As filed with the Securities and Exchange Commission on May 18, 2011
1933 Act File No.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
|_| Pre-Effective Amendment No. |_| Post-Effective Amendment No.
(Check appropriate box or boxes)
Touchstone 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.
J.P. Morgan
303 Broadway, Suite 900
Cincinnati, OH 45202
513-878-4066
(Name and Address of Agent for Service)
Copies to:
John Ford, Esq.
Pepper Hamilton LLP
Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103
215-981-4009
Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective under the Securities Act of 1933.
It is proposed that this filing will become effective on June 17, 2011 pursuant
to Rule 488. An indefinite number of Class A shares and Class Y shares of
beneficial interest of the Touchstone Total Return Bond Fund, par value $0.01
per share, has been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940. Accordingly, no filing fee is being paid at this time.
June 17, 2011
THE NOTTINGHAM INVESTMENT TRUST II
EARNEST Partners Fixed Income Trust
Dear Shareholder:
The Prospectus/Proxy Statement that accompanies this letter describes a
proposed reorganization of the EARNEST Partners Fixed Income Trust, a series of
The Nottingham Investment Trust II, into the Touchstone Total Return Bond Fund,
a series of Touchstone Funds Group Trust (the "Reorganization"). You are being
asked to vote on the Reorganization. The Board of Trustees of The Nottingham
Investment Trust II has approved the Reorganization and recommends that you vote
FOR the Reorganization.
The Prospectus/Proxy Statement contains details about the Touchstone Total
Return Bond Fund's investment goal, policies, management and costs that are
important for you to know. I urge you to take the time to review it carefully.
The Touchstone Total Return Bond Fund's investment goal and principal investment
strategies are substantially similar to those of the EARNEST Partners Fixed
Income Trust.
I would like to answer some initial basic questions about the proposed
Reorganization.
WHY ARE YOU DOING THIS?
EARNEST Partners, LLC, the investment advisor to the EARNEST Partners
Fixed Income Trust, and Touchstone Advisors, Inc., the investment advisor to the
Touchstone Total Return Bond Fund, consider the proposed Reorganization to be
consistent with their respective business strategies, as well as with each
firm's desire to act in the best interests of the Funds' shareholders. It is
expected that the Reorganization will provide the shareholders of the EARNEST
Partners Fixed Income Trust the opportunity to participate in a significantly
larger fund family through the Touchstone Total Return Bond Fund. The Touchstone
Total Return Bond Fund is part of the Touchstone Family of Funds, which is
comprised of 42 mutual funds. Touchstone Advisors is the investment advisor to
each of the funds within the Touchstone Family of Funds and as of March 31,
2011, Touchstone Advisors had $7.3 billion in assets under management. In
addition, the Reorganization may benefit shareholders of the EARNEST Partners
Fixed Income Trust by achieving operating efficiencies and reducing operating
expenses, for example, by utilizing the distribution capabilities of Touchstone
Securities, Inc., the distributor of the Touchstone Total Return Bond Fund. For
more information, please see the section entitled "Reasons for the
Reorganization."
WHAT WILL HAPPEN TO MY EXISTING SHARES?
If shareholders of the EARNEST Partners Fixed Income Trust approve the
Reorganization, your shares of the EARNEST Partners Fixed Income Trust will be
exchanged for shares of the Touchstone Total Return Bond Fund. Therefore, in
exchange for Institutional Class shares or Investor Class shares of the EARNEST
Partners Fixed Income Trust that you own at the time of the Reorganization, you
will receive Class Y shares or Class A shares, respectively, of the Touchstone
Total Return Bond Fund. The shares of the Touchstone Total Return Bond Fund that
you receive following the Reorganization will have an aggregate net asset value
equal to the aggregate net asset value of your shares of the EARNEST Partners
Fixed Income Trust immediately prior to the Reorganization so that there will be
no change in the value of your investment solely as a result of the
Reorganization.
HOW WILL THE FEES COMPARE?
Touchstone Advisors, Inc., the advisor to the Total Return Bond Fund, has
contractually agreed to waive its fees and reimburse expenses through January
27, 2013. EARNEST Partners, LLC, the advisor to the EARNEST Partners Fixed
Income Trust, has contractually agreed to waive its fees and reimburse expenses
through July 31, 2011 ("Nottingham Expense Limitation Agreement"). However,
EARNEST Partners, LLC has advised the Board of Trustees of the Nottingham
Investment Trust II that it will not renew the Nottingham Expense Limitation
Agreement at the end of its current term on July 31, 2011. Assuming that the
Reorganization is consummated, the net operating expenses of the Touchstone
Total Return Bond Fund are expected to be lower than the fees of the EARNEST
Partners Fixed Income Trust would be if the Reorganization was not consummated.
Investor Class shareholders of the EARNEST Partners Fixed Income Trust will not
pay any initial sales charges in connection with the Reorganization.
WILL I HAVE TO PAY FEDERAL INCOME TAXES AS A RESULT OF THE REORGANIZATION?
Shareholders are not expected to recognize gain or loss for federal income
tax purposes on the exchange of their shares of the EARNEST Partners Fixed
Income Trust for shares of the Touchstone Total Return Bond Fund. 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 of The Nottingham Investment Trust II recommend. You may vote NO,
or you may ABSTAIN. With regard to an Abstain vote, an Abstain vote is
effectively the equivalent of a No vote because approval of the Reorganization
requires the affirmative vote of the holders of a "majority of the outstanding
voting securities" of the EARNEST Partners Fixed Income Trust. The term
"majority of the outstanding voting securities," as defined in the Investment
Company Act of 1940 and as used in this Prospectus/Proxy Statement, means: the
affirmative vote of the lesser of (i) 67% of the voting securities of the
EARNEST Partners Fixed Income Trust present at a meeting if more than 50% of the
outstanding voting securities of the EARNEST Partners Fixed Income Trust are
present in person or by proxy or (ii) more than 50% of the outstanding voting
securities of the EARNEST Partners Fixed Income Trust. If the shareholders of
the EARNEST Partners Fixed Income Trust do not approve the Reorganization, the
Board of Trustees may consider other possible courses of action in the best
interest of shareholders.
WHERE WILL THE MEETING BE HELD?
Shares will be voted at a Special Meeting of Shareholders to be held at
10:00 a.m. Eastern Time, on July 27, 2011, at the offices of The Nottingham
Company, 116 South Franklin Street, Rocky Mount, North Carolina 27804. 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. Alternatively, you may follow the
instructions on your proxy card to call in your vote or vote through the
Internet. Your vote is important no matter how many shares you own.
If you have any questions about the proxy card, please call The Nottingham
Investment Trust II at 877-892-4226. 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/ Douglas S. Folk
Douglas S. Folk
President and Principal Executive Officer
EARNEST Partners Fixed Income Trust
THE NOTTINGHAM INVESTMENT TRUST II
116 SOUTH FRANKLIN STREET, P. O. BOX 69 ROCKY MOUNT
NORTH CAROLINA 27802-0069
EARNEST PARTNERS FIXED INCOME TRUST
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on July 27, 2011
To the Shareholders of the EARNEST Partners Fixed Income Trust:
NOTICE IS HEREBY GIVEN THAT a Special Meeting of the Shareholders of the
EARNEST Partners Fixed Income Trust of The Nottingham Investment Trust II, will
be held at the offices of The Nottingham Company, 116 South Franklin Street,
Rocky Mount, North Carolina 27804 on July 27, 2011 at 10:00 a.m. Eastern Time,
and any adjournment or postponement 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 EARNEST
Partners Fixed Income Trust (the "EARNEST Fund"), a series of The
Nottingham Investment Trust II, by the Touchstone Total Return Bond Fund
(the "Touchstone Fund"), a series of Touchstone Funds Group Trust, in
exchange for shares of the Touchstone Fund and the assumption by the
Touchstone Fund of the liabilities of the EARNEST Fund. The Plan also
provides for pro rata distribution of shares of the Touchstone Fund to
shareholders of the EARNEST Fund in liquidation and subsequent termination
of the EARNEST Fund.
The Board of Trustees has fixed the close of business on June 10, 2011 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/ Jack E. Brinson
Jack E. Brinson
Chairman
The Nottingham Investment Trust II
June 17, 2011
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 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
EARNEST PARTNERS FIXED INCOME TRUST
a series of
THE NOTTINGHAM INVESTMENT TRUST II
116 South Franklin Street, P. O. Box 69
Rocky Mount, North Carolina 27802-0069
(800) 525-3863
By And In Exchange For Shares of
TOUCHSTONE TOTAL RETURN BOND FUND
a series of
TOUCHSTONE FUNDS GROUP TRUST
303 Broadway, Suite 1100
Cincinnati, Ohio 45202
(800) 543-0407
June 17, 2011
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 EARNEST Partners Fixed Income Trust (the
"EARNEST Fund") for consideration at a Special Meeting of Shareholders of
EARNEST Fund to be held on July 27, 2011 at 10:00 a.m. Eastern Time at the
offices of The Nottingham Company, 116 South Franklin Street, Rocky Mount, North
Carolina 27804, and any adjournment or postponement thereof (the "Meeting"). The
statement of additional information, dated June 17, 2011, which relates to this
Prospectus/Proxy Statement and the proposed reorganization is available upon
oral or written request and without charge by calling (800) 525-3863 or by
writing to EARNEST Partners Fixed Income Trust, c/o Nottingham Shareholder
Services, 116 South Franklin Street, Post Office Box 4365, Rocky Mount, North
Carolina, 27803-0365 and is incorporated herein by reference.
GENERAL
The Board of Trustees of The Nottingham Investment Trust II has approved
the proposed reorganization of the EARNEST Fund into the Touchstone Total Return
Bond Fund (the "Touchstone Fund"), a series of Touchstone Funds Group Trust.
Each Fund is an open-end management investment company. The EARNEST Fund and the
Touchstone Fund are sometimes referred to in this Prospectus/Proxy Statement
individually as a "Fund" and collectively as the "Funds." Touchstone Funds Group
Trust and The Nottingham Investment Trust II are sometimes referred to in this
Prospectus/Proxy Statement individually as a "Trust" and collectively as the
"Trusts."
In the reorganization, the assets of the EARNEST Fund will be transferred
to the Touchstone Fund in exchange for Class Y shares and Class A shares of the
Touchstone Fund and the assumption by the Touchstone Fund of the liabilities of
the EARNEST Fund (the "Reorganization") upon the terms and conditions of and as
set forth in the Agreement and Plan of Reorganization ("Plan") between the
Funds. If the Reorganization is approved, shares of the Touchstone Fund will be
distributed to shareholders of the EARNEST Fund in liquidation of the EARNEST
Fund, and the EARNEST Fund will be terminated as a series of The Nottingham
Investment Trust II. If you own Institutional Class shares of the EARNEST Fund
you will receive Class Y shares of the Touchstone Fund. If you own Investor
Class shares of the EARNEST Fund you will receive Class A shares of the
Touchstone Fund. 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.
Because you, as a shareholder of the EARNEST Fund, are being asked to
approve transactions that will result in you holding shares of the Touchstone
Fund, this Proxy Statement also serves as a Prospectus for the Touchstone Fund.
This Prospectus/Proxy Statement, which you should retain for future reference,
contains important information about the Touchstone Fund that you should know
before voting or investing. Please read it carefully. Additional information
concerning the EARNEST Fund and the Touchstone Fund is contained in the
documents described below, all of which have been filed with the Securities and
Exchange Commission ("SEC") and all of the documents described below are
incorporated herein by reference (legally considered to be part of this
Prospectus/Proxy Statement):
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INFORMATION ABOUT THE EARNEST FUND: HOW TO OBTAIN THIS INFORMATION:
------------------------------------------------------------------------------------------------------------------------
Annual Report of The Nottingham Investment Trust II relating to the Copies are available upon request and without
Fund for the year ended March 31, 2010 charge if you:
Semi-Annual Report of The Nottingham Investment Trust II relating o Write to the EARNEST Partners Fixed Income
to the Fund for the semiannual period ended September 30, 2010 Trust Institutional Class Shares or
Investor Class Shares, c/o Nottingham
Shareholder Services, 116 South Franklin
Street, Post Office Box 4365, Rocky Mount,
North Carolina, 27803-0365; or
o Call (800) 525-3863 toll-free.
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INFORMATION ABOUT THE TOUCHSTONE FUND: HOW TO OBTAIN THIS INFORMATION:
------------------------------------------------------------------------------------------------------------------------
Prospectus of the Touchstone Funds Group Trust relating to the Fund A copy is available upon request and without
dated January 28, 2011 as amended from time to time ("TFGT charge if you:
Prospectus")
o Write to the Touchstone Funds Group Trust
Statement of Additional Information of the Touchstone Funds Group at P.O. Box 5354, Cincinnati, OH
Trust relating to the Fund dated January 28, 2011 as amended from 45201-5354; or
time to time ("TFGT SAI")
o Call (800) 543-0407 toll-free.
Annual Report of the Touchstone Funds Group Trust relating to the
Fund for the year ended September 30, 2010
------------------------------------------------------------------------------------------------------------------------
You can obtain a copy of the Annual Report of The Nottingham Investment
Trust II relating to the EARNEST Fund for the year ended March 31, 2011 when it
is available by writing to the EARNEST Partners Fixed Income Trust, c/o
Nottingham Shareholder Services, 116 South Franklin Street, Post Office Box
4365, Rocky Mount, North Carolina, 27803-0365 or calling (800) 525-3863
toll-free. You can obtain a copy of the Semi-Annual Report of the Touchstone
Funds Group Trust relating to the Fund for the semiannual period ended March 31,
2011 when it is available by writing to the Touchstone Funds Group Trust at P.O.
Box 5354, Cincinnati, OH 45201-5354 or calling (800) 543-0407 toll-free. You can
also obtain copies of any of the above-referenced 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. 20549-1520.
--------------------------------------------------------------------------------
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 THE TOUCHSTONE FUND:
[_] IS NOT A DEPOSIT OF, OR GUARANTEED BY, ANY BANK
[_] IS NOT INSURED BY THE FDIC, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY
[_] IS NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
[_] 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 the Touchstone Fund will I own?.............
How will the Reorganization affect me?...............................................
How do the Trustees recommend that I vote?...........................................
How do the Funds' investment goals and principal investment strategies
compare?.........................................................................
How do the Funds' investment limitations compare?....................................
How do the Funds' fees and expenses compare?.........................................
How do the Funds' performance records compare?.......................................
Will I be able to purchase, redeem and exchange shares the same way?.................
Will I be able to receive distributions the same way?................................
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?.........
Will the Touchstone Fund have the same service providers as the EARNEST Fund?........
What will be the primary federal income 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.................................................
Description of the Securities to be Issued...........................................
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....................................................................
ADDITIONAL INFORMATION ABOUT THE EARNEST FUND.............................................
OTHER BUSINESS............................................................................
EXHIBIT A: Form of Agreement and Plan of Reorganization...................................A-1
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 TFGT
Prospectus, the TFGT SAI 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?
