 30, 2006 and 2007, the Funds paid the
following in Distribution and Shareholder Servicing fees:
57
- -------------------------------------------------------------------------------------------------------------------
2006 2007
- -------------------------------------------------------------------------------------------------------------------
FUND DISTRIBUTION SHAREHOLDER DISTRIBUTION SHAREHOLDER
FEES PAID SERVICING FEES FEES PAID SERVICING FEES
PAID PAID
- -------------------------------------------------------------------------------------------------------------------
Value Opportunities Fund $0 $0 $1,666 $55,721
- -------------------------------------------------------------------------------------------------------------------
Diversified Small Cap Value Fund $0 $0 $551 $350,941
- -------------------------------------------------------------------------------------------------------------------
Clover Core Fixed Income Fund $0 $0 $0 $0
- -------------------------------------------------------------------------------------------------------------------
Ultra Short Duration Fixed Income Fund $0 $0 $0 $249,308
- -------------------------------------------------------------------------------------------------------------------
Short Duration Fixed Income Fund $0 $0 $0 $105,077
- -------------------------------------------------------------------------------------------------------------------
Sands Capital Select Growth Fund $0 $695,414 $0 $934,767
- -------------------------------------------------------------------------------------------------------------------
Mid Cap Fund $0 $75 $63 $15,149
- -------------------------------------------------------------------------------------------------------------------
Healthcare and Biotechnology Fund $0 $158,379 $107,001 $17,803
- -------------------------------------------------------------------------------------------------------------------
Small Cap Value Opportunities Fund $0 $457,896 $78 $572,540
- -------------------------------------------------------------------------------------------------------------------
The distribution and shareholder servicing fees for the Premium Yield Equity
Fund are not included because the Fund had not commenced operations prior to
September 30, 2007.
For the fiscal years ended December 31, 2005, 2006 and 2007, the International
Growth Fund paid the following distribution fees:
- --------------------------------------------------------------------------------
DISTRIBUTION FEES PAID
--------------------------------------
FUND 2005 2006 2007
- --------------------------------------------------------------------------------
International Growth Fund* $2,334 $3,389 $5,772
- --------------------------------------------------------------------------------
*The predecessor Navellier International Portfolio paid distribution fees
pursuant to a distribution agreement.
TRUSTEES AND OFFICERS OF THE TRUST
The following is a list of the Trustees and principal officers of the Trust, the
length of time served, principal occupations for the past 5 years, number of
funds overseen in the Touchstone Fund Complex and other directorships held. All
funds managed by the Advisor are part of the "Touchstone Fund Complex." The
Touchstone Fund Complex consists of the Trust, Touchstone Investment Trust,
Touchstone Strategic Trust, Touchstone Variable Series Trust, Touchstone
Tax-Free Trust and Touchstone Institutional Funds Trust (formerly Constellation
Institutional Portfolios). The Trustees who are not interested persons of the
Trust, as defined in the 1940 Act, are referred to as "Independent Trustees."
58
- ---------------------------------------------------------------------------------------------------------------------
INTERESTED
TRUSTEES(1):
- ---------------------------------------------------------------------------------------------------------------------
NAME POSITION TERM OF PRINCIPAL OCCUPATION(S) DURING PAST NUMBER OTHER
ADDRESS HELD OFFICE 5 YEARS OF FUNDS DIRECTORSHIPS
YEAR OF BIRTH WITH AND OVERSEEN HELD(4)
TRUST LENGTH OF IN THE
TIME TOUCHSTONE
SERVED(2) FUND
COMPLEX(3)
- ---------------------------------------------------------------------------------------------------------------------
Jill T. McGruder Trustee Until Senior Vice President of The Western 42 Director of
Touchstone and retirement and Southern Life Insurance LaRosa's (a
Advisors, Inc President at age 75 Company. President, CEO and a restaurant
303 Broadway or until director of IFS Financial Services, chain).
Cincinnati, OH she resigns Inc. (a holding company). She is a
Year of Birth: 1955 or is director of Capital Analysts
removed Incorporated (an investment advisor
and broker-dealer), IFS Fund
Trustee Distributors, Inc. (a
since 2006 broker-dealer), Touchstone Advisors,
Inc. (the Trust's investment advisor
and administrator), W&S Financial
Group Distributors, Inc. (an annuity
distributor) and Touchstone
Securities, Inc. (the Trust's
distributor). She is also President
and a director of IFS Systems, Inc.
She is Senior Vice President and a
director of W&S Brokerage Services,
Inc. (a broker-dealer). She is
President and Chief Executive
Officer of Integrity Life Insurance
Company and National Integrity Life
Insurance Company. She is President
of Touchstone Tax-Free Trust,
Touchstone Investment Trust,
Touchstone Variable Series Trust,
Touchstone Strategic Trust,
Touchstone Funds Group Trust and
Touchstone Institutional Funds
Trust. She was President of
Touchstone Advisors, Inc., and
Touchstone Securities, Inc. until
2004.
- ---------------------------------------------------------------------------------------------------------------------
INDEPENDENT
TRUSTEES:
- ---------------------------------------------------------------------------------------------------------------------
NAME POSITION TERM OF PRINCIPAL OCCUPATION(S) DURING PAST NUMBER OTHER
ADDRESS HELD OFFICE 5 YEARS OF FUNDS DIRECTORSHIPS
YEAR OF BIRTH WITH AND OVERSEEN HELD(4)
TRUST LENGTH OF IN THE
TIME TOUCHSTONE
SERVED(2) FUND
COMPLEX(3)
- ---------------------------------------------------------------------------------------------------------------------
Phillip R. Cox Trustee Until President and Chief Executive 42 Director of
105 East Fourth retirement Officer of Cox Financial Corp. (a Duke Energy (a
Street at age 75 financial services company). utility
Cincinnati, OH or until he company).
Year of Birth: 1947 resigns or
is removed
Trustee
since 2006
- ---------------------------------------------------------------------------------------------------------------------
59
- ---------------------------------------------------------------------------------------------------------------------
H. Jerome Lerner Trustee Until Principal of HJL Enterprises (a 42 None
c/o Touchstone retirement privately held investment company).
Advisors, Inc. at age 75
303 Broadway or until he
Cincinnati, OH resigns or
Year of Birth: 1938 is removed
Trustee
since 2007
- ---------------------------------------------------------------------------------------------------------------------
Donald C. Siekmann Trustee Until Executive for Duro Bag Manufacturing 42 None
c/o Touchstone retirement Co. (a bag manufacturer); President
Advisors, Inc. at age 75 of Shor Foundation for Epilepsy
303 Broadway or until he Research (a charitable foundation);
Cincinnati, OH resigns or Trustee of Riverfront Funds (mutual
Year of Birth: 1938 is removed funds) from 1999 - 2004.
Trustee
since 2006
- ---------------------------------------------------------------------------------------------------------------------
Robert E. Stautberg Trustee Until Retired Partner of KPMG LLP (a 42 Trustee of
c/o Touchstone retirement certified public accounting firm). Tri-Health
Advisors, Inc. at age 75 He is Vice President of St. Xavier Physician
303 Broadway or until he High School. Enterprise
Cincinnati, OH resigns or Corporation.
Year of Birth: 1934 is removed
Trustee
since 2006
- ---------------------------------------------------------------------------------------------------------------------
John P. Zanotti Trustee Until CEO, Chairman and Director of 42 Director of QMed
c/o Touchstone retirement Avaton, Inc. (a wireless (a health care
Advisors, Inc. at age 75 entertainment company) until 2006. management
303 Broadway or until he President of Cincinnati Biomedical company).
Cincinnati, OH resigns or (a life science and economic
Year of Birth: 1948 is removed development company).
Trustee
since 2007
- ---------------------------------------------------------------------------------------------------------------------
1 Ms. McGruder, as a director of the Advisor and the Distributor and an
officer of affiliates of the Advisor and the Distributor, is an
"interested person" of the Trust within the meaning of Section 2(a)(19) of
the 1940 Act.
2 Each Trustee is elected to serve until the age of 75 or until he or she
sooner resigns or is removed.
3 The Touchstone Fund Complex consists of 11 series of the Trust, 7 series
of Touchstone Strategic Trust, 4 series of Touchstone Tax-Free Trust, 5
series of Touchstone Investment Trust, 11 variable annuity series of
Touchstone Variable Series Trust and 4 series of Touchstone Institutional
Funds Trust.
4 Each Trustee is also a Trustee of Touchstone Tax-Free Trust, Touchstone
Investment Trust, Touchstone Strategic Trust, Touchstone Variable Series
Trust and Touchstone Institutional Funds Trust.
- --------------------------------------------------------------------------------------------------------------------
PRINCIPAL
OFFICERS:
- --------------------------------------------------------------------------------------------------------------------
NAME POSITION TERM OF OFFICE AND PRINCIPAL OCCUPATION(S) DURING
ADDRESS HELD WITH TRUST(1) LENGTH OF TIME SERVED PAST 5 YEARS
YEAR OF BIRTH
- --------------------------------------------------------------------------------------------------------------------
Jill T. McGruder President and Until resignation, See biography above.
Touchstone Trustee removal or
Advisors, Inc. disqualification
303 Broadway
Cincinnati, OH President since
Year of Birth: 1955 2004; President from
2000-2002
- --------------------------------------------------------------------------------------------------------------------
Brian E. Hirsch Vice President and Until resignation, Senior Vice President-Compliance of IFS
Touchstone Chief Compliance removal or Financial Services, Inc., Director of
Advisors, Inc. Officer disqualification Compliance of W&S Brokerage Services,
303 Broadway Inc.
Cincinnati, OH Vice President since
Year of Birth: 1956 2003
- --------------------------------------------------------------------------------------------------------------------
60
- --------------------------------------------------------------------------------------------------------------------
William A. Dent Vice President Until resignation, Senior Vice President of Touchstone
Touchstone removal or Advisors, Inc.; Marketing Director of
Advisors, Inc. disqualification Promontory Interfinancial Network from
303 Broadway 2002-2003.
Cincinnati, OH Vice President since
Year of Birth: 1963 2004
- --------------------------------------------------------------------------------------------------------------------
Gregory A. Harris Vice President Until resignation, Vice President-Fund Administration of
Touchstone removal or Touchstone Investments; Managing
Advisors, Inc. disqualification Director, Fund Project Services, Inc.
303 Broadway 1998 - 2007.
Cincinnati, OH Vice President since
Year of Birth: 1968 2007
- --------------------------------------------------------------------------------------------------------------------
Terrie A. Wiedenheft Controller Until resignation, Senior Vice President, Chief Financial
Touchstone and Treasurer removal or Officer and Treasurer of IFS Fund
Advisors, Inc. disqualification Distributors, Inc.; Senior Vice
303 Broadway President and Chief Financial Officer
Cincinnati, OH Controller since 2000 of W & S Brokerage Services, Inc.;
Year of Birth: 1962 Chief Financial Officer of IFS
Treasurer since 2003 Financial Services, Inc., Touchstone
Advisors, Inc. and Touchstone
Securities, Inc.; Senior Vice President
and Chief Financial Officer of Fort
Washington Investment Advisors, Inc.
Vice-President and Treasurer of IIS
Broadway Corp. She served as Senior
Vice President, Chief Financial Officer
and Treasurer of Integrated Investment
Services, Inc. up to April 2007.
- --------------------------------------------------------------------------------------------------------------------
Jay S. Fitton Secretary Until resignation, Assistant Vice President and Senior
JPMorgan removal or Counsel at JPMorgan Chase Bank, N.A
303 Broadway disqualification
Cincinnati, OH
Year of Birth: 1970 Secretary since 2006.
Assistant Secretary
from 2002 - 2006
- --------------------------------------------------------------------------------------------------------------------
(1) Each officer also holds the same office with Touchstone Investment Trust,
Touchstone Tax-Free Trust, Touchstone Variable Series Trust, Touchstone
Strategic Trust and Touchstone Institutional Funds Trust.
TRUSTEE COMPENSATION
The following table shows the compensation paid to the Trustees by the Trust and
the aggregate compensation paid by the Touchstone Fund Complex during the fiscal
year ended September 30, 2007. The Trustees began serving on the Board on March
1, 2006, with the exception of Messrs. Lerner and Zanotti who began serving on
the Board February 5, 2007.
61
- -----------------------------------------------------------------------------------------------------------
AGGREGATE COMPENSATION FROM THE TOTAL COMPENSATION FROM THE TOUCHSTONE
TRUST FOR THE FISCAL YEAR ENDED FUND COMPLEX(2) FOR THE FISCAL YEAR ENDED
NAME SEPTEMBER 30, 2007(1) SEPTEMBER 30, 2007
- -----------------------------------------------------------------------------------------------------------
Jill T. McGruder $0 $0
- -----------------------------------------------------------------------------------------------------------
Phillip R. Cox $13,166 $79,000
- -----------------------------------------------------------------------------------------------------------
Donald Siekmann $12,625 $75,750
- -----------------------------------------------------------------------------------------------------------
Robert E. Stautberg $13,166 $79,000
- -----------------------------------------------------------------------------------------------------------
H. Jerome Lerner $13,530 $81,180
- -----------------------------------------------------------------------------------------------------------
John P. Zanotti $9,676 $58,060
- -----------------------------------------------------------------------------------------------------------
(1) The Independent Trustees are eligible to participate in the Touchstone
Trustee Deferred Compensation Plan, which allows them to defer payment of
a specific amount of their Trustee compensation, subject to a minimum
quarterly reduction of $1,000. The total amount of deferred compensation
accrued by the Independent Trustees from the Touchstone Fund Complex
during the fiscal year ended September 30, 2007 is as follows: Robert E.
Stautberg - $20,000.
(2) The Touchstone Fund Complex consists of 11 series of the Trust, 4 series
of Touchstone Tax-Free Trust, 5 series of Touchstone Investment Trust, 7
series of Touchstone Strategic Trust, 11 variable annuity series of
Touchstone Variable Series Trust and 4 series of Touchstone Institutional
Funds Trust.
Each Independent Trustee receives a quarterly retainer of $9,500 and a fee of
$4,500 for each Board meeting attended in person and $1,500 for attendance by
telephone. Each Committee member receives a fee of $2,250 for each committee
meeting attended in person and $1,500 for attendance by telephone. The lead
Trustee receives an additional $3,000 quarterly retainer. The Committee Chairmen
receive an additional $1,500 - $2,000 quarterly retainer, depending on the
committee. All fees are split equally among the Trusts comprising the Touchstone
Fund Complex.
STANDING COMMITTEES OF THE BOARD
The Board of Trustees is responsible for overseeing the operations of the Trust
in accordance with the provisions of the 1940 Act and other applicable laws and
the Trust's Declaration of Trust. The Board has established the following
committees to assist in its oversight functions. Each Committee is composed
entirely of Independent Trustees.
AUDIT COMMITTEE. Messrs. Siekmann and Stautberg are members of the Audit
Committee. The Audit Committee is responsible for overseeing the Trust's
accounting and financial reporting policies, practices and internal controls.
During the fiscal year ended September 30, 2007, the Audit Committee held four
meetings.
GOVERNANCE COMMITTEE. Messrs. Cox, Zanotti and Lerner are members of the
Governance Committee. The Governance Committee is responsible for overseeing the
Trust's compliance program and compliance issues, procedures for valuing
securities and responding to any pricing issues. The Governance Committee was
formed in February 2007 and held three meetings during the fiscal year ended
September 30, 2007.
62
In addition, the Governance Committee is responsible for recommending candidates
to serve on the Board. The Governance Committee will consider shareholder
recommendations for nomination to the Board only in the event that there is a
vacancy on the Board. Shareholders who wish to submit recommendations for
nominations to the Board to fill the vacancy must submit their recommendations
in writing to John P. Zanotti, Chairman of the Governance Committee, c/o
Touchstone, 303 Broadway, Suite 1100, Cincinnati, OH 45202. Shareholders should
include appropriate information on the background and qualifications of any
person recommended to the Governance Committee (e.g., a resume), as well as the
candidate's contact information and a written consent from the candidate to
serve if nominated and elected. Shareholder recommendations for nominations to
the Board will be accepted on an ongoing basis and such recommendations will be
kept on file for consideration in the event of a future vacancy on the Board.
TRUSTEE OWNERSHIP IN THE TOUCHSTONE FUND COMPLEX
The following table reflects the Trustees' beneficial ownership in the Trust and
the Touchstone Fund Complex as of December 31, 2007.
- --------------------------------------------------------------------------------
Dollar Range Aggregate Dollar Range of
of Securities Securities in the Touchstone
in the Trust Fund Complex(1)
- --------------------------------------------------------------------------------
Jill T. McGruder None Over $100,000
Phillip R. Cox None $10,001 - $50,000
H. Jerome Lerner None Over $100,000
Donald C. Siekmann None Over $100,000
Robert E. Stautberg None Over $100,000
John P. Zanotti None $50,001 - $100,000
- --------------------------------------------------------------------------------
(1) The Touchstone Fund Complex consists of 11 series of the Trust, 7 series of
Touchstone Strategic Trust, 4 series of Touchstone Tax-Free Trust, 5 series of
Touchstone Investment Trust, 11 variable annuity series of Touchstone Variable
Series Trust and 4 series of Touchstone Institutional Funds Trust.
PURCHASE AND REDEMPTION OF SHARES
Purchases and redemptions may be made through JPMorgan P.O. Box 5354 Cincinnati,
OH 45201-5354, (the "Transfer Agent") on days when the New York Stock Exchange
is open for business. Currently, the days on which each Fund is closed for
business are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. Shares of each Fund are offered on a continuous basis.
