PROPOSED TRANSACTION MEMO
PROPOSAL: TOUCHSTONE LARGE CAP CORE EQUITY FUND WILL MERGE INTO TOUCHSTONE
GROWTH OPPORTUNITIES FUND
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AS OF 3/31/10 TOUCHSTONE LARGE CAP CORE EQUITY FUND TOUCHSTONE GROWTH OPPORTUNITIES FUND
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ASSETS: $53,401,183 $64,297,751
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INCEPTION: A - 5/01/00 A - 9/29/95
C - 5/16/00 C - 8/02/99
Y - 2/02/09
Institutional - 2/02/09
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CURRENT ADVISOR: Touchstone Touchstone
Advisors, Inc. Advisors, Inc.
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SURVIVING ADVISOR: Touchstone Touchstone
Advisors, Inc. Advisors, Inc.
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CURRENT SUB-ADVISOR: Todd/Veredus Asset Management, LLC Westfield Capital Management
Company, L.P.
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SURVIVING SUB-ADVISOR: Westfield Capital Management Company, Westfield Capital Management
L.P. Company, L.P.
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CURRENT DIVERSIFICATION: Diversified Non-diversified
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DIVERSIFICATION AFTER MERGER: Non-diversified Non-diversified
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August 31, 2010
With respect to the issue of which fund should be the accounting survivor
in the merger of the Large Cap Core Equity Fund ("Core Equity Fund") into the
Touchstone Growth Opportunities Fund ("Growth Opportunities Fund") (together,
the "Funds"), it is the view of the Growth Opportunities Fund, its accountants
and attorneys that the only account survivor of the merger should, for the
reasons discussed below, be the Growth Opportunities Fund.
The Securities and Exchange Commission (the "SEC") staff has consistently
held to the principles expressed in the North American Security Trust no-action
letter (publicly available August 5, 1994) that:
"In determining whether a surviving fund, or a new fund resulting
from a reorganization, may use the historical performance of one of
several predecessor funds, funds should compare the attributes of
the surviving or new fund and the predecessor funds to determine
which predecessor fund, if any, the surviving or new fund most
closely resembles. Among other factors, funds should compare the
various funds' investment advisers; investment objectives, policies
and restrictions; expense structures and expense ratios; asset size;
and portfolio composition. These factors are substantially similar
to the factors the staff considers in determining the accounting
survivor of a business combination involving investment companies."
It is believed that, based on the five factors described above, the Growth
Opportunities Fund should be the accounting survivor.
1. Investment Adviser:
Both Funds are advised by Touchstone Advisors, Inc.
Todd/Veredus Asset Management, LLC ("Todd") currently sub-advises Core
Equity Fund. Westfield Capital Management Company, L.P. ("Westfield")
currently sub-advises the Growth Opportunities Fund. Westfield will
continue to sub-advise the Growth Opportunities Fund after the merger.
Although Touchstone Advisors, Inc. has general supervisory responsibility
as investment manager, decisions to buy and sell securities and
implementation of investment strategies is the sole responsibility of the
sub-advisor.
2. Investment Objectives, Policies and Restrictions:
The Growth Opportunities Fund is non-diversified while the Core Equity
Fund is diversified. The Growth Opportunities Fund may invet in securities
of any size while the Core Equity Fund will invest at least 80% of its
assets in large capitalization companies. The Growth Opportunities Fund
will remain non-diversified after the merger.
3. Expense Structure and Expense Rates:
The expense structure subsequent to the merger will be that of the Growth
Opportunities Fund. While the management fee and other expenses of the
Growth Opportunities Fund are greater than those of the Core Equity Fund,
the net expenses of the Funds are contractually limited by Touchstone
Advisors, Inc. and are 1.15% and 1.90% for Class A and Class C shares of
the Funds, respectively.
4. Asset Size:
As of 03/31/10, the assets of each Fund are approximately as follows:
Core Equity Fund $53 million
Growth Opportunities Fund $64 million
The Core Equity Fund commenced operations in 2000 and the Growth
Opportunities Fund commenced operations in 1995.
5. Portfolio Composition:
This factor is discussed above in analyzing difference in investment
policies and restrictions.