EARNEST Partners, LLC ("EARNEST Partners"), the investment advisor to the
EARNEST Fund, and Touchstone Advisors, Inc. ("Touchstone Advisors"), the
investment advisor to the Touchstone Fund, consider the proposed Reorganization
to be consistent with their respective business strategies, as well as with each
firm's desire to act in the best interests of the Funds' shareholders. It is
expected that the Reorganization will provide the shareholders of the EARNEST
Fund the opportunity to participate in a significantly larger fund family
through the Touchstone Fund. The Touchstone Fund is part of the Touchstone
Family of Funds, which is comprised of 42 mutual funds. Touchstone Advisors is
the investment advisor to each of the funds within the Touchstone Family of
Funds and as of March 31, 2011, Touchstone Advisors had $7.3 billion in assets
under management. In addition, the Reorganization may benefit shareholders of
the EARNEST Fund by achieving operating efficiencies and reducing operating
expenses, for example, by utilizing the distribution capabilities of Touchstone
Securities, Inc., the distributor of the Touchstone Fund. For more information,
please see the section entitled "Reasons for the Reorganization."
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:
[_] the transfer of all of the assets of the EARNEST Fund to the
Touchstone Fund in exchange for shares of the Touchstone Fund;
[_] the assumption by the Touchstone Fund of the liabilities of the
EARNEST Fund;
[_] the termination of the EARNEST Fund subsequent to the distribution
of shares of the Touchstone Fund to the EARNEST Fund's shareholders
in complete liquidation of the EARNEST Fund; and
[_] the structuring of the Reorganization as a tax-free reorganization
for federal income tax purposes.
The Reorganization is expected to be completed on or about July 29, 2011.
1
AFTER THE REORGANIZATION, WHAT SHARES OF THE TOUCHSTONE FUND WILL I OWN?
Shareholders owning Institutional Class shares of the EARNEST Fund will
own Class Y shares of the Touchstone Fund. Shareholders owning Investor Class
shares of the EARNEST Fund will own Class A shares of the Touchstone Fund. The
new Touchstone Fund shares you receive will have the same total value as your
shares of the EARNEST Fund as of the close of business on the day immediately
prior to the Reorganization.
HOW WILL THE REORGANIZATION AFFECT ME?
It is anticipated that the Reorganization may benefit you for the reasons
discussed in the section entitled "Reasons for the Reorganization," although no
assurance can be given that the Reorganization will result in any such benefits.
After the Reorganization, the EARNEST Fund will cease to exist and the
value of your shares will depend on the performance of the Touchstone Fund.
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 borne by Touchstone Advisors and EARNEST Partners.
Touchstone Advisors is the advisor to the Touchstone Fund while the
advisor to the EARNEST Fund is EARNEST Partners. The Touchstone Fund is
sub-advised by EARNEST Partners and EARNEST Partners manages the Touchstone Fund
in substantially the same way it manages the EARNEST Fund. After the
Reorganization, the Touchstone Fund will continue to be sub-advised by EARNEST
Partners.
HOW DO THE TRUSTEES RECOMMEND THAT I VOTE?
The Trustees of The Nottingham Investment Trust II, including the Trustees
who are not "interested persons", as such term is defined in the Investment
Company Act of 1940 (the "Disinterested Trustees"), have concluded that the
Reorganization would be in the best interest of the shareholders of the EARNEST
Fund and that their interests will not be diluted in value as a result of the
Reorganization. Accordingly, the Trustees have submitted the Plan for the
approval of shareholders of the EARNEST Fund and recommend a vote for the
Reorganization.
The Trustees of Touchstone Funds Group Trust have also approved the Plan
on behalf of the Touchstone Fund.
WHAT HAPPENS IF THE SPECIAL MEETING IS ADJOURNED?
The special meeting could be adjourned if, for example, a quorum does not
exist or if a quorum exists but sufficient votes to approve the Reorganization
are not received. In determining whether to adjourn the special meeting, the
following factors may be considered: the percentage of votes actually cast, the
percentage of votes voted for and against the Reorganization, 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 the
affirmative vote of a majority of those shares that are represented at the
special meeting in person or by proxy. For purposes of any adjournment, proxies
will be voted "FOR" adjournment unless you direct otherwise by writing anywhere
on the enclosed proxy that you will vote against any adjournments.
2
HOW DO THE FUNDS' INVESTMENT GOALS AND PRINCIPAL INVESTMENT STRATEGIES
COMPARE?
The investment goals of the Funds are similar. The Touchstone Fund seeks
current income with capital appreciation as a secondary goal while the EARNEST
Fund seeks to preserve capital and maximize total return through active
management of investment-grade fixed-income securities. The investment goal of
each Fund is non-fundamental, which means that it may be changed by vote of the
Trustees of the applicable Trust without shareholder approval.
The investment strategies of the Funds are similar. The EARNEST Fund
generally invests at least 90% of its assets in investment grade bonds. The
Touchstone Fund generally invests at least 80% of its total assets in
investment-grade debt securities. The Touchstone Fund may invest in foreign
securities as part of its principal investment strategy while the EARNEST Fund
may not invest in foreign securities. As of April 30, 2011, the duration of the
EARNEST Fund and the Touchstone Fund was 5.09 and 4.82 years, respectively.
The following table describes the investment goal and principal investment
strategies of the EARNEST Fund and the Touchstone Fund.
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TOUCHSTONE FUND EARNEST FUND
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INVESTMENT Current income with capital appreciation Preserve capital and maximize total
GOAL as a secondary goal. return through active management of
investment-grade fixed-income
securities.
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PRINCIPAL The Touchstone Total Return Bond Fund The Fund pursues its investment
INVESTMENT invests, under normal circumstances, at objective by investing in market sectors
STRATEGIES least 80% of its net assets (including or particular securities that the Fund's
borrowings for investment purposes) in investment advisor, EARNEST Partners,
fixed income securities. This is a LLC ("Advisor"), believes are
non-fundamental investment policy that undervalued due to market
can be changed by the Fund upon 60 days' inefficiencies, offering additional
prior notice to shareholders. Fixed income and price appreciation potential
income securities consist of U.S. relative to other debt securities of
government obligations, corporate debt similar credit quality and interest rate
obligations, mortgage-backed securities, sensitivity.
commercial mortgage-backed securities,
asset-backed securities, non-investment The Advisor implements this strategy by
grade corporate debt obligations, calculating an expected yield for
structured notes and foreign government various market sectors and securities
debt obligations. U.S. and foreign and comparing the results to actual
government obligations include direct market yield levels. The expected yield
government obligations and those of is calculated using such factors as
government agencies and quality, duration, liquidity, and the
instrumentalities. Corporate debt relationship between price and yield.
obligations include corporate bonds, Investment decisions are made based upon
debentures, notes and other similar opportunities the Advisor perceives to
instruments of U.S. and foreign exist as a result of the differences in
corporations. Investment grade fixed the expected yield and the actual market
income securities include securities level yield.
rated BBB- or higher by Standard &
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3
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Poor's Corporation ("S&P") or Baa3 or The Advisor also considers the following
higher by Moody's Investors Services, when selecting securities:
Inc. ("Moody's") or, if unrated by S&P
or Moody's, determined by the o historical yield relationship
sub-advisor, EARNEST Partners LLC between a security and a
("EARNEST"), to be of comparable corresponding benchmark;
quality. The Fund may purchase foreign o credit risk;
government securities of both developed o market volatility;
and emerging market countries. The Fund o interest rate levels relative
will generally invest at least 80% of to historical interest rate
its total assets in investment-grade levels; and
debt securities including sovereign debt o supply and demand factors (i.e.
obligations of developed countries, but spreads tend to widen when
may invest up to 20% of its total assets supply for a security exceeds
in non-investment grade debt securities, demand).
which are sometimes referred to as "junk
bonds", including government securities In managing the Fund, the following
of emerging market countries and additional restrictions are used:
non-investment grade corporate bonds.
The Fund may invest up to 20% of its o Portfolio duration will vary
assets in securities denominated in a between 2 and 7 years, which is
foreign currency. currently approximately
equivalent to a 3 to 12 year
In selecting investments for the Fund, average life. Duration is a
EARNEST employs a bottom-up investment measure of the weighted average
process that seeks to maximize maturity of the fixed-income
duration-adjusted total return by instruments held by the Fund
investing in market sectors or and can be used by the Advisor
securities it considers undervalued for as a measure of the sensitivity
their risk characteristics. EARNEST of the market value of the Fund
accomplishes this through the to changes in interest rates.
implementation of a proprietary "GAP" Generally, the longer the
Framework, fundamental review and risk duration of the Fund, the more
management process. The first step sensitive its market value will
involves a screening of the investible be to changes in interest rates.
universe applying EARNEST's proprietary
GAP model that calculates expected yield o At least 90% of the portfolio
levels for various sectors and will be in bonds rated
securities in comparison to actual yield investment grade or better at
levels. The GAP Framework analysis all times by a nationally
incorporates such factors as quality, recognized securities rating
duration, liquidity, and the organization or, if no rating
relationship between price and yield. exists, of equivalent quality
The second step involves in-depth, in the determination of the
fundamental security analysis which Advisor. Subject to the
focuses on credit risk, cash flow risk, limitations of this
credit spread volatility, the historical restriction, the Fund is also
yield relationship between a security permitted to invest in
and the corresponding benchmark, and securities that are below
current market technical forces (i.e. investment-grade, including
supply and demand factors). The third junk bonds.
--------------------------------------------------------------------------------------------------------
4
--------------------------------------------------------------------------------------------------------
and final step of the investment process
integrates EARNEST's risk management
techniques and fundamental analysis to
construct a portfolio that strives to
maximize yield while minimizing the
risks inherent in fixed income
investing. The portfolio is
diversified, holding 50 to 150
securities. Securities are sold once
valuation targets are met, a fundamental
change to EARNEST's credit analysis
occurs, or to alter the overall risk
characteristics of the portfolio.
The securities in which the Fund invests
may pay interest at fixed rates,
variable rates, or subject to reset
terms. In addition, these securities
may make principal payments that are
fixed, variable or both. The Fund may
also invest in zero coupon securities.
--------------------------------------------------------------------------------------------------------
HOW DO THE FUNDS' INVESTMENT LIMITATIONS COMPARE?
Listed below are the fundamental investment limitations of the EARNEST
Fund and Touchstone Fund. A fundamental investment limitation 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.
The following table compares the fundamental investment limitations that
apply to both the Touchstone Fund and the EARNEST Fund.
----------------------------------------------------------------------------------------------------------------------
TOUCHSTONE FUND EARNEST FUND
----------------------------------------------------------------------------------------------------------------------
DIVERSIFICATION The Fund may not purchase securities of an The Fund may not invest more than 5% of the
issuer that would cause the Fund to fail to value of its total assets in the securities of
satisfy the diversification requirement for any one issuer or purchase more than 10% of
a diversified management company under the the outstanding voting securities or of any
1940 Act, the rules or regulations class of securities of any one issuer (except
thereunder or any exemption therefrom, as that securities of the U.S. government, its
such statute, rules or regulations may be agencies and instrumentalities are not subject
amended or interpreted from time to time. to these limitations).
----------------------------------------------------------------------------------------------------------------------
5
----------------------------------------------------------------------------------------------------------------------
BORROWING The Fund may not engage in borrowing except The Fund may not issue senior securities,
MONEY AND as permitted by the Investment Company Act borrow money or pledge its assets, except that
SENIOR of 1940, any rule, regulation or order under it may borrow from banks as a temporary
SECURITIES the Act or any SEC staff interpretation of measure (i) for extraordinary or emergency
the Act. purposes, in amounts not exceeding 5% of the
Fund's total assets, or (ii) in order to meet
The Fund may not issue senior securities redemption requests which might otherwise
except as permitted by the Investment require untimely disposition of portfolio
Company Act of 1940, any rule, regulation or securities, in amounts not exceeding 33% of
order under the Act or any SEC staff the Fund's total assets; and the Fund may
interpretation of the Act. pledge its assets to secure all such
borrowings.
----------------------------------------------------------------------------------------------------------------------
UNDERWRITING The Fund may not underwrite securities The Fund may not underwrite securities issued
issued by other persons, except to the by others except to the extent the Fund may be
extent that, in connection with the sale or deemed to be an underwriter under the federal
disposition of portfolio securities, a Fund securities laws, in connection with the
may be deemed to be an underwriter under disposition of portfolio securities.
certain federal securities laws or in
connection with investments in other
investment companies.
----------------------------------------------------------------------------------------------------------------------
LOANS The Fund may not make loans to other persons The Fund may not make loans of money or
except that the Fund may (1) engage in securities, except that the Fund may invest in
repurchase agreements, (2) lend portfolio repurchase agreements (but repurchase
securities, (3) purchase debt securities, agreements having a maturity of longer than
(4) purchase commercial paper, and (5) enter seven days are limited to 10% of the Fund's
into any other lending arrangement permitted net assets);
by the Investment Company Act of 1940, any
rule, regulation or order under the Act or
any SEC staff interpretation of the Act.
----------------------------------------------------------------------------------------------------------------------
6
----------------------------------------------------------------------------------------------------------------------
REAL ESTATE AND The Fund may not purchase or sell real The Fund may not invest in interests in real
COMMODITIES estate except that the Fund may (1) hold and estate, real estate mortgage loans, real
sell real estate acquired as a result of the estate limited partnerships, oil, gas or other
Fund's ownership of securities or other mineral exploration, or development programs
instruments (2) purchase or sell securities or leases, except that the Fund may invest in
or other instruments backed by real estate the readily marketable securities of
or interests in real estate and (3) purchase companies, which own or deal in such things,
or sell securities of entities or investment and the Fund may invest in certain
vehicles, including real estate investment mortgage-backed securities as described in the
trusts that invest, deal or otherwise engage Fund's Statement of Additional Information.
in transactions in real estate or interests
in real estate. The Fund may not purchase real estate or
interests in real estate, except that
The Fund may not purchase or sell physical securities in which the Fund invests may
commodities except that the Fund may (1) themselves have investment in real estate or
hold and sell physical commodities acquired interests in real estate; and the Fund may
as a result of the Fund's ownership of invest in securities composed of mortgages
securities or other instruments, (2) against real estate as described in the Fund's
purchase or sell securities or other Statement of Additional Information.
instruments backed by physical commodities,
(3) purchase or sell options, and (4) The Fund may not purchase or sell commodities,
purchase or sell futures contracts. commodities contracts, futures contracts or
related options, or purchase, sell or write
warrants.
The Fund may not write, purchase or sell puts,
calls or combinations thereof.
----------------------------------------------------------------------------------------------------------------------
CONCENTRATION The Fund may not purchase the securities of The Fund may not invest 25% or more of the
OF INVESTMENTS an issuer (other than securities issued or value of its total assets in any one industry
guaranteed by the United States Government, or group of industries (except that securities
its agencies or its instrumentalities) if, of the U.S. government, its agencies and
as a result, more than 25% of the Fund's instrumentalities are not subject to these
total assets would be invested in the limitations).
securities of companies in the same industry
or group of industries.
----------------------------------------------------------------------------------------------------------------------
Listed below are additional fundamental limitations that apply only to the
EARNEST Fund.
1. The Fund may not invest in the securities of any issuer if any of the
officers or trustees of the Trust or EARNEST Partners who own beneficially
more than 1/2 of 1% of the outstanding securities of such issuer together
own more than 5% of the outstanding securities of such issuer.
2. The Fund may not invest for the purpose of exercising control or
management of another issuer.