The Trust intends to pay your redemption proceeds in cash. However, under
unusual conditions that make the payment in cash unwise (and for the protection
of the remaining shareholders of the Fund) the Trust reserves the right to pay
all, or part, of your redemption proceeds in liquid securities with a market
value equal to the redemption price (redemption in-kind). The Trust has elected
to be governed by Rule 18f-1 of the 1940 Act under which the Trust is obligated
to redeem shares for any one shareholder in cash only up to the lesser of
$250,000 or 1% of a Fund's net asset value during any 90-day period. Although it
is highly unlikely that your shares would ever actually be redeemed in kind, you
would have to pay brokerage costs to sell the securities distributed to you.
63
Each Fund's net asset value ("NAV") per share is computed once daily, Monday
through Friday, at 4:00 p.m. Eastern Time except when the Fund is not open for
business, days during which the Fund receives no purchase or redemption orders,
customer holidays and on days when the New York Stock Exchange is closed.
The Trust reserves the right to suspend the right of redemption and/or to
postpone the date of payment upon redemption for any period on which trading on
the New York Stock Exchange is restricted, or during the existence of an
emergency (as determined by the SEC by rule or regulation) as a result of which
disposal or valuation of a Fund's securities is not reasonably practicable, or
for such other periods as the SEC has by order permitted. The Trust also
reserves the right to suspend sales of shares of any Fund for any period during
which the New York Stock Exchange, the Advisor, Turner, Clover Capital,
Chartwell, Sands Capital Management, Miller/Howard, Navellier, the
Administrator, the Transfer Agent and/or the Fund's custodian are not open for
business.
The Funds participate in fund "supermarket" arrangements. In such an
arrangement, a program is made available by a broker or other institution (a
sponsor) that allows investors to purchase and redeem shares of the Funds
through the sponsor of the fund supermarket. In connection with these
supermarket arrangements, each Fund has authorized one or more brokers to accept
on its behalf purchase and redemption orders. In turn, the brokers are
authorized to designate other intermediaries to accept purchase and redemption
orders on the Funds' behalf. As such, a Fund will be deemed to have received a
purchase or redemption order when an authorized broker or, if applicable, a
broker's authorized designee, accepts the order. The customer order will be
priced at the Fund's NAV next computed after acceptance by an authorized broker
or the broker's authorized designee. In addition, a broker may charge
transaction fees on the purchase and/or sale of Fund shares. Also in connection
with fund supermarket arrangements, the performance of a participating Fund may
be compared in publications to the performance of various indices and
investments for which reliable performance data is available and compared in
publications to averages, performance rankings, or other information prepared by
recognized mutual fund statistical services. The Trust's annual report contains
additional performance information and will be made available to investors upon
request and without charge.
CLASS A SHARES. Class A shares are sold at NAV plus an initial sales charge as
shown in the table below. In some cases the initial sales charge for purchases
of Class A shares may be waived or reduced.
64
SALES CHARGE FOR EQUITY AND BALANCED FUNDS:
- -------------------------------------------------------------------------------------------------
Amount of Investment Percentage of Which Equals this Dealer
Offering Price Percentage of Your Net Reallowance as
Deducted for Sales Investment Percentage of
Charge Offering Price
- -------------------------------------------------------------------------------------------------
Less than $50,000 5.75% 6.10% 5.00%
- -------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.50% 4.71% 3.75%
- -------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.50% 3.63% 2.75%
- -------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 2.95% 3.04% 2.25%
- -------------------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 2.25% 2.30% 1.75%
- -------------------------------------------------------------------------------------------------
$1,000,000 or more None None None
- -------------------------------------------------------------------------------------------------
SALES CHARGE FOR BOND FUNDS
- -------------------------------------------------------------------------------------------------
Amount of Investment Percentage of Which Equals this Dealer
Offering Price Percentage of Your Net Reallowance as
Deducted for Sales Investment Percentage of
Charge Offering Price
- -------------------------------------------------------------------------------------------------
Less than $50,000 4.75% 4.99% 4.00%
- -------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.50% 4.71% 3.75%
- -------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.50% 3.63% 2.75%
- -------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 2.95% 3.04% 2.25%
- -------------------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 2.25% 2.30% 1.75%
- -------------------------------------------------------------------------------------------------
$1,000,000 or more None None None
- -------------------------------------------------------------------------------------------------
For initial purchases of Class A shares of $1 million or more and subsequent
purchases further increasing the size of the account, participating unaffiliated
dealers may receive compensation of up to 1.00% of such purchases from the
Distributor according to the following schedule:
Amount of Investment Dealer Fee
- -------------------- ----------
$1 million but less than $3 million 1.00%
$3 million but less than $5 million 0.75%
$5 million but less than $25 million 0.50%
$25 million or more 0.25%
The Distributor does not have an annual reset for these fees. In determining a
dealer's eligibility for such commission, purchases of Class A shares of the
Funds may be aggregated with concurrent purchases of Class A shares of other
Touchstone Funds. If a commission was paid to a participating unaffiliated
dealer and the Class A shares are redeemed within a year of their purchase, a
contingent deferred sales charge ("CDSC") of 1.00% will be charged on the
redemption. Dealers should contact the Distributor for more information on the
calculation of the dealer's commission in the case of combined purchases.
An exchange from other Touchstone Funds will not qualify for payment of the
dealer's commission unless the exchange is from a Touchstone Fund with assets as
to which a dealer's commission or similar payment has not been previously paid.
No commission will be paid if the purchase represents the reinvestment of a
redemption from a Fund made during the previous twelve months. Redemptions of
Class A shares may result in the imposition of a CDSC if the dealer's commission
described in this paragraph was paid in connection with the purchase of such
shares. See "CDSC for Certain Redemptions of Class A shares" below.
65
CLASS C SHARES. Class C shares are sold at NAV, without an initial sales charge
and are subject to a CDSC of 1.00% on redemptions of Class C shares made within
one year of their purchase. The CDSC will be a percentage of the dollar amount
of shares redeemed and will be assessed on an amount equal to the lesser of (1)
the NAV at the time of purchase of the Class C shares being redeemed, or (2) the
NAV of such Class C shares being redeemed. A CDSC will not be imposed upon
redemptions of Class C shares held for at least one year. Class C shares are
subject to an annual 12b-1 fee of up to 1.00% of a Fund's average daily net
assets allocable to Class C shares. The Distributor intends to pay a commission
of 1.00% of the purchase amount to your broker at the time you purchase Class C
shares.
CLASS Y SHARES. Class Y shares are sold at NAV, without an initial sales charge
and are not subject to a 12b-1 fee or CDSC, but are subject to higher initial
investment requirements than other classes of shares of a Fund. Class Y shares
are offered through certain broker-dealers or financial institutions that have
distribution agreements with the Distributor. These agreements are generally
limited to discretionary managed, asset allocation, or wrap products offered by
broker-dealers and financial institutions and may be subject to fees by the
participating broker-dealer or financial institution. Class Y shares may also be
purchased directly through the Distributor.
ADDITIONAL INFORMATION ON THE CDSC
The CDSC is waived under the following circumstances:
o Any partial or complete redemption following death or disability (as
defined in the Internal Revenue Code) of a shareholder (including one who
owns the shares with his or her spouse as a joint tenant with rights of
survivorship) from an account in which the deceased or disabled is named.
The Distributor may require documentation prior to waiver of the charge,
including death certificates, physicians' certificates, etc.
o Redemptions from a systematic withdrawal plan. If the systematic
withdrawal plan is based on a fixed dollar amount or number of shares,
systematic withdrawal redemptions are limited to no more than 10% of your
account value or number of shares per year, as of the date the transfer
agent receives your request. If the systematic withdrawal plan is based on
a fixed percentage of your account value, each redemption is limited to an
amount that would not exceed 10% of your annual account value at the time
of withdrawal.
o Redemptions from retirement plans qualified under Section 401 of the
Internal Revenue Code. The CDSC will be waived for benefit payments made
by Touchstone directly to plan participants. Benefit payments will
include, but are not limited to, payments resulting from death,
disability, retirement, separation from service, required minimum
distributions (as described under Section 401(a)(9) of the Internal
Revenue Code), in-service distributions, hardships, loans and qualified
domestic relations orders. The CDSC waiver will not apply in the event of
termination of the plan or transfer of the plan to another financial
institution.
o Redemptions that are mandatory withdrawals from a traditional IRA account
after age 70 1/2
66
GENERAL. All sales charges imposed on redemptions are paid to the Distributor.
In determining whether the CDSC is payable, it is assumed that shares not
subject to the CDSC are the first redeemed followed by other shares held for the
longest period of time. The CDSC will not be imposed upon shares representing
reinvested dividends or capital gains distributions, or upon amounts
representing share appreciation.
CDSC FOR CERTAIN REDEMPTIONS OF CLASS A SHARES. A CDSC is imposed upon certain
redemptions of Class A shares of the Funds (or shares into which such Class A
shares were exchanged) purchased at NAV in amounts totaling $1 million or more,
if the dealer's commission described above was paid by the Distributor and the
shares are redeemed within one year from the date of purchase. The CDSC will be
paid to the Distributor and will be equal to the commission percentage paid at
the time of purchase as applied to the lesser of (1) the NAV at the time of
purchase of the Class A shares being redeemed, or (2) the NAV of such Class A
shares at the time of redemption. If a purchase of Class A shares is subject to
the CDSC, you will be notified on the confirmation you receive for your
purchase. Redemptions of such Class A shares of the Funds held for at least one
year will not be subject to the CDSC.
EXAMPLES. The following example will illustrate the operation of the CDSC.
Assume that you open an account and purchase 1,000 shares at $10 per share and
that six months later the NAV per share is $12 and, during such time, you have
acquired 50 additional shares through reinvestment of distributions. If at such
time you should redeem 450 shares (proceeds of $5,400), 50 shares will not be
subject to the charge because of dividend reinvestment. With respect to the
remaining 400 shares, the charge is applied only to the original cost of $10 per
share and not to the increase in NAV of $2 per share. Therefore, $4,000 of the
$5,400 redemption proceeds will pay the charge. At the rate of 1.00%, the CDSC
would be $40 for redemptions of Class C shares. In determining whether an amount
is available for redemption without incurring a deferred sales charge, the
purchase payments made for all shares in your account are aggregated.
PURCHASE AND REDEMPTION INFORMATION
WAIVER OF MINIMUM INVESTMENT REQUIREMENTS. The minimum and subsequent investment
requirements for purchases in the Funds may not apply to:
1. Any director, officer or other employee (and their immediate family
members) of Western & Southern Life Insurance Company or any of its
affiliates or any portfolio advisor or service provider to the Trust.
2. Any employee benefit plan that is provided administrative services by a
third-party administrator that has entered into a special service
arrangement with the Distributor.
The minimum investment waivers are not available for Class Y shares of the
Funds.
WAIVER OF CLASS A SALES CHARGES. In addition to the categories of purchasers
described in the Prospectus/Proxy Statement from whom the sales charge on
purchases of Class A shares of the International Growth Fund may be waived,
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no concessions are paid by the Distributor on such
purchases):
67
1. purchases into a Fund by any director, officer, employee (and their immediate
family members, as defined below), or current separate account client of or
referral by a Sub-Advisor to that particular Fund;
2. purchases by any director, officer or other employee (and their immediate
family members, as defined below) of Western & Southern Financial Group or any
of its affiliates; and
3. purchases by any employees of JPMorgan (formerly Integrated Investment
Services, Inc.) who provide services for Touchstone Investments.
Exemptions must be qualified in advance by the Distributor. At the option of the
Trust, the front-end sales charge may be included on purchases by such persons
in the future.
Immediate family members are defined as the spouse, parents, siblings, domestic
partner, natural or adopted children, mother-in-law, father-in-law,
brother-in-law, and sister-in-law of a director, officer or employee. The term
"employee" is deemed to include current and retired employees.
WAIVER OF CLASS A SALES CHARGE FOR FORMER CONSTELLATION SHAREHOLDERS.
Shareholders who owned shares of the Trust as of November 17, 2006 who are
purchasing additional shares for their accounts or opening new accounts in any
Touchstone Fund are not subject to the front-end sales charge for purchases of
Class A Shares. If you are purchasing shares through a financial intermediary,
you must notify the intermediary at the time of purchase that a purchase
qualifies for a sales load waiver and you may be required to provide copies of
account statements verifying your qualification.
WAIVER OF CLASS A SALES CHARGE FOR FORMER NAVELLIER SHAREHOLDERS. Shareholders
who owned shares of the Navellier International Growth Portfolio as of September
26, 2008 who are purchasing additional shares for their accounts or opening new
accounts in any Touchstone Fund are not subject to the frond-end sales charge
for purchases of Class A Shares. If you are purchasing shares through a
financial intermediary, you must notify the intermediary at the time of purchase
that a purchase qualifies for a sales load waiver and you may be required to
provide copies of account statements verifying your qualification.
PURCHASES IN KIND. Shares may be purchased by tendering payment in-kind in the
form of marketable securities, including but not limited to shares of common
stock, provided the acquisition of such securities is consistent with the Fund's
investment goals and is otherwise acceptable to the Advisor.
REDEMPTION IN KIND. Under unusual circumstances, when the Board of Trustees
deems it in the best interests of a Fund's shareholders, the Fund may make
payment for shares repurchased or redeemed in whole or in part in securities of
the Fund taken at current value. Should payment be made in securities, the
redeeming shareholder will bear the market risk until the securities are sold
and the redeeming shareholder will generally incur brokerage costs in converting
such securities to cash. Portfolio securities that are issued in an in-kind
redemption will be readily marketable. The Trust has filed an irrevocable
election with the SEC under Rule 18f-1 of the 1940 Act wherein the Funds are
committed to pay redemptions in cash, rather than in kind, to any shareholder of
record of a Fund who redeems during any ninety-day period, the lesser of
$250,000 or 1% of a Fund's NAV at the beginning of such period.
68
UNCASHED DISTRIBUTION CHECKS. If you elect to receive dividends and
distributions in cash and the payment (1) is returned and marked as
"undeliverable" or (2) is not cashed for six months, your cash election will be
changed automatically and future dividends will be reinvested in the Fund at the
per share net asset value determined as of the date of payment. In addition, any
undeliverable checks or checks that are not cashed for six months will be
cancelled and then reinvested in the Fund at the per share net asset value
determined as of the date of cancellation.
DETERMINATION OF NET ASSET VALUE
The securities of each Fund are valued under the direction of the Administrator
and under the general supervision of the Trustees. The Administrator or its
delegates may use independent pricing services to obtain valuations of
securities. The pricing services rely primarily on prices of actual market
transactions as well as on trade quotations obtained from third parties. Prices
are generally determined using readily available market prices. If market prices
are unavailable or believed to be unreliable, the Sub-Administrator will
initiate a process by which the Trust's Fair Value Committee will make a good
faith determination as to the "fair value" of the security using procedures
approved by the Trustees. The pricing services may use a matrix system to
determine valuations of fixed income securities when market prices are not
readily available. This system considers such factors as security prices,
yields, maturities, call features, ratings and developments relating to specific
securities in arriving at valuations. The procedures used by any such pricing
service and its valuation results are reviewed by the officers of the Trust
under the general supervision of the Trustees.
Some Funds may hold portfolio securities that are listed on foreign exchanges.
These securities may trade on weekends or other days when the Funds do not
calculate net asset value. As a result, the value of these investments may
change on days when you cannot purchase or sell Fund shares.
Securities with remaining maturities of 60 days or less will be valued by the
amortized cost method, which involves valuing a security at its cost on the date
of purchase and thereafter (absent unusual circumstances) assuming a constant
amortization of maturity of any discount or premium, regardless of the impact of
fluctuations in general market rates of interest on the value of the instrument.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by this method, is higher or lower than the
price a Fund would receive if it sold the instrument.
69
TAXES
The following is only a summary of certain tax considerations generally
affecting the Funds and their shareholders. No attempt is made to present a
detailed explanation of the federal, state, or local tax treatment of the Funds
or their shareholders and the discussion here and in the Prospectus/Proxy
Statement is not intended as a substitute for careful tax planning. Shareholders
are urged to consult their tax advisors about their own tax situations,
including their foreign, state and local tax liabilities.
FEDERAL INCOME TAX
The following is only a summary of certain additional federal tax considerations
generally affecting the Funds and their shareholders that are not discussed in
the Prospectus. The discussion of federal income tax consequences is based on
the Internal Revenue Code and the regulations issued thereunder as in effect on
the date of this Statement of Additional Information. New legislation, as well
as administrative changes or court decisions, may significantly change the
conclusions expressed herein, and may have a retroactive effect with respect to
the transactions contemplated herein.
Each Fund intends to qualify as a "regulated investment company" ("RIC") as
defined under subchapter M of the Internal Revenue Code. By following such a
policy, each Fund expects to eliminate or reduce to a nominal amount the federal
taxes to which it may be subject.
In order to qualify for treatment as a RIC under the Internal Revenue Code, each
Fund must distribute annually to its shareholders at least the sum of 90% of its
net interest income excludable from gross income plus 90% of its investment
company taxable income (generally, net investment income plus net short-term
capital gain) ("Distribution Requirement") and also must meet several additional
requirements. Among these requirements are the following: (i) at least 90% of a
Fund's gross income each taxable year must be derived from dividends, interest,
payments with respect to securities loans, gains from the sale or other
disposition of stock or securities, or certain other income (including gains
from options, futures or forward contracts) and net income derived from
interests in qualified publicly traded partnerships; (ii) at the close of each
quarter of a Fund's taxable year, at least 50% of the value of its total assets
must be represented by cash and cash items, U.S. government securities,
securities of other RICs and other securities, with such other securities
limited, in respect to any one issuer, to an amount that does not exceed 5% of
the value of the Fund's assets and that does not represent more than 10% of the
outstanding voting securities of such issuer; and (iii) at the close of each
quarter of a Fund's taxable year, not more than 25% of the value of its assets
may be invested in securities (other than U.S. government securities or the
securities of other RICs) of any one issuer, of two or more issuers which are
engaged in the same, similar or related trades or business if the Fund owns at
least 20% of the voting power of such issuers, or securities of one or more
publicly traded partnerships.