3. The Fund may not make short sales of securities or maintain a short
position, except short sales "against the box" (A short sale is made by
selling a security the Fund does not own, a short sale is "against the
box" to the extent that the Fund contemporaneously owns or has the right
to obtain at no added cost securities identical to those sold short.).
7
4. The Fund may not participate on a joint or joint and several basis in any
trading account in securities.
5. The Fund may not invest in securities other than securities that are
readily marketable either through trading on a national securities
exchange, or securities for which an active market is made in the
over-the-counter trading markets.
6. The Fund may not invest in securities of issuers which have a record of
less than three years' continuous operation (including predecessors and,
in the case of bonds, guarantors), if more than 5% of its total assets
would be invested in such securities.
7. The Fund may not purchase foreign securities, except that the Fund may
purchase foreign securities sold as American Depository Receipts without
limit.
8. The Fund may not purchase securities on margin (but the Fund may obtain
such short-term credits as may be necessary for the clearance of
transactions).
HOW DO THE FUNDS' FEES AND EXPENSES COMPARE?
The EARNEST Fund currently offers two classes of shares, Institutional
Class shares and Investor Class shares. The Touchstone Fund currently offers
four classes of shares, Class A, Class C, Class Y and Institutional shares. The
EARNEST Fund Institutional Class shareholders will receive Class Y shares of the
Touchstone Fund while the EARNEST Fund Investor Class shareholders will receive
Class A shares of the Touchstone Fund. With respect to investments in Class A
shares of the Touchstone Fund, you may qualify for sales charge discounts if you
and your family invest, or agree to invest in the future, at least $50,000 or
more in Touchstone Funds. More information about these and other discounts is
available from your financial professional and in the section entitled "Choosing
a Class of Shares" in the TFGT Prospectus and in the section entitled "Purchase
and Redemption of Shares" in the TFGT SAI. Investor Class shareholders of the
EARNEST Fund will not pay any initial sales charges in connection with the
Reorganization.
The following tables allow you to compare the various fees and expenses
that you may pay for buying and holding shares of each of the Funds. The tables
also show the various costs and expenses that investors in the EARNEST Fund will
bear as shareholders of the Touchstone Fund. Pro forma expense levels shown
should not be considered an actual representation of future expenses or
performance. Such pro forma expense levels project anticipated levels but actual
expenses may be greater or less than those shown. The fees and expenses for the
shares of the EARNEST Fund and the Touchstone Fund set forth in the following
tables and in the examples are based on the expenses for the EARNEST Fund and
the Touchstone Fund as of September 30, 2010.
8
Shareholder Fees (fees paid directly from your investment)
-------------------------------------------------------------------------------------------------------------------
EARNEST Touchstone Fund Touchstone Fund
Fund Class Y Shares Class Y Shares
Institutional Pro Forma After
Class Shares Reorganization
-------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed None None None
on Purchases (as a percentage of
offering price)
-------------------------------------------------------------------------------------------------------------------
Wire Redemption Fee None None None
-------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (expenses that you pay each year as a percentage
of the value of your investment)
--------------------------------------------------------------------------------------------------------------------
EARNEST Touchstone Fund Touchstone Fund
Fund Class Y Shares Class Y Shares
Institutional Pro Forma After
Class Shares Reorganization
--------------------------------------------------------------------------------------------------------------------
Management Fees 0.45% 0.35%(1) 0.35%
--------------------------------------------------------------------------------------------------------------------
Distribution and/or Service None None None
(12b-1) Fees
--------------------------------------------------------------------------------------------------------------------
Other Expenses 1.03% 0.91% 0.86%
--------------------------------------------------------------------------------------------------------------------
Acquired Fund Fees and Expenses None 0.02%(2) 0.02%
--------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating 1.48% 1.28% 1.23%
Expenses
--------------------------------------------------------------------------------------------------------------------
Fee Waiver and/or Expense N/A(3) 0.61%(4) 0.56%
Reimbursement
--------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating N/A 0.67%(5) 0.67%
Expenses After Fee Waiver and/or
Expense Reimbursement
--------------------------------------------------------------------------------------------------------------------
(1) "Management Fees" have been restated to reflect that the Board of Trustees
approved a change to the Fund's advisory fee schedule effective April 19,
2011. Under the previous fee schedule, the Fund paid a fee of 0.45% of the
first $100 million of average net assets, 0.425% of the next $150 million
of average net assets and 0.40% on assets over $250 million. Under the
amended fee schedule, the Fund pays a fee of 0.35%.
(2) The Total Annual Fund Operating Expenses do not correlate to the ratio of
expenses to average net assets provided in the Fund's Financial Highlights
table, which reflects the operating expenses of the Fund and does not
include Acquired Fund Fees and Expenses.
(3) EARNEST Partners' Expense Limitation Agreement with the EARNEST Fund will
terminate effective as of July 31, 2011.
(4) Touchstone Advisors and the Trust have entered into an expense limitation
agreement whereby Touchstone Advisors has contractually agreed to waive a
portion of its fees and/or reimburse certain Fund expenses in order to
limit annual fund operating expenses to 0.65% for Class Y shares of the
Fund. This expense limitation will remain in effect until at least January
27, 2013 but can be terminated by a vote of the Board of Trustees of the
Fund if they deem the termination to be beneficial to the shareholders.
(5) Expenses shown above have been restated to reflect a change in the Fund's
contractual fee waiver for Class Y shares and will differ from the
expenses reflected in the Fund's Annual Report for the fiscal year ended
September 30, 2010.
9
Shareholder Fees (fees paid directly from your investment)
-------------------------------------------------------------------------------------------------------------------
EARNEST Touchstone Fund Touchstone Fund
Fund Class A Shares Class A Shares
Investor Class Pro Forma After
Shares Reorganization
-------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed None 4.75% 4.75%
on Purchases (as a percentage of
offering price)
-------------------------------------------------------------------------------------------------------------------
Wire Redemption Fee None Up to $15 Up to $15
-------------------------------------------------------------------------------------------------------------------
Annual Fund Operating Expenses (expenses that you pay each year as a percentage
of the value of your investment)
--------------------------------------------------------------------------------------------------------------------
EARNEST Fund Touchstone Fund Touchstone Fund Class
Investor Class Class A Shares A Shares Pro Forma
Shares After Reorganization
--------------------------------------------------------------------------------------------------------------------
Management Fees 0.45% 0.35%(1) 0.35%
--------------------------------------------------------------------------------------------------------------------
Distribution and/or Service 0.25% 0.25% 0.25%
(12b-1) Fees
--------------------------------------------------------------------------------------------------------------------
Other Expenses 1.03% 0.90% 0.73%
--------------------------------------------------------------------------------------------------------------------
Acquired Fund Fees and Expenses None 0.02%(2) 0.02%
--------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating 1.73% 1.52% 1.35%
Expenses
--------------------------------------------------------------------------------------------------------------------
Fee Waiver and/or Expense N/A(3) 0.60%(4) 0.43%
Reimbursement
--------------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating N/A 0.92%(5) 0.92%
Expenses After Fee Waiver and/or
Expense Reimbursement
--------------------------------------------------------------------------------------------------------------------
(1) "Management Fees" have been restated to reflect that the Board of Trustees
approved a change to the Fund's advisory fee schedule effective April 19,
2011. Under the previous fee schedule, the Fund paid a fee of 0.45% of the
first $100 million of average net assets, 0.425% of the next $150 million
of average net assets and 0.40% on assets over $250 million. Under the
amended fee schedule, the Fund pays a fee of 0.35%.
(2) The Total Annual Fund Operating Expenses do not correlate to the ratio of
expenses to average net assets provided in the Fund's Financial Highlights
table, which reflects the operating expenses of the Fund and does not
include Acquired Fund Fees and Expenses.
(3) EARNEST Partners' Expense Limitation Agreement with the EARNEST Fund will
terminate effective as of July 31, 2011.
(4) Touchstone Advisors and the Trust have entered into an expense limitation
agreement whereby Touchstone Advisors has contractually agreed to waive a
portion of its fees and/or reimburse certain Fund expenses in order to
limit annual fund operating expenses to 0.90% for Class A shares of the
Fund. This expense limitation will remain in effect until at least January
27, 2013 but can be terminated by a vote of the Board of Trustees of the
Fund if they deem the termination to be beneficial to the shareholders.
(5) Expenses shown above have been restated to reflect a change in the Fund's
contractual fee waiver for Class A shares and will differ from the
expenses reflected in the Fund's Annual Report for the fiscal year ended
September 30, 2010.
10
The examples are intended to help you compare the cost of investing in the
EARNEST Fund versus the Touchstone Fund and the Touchstone Fund (Pro Forma),
assuming the Reorganization takes place. The examples assume that you invest
$10,000 for the time periods indicated and then, except as indicated, redeem all
of your shares at the end of those periods. The examples also assume that your
investment has a 5% return each year and that the operating expenses remain the
same. The examples also assume that the expense limitations for the Touchstone
Fund and the Touchstone Fund (Pro Forma) remain in effect through January 27,
2013. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
Examples of Fund Expenses
------------------------------------------------------------------------------------------------------
EARNEST FUND
------------
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Institutional $151 $468 $808 $1,768
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
TOUCHSTONE FUND
---------------
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Class Y $68 $346 $644 $1,492
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
TOUCHSTONE FUND PRO FORMA AFTER REORGANIZATION
----------------------------------------------
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Class Y $68 $335 $622 $1,439
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
EARNEST FUND
------------
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Investor $176 $545 $939 $2,041
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
TOUCHSTONE FUND
---------------
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Class A $564 $876 $1,210 $2,153
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
TOUCHSTONE FUND PRO FORMA AFTER REORGANIZATION
----------------------------------------------
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
Class A $564 $842 $1,140 $1,986
------------------------------------------------------------------------------------------------------
11
PORTFOLIO TURNOVER: Each Fund pays transaction costs, such as commissions,
when it buys and sells securities (or "turns over" its portfolio). A higher
portfolio turnover rate may indicate higher transaction costs and may result in
higher taxes when Fund shares are held in a taxable account. These costs, which
are not reflected in Total Annual Fund Operating Expenses or in the Example,
affect the Funds' performance. During the period ended September 30, 2010, the
Touchstone Fund's and the EARNEST Fund's portfolio turnover rates were 160% and
27%, respectively, of the average value of their portfolios.
HOW DO THE FUNDS' PERFORMANCE RECORDS COMPARE?
Year-by-Year Total Return (%)
The bar charts and performance tables below illustrate some indication of
the risks of investing in the Funds by showing changes in the Funds' performance
from year to year (before taxes) and by showing how each Fund's average annual
total returns for 1 year and since inception for the Touchstone Fund and 1 year,
5 years and 10 years for the EARNEST Fund compare with a broad measure of market
performance (Barclays Capital Aggregate Bond Index). The bar charts do not
reflect any sales charges, which would reduce your return. The Funds' past
performance (before and after taxes) does not necessarily indicate how each Fund
will perform in the future. Updated performance for the Touchstone Fund is
available at no cost by visiting www.TouchstoneInvestments.com or by calling
1.800.543.0407 and updated performance for the EARNEST Fund can be obtained by
visiting http://secure.ncfunds.com/TNC/fundpages/33.htm for the Institutional
Class Shares and by visiting http://secure.ncfunds.com/TNC/fundpages/34.htm for
the Investor Class Shares.
TOUCHSTONE FUND - CLASS A TOTAL RETURNS AS OF DECEMBER 31
[BAR CHART]
7.66%
2010
Best Quarter: 3rd Quarter 2010 +3.60% Worst Quarter: 4th Quarter 2010 -0.44%
The year-to-date return for the Fund's Class A shares as of March 31, 2011 is
1.48%.
12
EARNEST FUND - INSTITUTIONAL CLASS TOTAL RETURN AS OF DECEMBER 31
[BAR CHART]
5.59% 12.59% 3.60% 3.36% 1.78% 4.86% 5.13% -2.19% 16.90% 9.08%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Best Quarter: 3rd Quarter 2009 +7.77% Worst Quarter: 2nd Quarter 2004 -2.62%
The year-to-date return for the Fund's Institutional Class shares as of March
31, 2011 is 0.92%.
After-tax returns are calculated using the highest individual federal income tax
rate and do not reflect the impact of state and local taxes. Your after-tax
returns may differ from those shown and depend on your tax situation. The
after-tax returns do not apply to shares held in an IRA, 401(k) or other
tax-deferred account.
The after-tax returns shown in the table for the Touchstone Fund are for Class A
shares only. The after-tax returns for other classes of shares offered by the
Fund will differ from the Class A shares after-tax returns. The annual returns
for the Investor Class Shares of the EARNEST Fund are expected to be
substantially similar to the annual returns of the Institutional Class Shares of
the EARNEST Fund because they are invested in the same portfolio of securities
and the annual returns would differ only to the extent that the classes do not
have the same expenses.
13
Average Annual Total Return (for the period ended 12/31/2010)
--------------------------------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS
--------------------------------------------------------------------------------
EARNEST FUND - INSTITUTIONAL CLASS
--------------------------------------------------------------------------------
Return Before Taxes 9.08% 6.57% 5.94%
--------------------------------------------------------------------------------
Return After Taxes 7.27% 4.70% 4.14%
on Distributions
--------------------------------------------------------------------------------
Return After Taxes 5.88% 4.50% 4.01%
on Distributions and
Sale of Fund Shares
--------------------------------------------------------------------------------
Barclays Capital 6.54% 5.80% 5.84%
Aggregate Bond
Index (reflects no
deduction for fees,
expenses or taxes)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SINCE
1 YEAR INCEPTION
--------------------------------------------------------------------------------
TOUCHSTONE FUND - CLASS A (INCEPTION DATE 09/30/09)
--------------------------------------------------------------------------------
Return Before Taxes 1.49% 0.67%
--------------------------------------------------------------------------------
Return After Taxes 0.19% -0.55%
on Distributions
--------------------------------------------------------------------------------
Return After Taxes 0.96% -0.13%
on Distributions and
Sale of Fund Shares
--------------------------------------------------------------------------------
Barclays Aggregate 6.54% 6.72%
Bond Index
--------------------------------------------------------------------------------
TOUCHSTONE FUND - CLASS Y (INCEPTION DATE 09/30/09)
--------------------------------------------------------------------------------
Return Before Taxes 7.91% 5.79%
--------------------------------------------------------------------------------
Barclays Capital 6.54% 6.72%
Aggregate Bond
Index (reflects no
deduction for fees,
expenses or taxes)
--------------------------------------------------------------------------------
WILL I BE ABLE TO PURCHASE, REDEEM AND EXCHANGE SHARES THE SAME WAY?
The Touchstone Fund 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, the EARNEST Fund shareholders will receive shares of
the Touchstone Fund and will be able to purchase, redeem and exchange shares and
receive distributions as described above.
WILL I BE ABLE TO RECEIVE DISTRIBUTIONS THE SAME WAY?
The EARNEST Fund declares and pays dividends from net investment income at
least annually and distributes net realized capital gains at least annually. The
Touchstone Fund declares and pays dividends from net investment income monthly
and distributes net realized capital gains at least annually. These dividends
and distributions will continue to be reinvested in the same class of shares of
the Touchstone Fund you receive in the Reorganization or, if you have so
elected, distributed in cash. For more information, see the section entitled
"Dividend Policy" and "Additional Information about the EARNEST Fund" below.