Notwithstanding the Distribution Requirement described above, which requires
only that a Fund distribute at least 90% of its annual investment company
taxable income and does not require any minimum distribution of net capital gain
(the excess of net long-term capital gain over net short-term capital loss), the
Funds will be subject to a nondeductible 4% federal excise tax to the extent it
fails to distribute by the end of any calendar year 98% of its ordinary income
for that year and 98% of its capital gain net income (the excess of short- and
long-term capital gains over short-and long-term capital losses) for the
one-year period ending on October 31 of that year, plus certain other amounts.
70
Each Fund intends to make sufficient distributions to avoid liability for the
federal excise tax but can make no assurances that all such tax will be
eliminated. A Fund may in certain circumstances be required to liquidate Fund
investments in order to make sufficient distributions to avoid federal excise
tax liability at a time when an investment adviser might not otherwise have
chosen to do so, and liquidation of investments in such circumstances may affect
the ability of a Fund to satisfy the requirements for qualification as a RIC.
If any Fund fails to qualify as a RIC for any taxable year, it will be taxable
at regular corporate rates. In such an event, all distributions (including
capital gains distributions) will be taxable as ordinary dividends to the extent
of the Fund's current and accumulated earnings and profits, subject to the
dividends-received deduction for corporate shareholders and the lower tax rates
applicable to qualified dividend income distributed to individuals. The Board of
Trustees reserves the right not to maintain the qualification of a Fund as a RIC
if it determines such course of action to be beneficial to shareholders.
Each Fund receives income generally in the form of dividends and interest on its
investments. Each Fund's income, less expenses incurred in the operation of such
Fund, constitutes the Fund's net investment income from which dividends may be
paid to you. Any distributions of dividends by a Fund will be taxable as
ordinary income, whether you take them in cash or additional shares. Except for
dividends paid by Funds which invest entirely in debt securities and
instruments, all or a portion of such dividends may be treated as qualified
dividend income (eligible for the reduced maximum rate to individuals of 15% (5%
for individuals in lower tax brackets)) to the extent that a Fund designates its
distributions as qualified dividend income. Qualified dividend income is, in
general, subject to certain holding period requirements and other requirements,
dividend income from taxable domestic corporations and certain foreign
corporations (e.g., foreign corporation incorporated in a possession of the
United States or in certain countries with a comprehensive tax treaty with the
United States, or the stock of which is readily tradable on an established
securities market in the United States). A Fund may derive capital gains and
losses in connection with sales or other dispositions of its portfolio
securities. Distributions from net short-term capital gains will be taxable to
you as ordinary income. Distributions from net long-term gains will be taxable
to you at long-term capital gains rates, regardless of how long you have held
your shares in a Fund. Long-term capital gains are currently taxed at a maximum
rate of 15%. The maximum 15% rate on qualified dividend income and long-term
capital gains will cease to apply to taxable years beginning after December 31,
2010.
The Funds will inform you of the amount of your distributions at the time they
are paid, and will advise you of their tax status for federal income tax
purposes shortly after the close of each calendar year. If you have not held
Fund shares for a full year, a Fund may designate and distribute to you as
ordinary income, qualified dividend income, or capital gains, a percentage of
income that is not equal to the actual amount of such income earned during the
period of your investment in the Fund.
71
Any gain or loss recognized on a sale, exchange or redemption of shares of a
Fund by a shareholder who is not a dealer in securities will generally, for
individual shareholders, be treated as a long-term capital gain or loss if the
shares have been held for more than one year, and otherwise will be treated as
short-term capital gain or loss. However, if shares on which a shareholder has
received a net capital gain distribution are subsequently sold, exchanged or
redeemed and such shares have been held for six months or less, any loss
recognized will be treated as a long-term capital loss to the extent of the net
capital gain distribution.
All or a portion of any loss that you realize upon the redemption of your shares
of a Fund will be disallowed to the extent that you buy other shares in the Fund
(through reinvestment of dividends or otherwise) within 30 days before or after
your share redemptions. Any loss disallowed under these rules will be added to
your tax basis in the new shares you buy.
Prior to purchasing shares in a Fund, the impact of dividends or distributions
which are expected to be or have been declared, but not paid, should be
carefully considered. Any dividend or distribution declared shortly after a
purchase of such shares prior to the record date will have the effect of
reducing the per share net asset value by the per share amount of the dividend
or distribution, and to the extent the distribution consists of the Fund's
taxable income, the purchasing shareholder will be taxed on the taxable portion
of the dividend or distribution received even though some or all of the amount
distributed may effectively be a return of capital.
For corporate investors in some of the Funds, dividend distributions the Fund
designates to be from dividends received from qualifying domestic corporations
will be eligible for the 70% corporate dividends-received deduction to the
extent they would qualify if the Funds were regular corporations.
In certain cases, the Fund will be required to withhold at the applicable
withholding rate, and remit to the United States Treasury, any distributions
paid to a shareholder who (1) has failed to provide a correct taxpayer
identification number, (2) is subject to backup withholding by the Internal
Revenue Service, (3) has not certified to the Fund that such shareholder is not
subject to backup withholding, or (4) has not certified that such shareholder is
a U.S. person (including a U.S. resident alien).
The Funds' transactions in certain futures contracts, options, forward
contracts, foreign currencies, foreign debt securities, and certain other
investment and hedging activities will be subject to special tax rules. In a
given case, these rules may accelerate income to the Fund, defer losses to the
Fund, cause adjustments in the holding periods of the Fund's assets, convert
short-term capital losses into long-term capital losses, or otherwise affect the
character of the Fund's income. These rules could therefore affect the amount,
timing, and character of distributions to shareholders. The Funds will endeavor
to make any available elections pertaining to such transactions in a manner
believed to be in the best interest of the Funds.
72
With respect to investments in STRIPS, TRs, TIGRs, LYONs, CATS and other Zero
Coupon securities which are sold at original issue discount and thus do not make
periodic cash interest payments, a Fund will be required to include as part of
its current income the imputed interest on such obligations even though the Fund
has not received any interest payments on such obligations during that period.
Because each Fund distributes all of its net investment income to its
shareholders, a Fund may have to sell Fund securities to distribute such imputed
income which may occur at a time when the investment adviser would not have
chosen to sell securities and which may result in taxable gain or loss.
The Funds may use a tax management technique known as "highest in, first out."
Using this technique, the portfolio holdings that have experienced the smallest
gain or largest loss are sold first in an effort to minimize capital gains and
enhance after-tax returns.
For federal income tax purposes, a Fund is permitted to carry forward a net
capital loss in any year to offset its own capital gains, if any, during the
eight years following the year after the loss. These amounts are available to be
carried forward to offset future capital gains to the extent permitted by the
Internal Revenue Code and applicable tax regulations. At September 30, 2007, the
following Funds had capital loss carryforwards available to offset future
realized capital gains as shown in the table below:
- --------------------------------------------------------------------------------
Fund Amount of Capital Loss Carryforwards
- --------------------------------------------------------------------------------
Clover Core Fixed Income Fund $292,352
- --------------------------------------------------------------------------------
Ultra Short Duration Fixed Income Fund $7,241,873
- --------------------------------------------------------------------------------
Short Duration Fixed Income Fund $3,970,327
- --------------------------------------------------------------------------------
Sands Capital Select Growth Fund $42,616,146
- --------------------------------------------------------------------------------
STATE TAXES
No Fund is liable for any income or franchise tax in Delaware if it qualifies as
a RIC for federal income tax purposes. Distributions by any Fund to shareholders
and the ownership of shares may be subject to state and local taxes.
Many states grant tax-free status to dividends paid to you from interest earned
on direct obligations of the U.S. government, subject in some states to minimum
investment requirements that must be met by a Fund. Investment in GNMA or Fannie
Mae securities, banker's acceptances, commercial paper, and repurchase
agreements collateralized by U.S. government securities do not generally qualify
for such tax-free treatment. The rules on exclusion of this income are different
for corporate shareholders.
Shareholders are urged to consult their tax advisers regarding the affect of
federal, state, and local taxes to their own individual circumstances.
FOREIGN TAXES
Dividends and interest received by a Fund may be subject to income, withholding
or other taxes imposed by foreign countries and United States possessions that
would reduce the yield on a Fund's securities. Tax conventions between certain
countries and the United States may reduce or eliminate these taxes. Foreign
countries generally do not impose taxes on capital gains with respect to
investments by foreign investors. If more than 50% of the value of a Fund's
total assets at the close of its taxable year consists of stock or securities of
foreign corporations, a Fund will be eligible to, and will, file an election
with the Internal Revenue Service that will enable shareholders, in effect, to
receive the benefit of the foreign tax credit with respect to any foreign and
United States possession's income taxes paid by a Fund. Pursuant to the
election, a Fund will treat those taxes as dividends paid to its shareholders.
Each shareholder will be required to include a proportionate share of those
taxes in gross income as income received from a foreign source and must treat
the amount so included as if the shareholder had paid the foreign tax directly.
The shareholder may then either deduct the taxes deemed paid by him or her in
computing his or her taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit (subject to significant
limitations) against the shareholder's federal income tax. If a Fund makes the
election, it will report annually to its shareholders the respective amounts per
share of the Fund's income from sources within, and taxes paid to, foreign
countries and United States possessions.
73
Most foreign exchange gains realized on the sale of debt securities are treated
as ordinary income by a Fund. Similarly, foreign exchange losses realized by a
Fund on the sale of debt securities are generally treated as ordinary losses by
the Fund. These gains when distributed will be taxed to you as ordinary
dividends, and any losses will reduce the Fund's ordinary income otherwise
available for distribution to you. This treatment could increase or reduce the
Fund's ordinary income distributions to you, and may cause some or all of the
Fund's previously distributed income to be classified as a return of capital.
PORTFOLIO TRANSACTIONS
The Advisor and each Sub-Advisor are authorized to select brokers and dealers to
effect securities transactions for the Funds. Each will seek to obtain the most
favorable net results by taking into account various factors, including price,
commission, size of the transactions and difficulty of executions, the firm's
general execution and operational facilities and the firm's risk in positioning
the securities involved. While the Advisor and each Sub-Advisor generally seek
reasonably competitive spreads or commissions, a Fund will not necessarily be
paying the lowest spread or commission available. The Advisor and each
Sub-Advisor seek to select brokers or dealers that offer a Fund best price and
execution or other services that benefit the Funds.
The Advisor and each Sub-Advisor may, consistent with the interests of the
Funds, select brokers on the basis of the research services provided to the
Advisor and the Sub-Advisor. Such services may include analyses of the business
or prospects of a company, industry or economic sector, or statistical and
pricing services. Information so received by the Advisor and each Sub-Advisor
will be in addition to and not in lieu of the services required to be performed
by the Advisor and the Sub-Advisor under the Advisory Agreement or applicable
Sub-Advisory Agreement, respectively. If, in the judgment of the Advisor and
each Sub-Advisor, a Fund or other accounts managed by the Advisor and the
Sub-Advisor will be benefited by supplemental research services, the Advisor and
the Sub-Advisor are authorized to pay brokerage commissions to a broker
furnishing such services that are in excess of commissions that another broker
may have charged for effecting the same transaction. These research services
include advice, either directly or through publications or writings, as to the
value of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities; furnishing of analyses and reports concerning issuers, securities or
industries; providing information on economic factors and trends; assisting in
determining portfolio strategy; providing computer software used in security
analyses; and providing portfolio performance evaluation and technical market
analyses. The expenses of the Advisor and each Sub-Advisor will not necessarily
be reduced as a result of the receipt of such supplemental information, such
services may not be used exclusively, or at all, with respect to a Fund or
account generating the brokerage, and there can be no guarantee that the Advisor
or the Sub-Advisor will find all of such services of value in advising that
Fund.
74
The Funds may execute brokerage or other agency transactions through brokers
that may be deemed "affiliates" under the 1940 Act, the Securities Exchange Act
of 1934 and rules promulgated by the SEC. Under these provisions, an affiliated
broker is permitted to receive commissions that do not exceed "usual and
customary" brokerage commissions. The rules define "usual and customary"
commissions to include amounts that are "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable period of
time." The Trustees, including those who are not "interested persons" of the
Trust, have adopted procedures for evaluating the reasonableness of commissions
paid to the affiliated brokers and will review these procedures periodically.
It is not the Funds' practice to allocate brokerage or principal business on the
basis of sales of its shares made through broker-dealers, and in no event may
the Advisor or a Sub-Advisor directly or indirectly compensate a broker for
promoting Fund shares with payments from Fund portfolio transactions. In
addition, notwithstanding anything to the contrary in the Advisory Agreement or
any Sub-Advisory Agreement, neither the Advisor nor any Sub-Advisor may consider
the sale of Fund shares in selecting among executing broker-dealers.
For the fiscal years ended September 30, 2006 and 2007 the Trust's portfolio
turnover rates were as follows:
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE
---------------------------------------
FUND 2006 2007
- --------------------------------------------------------------------------------
Value Opportunities Fund 80% 62%
- --------------------------------------------------------------------------------
Diversified Small Cap Value Fund 98% 79%
- --------------------------------------------------------------------------------
Clover Core Fixed Income Fund 62% 71%
- --------------------------------------------------------------------------------
Ultra Short Duration Fund 38% 26%
- --------------------------------------------------------------------------------
Short Duration Fund 10% 21%
- --------------------------------------------------------------------------------
Healthcare and Biotechnology Fund 158% 156%
- --------------------------------------------------------------------------------
Small Cap Value Opportunities Fund 99% 127%
- --------------------------------------------------------------------------------
Sands Capital Select Growth Fund 24% 24%
- --------------------------------------------------------------------------------
Mid Cap Fund 323% 193%
- --------------------------------------------------------------------------------
75
The portfolio turnover rate for the Premium Yield Equity Fund is not included
because the Fund had not commenced operations prior to September 30, 2007.
For the fiscal years ended December 31, 2006 and 2007 the International Growth
Fund's portfolio turnover rates were as follows:
- --------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE
---------------------------------
FUND 2006 2007
- --------------------------------------------------------------------------------
International Growth Fund 67% 91%
- --------------------------------------------------------------------------------
The brokerage commissions paid by the Trust for the fiscal years ended September
30, 2005, 2006 and 2007 were as follows:
- -----------------------------------------------------------------------------------------
TOTAL DOLLAR AMOUNT OF BROKERAGE COMMISSIONS PAID
-------------------------------------------------
FUND 2005 2006 2007
- -----------------------------------------------------------------------------------------
Value Opportunities Fund $295,116 $272,121 $157,930
- -----------------------------------------------------------------------------------------
Diversified Small Cap Value Fund $2,219,631 $1,486,259 $811,199
- -----------------------------------------------------------------------------------------
Clover Core Fixed Income Fund N/A N/A N/A
- -----------------------------------------------------------------------------------------
Ultra Short Duration Fund $1,386 N/A N/A
- -----------------------------------------------------------------------------------------
Short Duration Fund $11,096 N/A N/A
- -----------------------------------------------------------------------------------------
Small Cap Value Opportunities Fund $228,760 $551,410 $806,018
- -----------------------------------------------------------------------------------------
Healthcare and Biotechnology Fund $163,087 $154,645 $122,502
- -----------------------------------------------------------------------------------------
Sands Capital Select Growth Fund $94,977 $243,644 $187,632
- -----------------------------------------------------------------------------------------
The brokerage commissions for the Premium Yield Equity Fund are not included
because the Fund had not commenced operations prior to September 30, 2007.
For the fiscal year ended December 31, 2004, and the fiscal periods ended
September 30, 2005, 2006 and 2007, the Mid Cap Fund paid the following brokerage
commissions:
- --------------------------------------------------------------------------------
TOTAL AMOUNT OF BROKERAGE
COMMISSIONS PAID
--------------------------------------------------
FUND 2004 2005 2006
- --------------------------------------------------------------------------------
Mid Cap Fund $2,164 $1,389 $85,385
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2007
- ------------------------------------------------------------------------ -------
Mid Cap Fund $1,151,097
- ------------------------------------------------------------------------ -------
76
For the fiscal years ended December 31, 2005, 2006 and 2007, the International
Growth Fund paid the following brokerage commissions:
- --------------------------------------------------------------------------------
TOTAL AMOUNT OF BROKERAGE
COMMISSIONS PAID
--------------------------------------------------
FUND 2005 2006 2007
- --------------------------------------------------------------------------------
International Growth Fund $14,605 $22,137 $2,174
- --------------------------------------------------------------------------------
The brokerage commissions paid by the Trust to the Distributor for the fiscal
years ended September 30, 2005, 2006 and 2007, and the commissions paid by each
other Fund for the fiscal years ended September 30, 2005, 2006 and 2007, were as
follows:
- --------------------------------------------------------------------------------
TOTAL DOLLAR AMOUNT OF BROKERAGE
COMMISSIONS PAID TO THE DISTRIBUTOR
------------------------------------
FUND 2005 2006 2007
- --------------------------------------------------------------------------------
Value Opportunities Fund N/A N/A $12,446
- --------------------------------------------------------------------------------
Diversified Small Cap Value Fund N/A N/A $3,964
- --------------------------------------------------------------------------------
Clover Core Fixed Income Fund N/A N/A N/A
- --------------------------------------------------------------------------------
Ultra Short Duration Fund N/A N/A N/A
- --------------------------------------------------------------------------------
Short Duration Fund N/A N/A N/A
- --------------------------------------------------------------------------------
Sands Capital Select Growth Fund N/A N/A N/A
- --------------------------------------------------------------------------------
Small Cap Value Opportunities Fund N/A N/A N/A
- --------------------------------------------------------------------------------
Healthcare and Biotechnology Fund N/A N/A $7,553
- --------------------------------------------------------------------------------
The brokerage commissions paid to the Distributor by the Premium Yield Equity
Fund are not included because the Fund had not commenced operations prior to
September 30, 2007.
For the fiscal years ended December 31, 2004, and the fiscal periods ended
September 30, 2005, 2006 and 2007, the Mid Cap Fund paid the following brokerage
commissions to the Distributor:
- --------------------------------------------------------------------------------
TOTAL DOLLAR AMOUNT OF BROKERAGE
COMMISSIONS PAID TO THE DISTRIBUTOR
--------------------------------------------------
FUND 2004 2005 2006
- --------------------------------------------------------------------------------
Mid Cap Fund $386 N/A N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2007
- --------------------------------------------------------------------------------
Mid Cap Fund $1,521
- --------------------------------------------------------------------------------
77
For the fiscal years ended December 31, 2005, 2006 and 2007, the International
Growth Fund paid the following brokerage commissions to the Distributor:
- --------------------------------------------------------------------------------
TOTAL DOLLAR AMOUNT OF BROKERAGE
COMMISSIONS PAID TO THE DISTRIBUTOR
--------------------------------------------------
FUND 2005 2006 2007
- --------------------------------------------------------------------------------
International Growth Fund $0 $0 $0
- --------------------------------------------------------------------------------
The total amount of securities of regular Broker/Dealers held by each Fund for
the fiscal year ended September 30, 2007 were as follows:
- ----------------------------------------------------------------------------------------------------------
TOTAL AMOUNT OF
SECURITIES HELD BY
FUND NAME OF BROKER/DEALER FUND TYPE OF SECURITY
- ----------------------------------------------------------------------------------------------------------
Value Opportunities Fund Bank of New York $1,595,617 Equity
- ----------------------------------------------------------------------------------------------------------
Citigroup Global Markets, Inc. $3,375,407 Equity
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Small Cap Value Opportunities Investment Technology Group,
Fund Inc. $768,912 Equity
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Short Duration Fixed Income Fund Countrywide Financial Corp. $990,058 Debt
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Clover Core Fixed Income Fund Morgan Stanley $495,000 Debt
- ----------------------------------------------------------------------------------------------------------
Merrill Lynch $530,694 Debt
- ----------------------------------------------------------------------------------------------------------
DISCLOSURE OF PORTFOLIO HOLDINGS
The Touchstone Funds have adopted policies and procedures for disclosing the
Funds' portfolio holdings to any person requesting this information. These
policies and procedures are monitored on an on-going basis by the Board of
Trustees through periodic reporting by the Funds' Chief Compliance Officer. The
Chief Compliance Officer will report any material violations immediately to the
Board of Trustees and will report any immaterial violations to the Board at the
next quarterly meeting. No compensation will be received by a Fund, the Advisor,
or any other party in connection with the disclosure of information about
portfolio securities.
The procedures prohibit the disclosure of portfolio holdings except under the
following conditions:
1) A request made by a Sub-Advisor for a Fund (or that portion of a
Fund) that it manages;
2) A request by executive officers of the Advisor for routine oversight
and management purposes;
78
3) For use in preparing and distributing routine shareholder reports,
including disclosure to the Funds' independent registered public
accounting firm, typesetter and printer. Routine shareholder reports
are filed as of the end of each calendar quarter with the SEC within
60 days after the quarter end and routine shareholder reports are
distributed to shareholders within 60 days after the six-month
period. The Funds provide their full holdings to their registered
public accounting firm annually, as of the end of their fiscal year,
within one to ten business days after fiscal year-end. The Funds
provide their full holdings to their typesetter at least 30 days
after the end of the calendar quarter. The Funds provide their full
holdings to their printer at least 45 days after the six-month
period.
o The Funds (except the Sands Capital Select Growth Fund) provide
their top ten holdings on their publicly available website and to
market data agencies monthly, as of the end of a calendar month, at
least seven business days after month-end.
o The Funds (except the Sands Capital Select Growth Fund) provide
their full holdings on their publicly available website, and to
market data agencies, their typesetter and printer, quarterly, as of
the end of a calendar quarter, at least fifteen days after
quarter-end.
o The Sands Capital Select Growth Fund provides its full holdings on
its publicly available website and to market data agencies monthly,
as of the end of a month, at least sixty days after month-end.
o The Sands Capital Select Growth Fund provides its top five holdings
on its publicly available website and to market data agencies
quarterly, as of the end of a calendar quarter, at least seven
business days after quarter-end.
o The Sands Capital Select Growth Fund provides its full holdings to
its typesetter and printer quarterly, as of the end of a calendar
quarter, at least fifteen days after quarter-end.
You may access the public website at www.touchstoneinvestments.com.
Employees of Touchstone Investments and the Funds' Sub-Advisor that are access
persons under the Funds' Code of Ethics have access to Fund holdings on a
regular basis, but are subject to confidentiality requirements and trading
prohibitions in the Code of Ethics. In addition, custodians of the Funds' assets
and the Funds' accounting services agent, each of whose agreements contains a
confidentiality provision (which includes a duty not to trade on non-public
information), have access to the current Fund holdings on a daily basis.
The Chief Compliance Officer is authorized to determine whether disclosure of a
Fund's portfolio securities is for a legitimate business purpose and is in the
best interests of the Fund and its shareholders. Any conflict between the
interests of shareholders and the interests of the Advisor, the Distributor, or
any affiliates, will be reported to the Board, which will make a determination
that is in the best interests of shareholders.
79
VOTING
Each whole share shall be entitled to one vote as to any matter on which it is
entitled to vote and each fractional share shall be entitled to a proportionate
fractional vote. Shares issued by each Fund have no preemptive, conversion, or
subscription rights. Voting rights are not cumulative. Each Fund, as a separate
series of the Trust, votes separately on matters affecting only that Fund.
Shareholders of each Class of each Fund will vote separately on matters
pertaining solely to that Fund or that Class. As a Delaware statutory trust, the
Trust is not required to hold annual meetings of shareholders, but approval will
be sought for certain changes in the operation of the Trust and for the election
of Trustees under certain circumstances.
In addition, a Trustee may be removed by the remaining Trustees or by
shareholders at a special meeting called upon written request of shareholders
owning at least 10% of the outstanding shares of the Trust. In the event that
such a meeting is requested, the Trust will provide appropriate assistance and
information to the shareholders requesting the meeting.
Where the Trust's Prospectus or Statement of Additional Information state that
an investment limitation or a fundamental policy may not be changed without
shareholder approval, such approval means the vote of (i) 67% or more of the
affected Fund's shares present at a meeting if the holders of more than 50% of
the outstanding shares of the Fund are present or represented by proxy, or (ii)
more than 50% of the affected Fund's outstanding shares, whichever is less.
DESCRIPTION OF SHARES
The Trust's Declaration of Trust authorizes the issuance of an unlimited number
of Funds and shares of each Fund. Each share of a Fund represents an equal
proportionate interest in that Fund with each other share. Upon liquidation,
shares are entitled to a pro rata share in the net assets of the Fund, after
taking into account additional distribution and shareholder servicing expenses
attributable to the Class A, Class C and Class Z Shares. Shareholders have no
preemptive rights. The Declaration of Trust provides that the Trustees of the
Trust may create additional series of shares or separate classes of funds. All
consideration received by the Trust for shares of any portfolio or separate
class and all assets in which such consideration is invested would belong to
that portfolio or separate class and would be subject to the liabilities related
thereto. Share certificates representing shares will not be issued.
SHAREHOLDER LIABILITY
The Trust is an entity of the type commonly known as a Delaware statutory trust.
The Trust's Declaration of Trust contains an express disclaimer of shareholder
liability for obligations of the Trust, and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by or on behalf of the Trust or the Trustees, and because the
Declaration of Trust provides for indemnification out of the Trust property for
any shareholder held personally liable for the obligations of the Trust.
80
LIMITATION OF TRUSTEES' LIABILITY
The Declaration of Trust provides that a Trustee shall be liable only for his
own willful defaults and, if reasonable care has been exercised in the selection
of officers, agents, employees or investment advisers, shall not be liable for
any neglect or wrongdoing of any such person. The Declaration of Trust also
provides that the Trust will indemnify its Trustees and officers against
liabilities and expenses incurred in connection with actual or threatened
litigation in which they may be involved because of their offices with the Trust
unless it is determined in the manner provided in the Declaration of Trust that
they have not acted in good faith in the reasonable belief that their actions
were in the best interests of the Trust. However, nothing in the Declaration of
Trust shall protect or indemnify a Trustee against any liability for his willful
misfeasance, bad faith, gross negligence or reckless disregard of his duties.
CODE OF ETHICS
The Board of Trustees of the Trust has adopted a Code of Ethics pursuant to Rule
17j-1 under the 1940 Act. In addition, the Advisor, each Sub-Advisor and
Distributor have adopted Codes of Ethics pursuant to Rule 17j-1. These Codes of
Ethics apply to the personal investing activities of Trustees, officers, and
certain employees ("access persons"). Rule 17j-1 and the Codes of Ethics are
designed to prevent unlawful practices in connection with the purchase or sale
of securities by access persons. Under each Code of Ethics, access persons are
permitted to invest in securities (including securities that may be purchased or
held by a Fund), but are required to report their personal securities
transactions for monitoring purposes. In addition, certain access persons are
required to obtain approval before investing in initial public offerings or
private placements. Copies of these Codes of Ethics are on file with the SEC,
and are available to the public.
PROXY VOTING
The Board of Trustees of the Trust has delegated responsibility for decisions
regarding proxy voting for securities held by each Fund to the Advisor and its
Sub-Advisor(s). Generally, Sub-Advisors will vote such proxies in accordance
with its proxy voting policies and procedures, which are included in Appendix B
to this SAI. If a Fund does not have a Sub-Advisor, the Advisor will vote such
proxies in accordance with its proxy voting policies and procedures, which are
included in Appendix B to this SAI. The Board of Trustees may periodically
review each Fund's proxy voting record. Form N-PX for each Fund (its voting
record) will be available upon request by calling 1-800-543-0407 or by writing
to the Trust at Touchstone Funds Group Trust, P.O. Box 5354, Cincinnati, OH
45201-5354. Each Fund's Form N-PX will also be available on the SEC's website at
www.sec.gov and on the Touchstone website at www.touchstoneinvestments.com.
CONTROL PERSONS AND PRINCIPAL SHAREHOLDERS
As of September 3, 2008, the following persons were the only persons who were
record owners (or to the knowledge of the Trust, beneficial owners) of 5% or
more of the shares of each Fund. The Trust believes that most of the shares
referred to below were held by the persons indicated in accounts for their
fiduciary, agency, or custodial customers.
81
- -----------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS PERCENTAGE OF
FUND OF BENEFICIAL OWNER FUND'S SHARES
- -----------------------------------------------------------------------------------------------------------------
Diversified Small Cap Value Fund Class Z Charles Schwab & Co. Inc.
4500 Cherry Creek Dr.
Denver, CO 80209
- -----------------------------------------------------------------------------------------------------------------
UMB Bank NA
Cadence Design Systems Inc.
P.O. Box 419784 Attn: 5500 Team
Kansas City, MO 64141-6784
- -----------------------------------------------------------------------------------------------------------------
Diversified Small Cap Value Fund Class A NFS LLC FEBO
Joseph Abbatie
284 Beechwood Ave.
Oradell, NJ 07649
- -----------------------------------------------------------------------------------------------------------------
Stifel Nicolaus Co. Inc.
501 North Broadway
St. Louis, MO 63102
- -----------------------------------------------------------------------------------------------------------------
Donald F. Klein
- -----------------------------------------------------------------------------------------------------------------
Diversified Small Cap Value Fund Class C MLPF & S
For the Sole Benefit of its Customers
4800 Deer Lake Dr. East-2nd Floor
Jacksonville, FL 32246
- -----------------------------------------------------------------------------------------------------------------
Value Opportunities Fund Fifth Third Bank Trustee
Class A Western & Southern 401k Savings
8515 East Orchard 2T2
Centennial, CO 80111
- -----------------------------------------------------------------------------------------------------------------
Western & Southern Deferred Account
400 Broadway
Cincinnati, OH 45202
- -----------------------------------------------------------------------------------------------------------------
Western & Southern Deferred Account
400 Broadway
Cincinnati, OH 45202
- -----------------------------------------------------------------------------------------------------------------
LPL Financial Services
9785 Towne Center
San Diego, CA 92121
- -----------------------------------------------------------------------------------------------------------------
Value Opportunities Fund Raymond James
Class C FBO Phyllis C
796 Laurel Hill Road
Lexington, KY 40504
- -----------------------------------------------------------------------------------------------------------------
MLPF & S
For the Sole Benefit of its Customers
4800 Deer Lake Dr. East-2nd Floor
Jacksonville, FL 32246
- -----------------------------------------------------------------------------------------------------------------
Stifel Nicolaus Co., Inc.
501 North Broadway
St. Louis, MO 63102
- -----------------------------------------------------------------------------------------------------------------
82
- -----------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS PERCENTAGE OF
FUND OF BENEFICIAL OWNER FUND'S SHARES
- -----------------------------------------------------------------------------------------------------------------
Raymond James
FBO Wagner IR
880 Carillon Pkwy
St. Petersburg, FL 33
- -----------------------------------------------------------------------------------------------------------------
JJB Hilliard W L Lyons Inc.
500 West Jefferson
Louisville, KY 40202
- -----------------------------------------------------------------------------------------------------------------
Value Opportunities Fund Bill and Melinda Gates Foundation
Class Z William H. Gates III TR
- -----------------------------------------------------------------------------------------------------------------
Charles Schwab & Co. Inc.
4500 Cherry Creek
Denver, CO 80209
- -----------------------------------------------------------------------------------------------------------------
Clover Core Fixed Income Fund Class I Charles Schwab & Co. Inc.
Attn Mutual Funds / Team S
4500 Cherry Creek Dr. S. Fl. 3
Denver, CO 80209
- -----------------------------------------------------------------------------------------------------------------
SEI Private Trust Co
C/O HSBC
Attn: Mutual Fund Administrator
One Freedom Valley Drive
Oaks, PA 19456
- -----------------------------------------------------------------------------------------------------------------
Ultra Short Duration Fixed Income Fund Charles Schwab & Co.
Class Z 101 Montgomery St
San Francisco, CA 94104
- -----------------------------------------------------------------------------------------------------------------
Short Duration Fixed Income Fund Class Z Charles Schwab & Co.
101 Montgomery St
San Francisco, CA 94101-4151
- -----------------------------------------------------------------------------------------------------------------
Sands Capital Select Growth Fund Class Z Charles Schwab & Co. Inc.
For the Benefit of its Customers
101 Montgomery St.
San Francisco, CA 94104-4122
- -----------------------------------------------------------------------------------------------------------------
Citigroup Global Markets Inc.
333 West 34th Street, 3rd Floor
New York, NY 10001
- -----------------------------------------------------------------------------------------------------------------
Sands Capital Select Growth Fund Class Y Charles Schwab & Co. Inc.
4500 Cherry Creek Dr. S. Fl. 3
Denver, CO 80209
- -----------------------------------------------------------------------------------------------------------------
The Vanguard Fiduciary Trust Co.
PO Box 2600 VM 613
Valley Forge, PA 19482
- -----------------------------------------------------------------------------------------------------------------
Pitcairn Trust Company
Cash/Cash Capital gains
One Pitcairn Place Ste. 3000
165 Township Line Rd
Jenkintown, PA 19046-3543
- -----------------------------------------------------------------------------------------------------------------
83
- -----------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS PERCENTAGE OF
FUND OF BENEFICIAL OWNER FUND'S SHARES
- -----------------------------------------------------------------------------------------------------------------
Saxon and Co
FBO 40-40-090-9999464
PO Box 7780-1888
Philadelphia, PA 19182
- -----------------------------------------------------------------------------------------------------------------
National Financial Services Corp
For the Exclusive Benefit of Our Customers
100 Magellan Way
Covington, KY 41015-1987
- -----------------------------------------------------------------------------------------------------------------
Mid Cap Fund Class Y Patterson & Co Omnibus Cash/Cash
1525 West WT Harris Blvd
Charlotte, NC 28288-0001
- -----------------------------------------------------------------------------------------------------------------
Patterson & Co Omnibus Rein/Rein
1525 West WT Harris Blvd
Charlotte, NC 28288-0001
- -----------------------------------------------------------------------------------------------------------------
Mid Cap Fund Class Z Charles Schwab & Co. Inc.
4500 Cherry Creek Dr. S. Fl. 3
Denver, CO 80209
- -----------------------------------------------------------------------------------------------------------------
Strafe Co FAO
PO Box 160
Westerville, OH 43086
- -----------------------------------------------------------------------------------------------------------------
Mid Cap Fund Class A Jennifer Lukes
- -----------------------------------------------------------------------------------------------------------------
Morgan Stanley DW Inc.
- -----------------------------------------------------------------------------------------------------------------
Morgan Stanley DW Inc.
- -----------------------------------------------------------------------------------------------------------------
Raymond James & Associates Inc.
FBO Osmond IR
880 Carillon Pkwy
St. Petersburg, FL 33716
- -----------------------------------------------------------------------------------------------------------------
Raymond James & Associates Inc.
FBO Coate IRA
880 Carillon Pkwy
St. Petersburg, FL 33716
- -----------------------------------------------------------------------------------------------------------------
Diana Robinson
- -----------------------------------------------------------------------------------------------------------------
Mid Cap Fund Class C Raymond James & Associates Inc.
FBO Broschart B
880 Carillon Pkwy
St. Petersburg, FL 33716
- -----------------------------------------------------------------------------------------------------------------
Raymond James & Associates Inc.