14
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 is the investment advisor of the Touchstone Funds.
Pursuant to an Investment Advisory Agreement with Touchstone Funds Group Trust,
Touchstone Advisors selects the Fund's sub-advisor, subject to approval by the
Board of Trustees. Touchstone Advisors pays the fees to each sub-advisor and
monitors each sub-advisor's investment program. Touchstone Advisors is a wholly
owned subsidiary of Western- Southern Mutual Holding Company
("Western-Southern"). Touchstone Advisors is also responsible for running all of
the operations of the Touchstone Funds, except those that are subcontracted to
the sub-advisors, custodian, transfer agent, sub-administrative agent or other
parties.
Facts about Touchstone Advisors:
--------------------------------------------------------------------------
[_] As of March 31, 2011, Touchstone Advisors had assets under
management of approximately $7.3 billion.
[_] Touchstone Advisors is located at 303 Broadway, Suite 1100,
Cincinnati, Ohio 45202.
--------------------------------------------------------------------------
For the Touchstone Fund, 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 Touchstone Fund must still obtain shareholder approval of any sub-advisory
agreement with a sub-advisor affiliated with the Trust or Touchstone Advisors
other than by reason of serving as a sub-advisor to one or more funds.
EARNEST Partners is the investment advisor of the EARNEST Fund.
Facts about EARNEST Partners:
--------------------------------------------------------------------------
[_] As of March 31, 2011, EARNEST Partners had assets under management
of approximately $18.7 billion.
[_] EARNEST Partners is located at 1180 Peachtree Street, Suite 2300,
Atlanta, GA, 30309.
--------------------------------------------------------------------------
15
Sub-Advisor
EARNEST Partners serves as sub-advisor to the Touchstone Fund. As
sub-advisor, EARNEST Partners makes investment decisions for the Touchstone Fund
and also ensures compliance with the Touchstone Fund's investment policies and
guidelines.
After the Reorganization, EARNEST Partners will continue to serve as the
sub-advisor to the Touchstone Fund.
Portfolio Management
The Funds have the same portfolio managers as follows:
Douglas Folk, CFA, Partner, has been with EARNEST Partners since 1999. His
prior experience includes ten years of portfolio management with Southern Farm
Bureau Life Insurance Company, where he was responsible for the company's
fixed-income portfolio. He has over twenty years of investment experience.
Chris Fitze, CFA, Portfolio Manager and Research Analyst, is part of the
Investment Management team and has been with EARNEST Partners since 2003. He has
over seven years of investment experience.
After the Reorganization, the EARNEST Partners portfolio managers will
continue to serve as the portfolio managers to the Touchstone Fund. The TFGT SAI
provides additional information about each portfolio manager's compensation,
other accounts managed and ownership of securities in the Touchstone Fund.
Advisory Fees
For its management and supervision of the daily business affairs of the
EARNEST Fund, EARNEST Partners, receives a monthly fee at the annual rate of
0.45% of the EARNEST Fund's average daily net assets. The annual fee rate paid
to EARNEST Partners by the Fund for the period ended September 30, 2010, net of
advisory fees waived by EARNEST Partners, if any, was 0.00%.
For its management and supervision of the daily business affairs of the
Touchstone Fund, Touchstone Advisors receives a monthly fee at the annual rate
of 0.35%. The annual fee rate paid to Touchstone Advisors by the Fund for the
fiscal year ended September 30, 2010, net of advisory fees waived by Touchstone
Advisors, if any, was 0.07%. Touchstone Advisors pays sub-advisory fees to the
sub-advisor from its advisory fee.
Touchstone Funds Group Trust and Touchstone Advisors have entered into an
expense limitation agreement whereby the Touchstone Fund's total operating
expenses (excluding dividend expenses relating to short sales, interest, taxes,
brokerage commissions, other expenditures which are capitalized in accordance
with generally accepted accounting principles, the cost of "Acquired Fund Fees
and Expenses," if any, other extraordinary expenses not incurred in the ordinary
course of Touchstone's business, and amounts, if any, payable pursuant to a plan
adopted in accordance with Rule 12b-1 under the Investment Company Act of 1940)
will be contractually limited until at least January 27, 2013 and will not
exceed 0.90% and 0.65% for Class A shares and Class Y shares, respectively. The
contractual limits have been adjusted to include the effect of Rule 12b-1 fees,
if applicable. Fee waivers and/or expense reimbursements are calculated and
applied monthly, based on the Touchstone Fund's average net assets during such
month.
16
The Nottingham Investment Trust II and EARNEST Partners have entered into
an expense limitation agreement whereby the EARNEST Fund's total annual
operating expenses (other than interest, taxes, brokerage commissions, other
expenditures which are capitalized in accordance with generally accepted
accounting principles, other extraordinary expenses not incurred in the ordinary
course of the Fund's business, and amounts, if any, payable under a Rule 12b-1
distribution plan) will be contractually limited until at least July 31, 2011
and will not exceed 0.40% for Institutional Class shares and Investor Class
shares of the Fund. However, EARNEST Partners, LLC has advised the Board of
Trustees of The Nottingham Investment Trust II that it will not renew the
Expense Limitation Agreement with the EARNEST Fund at the end of the agreement's
current term on July 31, 2011.
ADVISORY AND SUB-ADVISORY AGREEMENT APPROVAL
A discussion of the basis for the Board of Trustees' approval of the
EARNEST Fund's advisory agreement can be found in EARNEST Fund's September 30,
2010 semiannual Report. A discussion of the basis for the Board of Trustees'
approval of the Touchstone Fund's advisory and sub-advisory agreements can be
found in Touchstone Funds Group Trust's March 31, 2011 semiannual report and
September 30, 2011 annual report, respectively, when available.
WILL THE TOUCHSTONE FUND HAVE THE SAME SERVICE PROVIDERS AS THE EARNEST
FUND?
No. Touchstone Securities, Inc. is the Touchstone Fund's distributor. The
Touchstone Fund's administrator is Touchstone Advisors. Touchstone Advisors has
appointed JPMorgan Chase Bank, N.A. ("JPMorgan"), 303 Broadway, Cincinnati, Ohio
45202 as the Trust's sub-administrator and transfer agent.
WHAT WILL BE THE PRIMARY FEDERAL TAX CONSEQUENCES OF THE REORGANIZATION?
The transaction has been structured to qualify as a tax-free
reorganization for federal income tax purposes and is expected to so qualify. If
the Reorganization so qualifies, in general, no gain or loss will be recognized
by the EARNEST Fund or the Touchstone Fund or their respective shareholders as a
result of the Reorganization. As a condition to the closing of the
Reorganization, the Touchstone Fund and the EARNEST Fund will each receive an
opinion from the law firm of Pepper Hamilton LLP that the Reorganization
qualifies as a tax-free reorganization within the meaning of section 368(a) of
the United States Internal Revenue Code of 1986, as amended (the "Code"). The
opinion, however, is not binding on the Internal Revenue Service or any court
and thus does not preclude the IRS from asserting, or a court from rendering, a
contrary position. See "Information About the Reorganization-Federal Income Tax
Consequences" for more information on the federal tax consequences of the
Reorganization.
RISKS
ARE THE RISK FACTORS FOR THE FUNDS SIMILAR?
Yes. The risk factors are similar due to the comparable investment goals
and investment strategies of the EARNEST Fund and the Touchstone Fund. However,
there are certain differences that are discussed below.
17
WHAT ARE THE PRINCIPAL 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 the EARNEST Fund or the
Touchstone Fund will be positive or that the Funds will meet their investment
goals. You could lose money on your investment in the Funds and the Funds could
also return less than other investments. The following discussion highlights the
principal risks associated with an investment in each of the Funds.
EACH FUND IS SUBJECT TO CREDIT RISK.
An issuer may be unable to make timely payments of either principal or
interest. This may cause the issuer's securities to decline in value. Credit
risk is particularly relevant to those portfolios that invest a significant
amount of their assets in junk bonds or lower-rated securities.
EACH FUND IS SUBJECT TO INTEREST RATE RISK AND MATURITY RISK.
The market value of fixed income investments changes in response to
interest rate changes and other factors. During periods of falling interest
rates, the values of fixed income securities generally rise and during periods
of rising interest rates, the values of those securities generally fall. While
securities with longer maturities tend to produce higher yields, the prices of
longer maturity securities are also subject to greater market fluctuations as a
result of changes in interest rates. The longer the average maturity or duration
of the Fund's investment portfolio, the greater the fluctuation in value.
Duration is a measure of the expected life, taking into account any prepayment
or call features of the security, of a fixed income security that is used to
determine the price sensitivity of the security for a given change in interest
rates. Specifically, duration is the change in the value of a fixed income
security that will result from a 1% change in interest rates, and generally is
stated in years. Maturity, on the other hand, is the date on which a fixed
income security becomes due for payment of principal.
EACH FUND IS SUBJECT TO INVESTMENT-GRADE SECURITIES RISK.
Investment grade debt securities may be downgraded by a Nationally
Recognized Statistical Rating Organization ("NRSRO") to below investment grade
status, which would increase the risk of holding these securities or a rating
may become stale in that it fails to reflect changes to an issuer's financial
condition. Ratings represent the NRSRO's opinion regarding the quality of the
security and are not a guarantee of quality. NRSROs may fail to make timely
determinations of credit ratings in response to subsequent events. In addition,
NRSROs are subject to an inherent conflict of interest because they are often
compensated by the same issuers whose securities they grade. Investment-grade
debt securities rated in the lowest rating category by a NRSRO involve a higher
degree of risk than fixed-income securities in the higher-rating categories.
While such securities are considered investment-grade quality and are deemed to
have adequate capacity for payment of principal and interest, such securities
lack outstanding investment characteristics and have speculative characteristics
as well. For example, changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher-grade securities.
18
EACH FUND IS SUBJECT TO LOWER-RATED SECURITIES RISK.
Non-investment grade debt securities are sometimes referred to as "junk
bonds" and may be very risky with respect to their issuers' ability to make
payments of interest and principal. There is a high risk that the Fund could
suffer a loss from investments in non-investment grade debt securities caused by
the default of an issuer of such securities. Part of the reason for this high
risk is that, in the event of a default or bankruptcy of an issuer, holders of
non-investment grade debt securities generally will not receive payments until
the holders of all other debt have been paid. In addition, the market for
non-investment grade debt securities has, in the past, had more frequent and
larger price changes than the markets for other securities. Non-investment grade
debt securities can also be more difficult to sell at the values assigned to
them by the Fund.
EACH FUND IS SUBJECT TO EVENT RISK.
Securities may decline in credit quality and market value due to issuer
restructurings, mergers, consolidations, reorganizations, tender or exchange
offers, or other factors.
EACH FUND IS SUBJECT TO MANAGER RISK.
The advisor's and/or the sub-advisor's ability to choose suitable
investments has a significant impact on the ability of the Fund to achieve its
investment objective. There can be no assurance that the Fund will be successful
in meeting its objective.
EACH FUND IS SUBJECT TO MARKET SECTOR RISK.
The percentage of the Fund's assets invested in various industries and
sectors will vary from time to time depending on the advisor's and/or
sub-advisor's perception of investment opportunities. Investments in particular
industries or sectors may be more volatile than the overall stock market.
Consequently, a higher percentage of holdings in a particular industry or sector
may have the potential for greater impact on the Fund's performance.
THE TOUCHSTONE FUND IS SUBJECT TO CALL RISK.
During periods of falling interest rates, an issuer may prepay (or "call")
certain debt obligations with high coupon rates prior to maturity. This may
cause a Fund's average weighted maturity to fluctuate, and may require a Fund to
invest the resulting proceeds at lower interest rates. The types of securities
that are subject to call risk include mortgage-backed securities and municipal
bonds with a term of longer than ten years.
THE TOUCHSTONE FUND IS SUBJECT TO U.S. GOVERNMENT SECURITIES AND U.S.
GOVERNMENT AGENCIES RISK.
The Fund's U.S. Government Securities are not guaranteed against price
movements due to changing interest rates. Certain securities issued by agencies
and instrumentalities of the U.S. Government are backed by the full faith and
credit of the U.S. Government, such as securities issued by the Government
National Mortgage Association. Others are not insured or guaranteed by the U.S.
Government and may be supported only by the issuer's right to borrow from the
U.S. Treasury, subject to certain limits, such as securities issued by Federal
Home Loan Banks, or by the credit of the issuing agency and the discretionary
authority of the U.S. Government to purchase certain obligations, such as
Freddie Mac, Tennessee Valley Authority and Student Loan Marketing Association,
or only by the credit of the issuing agency, such as Federal Farm Credit Banks.
19
THE TOUCHSTONE FUND IS SUBJECT TO MORTGAGE-BACKED SECURITIES AND
ASSET-BACKED SECURITIES RISK.
Mortgage-backed securities are fixed income securities representing an
interest in a pool of underlying mortgage loans. They are sensitive to changes
in interest rates, but may respond to these changes differently from other fixed
income securities due to the possibility of prepayment of the underlying
mortgage loans. As a result, it may not be possible to determine in advance the
actual maturity date or average life of a mortgage-backed security. Rising
interest rates tend to discourage refinancings, with the result that the average
life and volatility of a mortgage-backed security will increase and its market
price will decrease. When interest rates fall, however, mortgage-backed
securities may not gain as much in market value because of the expectation of
additional mortgage prepayments that must be reinvested at lower interest rates.
Prepayment risk may make it difficult to calculate the average maturity of a
portfolio of mortgage-backed securities and, therefore, to assess the volatility
risk of that portfolio. In addition, mortgage-backed securities may fluctuate in
price based on deterioration in the perceived or actual of the value of the
collateral underlying the pool of mortgage loans, typically residential or
commercial real estate, which may result in negative amortization or negative
equity meaning that the value of the collateral would be worth less than the
remaining principal amount owed on the mortgages in the pool. The Fund's
investments in other asset-backed securities are subject to risks similar to
those associated with mortgage-backed securities, as well as additional risks
associated with the nature of the assets (credit card receivables, automobile
financing loans, etc.) and the servicing of the assets.
THE TOUCHSTONE FUND IS SUBJECT TO FOREIGN RISK.
Investing in foreign securities poses unique risks such as fluctuation in
currency exchange rates, market illiquidity, price volatility, high trading
costs, difficulties in settlement, regulations on stock exchanges, limits on
foreign ownership, less stringent accounting, reporting and disclosure
requirements, and other considerations. Diplomatic, political or economic
developments, including nationalization or appropriation, could affect
investments in foreign securities. In the past, equity and debt instruments of
foreign markets have had more frequent and larger price changes than those of
U.S. markets.
THE TOUCHSTONE FUND IS SUBJECT TO EMERGING MARKETS RISK.
Investments in a country that is still relatively underdeveloped involves
exposure to economic structures that are generally less diverse and mature than
in the U.S. and to political and legal systems that may be less stable. In the
past, markets of developing countries have had more frequent and larger price
changes than those of developed countries. Economic or political changes may
cause larger price changes in these securities than in other foreign securities.
20
ARE THERE ANY NON-PRINCIPAL RISKS OF INVESTING IN EACH FUND?