FBO Broschart C
880 Carillon Pkwy
St. Petersburg, FL 33716
- -----------------------------------------------------------------------------------------------------------------
Raymond James & Associates Inc.
FBO Hosken Re
880 Carillon Pkwy
St. Petersburg, FL 33716
- -----------------------------------------------------------------------------------------------------------------
84
- -----------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS PERCENTAGE OF
FUND OF BENEFICIAL OWNER FUND'S SHARES
- -----------------------------------------------------------------------------------------------------------------
Raymond James & Associates Inc.
FBO Orenics IR
880 Carillon Pkwy
St. Petersburg, FL 33716
- -----------------------------------------------------------------------------------------------------------------
Raymond James & Associates Inc.
FBO Denovo Ira
880 Carillon Pkwy
St. Petersburg, FL 33716
- -----------------------------------------------------------------------------------------------------------------
Larry G Keeton and Debra K Keeton
- -----------------------------------------------------------------------------------------------------------------
Morgan Stanley DW Inc.
- -----------------------------------------------------------------------------------------------------------------
Morgan Stanley DW Inc.
- -----------------------------------------------------------------------------------------------------------------
Small Cap Value Opportunities Fund Class Z Charles Schwab & Co. Inc.
Attn Mutual Funds / Team S
4500 Cherry Creek Dr. S. Fl. 3
Denver, CO 80209
- -----------------------------------------------------------------------------------------------------------------
National Financial Services Corp
For the Exclusive Benefit of Our Customers
100 Magellan Way
Covington, KY 41015-1987
- -----------------------------------------------------------------------------------------------------------------
Healthcare and Biotechnology Fund Class A Charles Schwab & Co. Inc.
Attn Mutual Funds / Team S
4500 Cherry Creek Dr. S. Fl. 3
Denver, CO 80209
- -----------------------------------------------------------------------------------------------------------------
National Financial Services Corp
For the Exclusive Benefit of Our Customers
100 Magellan Way
Covington, KY 41015-1987
- -----------------------------------------------------------------------------------------------------------------
MLPF & S
For the Sole Benefit of its Customers
4800 Deer Lade Dr. East-2nd Floor
Jacksonville, FL 32246
- -----------------------------------------------------------------------------------------------------------------
Healthcare and Biotechnology Fund Class C MLPF & S
For the Sole Benefit of its Customers
4800 Deer Lade Dr. East-2nd Floor
Jacksonville, FL 32246
- -----------------------------------------------------------------------------------------------------------------
Raymond James Associate Inc.
FBO Louis D Gol
6324 NW 23rd Ct.
Boca Raton, FL 33496
- -----------------------------------------------------------------------------------------------------------------
Premium Yield Equity Fund Class A Western & Southern Life Insurance
400 Broadway
Cincinnati, OH 45202
- -----------------------------------------------------------------------------------------------------------------
85
- -----------------------------------------------------------------------------------------------------------------
NAME AND ADDRESS PERCENTAGE OF
FUND OF BENEFICIAL OWNER FUND'S SHARES
- -----------------------------------------------------------------------------------------------------------------
Western & Southern Financial Group
400 Broadway
Cincinnati, OH 45202
- -----------------------------------------------------------------------------------------------------------------
Premium Yield Equity Fund Class C Western & Southern Life Insurance
400 Broadway
Cincinnati, OH 45202
- -----------------------------------------------------------------------------------------------------------------
As of September 3, 2008, the Trustees and officers of the Trust as a group owned
of record or beneficially less than 1% of the outstanding shares of the Trust
and of each Fund (or class thereof).
CUSTODIAN
Brown Brothers Harriman & Co. ("BBH"), 40 Water Street, Boston, Massachusetts
02109, is the Trust's custodian. BBH acts as the Trust's depository, safe keeps
its portfolio securities, collects all income and other payments with respect
thereto, disburses money as instructed and maintains records in connection with
its duties.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Trust's independent registered public accounting firm, Ernst & Young LLP,
audits the Trust's annual financial statements. Ernst & Young LLP is located at
312 Walnut Street Cincinnati, OH 45202.
LEGAL COUNSEL
Morgan, Lewis & Bockius LLP, located at 1701 Market Street, Philadelphia,
Pennsylvania, 19103, serves as counsel to the Trust.
FINANCIAL STATEMENTS
The Financial Statements for the International Growth Fund for the fiscal year
ended December 31, 2007, including the Report of Tait, Weller & Baker LLP,
independent registered public accounting firm, are included in the most recent
Annual Report to Shareholders of the predecessor Fund and are incorporated into
this SAI by reference.
86
APPENDIX A - DESCRIPTION OF CORPORATE BOND RATINGS
DESCRIPTION OF CORPORATE BOND RATINGS
DESCRIPTION OF MOODY'S LONG-TERM RATINGS
AAA Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
AA Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risk appear
somewhat larger than the Aaa securities.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
BAA Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
BA Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
CA Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds which are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
A-1
DESCRIPTION OF STANDARD & POOR'S LONG-TERM RATINGS
Investment Grade
- ----------------
AAA Debt rated 'AAA' has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the highest rated debt only in small degree.
A Debt rated 'A' has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to adverse effects of changes in
circumstances and economic conditions than debt in higher-rated
categories.
BBB Debt rated 'BBB' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
Speculative Grade
- -----------------
Debt rated 'BB', 'B', 'CCC', 'CC', and 'C' is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. `BB' indicates the least degree of speculation and `C' the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
BB Debt rated `BB' has less near-term vulnerability to default than other
speculative grade debt. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could
lead to inadequate capacity to meet timely interest and principal
payments. The `BB' rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied `BBB-' rating.
B Debt rate `B' has greater vulnerability to default but presently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions would likely impair capacity
or willingness to pay interest and repay principal. The `B' rating
category also is used for debt subordinated to senior debt that is
assigned an actual or implied `BB' or `BB-' rating.
CCC Debt rated `CCC' has a current identifiable vulnerability to default, and
is dependent on favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event
of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The `CCC' rating
category also is used for debt subordinated to senior debt that is
assigned an actual or implied `B' or `B-' rating.
CC The rating `CC' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied `CCC' rating.
A-2
C The rating `C' is typically applied to debt subordinated to senior debt
which is assigned an actual or implied `CCC-' debt rating. The `C' rating
may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
CI Debt rated `CI' is reserved for income bonds on which no interest is being
paid.
D Debt is rated `D' when the issue is in payment default, or the obligor has
filed for bankruptcy. The `D' rating is used when interest or principal
payments are not made on the date due, even if the applicable grace period
has not expired, unless S&P believes that such payments will be made
during such grace period.
DESCRIPTION OF FITCH'S LONG-TERM RATINGS
Investment Grade Bond
- ---------------------
AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA'. Because bonds rated in
the `AAA' and `AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated `F-1+'.
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
Speculative Grade Bond
- ----------------------
BB Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
A-3
CCC Bonds have certain identifiable characteristics that, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D:
Bonds are in default on interest and/or principal payments. Such bonds are
extremely speculative and should be valued on the basis of their ultimate
recovery value in liquidation or reorganization of the obligor. `DDD'
represents the highest potential for recovery on these bonds, and `D'
represents the lowest potential for recovery.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A by S&P is regarded by S&P as having the greatest
capacity for timely payment. Issues rated A are further refined by use of the
numbers 1 +, 1, and 2 to indicate the relative degree of safety. Issues rated
A-1+ are those with an "overwhelming degree" of credit protection. Those rated
A-1, the highest rating category, reflect a "very strong" degree of safety
regarding timely payment. Those rated A-2, the second highest rating category,
reflect a satisfactory degree of safety regarding timely payment but not as high
as A-1.
Commercial paper issues rated Prime-1 or Prime-2 by Moody's are judged by
Moody's to be of "superior" quality and "strong" quality respectively on the
basis of relative repayment capacity.
F-1+ (Exceptionally Strong) is the highest commercial paper rating Fitch
assigns; paper rated F-1+ is regarded as having the strongest degree of
assurance for timely payment. Paper rated F-1 (Very Strong) reflects an
assurance of timely payment only slightly less in degree than paper rated F-1+.
The rating F-2 (Good) reflects a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues rated F-1+ or
F-1.
A-4
APPENDIX B - PROXY VOTING POLICIES
TURNER INVESTMENT PARTNERS, INC.
PROXY VOTING POLICY AND PROCEDURES
Turner Investment Partners, Inc. as well as its investment advisory affiliate,
Turner Investment Management, LLC (collectively, Turner), act as fiduciaries in
relation to their clients and the assets entrusted by them to their management.
Where the assets placed in Turner's care include shares of corporate stock, and
except where the client has expressly reserved to itself or another party the
duty to vote proxies, it is Turner's duty as a fiduciary to vote all proxies
relating to such shares.
Duties with Respect to Proxies:
Turner has an obligation to vote all proxies appurtenant to shares of corporate
stock owned by its client accounts in the best interests of those clients. In
voting these proxies, Turner may not be motivated by, or subordinate the
client's interests to, its own objectives or those of persons or parties
unrelated to the client. Turner will exercise all appropriate and lawful care,
skill, prudence and diligence in voting proxies, and shall vote all proxies
relating to shares owned by its client accounts and received by Turner. Turner
shall not be responsible, however, for voting proxies that it does not receive
in sufficient time to respond.
Delegation:
In order to carry out its responsibilities in regard to voting proxies, Turner
must track all shareholder meetings convened by companies whose shares are held
in Turner client accounts, identify all issues presented to shareholders at such
meetings, formulate a principled position on each such issue and ensure that
proxies pertaining to all shares owned in client accounts are voted in
accordance with such determinations.
Consistent with these duties, Turner has delegated certain aspects of the proxy
voting process to Institutional Shareholder Services, and its Proxy Voting
Service (PVS) subsidiary. PVS is a separate investment adviser registered under
the Investment Advisers Act of 1940, as amended. Under an agreement entered into
with Turner, PVS has agreed to vote proxies in accordance with recommendations
developed by PVS and overseen by Turner, except in those instances where Turner
has provided it with different direction.
Review and Oversight:
Turner has reviewed the methods used by PVS to identify and track shareholder
meetings called by publicly traded issuers throughout the United States and
around the globe. Turner has satisfied itself that PVS operates a system
reasonably designed to identify all such meetings and to provide Turner with
timely notice of the date, time and place of such meetings. Turner has further
reviewed the principles and procedures employed by PVS in making recommendations
on voting proxies on each issue presented, and has satisfied itself that PVS's
recommendations are: (i) based upon an appropriate level of diligence and
research, and (ii) designed to further the interests of shareholders and not
serve other unrelated or improper interests. Turner, either directly or through
its duly-constituted Proxy Committee, shall review its determinations as to PVS
at least annually.
B-1
Notwithstanding its belief that PVS's recommendations are consistent with the
best interests of shareholders and appropriate to be implemented for Turner's
client accounts, Turner has the right and the ability to depart from a
recommendation made by PVS as to a particular vote, slate of candidates or
otherwise, and can direct PVS to vote all or a portion of the shares owned for
client accounts in accordance with Turner's preferences. PVS is bound to vote
any such shares subject to that direction in strict accordance with all such
instructions. Turner, through its Proxy Committee, reviews on a monthly basis
the overall shareholder meeting agenda, and seeks to identify shareholder votes
that warrant further review based upon either (i) the total number of shares of
a particular company stock that Turner holds for its clients accounts, or (ii)
the particular subject matter of a shareholder vote, such as board independence
or shareholders' rights issues. In determining whether to depart from a PVS
recommendation, the Turner Proxy Committee looks to its view of the best
interests of shareholders, and provides direction to PVS only where in Turner's
view departing from the PVS recommendation appears to be in the best interests
of Turner's clients as shareholders. The Proxy Committee keeps minutes of its
determinations in this regard.
Conflicts of Interest:
Turner stock is not publicly traded, and Turner is not otherwise affiliated with
any issuer whose shares are available for purchase by client accounts. Further,
no Turner affiliate currently provides brokerage, underwriting, insurance,
banking or other financial services to issuers whose shares are available for
purchase by client accounts.
Where a client of Turner is a publicly traded company in its own right, Turner
may be restricted from acquiring that company's securities for the client's
benefit. Further, while Turner believes that any particular proxy issues
involving companies that engage Turner, either directly or through their pension
committee or otherwise, to manage assets on their behalf, generally will not
present conflict of interest dangers for the firm or its clients, in order to
avoid even the appearance of a conflict of interest, the Proxy Committee will
determine, by surveying the Firm's employees or otherwise, whether Turner, an
affiliate or any of their officers has a business, familial or personal
relationship with a participant in a proxy contest, the issuer itself or the
issuer's pension plan, corporate directors or candidates for directorships. In
the event that any such relationship is found to exist, the Proxy Committee will
take appropriate steps to ensure that any such relationship (or other potential
conflict of interest), does not influence Turner's or the Committee's decision
to provide direction to PVS on a given vote or issue. Further to that end,
Turner will adhere to all recommendations made by PVS in connection with all
shares issued by such companies and held in Turner client accounts, and, absent
extraordinary circumstances that will be documented in writing, will not subject
any such proxy to special review by the Proxy Committee. Turner will seek to
resolve any conflicts of interests that may arise prior to voting proxies in a
manner that reflects the best interests of its clients.
B-2
Obtaining Proxy Voting Information:
To obtain information on how Turner voted proxies, please contact:
Andrew Mark, Director of Operations
and Technology Administration
c/o Turner Investment Partners, Inc.
1205 Westlakes Drive, Suite 100
Berwyn, PA 19312
Recordkeeping:
Turner shall retain its (i) proxy voting policies and procedures; (ii)
proxy statements received regarding client statements; (iii) records or
votes it casts on behalf of clients; (iv) records of client requests for
proxy voting information, and (v) any documents prepared by Turner that
are material in making a proxy voting decision. Such records may be
maintained with a third party, such as PVS, that will provide a copy of
the documents promptly upon request.
B-3
CHARTWELL INVESTMENT PARTNERS
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED APRIL 11, 1997
AS AMENDED FEBRUARY 1, 2007
PURPOSE. Chartwell Investment Partners ("Chartwell") has adopted these Proxy
Voting Policies and Procedures ("Policies") to seek to ensure that it exercises
voting authority on behalf of Chartwell clients in a manner consistent with the
best interests of each client and its agreement with the client.
SCOPE. These Policies apply where clients have delegated the authority and
responsibility to Chartwell to decide how to vote proxies. Chartwell does not
accept or retain authority to vote proxies in accordance with individual client
guidelines. Clients that wish to arrange to vote proxies in accordance with
their own guidelines may elect to do so at any time by notifying Chartwell.
Chartwell generally will follow these Policies if asked to make recommendations
about proxy voting to clients who request that advice but have not delegated
proxy voting responsibility to Chartwell.
GUIDING PRINCIPLES. Chartwell believes that voting proxies in the best interests
of each client means making a judgment as to what voting decision is most likely
to maximize total return to the client as an investor in the securities being
voted, and casting the vote accordingly. For this reason, Chartwell's evaluation
of the possible impact of a proxy vote on the economic interests of company
shareholders similarly situated to Chartwell's clients will be the primary
factor governing Chartwell's proxy voting decisions.
USE OF INDEPENDENT PROXY VOTING SERVICE. Chartwell has retained Institutional
Shareholder Services, Inc., ("ISS") an independent proxy voting service, to
assist it in analyzing specific proxy votes with respect to securities held by
Chartwell clients and to handle the mechanical aspects of casting votes.
Historically, Chartwell has placed substantial reliance on ISS' analyses and
recommendations and generally gives instructions to ISS to vote proxies in
accordance with ISS' recommendations, unless Chartwell reaches a different
conclusion than ISS about how a particular matter should be voted. ISS proxy
voting recommendations typically are made available to Chartwell about a week
before the proxy must be voted, and are reviewed and monitored by members of the
Proxy Voting Committee (and, in certain cases, by Chartwell portfolio managers),
with a view to determining whether it is in the best interests of Chartwell's
clients to vote proxies as recommended by ISS, or whether client proxies should
be voted on a particular proposal in another manner.
ADMINISTRATION OF POLICIES. Chartwell has established a Proxy Voting Committee
to oversee and administer the voting of proxies on behalf of clients, comprised
of approximately five representatives of the firm's compliance and operations
departments. The Committee's responsibilities include reviewing and updating
these Policies as may be appropriate from time to time; identifying and
resolving any material conflicts of interest on the part of Chartwell or its
personnel that may affect particular proxy votes; evaluating and monitoring, on
an ongoing basis, the analyses, recommendations and other services provided by
ISS or another third party retained to assist Chartwell in carrying out its
proxy voting responsibilities; when deemed appropriate by the Committee,
consulting with Chartwell portfolio managers and investment professionals on
particular proposals or categories of proposals presented for vote; and
determining when and how client proxies should be voted other than in accordance
with the general rules and criteria set forth in Chartwell's Proxy Voting
Guidelines or with the recommendations of ISS or another independent proxy
voting service retained by Chartwell. Chartwell maintains a copy of the AFL-CIO
Key Votes Survey which is a list of proposals and meetings based on the AFL-CIO
Proxy Voting Guidelines. This list includes the company, item number, proposal,
recommendation and date of the meeting. Chartwell votes in accordance with these
recommendations. In situations where ISS does not vote a proxy (as on behalf of
LP's or LLC's), Chartwell generally votes with company management.
B-4
CONFLICTS OF INTEREST. It is Chartwell's policy not to exercise its authority to
decide how to vote a proxy if there is a material conflict of interest between
Chartwell's interests and the interests of the client that owns the shares to be
voted that could affect the vote on that matter. To seek to identify any such
material conflicts, a representative of the Proxy Voting Committee screens all
proxies and presents any potential conflicts identified to the Committee for
determination of whether the conflict exists and if so, whether it is material.
Conflicts of interest could result from a variety of circumstances, including,
but not limited to, significant personal relationships between executive
officers of an issuer and Chartwell personnel, a current or prospective
investment adviser-client relationship between an issuer or a pension plan
sponsored by an issuer and Chartwell, a significant ownership interest by
Chartwell or its personnel in the issuer and various other business, personal or
investment relationships. Generally, a current or prospective adviser-client
relationship will not be considered material for these purposes if the net
advisory revenues to Chartwell have not in the most recent fiscal year and are
not expected in the current fiscal year to exceed 1/2 of 1 percent of
Chartwell's annual advisory revenue. In the event the Committee determines that
there is a material conflict of interest that may affect a particular proxy
vote, Chartwell will NOT make the decision how to vote the proxy in accordance
with these Policies unless the Policies specify how votes shall be cast on that
particular type of matter, i.e., "for" or "against" the proposal. Where the
Policies provide that the voting decision will be made on a "case-by-case"
basis, Chartwell will either request the client to make the voting decision, or
the vote will be cast in accordance with the recommendations of ISS or another
independent proxy voting service retained by Chartwell for that purpose.
Chartwell also will not provide advice to clients on proxy votes without first
disclosing any material conflicts to the client requesting such advice.
WHEN CHARTWELL DOES NOT VOTE PROXIES. Chartwell may not vote proxies respecting
client securities in certain circumstances, including, but not limited to,
situations where (a) the securities are no longer held in a client's account;
(b) the proxy and other relevant materials are not received in sufficient time
to allow analysis or an informed vote by the voting deadline; (c) Chartwell
concludes that the cost of voting the proxy will exceed the expected potential
benefit to the client; or (d) the securities have been loaned out pursuant to a
client's securities lending program and are unavailable to vote.
B-5
CLOVER CAPITAL MANAGEMENT, INC.
1. PROXY VOTING POLICIES
Clover Capital Management, Inc., as a matter of policy and as a fiduciary
to our clients, has responsibility for voting proxies for portfolio
securities consistent with the best economic interests of the clients. Our
firm maintains written policies and procedures as to the handling,
research, voting and reporting of proxy voting and makes appropriate
disclosures about our firm's proxy policies and practices. Our policy and
practice includes the responsibility to monitor corporate actions, receive
and vote client proxies and disclose any potential conflicts of interest
as well as making information available to clients about the voting of
proxies for their portfolio securities and maintaining relevant and
required records.
Clover Capital Management, Inc. ("Clover Capital") votes the proxies
received by it on behalf of its client shareholders unless the client has
specifically instructed it otherwise.
Clover Capital shall vote proxies related to securities held by any client
in a manner solely in the interest of the client. Clover Capital shall
consider only those factors that relate to the client's investment,
including how its vote will economically impact and affect the value of
the client's investment. Proxy votes generally will be cast in favor of
proposals that maintain or strengthen the shared interests of shareholders
and management, increase shareholder value, maintain or increase
shareholder influence over the issuer's board of directors and management,
and maintain or increase the rights of shareholders; proxy votes generally
will be cast against proposals having the opposite effect. As part of the
process, Clover Capital subscribes to an outside proxy consultant,
Institutional Shareholder Services "ISS", and utilizes its data and
analysis to augment the work done by Clover Capital's relevant analyst
(i.e. the analyst responsible for that particular security). However, in
voting on each and every issue, the relevant analyst will be ultimately
responsible for voting proxies in the best interests of Clover Capital's
clients and shall vote in a prudent, diligent fashion and only after a
careful evaluation of the issue presented on the ballot.
BACKGROUND
----------
Proxy voting is an important right of shareholders and reasonable care and
diligence must be undertaken to ensure that such rights are properly and
timely exercised.
Investment advisers registered with the SEC, and which exercise voting
authority with respect to client securities, are required by Rule 206(4)-6
of the Advisers Act to (a) adopt and implement written policies and
procedures that are reasonably designed to ensure that client securities
are voted in the best interests of clients, which must include how an
adviser addresses material conflicts that may arise between an adviser's
interests and those of its clients; (b) to disclose to clients how they
may obtain information from the adviser with respect to the voting of
proxies for their securities; (c) to describe to clients a summary of its
proxy voting policies and procedures and, upon request, furnish a copy to
its clients; and (d) maintain certain records relating to the adviser's
proxy voting activities when the adviser does have proxy voting authority.
B-6
RESPONSIBILITY
--------------
Tracy Kern has the responsibility for the implementation and monitoring of
our proxy voting policy, practices, disclosures and record keeping,
including outlining our voting guidelines in our procedures.
PROCEDURE
---------
Clover Capital Management, Inc. has adopted procedures to implement the
firm's policy and reviews to monitor and insure the firm's policy is
observed, implemented properly and amended or updated, as appropriate,
which include the following:
VOTING PROCEDURES
Unless the power to vote proxies for a client is reserved to that client
(or in the case of an employee benefit plan, the plan's trustee or other
fiduciaries), Clover Capital, through its relevant analysts, will be
responsible for voting the proxies related to that account.
All proxies and ballots will be logged in upon receipt and the materials,
which include ISS's proxy voting recommendations, will be forwarded to the
appropriate analyst for review. The analyst then votes the proxies which
may or may not correspond to the ISS recommendations. In practice, the ISS
recommendations correspond with most of Clover Capital's analysts' proxy
voting decisions.
Clover Capital has standard reasons for and against proposals, which have
been approved by the Clover Compliance Department. After reviewing the
proxy, the analyst will report how he/she wants to vote along with the
rationale to be used when voting.
Should an analyst respond with a new rationale, it will be approved by the
Clover Compliance Department before the vote is cast.
Proxies received will be voted promptly in a manner consistent with the
Proxy Voting Policies and Procedures stated and guidelines (if any) issued
by client (or in the case of an employee benefit plan, the plan's trustee
or other fiduciaries).
B-7
Records are kept on how each proxy is voted. Such records may be
maintained by a third party proxy consultant that will provide a copy of
the documents promptly upon request.
On an ongoing basis, the analysts will monitor corporate management of
issuers for securities they cover and for which are held in clients'
accounts and where appropriate will communicate with the management of
such issuers.
Periodically, or at least annually, the Clover Compliance Department will:
Review our proxy voting process and verify that it is being implemented in
a manner consistent with the Proxy Voting Policies and Procedures
and the guidelines (if any) issued by the client (or in the case of
an employee benefit plan, the plan's trustee or other fiduciaries);
When requested by client, report to the client how each proxy sent to
Company on behalf of the client was voted, by forwarding a copy of
the completed ballot card or in some other written matter;
Review the files to verify that records of the voting of the proxies have
been properly maintained, which is keeping records on site for 2
years and off site in storage thereafter; and
When requested, prepare a written report for a client regarding compliance
with the Proxy Voting Policies and Procedures.
Review the Proxy Voting Policies and Procedures to insure they are
up-to-date.
DISCLOSURE
Clover Capital Management, Inc. will provide conspicuously displayed
information in its Disclosure Document summarizing this proxy voting
policy and procedures, including a statement that clients may
request information regarding how Clover Capital Management, Inc.
voted a client's proxies, and that clients may request a copy of
these policies and procedures.
Clover Capital Management, Inc. has also sent a Proxy Voting Policy
summary to all existing clients who have previously received Clover
Capital Management, Inc.'s Disclosure Document; or Clover Capital
Management, Inc. may send each client the amended Disclosure
Document. Either mailing shall highlight the inclusion of
information regarding proxy voting.
CLIENT REQUESTS FOR INFORMATION
All client requests for information regarding proxy votes, or policies and
procedures, received by any employee should be forwarded to the
Compliance Manager.
B-8
In response to any request Clover Capital will prepare a written response
to the client with the information requested, and as applicable will
include the name of the issuer, the proposal voted upon, and how
Clover Capital Management, Inc. voted the client's proxy with
respect to each proposal about which client inquired.
VOTING GUIDELINES
In the interest of good corporate governance and the best interest of our
clients, the following general guidelines will be employed when voting
corporate proxies on behalf of Clover Capital's clients. Clover Capital
does, however, recognize that unusual circumstances may merit occasional
deviation from these guidelines, but it expects those situations to be the
rare exception to the following rules:
Clover Capital will vote against the authorization of new stock options if
the sum of the newly authorized option package and all existing
options outstanding unreasonably dilute existing shares. While
Clover Capital recognizes the incentive benefits that options can
provide, Clover Capital believes that an excessively dilutive effort
offsets the benefits.
Clover Capital will favor the annual election of directors.
Clover Capital will oppose the re-incorporation of domestic companies into
other nations.
Clover Capital will oppose shareholder resolutions that are motivated by
the social beliefs of the resolution's sponsor rather than designed
to maximize shareholder value or improve a company's governance
practices.
Clover Capital will vote to retain a company's current public auditor
unless we have reason to believe the shareholder will benefit from
an auditor change.
Clover Capital will vote against the creation of so-called "poison pills"
and for shareholder resolutions calling for their removal.
Clover Capital will generally favor shareholder proposals which separate
the position of Board Chair and Chief Executive Officer.
Clover Capital will vote in favor of shareholder proposals calling for the
expensing of stock options, because failure to do so results in
chronic overstatement of earnings, which is not helpful to
shareholders.
Clover Capital will vote in favor of shareholder proposals calling for the
replacement of "super majority" vote thresholds with simple majority
vote requirements.
B-9
CONFLICTS OF INTEREST
Clover Capital stock is not publicly traded, and Clover Capital is not
otherwise affiliated with any issuer whose shares are available for
purchase by client accounts. Further, no Clover Capital affiliate
currently provides brokerage, underwriting , insurance, banking or other
financial services to issuers whose shares are available for purchase by
client accounts.
Where a client of Clover Capital is a publicly traded company in its own
right, Clover Capital may be restricted from acquiring that company's
securities for the client's benefit. Further, while Clover Capital
believes that any particular proxy issues involving companies that engage
Clover Capital, either directly or through their pension committee or
otherwise, to manage assets on their behalf, generally will not present
conflict of interest dangers for the firm or its clients, in order to
avoid even the appearance of a conflict of interest, Clover Compliance
will determine, by surveying the Firm's employees or otherwise, whether
Clover Capital, an affiliate or any of their officers has a business,
familial or personal relationship with the issuer itself or the issuer's
pension plan, corporate directors or candidates for directorships. In the
event that any such conflict of interest is found to exist, Clover Capital
will ensure that any such conflict of interest does not influence Clover
Capital's vote by adhering to all recommendations made by the outside
proxy consultant that Clover Capital utilizes. Clover Capital will seek to
resolve any conflicts of interests that may arise prior to voting proxies
in a manner that reflects the best interests of its clients.
RECORDKEEPING
The proxy coordinator(s) shall retain the following proxy records in
accordance with the SEC's five-year retention requirement.
These policies and procedures and any amendments;
Each proxy statement that Clover Capital Management, Inc. receives;
A record of each vote that Clover Capital Management, Inc. casts;
Any document Clover Capital Management, Inc. created that was material to
making a decision how to vote proxies, or that memorializes that
decision;
A copy of each written request from a client for information on how Clover
Capital Management, Inc. voted such client's proxies, and a copy of
any written response.
B-10
SANDS CAPITAL MANAGEMENT LLC
Proxy Voting Policy and Procedures
Implementation Date: November 2006
- --------------------------------------------------------------------------------
ISSUE
Rule 206(4)-6 under the Advisers Act requires every investment adviser to adopt
and implement written policies and procedures, reasonably designed to ensure
that the adviser votes proxies in the best interest of its clients. The
procedures must address material conflicts that may arise in connection with
proxy voting. The Rule further requires the adviser to provide a concise summary
of the adviser's proxy voting process and offer to provide copies of the
complete proxy voting policy and procedures to clients upon request. Lastly, the
Rule requires that the adviser disclose to clients how they may obtain
information on how the adviser voted their proxies.
SCM votes proxies for a great majority of its clients, and therefore has adopted
and implemented this Proxy Voting Policy and Procedures.
POLICY
It is the policy of SCM to vote client proxies in the best interest of our
clients. Proxies are an asset of a client account, which should be treated by
SCM with the same care, diligence, and loyalty as any asset belonging to a
client. Consideration will be given to both the short and long term implications
of the proposal to be voted on when considering the optimal vote.
Any general or specific proxy voting guidelines provided by an advisory client
or its designated agent in writing will supersede this policy. Clients may wish
to have their proxies voted by an independent third party or other named
fiduciary or agent, at the client's cost.
PROCEDURES FOR SCM'S RECEIPT OF CLASS ACTIONS
The following procedures outline SCM's receipt of "Class Action" documents from
clients and custodians. It is SCM's position not to file these "Class Action"
documents, but if received will follow these guidelines:
If "Class Action" documents are received by SCM from the CLIENT, SCM will
gather, at the client's request, any requisite information it has and
forward to the client, to enable the client to file the "Class Action" at
the client's discretion. SCM will not file "Class Actions" on behalf of
any client.
PROXY COMMITTEE
SCM has established a Proxy Committee. The Proxy Committee consists of three
permanent members (the Chief Operating Officer, Director of Client Services,
Compliance Operations Manager) and one or more rotating members (Portfolio
Managers). The Proxy Committee meets at least annually and as necessary to
fulfill its responsibilities. A majority of the members of the Proxy Committee
constitutes a quorum for the transaction of business. The Director of Client
Services acts as secretary of the Proxy Committee and maintains a record of
Proxy Committee meetings and actions.
B-11
The Proxy Committee is responsible for (i) the oversight and administration of
proxy voting on behalf of the Adviser's clients, including developing,
authorizing, implementing and updating the Adviser's proxy voting policies and
procedures; (ii) overseeing the proxy voting process; and (iii) engaging and
overseeing any third party service provider as voting agent to receive proxy
statements and/or to provide information, research or other services intended to
facilitate the proxy voting decisions made by the Adviser. The Proxy Committee
typically reviews reports on the Adviser's proxy voting activity at least
annually and as necessary to fulfill its responsibilities.
The Proxy Committee has developed a set of criteria for evaluating proxy issues.
These criteria and general voting guidelines are set forth in the Adviser's
Proxy Voting Guidelines (the "Guidelines"), a copy of which is attached hereto
as Attachment C. The Proxy Committee may amend or supplement the Guidelines from
time to time. All Guidelines are to be applied generally and not absolutely,
such that the Adviser's evaluation of each proposal will be performed in the
context of the Guidelines giving appropriate consideration to the circumstances
of the company whose proxy is being voted.
PROCEDURES FOR IDENTIFICATION AND VOTING OF PROXIES
These proxy voting procedures are designed to enable SCM to resolve material
conflicts of interest with clients before voting their proxies.
1. SCM shall maintain a list of all clients for which it votes proxies.
The list will be maintained either in hard copy or electronically
and updated by the Director of Client Services or a designee who
will obtain proxy voting information from client agreements.
As part of the account opening procedure, The Director of Client
Services will note whether or not SCM is responsible for voting
client proxies for the new client.
2. In cases where SCM has been designated to vote client proxies, we
shall work with the client to ensure that SCM is the designated
party to receive proxy voting materials from companies or
intermediaries.
3. The Director of Client Services shall receive all proxy voting
materials and will be responsible for ensuring that proxies are
voted and submitted in a timely manner.
4. Prior to a proxy voting deadline, the appropriate Research Analyst
will make a determination as to how to vote each proxy proposal
based on his or her analysis of the proposal and the Guidelines. In
evaluating a proxy proposal, an analyst may consider information
from many sources, including management of the company, shareholder
groups and independent proxy research services.
B-12
5. SCM Staff Members will reasonably try to assess any material
conflicts between SCM's interests and those of its clients with
respect to proxy voting by considering the situations identified in
the Conflicts of Interest section of this document.
6. So long as there are no material conflicts of interest identified,
SCM will vote proxies according to the policy. SCM may also elect to
abstain from voting if it deems such abstinence in its clients' best
interests. The rationale for "abstain" votes will be documented and
the documentation will be maintained in the permanent file.
7. Upon detection of a conflict of interest, the conflict will be
brought to the attention of the Proxy Committee for resolution. See
Conflicts of Interest section for additional information.
8. SCM is not required to vote every client proxy and such should not
necessarily be construed as a violation of SCM's fiduciary
obligations. SCM shall at no time ignore or neglect its proxy voting
responsibilities. However, there may be times when refraining from
voting is in the client's best interest, such as when an adviser's
analysis of a particular client proxy reveals that the cost of
voting the proxy may exceed the expected benefit to the client.
9. The Director of Client Services and the Research Analyst will report
any attempts by SCM's personnel to influence the voting of client
proxies in a manner that is inconsistent with SCM's Proxy Policy, as
well as, any attempts by persons or entitles outside SCM seeking to
influence the voting of client proxies. Such report shall be made to
SCM's CCO, or if the CCO is the person attempting to influence the
voting, then to SCM's CEO.
10. All proxy votes will be recorded and the following information will
be maintained:
o The name of the issuer of the portfolio security;
o The exchange ticker symbol of the portfolio security;
o The Council on Uniform Securities Identification
Procedures ("CUSIP") number for the portfolio security;
o The shareholder meeting date;
o The number of shares SCM is voting on firm-wide;
o A brief identification of the matter voted on;
o Whether the matter was proposed by the issuer or by a
security holder;
o Whether or not SCM cast its vote on the matter;
o How SCM cast its vote (e.g., for or against proposal, or
abstain; for or withhold regarding election of
directors);
o Whether SCM cast its vote with or against management;
and
o Whether any client requested an alternative vote of its
proxy.
B-13
In the event that SCM votes the same proxy in two directions, it shall maintain
documentation to support its voting (this may occur if a client requires SCM to
vote a certain way on an issue, while SCM deems it beneficial to vote in the
opposite direction for its other clients) in the permanent file.