EACH FUND IS SUBJECT TO PORTFOLIO TURNOVER RISK.
The Fund may sell its portfolio securities, regardless of the length of
time that they have been held, if the advisor and/or sub-advisor 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 the advisor's or sub-advisor's control. These transactions will
increase a Fund's "portfolio turnover." A 100% portfolio turnover rate would
occur if all of the securities in a Fund were replaced during a given period.
High turnover rates generally result in higher brokerage costs to the Fund and
in higher net taxable gain for shareholders, and may reduce the Fund's returns.
THE TOUCHSTONE FUND IS SUBJECT TO DERIVATIVES RISK.
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 a 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 a 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 a 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,
derivatives will typically be limited to an amount less than 10% of the Fund's
assets.
THE TOUCHSTONE FUND IS SUBJECT TO EXCHANGE-TRADED FUNDS RISK.
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.
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.
21
THE TOUCHSTONE FUND IS SUBJECT TO MANAGER OF MANAGERS RISK.
The advisor engages one or more sub-advisors to make investment decisions
on its behalf for a portion or all of the Fund. There is a risk that the advisor
may be unable to identify and retain sub-advisors who achieve superior
investment returns relative to other similar sub-advisors.
THE TOUCHSTONE FUND IS SUBJECT TO LENDING OF PORTFOLIO SECURITIES RISK.
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 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, the Fund's sub-advisor will consider all
relevant facts and circumstances, including the creditworthiness of the
borrower.
EACH FUND IS SUBJECT TO MARKET DISRUPTION RISK.
The United States has experienced during the past few years significant
disruption to its financial markets impacting the liquidity and volatility of
securities generally, including securities in which the Fund may invest. During
periods of extreme market volatility, prices of securities held by the Fund may
be negatively impacted due to imbalances between market participants seeking to
sell the same or similar securities and market participants willing or able to
buy such securities. As a result, the market prices of securities held by the
Fund could go down, at times without regard to the financial condition of or
specific events impacting the issuer of the security.
The recent instability in the financial markets has led the U.S.
Government to take a number of unprecedented actions designed to support certain
financial institutions and segments of the financial markets that have
experienced extreme volatility, and in some cases a lack of liquidity. Federal,
state, and other governments, their regulatory agencies, or self regulatory
organizations may take actions that affect the regulation of the instruments in
which the Fund invests, or the issuers of such instruments, in ways that are
unforeseeable. Legislation or regulation may also change the way in which the
Funds themselves are regulated. Such legislation or regulation could limit or
preclude the Fund's ability to achieve their investment goals.
Governments or their agencies may also acquire distressed assets from
financial institutions and acquire ownership interests in those institutions.
The implications of government ownership and disposition of these assets are
unclear, and such a program may have positive or negative effects on the
liquidity, valuation and performance of the Fund's portfolio holdings.
Furthermore, volatile financial markets can expose the Fund to greater market
and liquidity risk and potential difficulty in valuing portfolio instruments
held by the Fund. The Fund has established procedures to assess the liquidity of
portfolio holdings and to value instruments for which market prices may not be
readily available. The advisor and sub-advisors will monitor developments and
seek to manage the Fund in a manner consistent with achieving the Fund's
investment goals, but there can be no assurance that it will be successful in
doing so.
22
OTHER INVESTMENT STRATEGIES
During unusual economic or market conditions, or for temporary defensive
or liquidity purposes, the Touchstone 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
goals. This defensive investing may increase a Fund's taxable income. The Fund
will do so only if the advisor or the Fund's sub-advisor believes that the risk
of loss in using the Fund's normal strategies and investments outweighs the
opportunity for gains.
The Funds have other investment policies, practices and restrictions.
Additional information relating to the Touchstone Fund's investment policies,
practices, restrictions and risks is set forth in the TFGT Prospectus and TFGT
SAI.
Although the Funds have comparable goals and investment strategies, it is
expected that a portion of the securities held by the EARNEST Fund may be sold
after the Reorganization takes place as part of the ordinary course of business.
INFORMATION ABOUT THE REORGANIZATION
REASONS FOR THE REORGANIZATION
At a special meeting held on May 5, 2011, all of the Trustees of The
Nottingham Investment Trust II, including all of the Disinterested Trustees,
considered and approved the Reorganization. The Trustees determined that the
Reorganization was in the best interests of shareholders of the EARNEST Fund and
that the interests of existing shareholders of the EARNEST Fund will not be
diluted as a result of the transactions contemplated by the Reorganization.
Before approving the Plan, the Trustees evaluated information provided by
EARNEST Partners, LLC and Touchstone Advisors, Inc., 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 the Funds;
o the fact that Touchstone Advisors, Inc. has contractually agreed to
limit the total annual operating expenses of the Touchstone Fund
until at least January 27, 2013;
o the fact that EARNEST Partners expense limitation agreement with the
EARNEST Fund will expire on July 31, 2011 and will not be renewed;
o the net operating expenses of the Touchstone Fund are expected to be
lower than the fees of the EARNEST Fund following the expiration of
the EARNEST Fund's expense limitation agreement;
o the Reorganization will provide the shareholders of the EARNEST Fund
the opportunity to participate in a significantly larger fund family
through the Touchstone Fund;
23
o the fact that both Funds have substantially similar investment
strategies;
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 the
Touchstone Fund are the same portfolio managers for the EARNEST
Fund;
o the fact that Touchstone Advisors, Inc. and EARNEST Partners will
bear the expenses incurred in connection with the Reorganization;
o the potential benefits to shareholders, including operating
efficiencies, which may be achieved from the Reorganization;
o the distribution capabilities of Touchstone Securities, Inc., the
distributor of the Touchstone Fund;
o the exchange privileges of the Funds;
o the fact that the Touchstone Fund will assume the liabilities of the
EARNEST Fund;
o the fact that the Reorganization is expected to be a tax free
transaction for federal income tax purposes;
o the fact that the Touchstone Fund will adopt the performance history
and the financial operating history of the EARNEST Fund upon the
consummation of the Reorganization; and
o the alternatives available to shareholders of EARNEST Fund,
including the ability to redeem their shares.
During their consideration of the Reorganization, the Disinterested
Trustees of The Nottingham Investment Trust II 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 Nottingham Investment Trust II
concluded that the proposed Reorganization would be in the best interests of the
EARNEST Fund and its shareholders. Consequently, they approved the Plan and
directed that the Plan be submitted to shareholders of EARNEST Fund for
approval.
At a meeting held April 12, 2011, the Trustees of Touchstone Funds Group
Trust, including the Disinterested Trustees, have also approved the Plan on
behalf of the Touchstone Fund and found that participation in the Reorganization
is in the best interests of the Touchstone Fund and that the interests of the
shareholders of the Touchstone Fund will not be diluted as a result of the
Reorganization.
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 the EARNEST Fund will be
acquired by the Touchstone Fund in exchange for Class A shares and Class Y
shares of the Touchstone Fund and the assumption by the Touchstone Fund of the
liabilities of the EARNEST Fund immediately prior to the opening of business on
August 1, 2011 or such other date as may be agreed upon by the parties (the
"Effective Time"). Prior to or at the Effective Time, the EARNEST Fund will use
its best efforts to discharge all of its known liabilities and obligations. The
EARNEST Fund will prepare an unaudited statement of its assets and liabilities,
together with a schedule of portfolio investments, as of and for the interim
period ending at 4:00 p.m. Eastern Time on the business day preceding the
Effective Time (the "Valuation Time").
24
At or prior to the Valuation Time, for tax reasons, the EARNEST Fund 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 at the Effective Time (computed
without regard to any deduction for dividends paid), all of the Fund's net tax
exempt income, if any, and all of its net capital gains realized in all taxable
periods ending at the Effective Time (after reductions for any capital loss
carryforward).
The number of full and fractional Class A and Class Y shares of the
Touchstone Fund to be received by the shareholders of the EARNEST Fund will be
determined by dividing the value of (i) the net assets of the Investor Class
shares of the EARNEST Fund by the net asset value per Class A share of the
Touchstone Fund and (ii) the net assets of the Institutional Class shares of the
EARNEST Fund by the net asset value per Class Y share of the Touchstone Fund.
These computations will take place as of the Valuation Time.
JPMorgan Chase Bank, N.A., the sub-administrator of the Touchstone Fund,
will compute the value of each Fund's respective portfolio of securities. The
method of valuation employed will be consistent with the procedures set forth in
the TFGT Prospectus and TFGT SAI.
As soon after the Effective Time as conveniently practicable, the EARNEST
Fund will liquidate and distribute pro rata to shareholders of record as of the
close of business at the Effective Time the full and fractional shares of the
Touchstone Fund received by the EARNEST Fund. The liquidation and distribution
will be accomplished by the establishment of accounts in the names of the
EARNEST Fund's shareholders on the Touchstone Fund's share records of its
transfer agent. Each account will represent the respective pro rata number of
full and fractional shares of the Touchstone Fund due to the EARNEST Fund's
shareholders. All issued and outstanding shares of the EARNEST Fund will be
canceled. Shares of the Touchstone Fund 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, the EARNEST Fund will be
terminated.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan, including approval by the EARNEST Fund's shareholders,
accuracy of various representations and warranties and receipt of opinions of
counsel. Notwithstanding approval by the EARNEST Fund's shareholders, the Plan
may be terminated at any time prior to the Effective Time (a) by the mutual
written consent of the EARNEST Fund and the Touchstone Fund; (b) by either party
(i) following a material breach by either party of any of its representations,
warranties or covenants contained in the Plan, provided that each party 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 of the Plan (with
respect to a material breach by Touchstone Funds Group Trust) or 6.2 and 6.3
(with respect to a material breach by the EARNEST Fund) 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 either party;
(c) by either party by written notice to the other 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 (d) by either party if the
Effective Time does not occur by September 30, 2011.
25
Whether or not the Reorganization is consummated, Touchstone Advisors and
EARNEST Partners will bear the expenses incurred by the EARNEST Fund and the
Touchstone Fund in connection with the Reorganization (including the cost of
proxy solicitation).
If the EARNEST Fund'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.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
Shareholders of the EARNEST Fund as of the Closing Date will receive full
and/or fractional shares of the Touchstone Fund shares in accordance with the
procedures provided for in the Plan, as described above. The Touchstone Fund
shares to be issued in connection with the Reorganization will be fully paid and
non-assessable when issued.
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, the Touchstone Fund and the
EARNEST Fund will have each received an opinion from Pepper Hamilton 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:
(a) The receipt by the Touchstone Fund of all of the assets of the
EARNEST Fund in exchange solely for the Touchstone Fund shares and the
assumption by the Touchstone Fund of the liabilities of the EARNEST Fund
followed by the distribution of the Touchstone Fund shares to the EARNEST Fund
shareholders in dissolution and liquidation of the EARNEST Fund, all as provided
in the Plan, will constitute a "reorganization" within the meaning of Section
368(a) of the Code, and the EARNEST Fund and the Touchstone Fund will each be a
"party to a reorganization" within the meaning of Section 368(b) of the Code;
(b) Under Code Section 361, no gain or loss will be recognized by
the EARNEST Fund (i) upon the transfer of its assets to the Touchstone Fund in
exchange for the Touchstone Fund shares and the assumption by the Touchstone
Fund of the liabilities of the EARNEST Fund or (ii) upon its distribution of the
Touchstone Fund shares to the EARNEST Fund shareholders in exchange for their
EARNEST Fund shares in liquidation of the EARNEST Fund, as provided in the Plan;
(c) Under Code Section 1032, no gain or loss will be recognized by
the Touchstone Fund upon the receipt of the assets of the EARNEST Fund solely in
exchange for the Touchstone Fund shares and the assumption by the Touchstone
Fund of the liabilities of the EARNEST Fund as contemplated in the Plan;
(d) Under Code Section 362(b), the tax basis of the assets of the
EARNEST Fund acquired by the Touchstone Fund will be the same as the tax basis
of such assets in the hands of the EARNEST Fund immediately prior to the
Reorganization;
(e) Under Code Section 1223(2), the holding periods of the assets of
the EARNEST Fund in the hands of the Touchstone Fund will include the periods
during which such assets were held by the EARNEST Fund;
26
(f) Under Code Section 354, no gain or loss will be recognized by
the EARNEST Fund shareholders upon the exchange of all of their EARNEST Fund
shares for the Touchstone Fund shares in the liquidation of the EARNEST Fund;
(g) Under Code Section 358, the aggregate tax basis of the
Touchstone Fund shares to be received by each EARNEST Fund shareholder pursuant
to the Reorganization will be the same as the aggregate tax basis of the EARNEST
Fund shares exchanged therefor;
(h) Under Code Section 1223(1), an EARNEST Fund shareholder's
holding period for the Touchstone Fund shares to be received will include the
period during which the EARNEST Fund shares exchanged therefor were held,
provided that the EARNEST Fund shareholder held the EARNEST Fund shares as a
capital asset on the date of the Reorganization on the date of the Closing); and
Pepper Hamilton will express no opinion as to (1) the effect of the
Reorganization on (A) the EARNEST Fund or the Touchstone 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
(B) any EARNEST Fund shareholder or Touchstone Fund shareholder that is required
to recognize unrealized gains and losses for U.S. federal income tax purposes
under a mark-to-market system of accounting, or (C) the EARNEST Fund or the
Acquiring Fund with respect to any stock held in a passive foreign investment
company as defined in Section 1297(a) of the Code or (2) any other federal tax
issues (except those set forth above) and all state, local or foreign tax issues
of any kind.
Such opinion shall be based on customary assumptions, limitations and such
representations as Pepper Hamilton LLP may reasonably request, and the EARNEST
Fund and the Touchstone 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 in the Plan to the contrary, neither
the Touchstone Fund nor the EARNEST Fund may waive the conditions set forth
above.
In addition, as of September 30, 2010, the EARNEST Fund had capital loss
carryforwards of $1,678,645. The amount of the EARNEST Fund's capital loss
carryforwards as of the date of the Reorganization may differ substantially from
this amount. The amount of the EARNEST Fund's capital loss carryforwards
calculated as of the date of the Reorganization available to offset the
Touchstone Fund's capital gains in any given year following the Reorganization
will be substantially limited and with respect to carryforwards related to tax
years beginning prior to December 22, 2010, the expiration of these
carryforwards will be accelerated by one year as a consequence of the
Reorganization.
PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of the EARNEST Fund and
the Touchstone Fund, and the capitalization of the Touchstone Fund on a pro
forma basis as of June 10, 2011, giving effect to the proposed acquisition of
assets at net asset value. The pro forma data reflects an exchange ratio of
approximately ____ Class A shares and ____ Class Y shares of the Touchstone Fund
for each Investor Class share and Institutional Class share of the EARNEST Fund,
respectively.
27
--------------------------------------------------------------------------------------------------------------------
TOUCHSTONE
TOUCHSTONE EARNEST PRO FORMA FUND
FUND FUND ADJUSTMENTS(1) (PRO FORMA)
--------------------------------------------------------------------------------------------------------------------
CLASS A AND INVESTOR CLASS
--------------------------------------------------------------------------------------------------------------------
Net Assets
--------------------------------------------------------------------------------------------------------------------
Shares Outstanding
--------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share
--------------------------------------------------------------------------------------------------------------------
CLASS Y AND INSTIUTIONAL CLASS
--------------------------------------------------------------------------------------------------------------------
Net Assets
--------------------------------------------------------------------------------------------------------------------
Shares Outstanding
--------------------------------------------------------------------------------------------------------------------
Net Asset Value Per Share
--------------------------------------------------------------------------------------------------------------------
(1) The Pro Forma Adjustments reflect a change in shares outstanding due to the
shareholders of the EARNEST Fund receiving approximately ___ Class A shares and
____Class Y shares of the Touchstone Fund for each Investor Class share and
Institutional Class share of the EARNEST Fund, respectively. Shareholders of the
EARNEST Fund will receive shares of the Touchstone Fund equal to the value of
their holdings in the EARNEST Fund immediately prior to the Reorganization.
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.
DISTRIBUTION OF SHARES
Touchstone Securities, Inc. is the principal underwriter of the Touchstone
Fund and, as such, is the exclusive agent for distribution of the Fund'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 and affiliate of Touchstone Advisors.
Capital Investment Group, Inc. is the principal underwriter and
distributor of the EARNEST Fund's shares and serves as the Fund's exclusive
agent for the distribution of Fund shares. Capital Investment Group, Inc. may
sell the Fund's shares to or through qualified securities dealers or others.
The Touchstone Fund offers Class A, Class C, Class Y and Institutional
shares. Class C and Institutional shares are not involved in the Reorganization.
Class A shares of the Fund are subject to a maximum front-end sales charge of
4.75% and a 0.25% 12b-1 distribution fee.
The Touchstone Fund has adopted a distribution plan under Rule 12b-1 of
the Investment Company Act of 1940, for its Class A shares. The plan allows the
Fund to pay distribution and other fees for the sale and distribution of its
shares and for services provided to shareholders. Under the Class A plan, the
Fund pays an annual fee of up to 0.25% of average daily net assets that are
attributable to Class A shares. Because these fees are paid out of the Fund's
assets on an ongoing basis, they will increase the cost of your investment and
over time may cost you more than paying other types of sales charges.
The EARNEST Fund has adopted a distribution plan under Rule 12b-1 of the
Investment Company Act of 1940 for its Investor Class shares. Pursuant to this
plan, the Fund compensates its distributor with assets attributable to the
Investor Class Shares for services rendered and expenses borne in connection
with activities primarily intended to result in the sale or the servicing of
those shares. This plan provides that the Fund will pay the annual rate of up to
0.25% of the average daily net assets attributable to the Investor Class Shares.
These activities include, among others, reimbursement to entities for providing
distribution and shareholder servicing with respect to the Fund's shares.
Because these fees are paid out of the Fund's assets on an ongoing basis, they
will increase the cost of your investment and over time may cost you more than
paying other types of sales charges.
28
In the proposed Reorganization, Investor Class shareholders of the EARNEST
Fund will receive Class A shares of the Touchstone Fund and Institutional Class
shareholders of the EARNEST Fund will receive Class Y shares of the Touchstone
Fund. Class A and Class Y shares of the Touchstone Fund to be issued upon
consummation of the Reorganization will be issued at net asset value and no
sales charges will be imposed.
More detailed descriptions of the Touchstone Fund Class A and Class Y
shares and the distribution arrangements applicable to Class A shares is
contained in the TFGT Prospectus and TFGT SAI.
PURCHASE AND REDEMPTION PROCEDURES
The Class A and Class Y shares of the Touchstone Fund have the same
purchase and redemption procedures. Class A and Class Y shares of the Funds have
a minimum initial purchase requirement of $2,500. The minimum subsequent
purchase requirement for Class A shares of the Touchstone Fund is $50. There is
no minimum subsequent purchase requirement for Class Y shares of the Touchstone
Fund. The Touchstone Fund's shares may be redeemed by telephone, Internet, mail,
or wire or through accounts with certain brokers and other financial
institutions. Payments for redemptions of shares of the Touchstone Fund are sent
within seven days (normally within 3 business days) after receipt of a proper
redemption request. The Touchstone Fund reserves the right to redeem in kind,
under certain circumstances, by paying you the proceeds in liquid securities
rather than in cash. The Fund reserves the right to reject any purchase order.
The Investor Class shares and Institutional Class shares of the EARNEST
Fund have a minimum initial purchase requirement of $3,000 and $100,000,
respectively. The minimum subsequent purchase requirement for the Investor Class
shares and Institutional Class shares are $500 and $10,000. The EARNEST Fund's
shares may be redeemed by telephone, Internet, mail, or wire or through accounts
with certain brokers and other financial institutions. Payments for redemptions
of shares of the EARNEST Fund are sent within seven days after receipt of a
proper redemption request. The EARNEST Fund reserves the right to redeem in
kind, under certain circumstances, by paying you the proceeds in liquid
securities rather than in cash.
EXCHANGE PRIVILEGES
Class A Shareholders of the Touchstone Fund may exchange shares of the
Fund for shares of the same class of another Touchstone Fund (subject to the
applicable sales charge, if any). Shareholders may also exchange Class A shares
of the Fund for Class A shares of any Touchstone money market fund. There is no
exchange fee for exchanging of shares. Class Y shares are not exchangable.
EARNEST Fund shareholders may exchange shares of the Fund for shares of
the same class of any other series of The Nottingham Investment Trust II advised
by EARNEST Partners and offered for sale in the state in which you reside. Any
such exchange will be made at the net asset value plus the percentage difference
between the sales charge applicable to those shares and any sales charge
previously paid by you in connection with the shares being exchanged.
29
DIVIDEND POLICY
Each Fund intends to distribute all of its income and capital gains. The
EARNEST Fund will declare and pay dividends from net investment income at least
annually and will distribute net realized capital gains at least annually. The
Touchstone Fund will declare and pay dividends from net investment income
monthly and will distribute net realized capital gains at least annually.
After the Reorganization, shareholders of the EARNEST Fund who have
elected to have their dividends and/or distributions reinvested will have
dividends and/or distributions received from the Touchstone Fund reinvested in
the same class of shares of the Touchstone Fund. Shareholders of the EARNEST
Fund who have elected to receive dividends and/or distributions in cash will
receive dividends and/or distributions from the Touchstone Fund in cash after
the Reorganization, although they may, after the Reorganization, elect to have
such dividends and/or distributions reinvested in additional shares of the
Touchstone Fund.
The Funds have each qualified to be treated as a regulated investment
company under the Code. To remain qualified as a regulated investment company,
the Funds must, among other things, distribute 90% of their taxable and
tax-exempt income and diversify its holdings as required by Investment Company
Act of 1940 and the Code. While so qualified, so long as each Fund distributes
all of its net investment company taxable and tax-exempt income and any net
realized gains to its shareholders of record, it is expected that the Funds will
not be required to pay any federal income taxes on the amounts distributed to
its shareholders of record.
INFORMATION ON SHAREHOLDERS' RIGHTS
FORM OF ORGANIZATION
Both the Touchstone Funds Group Trust and The Nottingham Investment Trust
II are open-end management investment companies registered with the SEC under
the 1940 Act that continuously offer shares to the public. Touchstone Funds
Group 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. The Nottingham Investment Trust II is organized as a
Massachusetts business trust and is governed by its Declaration of Trust,
By-Laws, a Board of Trustees and by applicable Massachusetts and federal law.
CAPITALIZATION
The beneficial interests in the Touchstone Funds Group Trust and The
Nottingham Investment Trust II are represented by an unlimited number of
transferable shares of beneficial interest ($0.01 par value per share for
Touchstone Funds Group Trust and a par value of zero cents ($.00) per share for
The Nottingham Investment Trust II) 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.
30
The EARNEST Fund offers two classes of shares: Investor Class shares and
Institutional Class shares. The Touchstone Fund offers four classes of shares:
Class A, Class C, Class Y and Institutional shares. 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
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, the 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.
Under applicable Massachusetts law, shareholders of a Massachusetts
business trust may, under certain circumstances, be held personally liable for
the obligations of the Trust. However, the Declaration of Trust of The
Nottingham Investment Trust II contains an express disclaimer of record holders'
liability and requires notice of such disclaimer be given in each agreement
entered into or executed by the Trust or the Trustees of the Trust. The
Declaration of Trust also provides for current and former record holders'
indemnification out of the assets of the EARNEST Fund as applicable, for all
loss and expense of any record holder held personally liable for the obligations
of the Trust. In light of the nature of the Trust's business, and the nature of
its assets, the risk of personal liability of a shareholder of the Trust is
remote since it is limited to circumstances in which the disclaimer is
inoperative and the EARNEST Fund would be unable to meet its obligations.
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.
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 of the Trust provides that the Board of Trustees may, to
the extent consistent with applicable law, cause the Trust or a Fund to be
merged or consolidated with another trust or company, provided such merger or
consolidation is authorized by vote of a majority of the outstanding shares of
the Trust or any affected series, as applicable.
31
For The Nottingham Investment Trust II, except when a larger quorum is
required by applicable law, the By-Laws or the Trust's Declaration of Trust, a
quorum of the shares entitled to vote for the purpose of transacting business at
a shareholder meeting is a majority of the outstanding shares of the EARNEST
Fund as of the record date. If, by the time of a shareholder meeting, a quorum
of shareholders of the Trust is not present or if a quorum is present but
sufficient votes in favor of any of the items are not received, the persons
named as proxies may propose one or more adjournments or postponements of the
meeting to permit further soliciting of proxies from the shareholders. Any such
adjournment would require an affirmative vote of the majority of the shares of
the EARNEST Fund represented at the meeting, either in person or by proxy. The
persons named as proxies will vote in favor of any such adjournment if they
determine that such adjournment and additional solicitation are reasonable and
in the interest of the shareholders of the EARNEST Fund.
LIQUIDATION
In the event of the liquidation of either Trust or Fund, the shareholders
of such Trust or Fund 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 liquidating 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
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 act or 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 to liability 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 of The Nottingham Investment Trust II provides
that the Trustees of the Trust will not be liable in any event in connection
with the affairs of the Trust, except as such liability may arise from his or
her own bad faith, willful misfeasance, gross negligence, or reckless disregard
of duties. It also provides that all third parties shall look solely to the
Trust property for satisfaction of claims arising in connection with the affairs
of the Trust. With the exceptions stated, the Declaration of Trust provides that
a Trustee or officer is entitled to be indemnified against all liability in
connection with the affairs of the Trust.
32
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, Massachusetts and federal law and is not a complete description of
those documents or laws. 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 the
EARNEST Fund in connection with a solicitation of proxies by the Trustees of The
Nottingham Investment Trust II, to be used at the Meeting to be held at 10:00
a.m. Eastern Time, July 27, 2011, at the offices of The Nottingham Company, 116
South Franklin Street, Rocky Mount, North Carolina 27804, and at any adjournment
or postponement thereof. This Prospectus/Proxy Statement, along with a Notice of
the Meeting and a proxy card, is first being mailed to shareholders of the
EARNEST Fund on or about June 22, 2011.
The Board of Trustees of The Nottingham Investment Trust II has fixed the
close of business on June 10, 2011 as the record date (the "Record Date") for
determining the shareholders of the EARNEST Fund 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.
In voting for the Reorganization, each shareholder of the EARNEST Fund 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 Nottingham Investment Trust II 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.
33
Approval of the Reorganization requires the affirmative vote of the
holders of a "majority of the outstanding voting securities" of the EARNEST
Fund. The term "majority of the outstanding voting securities," as defined in
the Investment Company Act of 1940 and as used in this Prospectus/Proxy
Statement, means: the affirmative vote of the lesser of (i) 67% of the voting
securities of the EARNEST Fund present at a meeting if more than 50% of the
outstanding voting securities of the EARNEST Fund are present in person or by
proxy or (ii) more than 50% of the outstanding voting securities of the EARNEST
Fund. A majority of the outstanding shares of the EARNEST Fund as of the record
date constitutes a quorum.
Proxy solicitations will be made primarily by mail, but beginning on or
about June 22, 2011 proxy solicitations may also be made by telephone, or
personal solicitations may be conducted by officers and employees of EARNEST
Partners, its affiliates or other representatives of the EARNEST Fund (who will
not be paid for their soliciting activities). In addition, proxy solicitations
may be made by Broadridge, the EARNEST Fund's proxy solicitor. The estimated
cost of the proxy solicitation is approximately $1,000. The costs of
solicitation will be paid by Touchstone Advisors and EARNEST Partners 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 and will have the effect of being counted
as votes against the Reorganization.
If shareholders of the EARNEST Fund do not vote to approve the
Reorganization, the Trustees of The Nottingham Investment Trust II will consider
other possible courses of action in the best interests of the Fund and its
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.
A shareholder of the EARNEST Fund who objects to the proposed
Reorganization will not be entitled under either Massachusetts 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 intended 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 the Touchstone
Fund that they receive in the Reorganization at their then-current net asset
value. Shares of the EARNEST Fund may be redeemed at any time prior to the
consummation of the Reorganization. Shareholders of the EARNEST Fund should
consult their tax advisors as to the tax 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.
34
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES.
Please advise the EARNEST Fund whether other persons are beneficial owners of
shares for which proxies are being solicited and, if so, the number of copies of
this Prospectus/Proxy Statement needed to be supplied to the beneficial owners
of the respective shares.
SHAREHOLDER INFORMATION
The shareholders of the EARNEST Fund 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 the EARNEST Fund owned as of the Record Date. As of the Record
Date, the total number of shares of the EARNEST Fund outstanding and entitled to
vote was as follows:
--------------------------------------------------------------------------------
NUMBER OF SHARES
--------------------------------------------------------------------------------
THE EARNEST FUND INVESTOR CLASS SHARES
--------------------------------------------------------------------------------
THE EARNEST FUND INSTITUTIONAL CLASS SHARES
--------------------------------------------------------------------------------
As of the Record Date, the officers and Trustees of The Nottingham
Investment Trust II beneficially owned as a group ____% of the outstanding
shares of the EARNEST Fund.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of the Record Date, the following persons owned of record or
beneficially 5% or more of the outstanding Investor Class shares and
Institutional Class shares of the EARNEST Fund and Class A shares and Class Y
shares of the Touchstone Fund:
----------------------------------------------------------------------------------------------------------------------
Percentage
Ownership of
Combined
Class of Number of Percent Fund after the
Fund Name and Address Shares Shares of Class Reorganization(1)
----------------------------------------------------------------------------------------------------------------------
EARNEST FUND
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
TOUCHSTONE FUND
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
(1) On a pro forma basis assuming that the value of the shareholder's interest
in the Fund on the date of the consummation of the Reorganization is the same as
the record date.
35
FINANCIAL STATEMENTS AND EXPERTS
The Annual Report of The Nottingham Investment Trust II relating to the
EARNEST Fund for the year ended as of March 31, 2010, and the financial
statements and financial highlights for the periods indicated therein, has been
incorporated by reference herein in reliance upon the report of BBD, LLP,
independent registered public accounting firm, and upon the authority of said
firm as experts in accounting and auditing. The Semiannual report for The
Nottingham Investment Trust II relating to the EARNEST Fund for the period ended
September 30, 2010, and the financial statements and financial highlights for
the periods indicated therein, has been incorporated by reference herein. The
Annual Report of Touchstone Funds Group Trust relating to the Touchstone Fund
for the year ended September 30, 2010, and the financial statements and
financial highlights for the periods indicated therein, has been incorporated by
reference herein in reliance upon the report of Ernst & Young, LLP, independent
registered public accounting firm, and upon the authority of said firm as
experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Touchstone
Fund's Shares will be passed upon by Pepper Hamilton LLP, located at 3000 Two
Logan Square, 18th and Arch Streets, Philadelphia, PA 19103.