CONFLICTS OF INTEREST
Although SCM has not currently identified any material conflicts of interest
that would affect its proxy voting decisions, it is aware of the following
potential conflicts that could exist in the future:
o CONFLICT: SCM is retained by an institutional client, or is in the
process of retaining an institutional client that is affiliated with
an issuer that is held in SCM's client portfolios.
o CONFLICT: SCM retains a client, or is in the process of retaining a
client that is an officer or director of an issuer that is held in
SCM's client portfolios. The similar conflicts of interest exist in
this relationship as discussed above.
o CONFLICT: SCM's Staff Members maintain a personal and/or business
relationship (not an advisory relationship) with issuers or
individuals that serve as officers or directors of issuers. For
example, the spouse of an SCM Staff Member may be a high-level
executive of an issuer that is held in SCM's client portfolios. The
spouse could attempt to influence SCM to vote in favor of
management.
o CONFLICT: SCM or a Staff Member(s) personally owns a significant
number of an issuer's securities that are also held in SCM's client
portfolios. For any number of reasons, a Staff Member(s) may seek to
vote proxies in a different direction for his/her personal holdings
than would otherwise be warranted by the proxy voting policy. The
Staff Member(s) could oppose voting the proxies according to the
policy and successfully influence SCM to vote proxies in
contradiction to the policy.
RESOLUTION:
- -----------
SCM realizes that due to the difficulty of predicting and identifying all
material conflicts, it must rely on its Staff Members to notify the Director of
Client Services and/or the CCO of any material conflict that may impair SCM's
ability to vote proxies in an objective manner. Upon such notification, the
Director of Client Services and or the CCO will notify the Proxy Committee of
the conflict.
In the event that the Proxy Committee determines that the SCM has a conflict of
interest with respect to a proxy proposal, the Proxy Committee shall also
determine whether the conflict is "material" to that proposal. The Proxy
Committee may determine on a case-by-case basis that a particular proposal does
not involve a material conflict of interest. To make this determination, the
Proxy Committee must conclude that the proposal is not directly related to the
Adviser's conflict with the issuer. If the Proxy Committee determines that a
conflict is not material, then the Adviser may vote the proxy in accordance with
the recommendation of the analyst.
B-14
In the event that the Proxy Committee determines that SCM has a material
conflict of interest with respect to a proxy proposal, SCM will vote on the
proposal in accordance with the determination of the Proxy Committee. Prior to
voting on the proposal, the Adviser may (i) contact an independent third party
(such as another plan fiduciary) to recommend how to vote on the proposal and
vote in accordance with the recommendation of such third party (or have the
third party vote such proxy); or (ii) with respect to client accounts that are
not subject to ERISA, fully disclose the nature of the conflict to the client
and obtain the client's consent as to how the Adviser will vote on the proposal
(or otherwise obtain instructions from the client as to how the proxy should be
voted).
RECORDKEEPING
SCM must maintain the documentation described in the following section for a
period of not less than five (5) years, the first two (2) years at its principal
place of business. Director of Client Services will be responsible for the
following procedures and for ensuring that the required documentation is
retained.
Client request to review proxy votes:
- -------------------------------------
o Any request, whether written (including e-mail) or oral, received by
any Staff Member of SCM, must be promptly reported to the Director
of Client Services. All written requests must be retained in the
permanent file.
o The Director of Client Services will record the identity of the
client, the date of the request, and the disposition (e.g., provided
a written or oral response to client's request, referred to third
party, not a proxy voting client, other dispositions, etc.) in a
suitable place.
o Clients are permitted to request the proxy voting record for the
5-year period prior to their request.
Proxy statements received regarding client securities:
- ------------------------------------------------------
o Upon receipt of a proxy, copy or print a sample of the proxy
statement or card and maintain the copy in a central file along with
a sample of the proxy solicitation instructions.
NOTE: SCM is permitted to rely on proxy statements filed on the
SEC's EDGAR system instead of keeping its own copies.
Proxy voting records:
- ---------------------
B-15
o Documents prepared or created by SCM that were material to making a
decision on how to vote, or that memorialized the basis for the
decision.
o Documentation or notes or any communications received from third
parties, other industry analysts, third party service providers,
company's management discussions, etc. that were material in the
basis for the decision.
DISCLOSURE
o SCM will ensure that Part II of Form ADV is updated as necessary to
reflect: (i) all material changes to the Proxy Voting Policy and
Procedures; and (ii) information about how clients may obtain
information on how SCM voted their securities.
PROXY SOLICITATION
As a matter of practice, it is SCM's policy to not reveal or disclose to any
client how SCM may have voted (or intends to vote) on a particular proxy until
after such proxies have been counted at a shareholder's meeting.
The Director of Client Services is to be promptly informed of the receipt of any
solicitation from any person to vote proxies on behalf of clients. At no time
may any Staff Member accept any remuneration in the solicitation of proxies. The
Director of Client Services shall handle all responses to such solicitations.
RESPONSIBILITY
The Director of Client Services is responsible for overseeing and implementing
this policy.
B-16
ATTACHMENT C
PROXY VOTING GUIDELINES
-----------------------
One of the primary factors SCM considers when determining the desirability of
investing in a particular company is the quality and depth of its management.
Accordingly, SCM believes that the recommendation of management on any issue
should be given substantial weight in determining how proxy issues are resolved.
As a matter of practice, SCM will vote on most issues presented in a portfolio
company proxy statement in accordance with the position of the company's
management, unless SCM determines that voting in accordance with management's
recommendation would adversely affect the investment merits of owning the stock.
However, SCM will consider each issue on its own merits, and will not support
the position of the company's management in any situation where, in SCM's
judgment, it would not be in the best interests of the client to do so.
I. THE BOARD OF DIRECTORS
A. VOTING ON DIRECTOR NOMINEES IN UNCONTESTED ELECTIONS
Votes on director nominees are made on a CASE-BY-CASE basis, and may consider
the following factors:
o Long-term corporate performance record relative to a market index;
o Composition of board and key board committees;
o Corporate governance provisions and takeover activity;
o Board decisions regarding executive pay;
o Director compensation;
B. DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY PROTECTION
Proposals concerning director and officer indemnification and liability
protection are evaluated on a case-by-case basis.
C. VOTING FOR DIRECTOR NOMINEES IN CONTEST ELECTIONS
Votes in a contested election of directors are evaluated on a CASE-BY-CASE
basis, and may consider the following factors:
o long-term financial performance of the target company relative to
its industry;
o management's track record;
o background to the proxy contest;
o qualifications of director nominees (both slates);
o evaluation of what each side is offering shareholders as well as the
likelihood that the proposed objectives and goals can be met; and
B-17
o stock ownership positions.
Size of the Board
Proposals to limit the size of the Board should be evaluated on a CASE-BY-CASE
basis.
II. AUDITORS
RATIFYING AUDITORS
We generally vote FOR proposals to ratify auditors, unless: an auditor has a
financial interest in or association with the company, and is therefore not
independent; or there is reason to believe that the independent auditor has
rendered an opinion which is neither accurate nor indicative of the company's
financial position.
III. PROXY CONTEST DEFENSES
Cumulative Voting
We vote AGAINST proposals to eliminate cumulative voting.
We vote FOR proposals to permit cumulative voting.
IV. ANTI-TAKEOVER ISSUES
We generally oppose anti-takeover measures because they reduce shareholder
rights. However, as with all proxy issues, we conduct and independent review of
each anti-takeover proposal. On occasion, we may vote with management when it is
concluded that the proposal is not onerous and would not harm clients' interests
as shareholders. Anti-takeover issues include the following:
POISON PILLS
The "poison pill" entitles shareholders to purchase certain securities at
discount prices in the event of a change in corporate control. Such a measure
would make a potential takeover prohibitively expensive to the acquirer.
We review on a CASE-BY-CASE basis management proposals to ratify a poison pill.
1) FAIR PRICE PROVISIONS
Fair price provisions attempt to ensure approximately equal treatment for all
shareholders in the event of a full-scale takeover. Typically, such a provision
requires would-be acquirers that have established threshold positions in target
companies at given per-share prices to pay at least as much if they opt for
complete control, unless certain conditions are met.
B-18
We vote FOR fair price proposals, as long as the shareholder vote requirement
embedded in the provision is no more than a majority of disinterested shares.
We vote FOR shareholder proposals to lower the shareholder vote requirement in
existing fair price provisions.
2) GREENMAIL
Proposals relating to the prohibition of "greenmail" are designed to disallow
the repurchase of stock from a person or group owning 5% or more of the
company's common stock, unless approved by the disinterested holders of
two-thirds or more of the outstanding stock. They could also prevent the company
from repurchasing any class of stock at a price more than 5% above the current
fair market price, unless an offer is made to all shareholders.
We vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or
otherwise restrict a company's ability to make greenmail payments.
We review on a CASE-BY-CASE basis anti-greenmail proposals when they are bundled
with other charter or bylaw amendments.
3) SUPERSTOCK
Another takeover defense is superstock, i.e., shares that give holders
disproportionate voting rights. For example, one company proposed authorizing a
class of preferred stock which "could be issued in a private placement with one
or more institutional investors" and "could be designated as having voting
rights which might dilute or limit the present voting rights of the holders of
common stock...." The purpose of this additional class of stock would be to give
insiders an edge in fending off an unsolicited or hostile takeover attempt.
We will review on case-by-case basis proposals that would authorize the creation
of new classes of "superstock".
E. SUPERMAJORITY RULES
Supermajority provisions require approval by holders of minimum amounts of the
common shares (usually 75% to 80%). While applied mainly to merger bids,
supermajority rules also may be extended to cover substantive transfers of
corporate assets, liquidations, reverse splits and removal of directors for
reasons other than cause. A supermajority provision would make it nearly
impossible in some cases for shareholders to benefit from a takeover attempt.
A. SUPERMAJORITY SHAREHOLDER VOTE REQUIREMENT TO APPROVE MERGERS
We vote AGAINST management proposals to require a supermajority
shareholder vote to approve mergers and other significant business
combinations.
We vote FOR shareholder proposals to lower supermajority shareholder vote
requirements for mergers and other significant business
combinations.
B-19
b. SUPERMAJORITY SHAREHOLDER VOTE REQUIREMENT TO AMEND THE CHARTER OR
BYLAWS
We vote AGAINST management proposals to require a supermajority
shareholder vote to approve charter and bylaw amendments.
We vote FOR shareholder proposals to lower supermajority shareholder vote
requirements for charter and bylaw amendments.
F. BOARD CLASSIFICATION
High on the agenda of defense-minded corporate executives are staggered terms
for directors, whereby only some (typically one-third) of the directors are
elected each year. The "staggered board" acts as a bar to unwelcome takeover
bids. An aggressive, affluent acquirer would need two years to gain a working
majority of directors at a company whose board members are elected to staggered
three-year terms of office.
We vote AGAINST proposals to classify the board.
We vote FOR proposals to repeal classified boards and elect all directors
annually.
IV. MISCELLANEOUS GOVERNANCE PROVISION
BUNDLED PROPOSALS
We review on a CASE-BY-CASE basis bundled or "conditioned" proxy proposals. In
this case where items are conditioned upon each other, we examine the benefits
and costs of the packages items. In instances when the joint effect of the
conditioned items is not in shareholder's best interests, we vote against the
proposals. If the combined effect is positive, we support such proposals.
V. CAPITAL STRUCTURE
A. COMMON STOCK AUTHORIZATION
We review on a CASE-BY-CASE basis proposals to increase the number of shares of
common stock authorized for issue.
B. DEBT RESTRUCTURING
We review on a CASE-BY-CASE basis proposals to increase common and/or preferred
shares and to issue shares as part of a debt restructuring plan.
VI. EXECUTIVE AND DIRECTOR COMPENSATION
B-20
In general, we vote on a CASE-BY-CASE basis on executive and director
compensation plans, including stock option plans, with the view that viable
compensation programs reward the creation of stockholder wealth.
VII. STATE OF INCORPORATION
A. Voting on State Takeover Statutes
We review on a case-by-case basis proposals to opt in or out of state takeover
statutes (including control share acquisition statutes, control share cash-out
statutes, freeze-out provisions, fair price provisions, stakeholder laws, poison
pill endorsements, severance pay and labor contract provisions, anti-greenmail
provisions and disgorgement provisions).
B. Voting on Reincorporation Proposals
Proposals to change a company's state of incorporation are examined on a
CASE-BY-CASE basis.
VII. MERGERS AND CORPORATE RESTRUCTURINGS
A. Mergers and Acquisitions
Votes on mergers and acquisitions are considered on a CASE-BY-CASE basis.
B. Corporate Restructuring
Votes on corporate restructuring proposals, including minority squeezeouts,
leveraged buyout, spin-offs, liquidations and asset sales are considered on a
CASE-BY-CASE basis.
C. Spin-offs
Votes on spin-offs are considered on a CASE-BY-CASE basis.
D. Changing Corporate Name
We generally vote FOR changing the corporate name.
IX. SOCIAL AND ENVIRONMENTAL ISSUES
Consistent with its fiduciary duty to clients, SCM will vote on social issues
with a view toward promoting good corporate citizenship. However, SCM realizes
that it cannot require a portfolio company to go beyond applicable legal
requirements or put itself in a non-competitive position. Social responsibility
issues may include proposals regarding the following:
o Ecological issues, including toxic hazards and pollution of the air
and water;
o Employment practices, such as the hiring of women and minority
groups;
B-21
o Product quality and safety;
o Advertising practices;
o Animal rights, including testing, experimentation and factory
farming;
o Military and nuclear issues; and
o International politics and operations, including the world debt
crisis, infant formula, U.S. corporate activity in Northern Ireland,
and the policy of apartheid in South Africa.
We review on a CASE-BY-CASE basis proposals regarding social or environmental
issues.
B-22
MILLER/HOWARD INVESTMENTS PROXY VOTING POLICY
The Firm recognizes, as a matter of policy and as a fiduciary to our clients,
that proxy voting is a valuable right of shareholders. Proxy voting is one of
the best ways for an investor to communicate to a company his or her opinions on
management's policies. Miller/Howard Investments supports voting proxies
consistent with our financial, social, and environmental objectives. For more
information regarding these objectives, please refer to our SRI (Socially
Responsible Investing) policy.
Each proxy season, in addition to the "standard" issues placed on the ballot by
management, there may be a number of other important issues put forward by
shareholders in the form of shareholder resolutions. Shareholder resolutions can
cover a wide range of issues, such as environmental performance, workplace
diversity, the production of weapons, land mine clean up, genetically modified
foods, labor standards, and management transparency. We actively support
resolutions that target labor issues, human rights, compensation, and also those
that decrease emissions and increase renewable energy sources. The primary goal
of the shareholder resolution process is to engage management in a dialogue. We
support the right of both shareholders and stakeholders to pursue such
discussions.
PROXY ADMINISTRATION
In January 2008, Miller/Howard Investments enlisted the help of Broadridge
Investor Communication Solutions, Inc. to administer electronic proxy voting.
Using the services Broadridge provides, Miller/Howard Investments is capable of
customizing proxy reports, ballot recommendations, and research tools. Because
the issues related to proxy voting are complex and directly impact investment
values, we have chosen Broadridge to facilitate voting SRI recommendations as
provided by Glass Lewis.
Proxy voting responsibility will be determined at the opening of all new client
relationships. For those clients who have retained proxy-voting authority,
Miller/Howard Investments has no responsibility to receive, vote, or otherwise
advise voting.
Miller/Howard Investments maintains relevant records, through EDGAR and
Broadridge, including but not limited to, proxy reconciliation, ballots and
research reports. Clients can receive a history of our proxy voting record upon
request.
LIMITATIONS
The Firm will generally vote on all proxies it receives. However, Miller/Howard
Investments may refrain from voting a proxy if the shares are no longer held by
the client at the time of the meeting. Unsupervised securities, or securities
held below the line, will also be excluded.
Miller/Howard Investments will vote differently from Glass Lewis recommendations
if we believe such action is in the best interest of our clients and/or our
unique objectives.
B-23
ANNUAL REVIEW OF PROXY POLICY
On an annual basis, Miller/Howard Investments will amend or update, as
necessary, to remain consistent and current with our proxy practices. Client
interests, compliance, and regulatory requirements will be reviewed and
addressed.
DISCLOSURE:
Miller/Howard Investments discloses a summary of our proxy voting policy in our
Form ADV Part II.
B-24
NAVELLIER & ASSOCIATES PROXY VOTING POLICY
Navellier's proxy voting policies and procedures are designed to ensure that
proxies are voted in an appropriate manner. In the absence of specific voting
guidelines from the Fund, Navellier will vote proxies in a manner that is in the
best interests of the Fund, which may result in different voting results for
proxies for the same issuer. Navellier shall consider only those factors that
relate to the Fund's investment or dictated by the Fund's written instructions,
including how its vote will economically impact and affect the value of the
Fund's investment (keeping in mind that, after conducting an appropriate
cost-benefit analysis, not voting at all on a presented proposal may be in the
best interest of the Fund). Navellier has adopted specific voting policies for
voting proxies with respect to routine issues, such as board of directors,
reclassification of common stock and independent auditors. Navellier has adopted
specific voting policies for voting non-routine issues, such as mergers and
anti-greenmail provisions. The following are examples of Navellier's policies on
specific matters involving routine and non-routine issues:
o Navellier will generally vote for the election of directors (where
no corporate governance issues are implicated).
o Navellier will generally vote for proposals that maintain or
increase the rights of shareholders.
o Navellier will generally vote for management proposals for merger or
reorganization if the transaction appears to offer fair value.