ADDITIONAL INFORMATION
The Trusts are subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, 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.
ADDITIONAL INFORMATION ABOUT THE EARNEST FUND
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES. If you purchase
shares of the Fund through a broker-dealer or other financial intermediary (such
as a bank), the Fund and its related companies may pay the intermediary for the
sale of Fund shares and related services. These payments may create a conflict
of interest by influencing the broker-dealer or other intermediary and your
salesperson to recommend the Fund over another investment. Ask your salesperson
or visit your financial intermediary's website for more information.
OTHER INVESTMENT POLICIES. The Fund may sell portfolio securities without regard
to the length of time they have been held in order to take advantage of new
investment opportunities or changing market conditions. As portfolio turnover
may involve paying brokerage commissions and other transactions costs, there
could be additional expenses for the Fund. High rates of portfolio turnover may
also result in the realization of short-term capital gains. The payment of taxes
on these gains could adversely affect the Fund's performance. Any distributions
resulting from such gains will be considered ordinary income for federal income
tax purposes. See the "Financial Highlights" section of this Prospectus for the
Fund's portfolio turnover rates for prior periods.
36
THE INVESTMENT ADVISOR. EARNEST Partners, LLC is the success or by merger to
EARNEST Partners Limited, LLC, which became the investment advisor of the Fund
pursuant to an Interim Investment Advisory Agreement approved by the Board of
Trustees ("Trustees") of The Nottingham Investment Trust II ("Trust") at a
meeting held on December 20, 1999. That agreement was superseded by a new
Investment Advisory Agreement ("Investment Advisory Agreement") that was
approved by shareholders of the Fund at a meeting held on May 25, 2000. Under
the Investment Advisory Agreement, EARNEST Partners will receive the same
management fee as the Fund's previous advisor, Investek Capital Management, Inc.
The Investment Advisory Agreement is renewed on an annual basis subject to an
appropriate review and approval by the Trustees.
EARNEST Partners, LLC, 1180 Peachtree Street, Suite 2300, Atlanta, Georgia
30309, was established in 1997 as a limited liability company organized under
the laws of Georgia and was redomesticated to Delaware in 2007. EARNEST
Partners, LLC is owned approximately 87% by Westchester Limited, LLC, a Delaware
limited liability company. As of March 31, 2011, EARNEST Partners had
approximately $18.7 billion in assets under management and provides investment
advice, utilizing investment strategies substantially similar to that of the
Fund, to individuals, banks and thrift institutions, pension and profit sharing
plans, trusts, estates, charitable organizations, and corporations. The Fund is
primarily managed by an investment team consisting of Douglas S. Folk, CFA, and
Christopher J. Fitze, CFA, who are responsible for the day-to-day management of
the Fund's portfolio. Mr. Folk is a Partner at EARNEST Partners and became a
portfolio manager of the Fund in 1998. Mr. Folk has served as President of the
Fund since 2004, and was Vice President of the Fund's former advisor from 1996
until the acquisition in 1999. Previously, Mr. Folk was a portfolio manager with
Southern Farm Bureau Life Insurance Company. Mr. Fitze has been an Analyst and
Investment Manager at EARNEST Partners since 2003 and became a portfolio manager
of the Fund at the end of 2006.
The Advisor is registered as an investment advisor with the Securities and
Exchange Commission ("SEC") under the Investment Advisers Act of 1940, as
amended. Subject to the authority of the Trustees and pursuant to the Investment
Advisory Agreement with the Trust, EARNEST Partners provides the Fund with a
program of continuous supervision of the Fund's assets, including developing the
composition of its portfolio, and furnishes advice and recommendations with
respect to investments, investment policies, and the purchase and sale of
securities. The Advisor is also responsible for the selection of broker-dealers
through which the Fund executes portfolio transactions, subject to the brokerage
policies established by the Trustees, and it provides certain executive
personnel to the Fund.
THE ADVISOR'S COMPENSATION. As full compensation for the investment advisory
services provided to the Fund, the Fund pays EARNEST Partners monthly
compensation based on the Fund's daily average net assets at the annual rate of
0.45%. However, to limit expenses of the Fund, EARNEST Partners waived its
entire advisory fee for the fiscal year ended March 31, 2011.
DISCLOSURE REGARDING APPROVAL OF THE INVESTMENT ADVISORY AGREEMENT. A discussion
regarding the Trustees' basis for approving the renewal of the Investment
Advisory Agreement for the Fund is available in the Fund's Semi-annual Report to
shareholders for the six-month period ended September 30, 2010. You may obtain a
copy of this Semi-annual Reports, free of charge, upon request to the Fund.
EXPENSE LIMITATION AGREEMENT. In the interest of limiting expenses of the Fund,
EARNEST Partners entered into an expense limitation agreement with the Trust,
with respect to the Fund ("Expense Limitation Agreement"), pursuant to which
EARNEST Partners has agreed to waive or limit its fees and to assume other
expenses so that the total annual operating expenses of the Fund (other than
interest, taxes, brokerage commissions, other expenditures which are capitalized
in accordance with generally accepted accounting principles, other extraordinary
expenses not incurred in the ordinary course of the Fund's business, and
amounts, if any, payable under a Rule 12b-1 distribution plan) are limited to
0.40% of the average net assets of the Institutional Class Shares and Investor
Class Shares of the Fund for the period ending the last day of July 2011.
37
The Fund may at a later date reimburse EARNEST Partners the fees waived or
limited and other expenses assumed and paid by EARNEST Partners pursuant to the
Expense Limitation Agreement during any of the previous three (3) fiscal years,
provided the Fund has reached a sufficient asset size to permit such
reimbursement to be made without causing the total annual expense ratio of the
Fund to exceed the percentage limits stated above. Consequently, no
reimbursement by the Fund will be made unless: (i) the Fund's assets exceed $20
million; (ii) the Fund's total annual expense ratio is less than the percentage
stated above; and (iii) the payment of such reimbursement has been approved by
the Trustees on a quarterly basis.
BROKERAGE PRACTICES. In selecting brokers and dealers to execute portfolio
transactions, EARNEST Partners may consider research and brokerage services
furnished to EARNEST Partners or its affiliates. The Advisor may not consider
sales of shares of the Fund as a factor in the selection of brokers and dealers,
but may place portfolio transactions with brokers and dealers that promote or
sell the Fund's shares so long as such transactions are done in accordance with
the policies and procedures established by the Trustees that are designed to
ensure that the selection is based on the quality of execution and not on sales
efforts. When placing portfolio transactions with a broker or dealer, EARNEST
Partners may aggregate securities to be sold or purchased for the Fund with
those to be sold or purchased for other advisory accounts managed by EARNEST
Partners. In aggregating such securities, EARNEST Partners will average the
transaction as to price and will allocate available investments in a manner
which EARNEST Partners believes to be fair and reasonable to the Fund and such
other advisory accounts. An aggregated order will generally be allocated on a
pro rata basis among all participating accounts, based on the relative dollar
values of the participating accounts, or using any other method deemed to be
fair and reasonable to the Fund and the participating accounts, with any
exceptions to such methods involving the Trust being reported by EARNEST
Partners to the Trustees.
THE ADMINISTRATOR. The Nottingham Company ("Administrator") assists the Trust in
the performance of its administrative responsibilities to the Fund, coordinates
the services of each vendor to the Fund, and provides the Fund with certain
administrative, fund accounting, and compliance services. In addition, the
Administrator makes available the office space, equipment, personnel, and
facilities required to provide such services to the Fund. For these services,
the Administrator is compensated by the Fund pursuant to an Amended and Restated
Fund Accounting and Compliance Administration Agreement.
THE TRANSFER AGENT. Nottingham Shareholder Services, LLC ("Transfer Agent")
serves as the transfer agent and dividend disbursing agent of the Fund. As
indicated later in the section entitled "Investing in the Fund," the Transfer
Agent will handle your orders to purchase and redeem shares of the Fund and will
disburse dividends paid by the Fund. The Transfer Agent is compensated for its
services by the Fund pursuant to a Dividend Disbursing and Transfer Agent
Agreement.
THE DISTRIBUTOR. Capital Investment Group, Inc. ("Distributor") is the principal
underwriter and distributor of the Fund's shares and serves as the Fund's
exclusive agent for the distribution of Fund shares. The Distributor may sell
the Fund's shares to or through qualified securities dealers or others.
The Fund has adopted a plan of distribution in accordance with Rule 12b-1 under
the 1940 Act ("Distribution Plan"). Pursuant to the Distribution Plan, the Fund
compensates the Distributor with assets attributable to the Investor Class
Shares for services rendered and expenses borne in connection with activities
primarily intended to result in the sale or the servicing of those shares (this
compensation is commonly referred to as "12b-1 fees"). The Distribution Plan
provides that the Fund will pay the annual rate of up to 0.25% of the average
daily net assets attributable to the Investor Class Shares. These activities
include, among others, reimbursement to entities for providing distribution and
shareholder servicing with respect to the Fund's shares. Because the 12b-1 fees
are paid out of the Fund's assets on an on-going basis, these fees, over time,
will increase the cost of your investment and may cost you more than paying
other types of sales charges.
38
ADDITIONAL INFORMATION ON EXPENSES
OTHER EXPENSES. In addition to the 12b-1 fee for the Investor Class Shares and
the investment advisory fees, the Fund pays all expenses not assumed by EARNEST
Partners, including, without limitation: the fees and expenses of its
independent registered public accounting firm and of its legal counsel; the
costs of printing and mailing to shareholders annual and semi-annual reports,
proxy statements, prospectuses, statements of additional information, and
supplements thereto; the costs of printing registration statements; bank
transaction charges and custodian's fees; any proxy solicitors' fees and
expenses; filing fees; any federal, state, or local income or other taxes; any
interest; any membership fees of the Investment Company Institute and similar
organizations; fidelity bond and Trustees' liability insurance premiums; and any
extraordinary expenses, such as indemnification payments or damages awarded in
litigation or settlements made. All general Trust expenses are allocated among
and charged to the assets of each separate series of the Trust, such as the
Fund, on a basis that the Trustees deem fair and equitable, which may be on the
basis of relative net assets of each series or the nature of the services
performed and relative applicability to each series.
INVESTING IN THE FUND
---------------------
MINIMUM INVESTMENT
Institutional Class Shares and Investor Class Shares of the Fund are sold and
redeemed at net asset value. Shares may be purchased by any account managed by
EARNEST Partners and any other institutional investor or any broker-dealer
authorized to sell shares of the Fund. The minimum initial investment for the
Institutional Class Shares is $100,000 and the minimum additional investment is
$10,000 ($100 for those participating in the automatic investment plan). The
minimum initial investment for the Investor Class Shares is $3,000 and the
minimum additional investment is $500 ($100 for those participating in the
automatic investment plan). The Fund may, in EARNEST Partners's sole discretion,
accept certain accounts with less than the minimum investment.
PURCHASE AND REDEMPTION PRICE
DETERMINING THE FUND'S NET ASSET VALUE. The price at which you purchase or
redeem shares is based on the next calculation of the Fund's net asset value
after an order is received, subject to the order being accepted by the Fund in
good form. An order is considered to be in good form if it includes a complete
and accurate application and payment in full of the purchase amount. The Fund's
net asset value per share for each class of shares is calculated by dividing the
value of the Fund's total assets attributable to that class, less liabilities
(including Fund expenses, which are accrued daily) attributable to that class,
by the total number of outstanding shares of the Fund attributable to that
class. The net asset value per share for each class of shares of the Fund is
normally determined at the time regular trading closes on the New York Stock
Exchange ("NYSE"), currently 4:00 p.m. Eastern time, Monday through Friday,
except when the NYSE closes earlier. The Fund does not calculate net asset value
on business holidays when the NYSE is closed.
39
The pricing and valuation of portfolio securities is determined in good faith in
accordance with procedures established by, and under the direction of, the
Trustees. In determining the value of the Fund's total assets, portfolio
securities are generally valued at their market value by quotation for the
primary market in which they are traded. Instruments with maturities of 60 days
or less are valued at amortized cost, which approximates market value. The Fund
normally uses third party pricing services to obtain market quotations.
Securities and assets for which representative market quotations are not readily
available or which cannot be accurately valued using the Fund's normal pricing
procedures are valued at fair value as determined in good faith under policies
approved by the Trustees. Fair value pricing may be used, for example, in
situations where (i) a portfolio security is so thinly traded or a recently
issued security that there have been no transactions for that security over an
extended period of time; (ii) the value of a portfolio security, such as fixed
income security which is typically valued within a matrix pricing system, cannot
be made by analogy to a comparable security; (iii) the exchange on which the
portfolio security is principally traded closes early; or (iv) trading of the
particular portfolio security is halted during the day and does not resume prior
to the Fund's net asset value calculation. Pursuant to policies adopted by the
Trustees, EARNEST Partners consults with the Administrator on a regular basis
regarding the need for fair value pricing. The Advisor is responsible for
notifying the Trustees (or the Trust's Fair Value Committee) when it believes
that fair value pricing is required for a particular security. The Fund's
policies regarding fair value pricing are intended to result in a calculation of
the Fund's net asset value that fairly reflects portfolio security values as of
the time of pricing. A portfolio security's "fair value" price may differ from
the price next available for the portfolio security using the Fund's normal
pricing procedures, and the fair value price may differ substantially from the
price at which the security may ultimately be traded or sold. If such fair value
price differs from the price that would have been determined using the Fund's
normal pricing procedures, a shareholder may receive more or less proceeds or
shares from redemptions or purchases of the Fund shares, respectively, than a
shareholder would have otherwise received if the security were priced using the
Fund's normal pricing procedures. The performance of the Fund may also be
affected if a portfolio security's fair value price were to differ from the
security's price using the Fund's normal pricing procedures. To the extent the
Fund invests in other open-end investment companies that are registered under
the 1940 Act, the Fund's net asset value calculations are based upon the net
asset value reported by such registered open-end investment companies, and the
prospectuses for these companies explain the circumstances under which they will
use fair value pricing and the effects of using fair value pricing. The Trustees
monitor and evaluate the Fund's use of fair value pricing, and periodically
review the results of any fair valuation under the Fund's fair valuation
policies.
OTHER MATTERS. Purchases and redemptions of shares of the same class by the same
shareholder on the same day will be netted for the Fund.
PURCHASING SHARES
You can make purchases directly from the Fund by mail or bank wire. The Fund has
also authorized one or more brokers to accept purchase and redemption orders on
its behalf and such brokers are authorized to designate intermediaries to accept
orders on behalf of the Fund. Such orders will be deemed to have been received
by the Fund when an authorized broker, or broker-authorized designee receives
the order, subject to the order being accepted by the Fund in good form. The
orders will be priced at the Fund's net asset value next computed after the
orders are received by the authorized broker, or broker authorized designee.