If the proxy includes a routine item that implicates corporate governance
changes, a non-routine item where no specific policy applies or a conflict of
interest where no specific policy applies, Navellier may engage ISS to determine
how the proxies should be voted. If an actual or potential conflict is found to
exist, written notification of the conflict will be given to the Fund describing
Navellier's vote recommendation or requesting the Fund to vote the proxy
directly. If the Fund has not responded before the response deadline, Navellier
may engage a non-interested party to independently review Navellier's vote
recommendation if the vote is in favor of Navellier's interest, cast its vote as
recommended if the vote is against Navellier's interest or abstain from voting
if Navellier determines this to be in the best interest of the Fund.
B-25
PART C. OTHER INFORMATION
ITEM 15. IDEMNIFICATION
Article VII of the Agreement and Declaration of Trust empowers the Trustees of
the Trust, to the full extent permitted by law, to purchase with Trust assets
insurance for indemnification from liability and to pay for all expenses
reasonably incurred or paid or expected to be paid by a Trustee or officer in
connection with any claim, action, suit or proceeding in which he or she becomes
involved by virtue of his or her capacity or former capacity with the Trust.
Article VI of the By-Laws of the Trust provides that the Trust shall indemnify
any person who was or is a party or is threatened to be made a party to any
proceeding by reason of the fact that such person is and other amounts or was an
agent of the Trust, against expenses, judgments, fines, settlement and other
amounts actually and reasonable incurred in connection with such proceeding if
that person acted in good faith and reasonably believed his or her conduct to be
in the best interests of the Trust. Indemnification will not be provided in
certain circumstances, however, including instances of willful misfeasance, bad
faith, gross negligence, and reckless disregard of the duties involved in the
conduct of the particular office involved.
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) Registrant's Agreement and Declaration of Trust dated October 25, 1993 is
herein incorporated by reference to Exhibit (a)(1) of Post-Effective
Amendment No. 9 to Registrant's Registration Statement on Form N-1A (File
No. 003-70958), filed with the Securities and Exchange Commission ("SEC")
on November 24, 1998.
(b) Certificate of Amendment of Agreement and Declaration of Trust of Corona
Investment Trust dated December 11, 1993 is herein incorporated by
reference to Exhibit (a)(2) of Post-Effective Amendment No. 9 to
Registrant's Registration Statement on Form N-1A (File No. 003-70958),
filed with the SEC on November 24, 1998.
(c) Certificate of Amendment of Agreement and Declaration of Trust and
Certificate of Trust of the Solon Funds dated June 13, 1994 is herein
incorporated by reference to Exhibit (a)(3) of Post- Effective Amendment
No. 9 to Registrant's Registration Statement on Form N-1A (File No.
003-70958), filed with the SEC on November 24, 1998.
(d) Certificate of Amendment of Agreement and Declaration of Trust dated
November 10, 1997 is herein incorporated by reference to Exhibit (1)(d) of
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form N-1A (File No. 003-70958), filed with the SEC on December 17, 1997.
1
(e) Amended and Restated Agreement and Declaration of Trust dated October 8,
1998 is herein incorporated by reference to Exhibit (a)(5) of
Post-Effective Amendment No. 9 to Registrant's Registration Statement on
Form N-1A (File No. 003-70958), filed with the SEC on November 24, 1998.
(f) Certificate of Amendment of Amended and Restated Agreement and Declaration
of Trust dated December 10, 1998 is herein incorporated by reference to
Exhibit (a)(6) of Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A (File No. 003- 70958), filed with the
SEC on January 27, 1999.
(g) Certificate of Amendment of Amended and Restated Agreement and Declaration
of Trust dated March 24, 2004 is herein incorporated by reference to
Exhibit (a)(7) of Post-Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A (File Nos. 003-70958 and 811-08104),
filed with the SEC on May 3, 2004.
(h) Certificate of Amendment of Amended and Restated Agreement and Declaration
of Trust dated November 17, 2006 is herein incorporated by reference to
Exhibit (a)(8) of Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A (File Nos. 003-70958 and 811-08104),
filed with the SEC on February 1, 2007.
(2) BYLAWS OF THE REGISTRANT
Amended and Restated By-Laws of the Trust as revised November 18, 2004 are
herein incorporated by reference to Exhibit (b) of Post-Effective
Amendment No. 26 to Registrant's Registration Statement on Form N-1A (File
Nos. 003-70958 and 811-08104), filed with the SEC on April 14, 2005.
(3) VOTING TRUST AGREEMENT
Not Applicable
(4) AGREEMENT AND PLAN OF REORGANIZATION
The Agreement and Plan of Reorganization is herein incorporated by
reference to Exhibit (4) of the Registrant's Registration Statement on
Form N-14 (File Nos. 333-152093 and 811-08104), filed with the SEC on July
2, 2008..
(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. 34 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on September 19, 2007.
(6) INVESTMENT ADVISORY CONTRACTS
(a) Investment Advisory Agreement between the Registrant and Touchstone
Advisors, Inc. is filed herewith.
(b) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Turner
Investment Partners, Inc. dated February 17, 2006 is herein incorporated
by reference to Exhibit (d)(2) of Post- Effective Amendment No. 28 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on September 21, 2006.
(c) Addendum to Sub-Advisory Agreement between Touchstone Advisors, Inc. and
Turner Investment Partners, Inc. dated April 1, 2007 is herein
incorporated by reference to Exhibit (d)(2)(ii) of Post-Effective
Amendment No. 36 to Registrant's Registration Statement on Form N-1A (File
Nos. 003-70958 and 811-08104), filed with the SEC on February 1, 2008..
2
(d) Addendum to Sub-Advisory Agreement between Touchstone Advisors, Inc. and
Turner Investment Partners, Inc. dated July 20, 2007 is herein
incorporated by reference to Exhibit (d)(2)(iii) of Post-Effective
Amendment No. 36 to Registrant's Registration Statement on Form N-1A (File
Nos. 003-70958 and 811-08104), filed with the SEC on February 1, 2008..
(e) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Clover
Capital Management, Inc. dated February 17, 2006 is herein incorporated by
reference to Exhibit (d)(3) of Post- Effective Amendment No. 28 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on September 21, 2006.
(f) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Chartwell
Investment Partners dated February 17, 2006 is herein incorporated by
reference to Exhibit (d)(4) of Post- Effective Amendment No. 28 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on September 21, 2006.
(g) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Sands Capital
Management dated February 17, 2006 is herein incorporated by reference to
Exhibit (d)(6) of Post-Effective Amendment No. 28 to Registrant's
Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651),
filed with the SEC on September 21, 2006.
(h) Sub-Advisory Agreement between Touchstone Advisors, Inc. and AXA Rosenberg
Investment Management dated February 17, 2006 is herein incorporated by
reference to Exhibit (d)(7) of Post-Effective Amendment No. 28 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on September 21, 2006.
(i) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Diamond Hill
Capital Management Inc. dated February 17, 2006 is herein incorporated by
reference to Exhibit (d)(8) of Post-Effective Amendment No. 28 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on September 21, 2006.
(j) Sub-Advisory Agreement between Touchstone Advisors, Inc. and James
Investment Research, Inc. dated May 31, 2007 is herein incorporated by
reference to Exhibit (d)(9) of Post-Effective Amendment No. 33 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on July 23, 2007.
(k) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Chartwell
Investment Partners is herein incorporated by reference to Exhibit (d)(10)
of Post-Effective Amendment No. 35 to Registrant's Registration Statement
on Form N-1A (File Nos. 003-70958 and 811- 08104), filed with the SEC on
December 3, 2007.
(l) Form of Sub-Advisory Agreement between Touchstone Advisors, Inc. and
Navellier & Associates, Inc. is filed herewith.
(7) UNDERWRITING AND DISTRIBUTION CONTRACTS
(a) Distribution Agreement between the Registrant and Touchstone Advisors,
Inc. is herein incorporated by reference to Exhibit (e)(1) of
Post-Effective Amendment No. 28 to Registrant's Registration Statement on
Form N-1A (File Nos. 002-80859 and 811-03651), filed with the SEC on
September 21, 2006.
(b) Form of Underwriter's Dealer Agreement is herein incorporated by reference
to Exhibit (e)(2) of Post-Effective Amendment No. 29 to Registrant's
Registration Statement on Form N-1A (File Nos. 002-80859 and 811-03651),
filed with the SEC on February 1, 2007.
3
(8) BONUS OR PROFIT SHARING PLAN
Form of Touchstone Trustee Deferred Compensation Plan is herein
incorporated by reference to Exhibit (f) of Post-Effective Amendment No.
30 to Registrant's Registration Statement on Form N-1A (File Nos.
002-80859 and 811-03651), filed with the SEC on March 12, 2007.
(9) CUSTODIAN AGREEMENTS
Amended and Restated Custodian Services Agreement between the Registrant
and PFPC Trust Company as of July 22, 2004 is herein incorporated by
reference to Exhibit (g) of Post-Effective Amendment No. 27 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on January 30, 2006.
(10) RULE 12B-1 PLAN AND RULE 18F-3 PLAN
(a) Distribution and Shareholder Services Plan for Class A Shares is filed
herewith.
(b) Distribution and Shareholder Services Plan for Class C Shares is filed
herewith.
(c) Shareholder Services Plan for Class Z Shares is herein incorporated by
reference to Exhibit (m)(4) of Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N- 1A (File Nos. 002-80859 and
811-03651), filed with the SEC on February 1, 2007.
(d) Amended and Restated Rule 18f-3 Multiple Class Plan is herein incorporated
by reference to Exhibit (n)(1) of Post-Effective Amendment No. 29 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on February 1, 2007.
(11) AN OPINION AND CONSENT OF COUNSEL (AS TO LEGALITY OF SECURITIES BEING
REGISTERED)
Opinion and Consent of Morgan, Lewis & Bockius, as to legality of
securities being registered, is herein incorporated by reference to
Exhibit (11) of the Registrant's Registration Statement on Form N-14 (File
Nos. 333-152093 and 811-08104), filed with the SEC on July 2, 2008..
(12) AN OPINION AND CONSENT OF COUNSEL (AS TO CERTAIN TAX CONSEQUENCES)
Form of Tax Opinion is filed herewith.
(13) OTHER MATERIAL CONTRACTS OF THE REGISTRANT
(a) Form of Amended Administration Agreement between the Registrant and
Touchstone Advisors, Inc. is herein incorporated by reference to Exhibit
(h)(1) of Post-Effective Amendment No. 29 to Registrant's Registration
Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the
SEC on February 1, 2007.
(b) Form of Sub-Administration Agreement between Touchstone Advisors, Inc. and
Integrated
Investment Services, Inc. is herein incorporated by reference to Exhibit
(h)(2) of Post-Effective Amendment No. 29 to Registrant's Registration
Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the
SEC on February 1, 2007.
(c) Amended Sub-Administration Agreement between Touchstone Advisors, Inc. and
JPMorgan Chase Bank, N.A. is herein incorporated by reference to Exhibit
(h)(3) of Post-Effective Amendment No. 36 to Registrant's Registration
Statement on Form N-1A (File Nos. 003-70958 and 811-08104), filed with the
SEC on February 1, 2008..
4
(d) Addendum to Amended Sub-Administration Agreement between Touchstone
Advisors, Inc. and JPMorgan Chase Bank, N.A. is herein incorporated by
reference to Exhibit (h)(4) of Post-Effective Amendment No. 36 to
Registrant's Registration Statement on Form N-1A (File Nos. 003-70958 and
811-08104), filed with the SEC on February 1, 2008..
(e) Form of Transfer Agency Agreement between the Registrant and Integrated
Investment Services, Inc. is herein incorporated by reference to Exhibit
(h)(3) of Post-Effective Amendment No. 29 to Registrant's Registration
Statement on Form N-1A (File Nos. 002-80859 and 811-03651), filed with the
SEC on February 1, 2007.
(f) Addendum to Transfer Agency Agreement between the Registrant and JPMorgan
Chase Bank, N.A. is herein incorporated by reference to Exhibit (h)(6) of
Post-Effective Amendment No. 36 to Registrant's Registration Statement on
Form N-1A (File Nos. 003-70958 and 811-08104), filed with the SEC on
February 1, 2008..
(g) Compliance Services Agreement among the Registrant, Touchstone Strategic
Trust, Touchstone Investment Trust, Touchstone Tax-Free Trust and
Integrated Investment Services, Inc. is herein incorporated by reference
to Exhibit (h)(4) of Post-Effective Amendment No. 30 to
Registrant'sRegistration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on March 12, 2007.
(h) Amended Compliance Services Agreement among the Registrant, Touchstone
Strategic Trust, Touchstone Investment Trust, Touchstone Tax-Free Trust,
Touchstone Variable Series Trust, Touchstone Institutional Funds Trust and
JPMorgan Chase Bank, N.A. is herein incorporated by reference to Exhibit
(h)(8) of Post-Effective Amendment No. 36 to Registrant's Registration
Statement on Form N-1A (File Nos. 003-70958 and 811-08104), filed with the
SEC on February 1, 2008.
(i) Fidelity Bond Allocation Agreement dated April 1, 2007 is herein
incorporated by reference to Exhibit (h)(5) of Post-Effective Amendment
No. 33 to Registrant's Registration Statement on Form N-1A (File Nos.
002-80859 and 811-03651), filed with the SEC on July 23, 2007.
(j) Form of Administration Fee Waiver Agreement is herein incorporated by
reference to Exhibit (h)(6) of Post-Effective Amendment No. 30 to
Registrant's Registration Statement on Form N-1A (File Nos. 002-80859 and
811-03651), filed with the SEC on March 12, 2007.
(k) Fee Waiver Agreement is herein incorporated by reference to Exhibit (h)(7)
of Post-Effective Amendment No. 35 to Registrant's Registration Statement
on Form N-1A (File Nos. 003-70958 and 811-08104), filed with the SEC on
December 3, 2007..
(l) Amendment 1 to the Fee Waiver Agreement dated November 20, 2006 is herein
incorporated by reference to Exhibit (h)(7) of Post-Effective Amendment
No. 33 to Registrant's Registration Statement on Form N-1A (File Nos.
002-80859 and 811-03651), filed with the SEC on July 23, 2007.
(m) Amendment 2 to the Fee Waiver Agreement dated February 1, 2007 is herein
incorporated by reference to Exhibit (h)(8) of Post-Effective Amendment
No. 33 to Registrant's Registration Statement on Form N-1A (File Nos.
002-80859 and 811-03651), filed with the SEC on July 23, 2007.
(n) Amendment 3 to the Fee Waiver Agreement dated May 11, 2007 is herein
incorporated by reference to Exhibit (h)(9) of Post-Effective Amendment
No. 33 to Registrant's Registration Statement on Form N-1A (File Nos.
002-80859 and 811-03651), filed with the SEC on July 23, 2007.
(o) Amendment 4 to the Fee Waiver Agreement dated July 20, 2007 is herein
incorporated by reference to Exhibit (h)(10) of Post-Effective Amendment
No. 33 to Registrant's Registration Statement on Form N-1A (File Nos.
002-80859 and 811-03651), filed with the SEC on July 23, 2007.
5
(p) Amendment 5 to the Fee Waiver Agreement dated December 3, 2007 is herein
incorporated by reference to Exhibit (h)(12) of Post-Effective Amendment
No. 35 to Registrant's Registration Statement on Form N-1A (File Nos.
003-70958 and 811-08104), filed with the SEC on December 3, 2007.
(q) Form of Amendment 6 to the Fee Waiver Agreement dated February 1, 2008 is
herein incorporated by reference to Exhibit (h)(17) of Post-Effective
Amendment No. 36 to Registrant's Registration Statement on Form N-1A (File
Nos. 003-70958 and 811-08104), filed with the SEC on February 1, 2008.
(r) Expense Limitation Agreement is filed herewith.
(14) CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(a) Consent of Tait, Weller and Baker LLP is filed herewith.
(15) OMITTED FINANCIAL STATEMENT
Not Applicable.
(16) POWERS OF ATTORNEY
Powers of Attorney for Jill T. McGruder, Phillip R. Cox, H. Jerome Lerner,
Donald C. Siekmann, Robert E. Stautber and John P. Zannotti are herein
incorporated by reference to Exhibit (16) of the Registrant's Registration
Statement on Form N-14 (File Nos. 333-152093 and 811-08104), filed with
the SEC on July 2, 2008.
(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.
6
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 1st day of August, 2008.
TOUCHSTONE FUNDS GROUP TRUST
By: /S/ JILL T. MCGRUDER
--------------------
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.
* Trustee August 1, 2008
- ----------------------------
Phillip R. Cox
* Trustee August 1, 2008
- ----------------------------
Robert E. Stautberg
* Trustee August 1, 2008
- ----------------------------
Donald C. Siekmann
* Trustee August 1, 2008
- ----------------------------
H. Jerome Lerner
* Trustee August 1, 2008
- ----------------------------
John P. Zanotti
/S/ JILL T. MCGRUDER Trustee and August 1, 2008
- ---------------------------- President
Jill T. McGruder
/S/ TERRIE A. WIEDENHEFT Controller, August 1, 2008
- ---------------------------- Treasurer and
Terrie A. Wiedenheft Principal Financial
Officer
* By: /S/ JAY S. FITTON
---------------------
Jay S. Fitton
(Attorney-in-Fact Pursuant to Power of Attorney)
7
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
(6)(a) Investment Advisory Agreement between the Registrant and
Touchstone Advisors, Inc. is filed herewith.
(6)(l) Form of Sub-Advisory Agreement between Touchstone Advisors,
Inc. and Navellier & Associates, Inc. is filed herewith.
(10)(a) Distribution and Shareholder Services Plan for Class A Shares
is filed herewith.
(10)(b) Distribution and Shareholder Services Plan for Class C Shares
is filed herewith.
(12) Form of Tax Opinion is filed herewith.
(13)(r) Expense Limitation Agreement is filed herewith.
(14)(a) Consent of Tait, Weller and Baker LLP is filed herewith.
8