Investors may also be charged a fee by a broker or agent if shares are purchased
through a broker or agent.
The Fund reserves the right to (i) refuse to accept any request to purchase
shares of the Fund for any reason, and (ii) suspend its offering of shares at
any time.
REGULAR MAIL ORDERS. Payment for shares must be made by check from a U.S.
financial institution and payable in U.S. dollars. Cash, money orders and
traveler's checks will not be accepted by the Fund. If checks are returned due
to insufficient funds or other reasons, your purchase will be canceled. You will
also be responsible for any losses or expenses incurred by the Fund,
Administrator, and Transfer Agent. The Fund will charge a $35 fee and may redeem
shares of the Fund already owned by the purchaser or shares of another
identically registered account in another series of the Trust to recover any
such loss. For regular mail orders, please complete a Fund Shares Application
and mail it, along with your check made payable to "EARNEST PARTNERS FIXED
INCOME TRUST," to:
EARNEST PARTNERS FIXED INCOME TRUST
Institutional Class Shares or Investor Class Shares
c/o Nottingham Shareholder Services
116 South Franklin Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
40
The application must contain your Social Security Number ("SSN") or Taxpayer
Identification Number ("TIN"). If you have applied for a SSN or TIN at the time
of completing your account application but you have not received your number,
please indicate this on the application and include a copy of the form applying
for the SSN or TIN. Taxes are not withheld from distributions to U.S. investors
if certain Internal Revenue Service ("IRS") requirements regarding the SSN or
TIN are met and we have not been notified by the IRS that the particular U.S.
investor is subject to back-up withholding.
By sending your check to the Fund, please be aware that you are authorizing the
Fund to make a one-time electronic debit from your account at the financial
institution indicated on your check. Your bank account will be debited as early
as the same day the Fund receives your payment in the amount of your check. Your
original check will be destroyed once processed, and you will not receive your
cancelled check back. If the Fund cannot post the transaction electronically,
you authorize the Fund to present an image copy of your check for payment.
BANK WIRE ORDERS. Purchases may also be made through bank wire transfers from
your financial institution. To establish a new account or add to an existing
account by wire, please call the Fund at 1-800-773-3863 for wire instructions
and to advise the Fund of the investment, dollar amount, and account
identification number.
ADDITIONAL INVESTMENTS. You may also add to your account by mail or wire at any
time by purchasing shares at the then current public offering price. The minimum
additional investment is $10,000 for Institutional Class Shares and $500 for
Investor Class Shares. Before adding funds by bank wire, please call the Fund at
1-800-773-3863 for wire instructions and to advise the Fund of the investment,
dollar amount, and account identification number. Mail orders should include, if
possible, the "Invest by Mail" stub which is attached to your fund confirmation
statement. Otherwise, please identify your account in a letter accompanying your
purchase payment.
ADDITIONAL PURCHASES BY PHONE (TELEPHONE PURCHASE AUTHORIZATION). If you have
made this election on your Account Application, you may purchase additional
shares by telephoning the Fund at 1-800-773-3863. The minimum telephone purchase
is $100 and the maximum is one (1) times the net asset value of shares held by
the shareholder on the day preceding such telephone purchase for which payment
has been received. The telephone purchase will be made at the net asset value
next computed after the receipt of the telephone call by the Fund. Payment for
the telephone purchase must be received by the Fund within five (5) days. If
payment is not received within five (5) days, you will be liable for all losses
incurred as a result of the cancellation of such purchase.
AUTOMATIC INVESTMENT PLAN. The automatic investment plan enables shareholders to
make regular monthly or quarterly investments in shares through automatic
charges to their checking account. With shareholder authorization and bank
approval, the Fund will automatically charge the checking account for the amount
specified ($100 minimum), which will be automatically invested in shares at the
public offering price on or about the 21st day of the month. The shareholder may
change the amount of the investment or discontinue the plan at any time by
writing to the Fund.
EXCHANGE FEATURE. You may exchange shares of the Fund for shares of the same
class of any other series of the Trust advised by EARNEST Partners and offered
for sale in the state in which you reside. Any such exchange will be made at the
net asset value plus the percentage difference between the sales charge
applicable to those shares and any sales charge previously paid by you in
connection with the shares being exchanged. Prior to making an investment
decision or giving us your instructions to exchange shares, please read the
prospectus for the series in which you wish to invest.
An investor may direct the Fund to exchange his shares by writing to the Fund at
its principal office. The request must be signed exactly as the investor's name
appears on the account, and it must also provide the account number, number of
shares to be exchanged, the name of the series to which the exchange will take
place and a statement as to whether the exchange is a full or partial redemption
of existing shares. Notwithstanding the foregoing, exchanges of shares may only
be within the same class or type of class of shares involved.
41
The Trustees reserve the right to suspend, terminate, or amend the terms of the
exchange privilege upon prior written notice to the shareholders.
STOCK CERTIFICATES. The Fund normally does not issue stock certificates.
Evidence of ownership of shares is provided through entry in the Fund's share
registry. Investors will receive periodic account statements (and, where
applicable, purchase confirmations) that will show the number of shares owned.
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. Under the
Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act of 2001), the Fund
is required to obtain, verify, and record information to enable the Fund to form
a reasonable belief as to the identity of each customer who opens an account.
Consequently, when an investor opens an account, the Fund will ask for the
investor's name, street address, date of birth (for an individual), social
security or other tax identification number (or proof that the investor has
filed for such a number), and other information that will allow the Fund to
identify the investor. The Fund may also ask to see the investor's driver's
license or other identifying documents. An investor's account application will
not be considered "complete" and, therefore, an account will not be opened and
the investor's money will not be invested until the Fund receives this required
information. If after opening the investor's account the Fund is unable to
verify the investor's identity after reasonable efforts, as determined by the
Fund in its sole discretion, the Fund may (i) restrict redemptions and further
investments until the investor's identity is verified; and (ii) close the
investor's account without notice and return the investor's redemption proceeds
to the investor. If the Fund closes an investor's account because the Fund was
unable to verify the investor's identity, the Fund will value the account in
accordance with the Fund's next net asset value calculated after the investor's
account is closed. In that case, the investor's redemption proceeds may be worth
more or less than the investor's original investment. The Fund will not be
responsible for any losses incurred due to the Fund's inability to verify the
identity of any investor opening an account.
REDEEMING YOUR SHARES
REGULAR MAIL REDEMPTIONS. Regular mail redemption requests should be addressed
to:
EARNEST PARTNERS FIXED INCOME TRUST
Institutional Class Shares or Investor Class Shares
c/o Nottingham Shareholder Services
116 South Franklin Street
Post Office Box 4365
Rocky Mount, North Carolina 27803-0365
Regular mail redemption requests should include the following:
(1) Your letter of instruction specifying the account number, class of
shares, and number of shares, or the dollar amount, to be redeemed.
This request must be signed by all registered shareholders in the
exact names in which they are registered;
(2) Any required signature guarantees (see "Signature Guarantees"
below); and
(3) Other supporting legal documents, if required in the case of
estates, trusts, guardianships, custodianships, corporations,
partnerships, pension or profit sharing plans, and other
organizations.
Your redemption proceeds normally will be sent to you within seven (7) days
after receipt of your redemption request. The Fund may delay forwarding a
redemption check for recently purchased shares while it determines whether the
purchase payment will be honored. Such delay (which may take up to fifteen (15)
days from the date of purchase) may be reduced or avoided if the purchase is
made by certified check or wire transfer. In all cases, the net asset value next
determined after receipt of the request for redemption will be used in
processing the redemption request.
42
TELEPHONE AND BANK WIRE REDEMPTIONS. Unless you decline the telephone
transaction privileges on your account application you may redeem shares of the
Fund by telephone. You may also redeem shares by bank wire under certain limited
conditions. The Fund will redeem shares in this manner when so requested by the
shareholder only if the shareholder confirms redemption instructions in writing.
The Fund may rely upon confirmation of redemption requests transmitted via
facsimile (252-972-1908). The confirmation instructions must include the
following:
(1) The Fund's name and class;
(2) Shareholder(s) name and account number;
(3) Number of shares or dollar amount to be redeemed;
(4) Instructions for transmittal of redemption proceeds to the
shareholder; and
(5) Shareholder(s) signature(s) as it/they appear(s) on the application
then on file with the Fund.
Redemption proceeds will not be distributed until written confirmation of the
redemption request is received, per the instructions above. You can choose to
have redemption proceeds mailed to you at your address of record, your financial
institution, or to any other authorized person, or you can have the proceeds
sent by wire transfer to your financial institution ($5,000 minimum). Redemption
proceeds cannot be wired on days in which your financial institution is not open
for business. You can change your redemption instructions anytime you wish by
filing a letter including your new redemption instructions with the Fund. See
"Signature Guarantees" below.
The Fund, in its discretion, may choose to pass through to redeeming
shareholders any charges imposed by the Fund's custodian for wire redemptions.
If this cost is passed through to redeeming shareholders by the Fund, the charge
will be deducted automatically from your account by redemption of shares in your
account. Your bank or brokerage firm may also impose a charge for processing the
wire. If wire transfer of funds is impossible or impractical, the redemption
proceeds will be sent by mail to the designated account.
You may redeem shares, subject to the procedures outlined above, by calling the
Fund at 1-800-773-3863. Redemption proceeds will only be sent to the financial
institution account or person named in your application currently on file with
the Fund. Telephone redemption privileges authorize the Fund to act on telephone
instructions from any person representing himself or herself to be the investor
and reasonably believed by the Fund or its agents to be genuine. The Fund or its
agents will employ reasonable procedures, such as requiring a form of personal
identification, to confirm that instructions are genuine. The Fund, however,
will not be liable for any losses due to unauthorized or fraudulent
instructions. The Fund will also not be liable for following telephone
instructions reasonably believed to be genuine.
SYSTEMATIC WITHDRAWAL PLAN. A shareholder who owns shares of the Fund valued at
$50,000 or more at the current offering price may establish a systematic
withdrawal plan to receive a monthly or quarterly check in a stated amount not
less than $100. Each month or quarter, as specified, the Fund will automatically
redeem sufficient shares from your account to meet the specified withdrawal
amount. The shareholder may establish this service whether dividends and
distributions are reinvested in shares of the Fund or paid in cash. Call or
write the Fund for an application form.
SMALL ACCOUNTS. The Trustees reserve the right to redeem involuntarily any
account having a net asset value of less than $3,000 due to redemptions,
exchanges, or transfers, and not due to market action, upon 30-days' prior
written notice. If the shareholder brings his/her account net asset value up to
at least $3,000 during the notice period, the account will not be redeemed.
Redemptions from retirement plans may be subject to federal income tax
withholding. Shareholders may also be charged a fee by their broker or agent if
shares are redeemed or transferred through their broker or agent.
SIGNATURE GUARANTEES. To protect your account and the Fund from fraud, signature
guarantees may be required to be sure that you are the person who has authorized
a change in registration or standing instructions for your account. Signature
guarantees are generally required for (i) change of registration requests; (ii)
requests to establish or to change exchange privileges or telephone and bank
wire redemption service other than through your initial account application;
(iii) transactions where proceeds from redemptions, dividends, or distributions
are sent to an address or financial institution differing from the address or
financial institution of record; and (iv) redemption requests in excess of
$50,000. Signature guarantees are acceptable from a member bank of the Federal
Reserve System, a savings and loan institution, credit union (if authorized
under state law), registered broker-dealer, securities exchange, or association
clearing agency and must appear on the written request for change of
registration, establishment or change in exchange privileges, or redemption
request.
43
REDEMPTIONS IN KIND. The Fund does not intend, under normal circumstances, to
redeem its securities by payment in kind. It is possible, however, that
conditions may arise in the future, which would, in the opinion of the Trustees,
make it undesirable for the Fund to pay for all redemptions in cash. In such
case, the Trustees may authorize payment to be made in readily marketable
portfolio securities of the Fund. Securities delivered in payment of redemptions
would be valued at the same value assigned to them in computing the Fund's net
asset value per share. Shareholders receiving them would incur brokerage costs
when these securities are sold. An irrevocable election has been filed under
Rule 18f-1 of the 1940 Act wherein the Fund committed itself to pay redemptions
in cash, rather than in kind, to any shareholder of record of the Fund who
redeems during any ninety-day period, the lesser of (i) $250,000 or (ii) one
percent (1%) of the Fund's net asset value at the beginning of such period.
MISCELLANEOUS. All redemption requests will be processed and payment with
respect thereto will normally be made within seven (7) days after tender. The
Fund reserves the right to suspend any redemption request involving recently
purchased shares until the check for the recently purchased shares has cleared.
The Fund may suspend redemptions, if permitted by the 1940 Act, for any period
during which the NYSE is closed or during which trading is restricted by the
Securities and Exchange Commission ("SEC") or if the SEC declares that an
emergency exists. Redemptions may be suspended during other periods permitted by
the SEC for the protection of the Fund's shareholders. During drastic economic
and market changes, telephone redemption privileges may be difficult to
implement.
FREQUENT PURCHASES AND REDEMPTIONS
Frequent purchases and redemptions ("Frequent Trading") of shares of the Fund
may present a number of risks to other shareholders of the Fund. These risks may
include, among other things, dilution in the value of shares of the Fund held by
long-term shareholders, interference with the efficient management by EARNEST
Partners of the Fund's portfolio holdings, and increased brokerage and
administration costs. Due to the potential of a thin market for the Fund's
securities, as well as overall adverse market, economic, political, or other
conditions affecting the sale price of portfolio securities, the Fund could face
untimely losses as a result of having to sell portfolio securities prematurely
to meet redemptions. Current shareholders of the Fund may face unfavorable
impacts as fixed income securities may be more volatile during certain economic
conditions than equity securities and it may be more difficult to sell to meet
redemptions in a limited market. Frequent Trading may also increase portfolio
turnover which may result in increased capital gains taxes for shareholders of
the Fund. These capital gains could include short-term capital gains taxed at
ordinary income tax rates.
The Trustees have adopted a policy with respect to Frequent Trading that is
intended to discourage and identify such activity by shareholders of the Fund.
The Fund does not accommodate Frequent Trading. Under the adopted policy, the
Transfer Agent provides a daily record of shareholder trades to EARNEST
Partners. The Transfer Agent also assists EARNEST Partners in monitoring and
testing shareholder purchase and redemption orders for possible incidents of
Frequent Trading. The Advisor has the discretion to limit investments from an
investor that EARNEST Partners believes has a pattern of Frequent Trading that
EARNEST Partners considers not to be in the best interests of the other
shareholders in the Fund by the Fund's refusal to accept further purchase and/or
exchange orders from such investor. The Fund's policy regarding Frequent Trading
is to limit investments from investor accounts that purchase and redeem shares
over a period of less than ten days in which (i) the redemption amount is within
ten percent of the previous purchase amount(s); (ii) the redemption amount is
greater than $10,000; and (iii) two or more such redemptions occur during a 60
calendar day period. In the event such a purchase and redemption pattern occurs,
an investor account and any other account with the same taxpayer identification
number will be precluded from investing in the Fund (including investments that
are part of an exchange transaction) for at least 30 calendar days after the
redemption transaction.
44
This policy is intended to apply uniformly, except that the Fund may not be able
to identify or determine that a specific purchase and/or redemption is part of a
pattern of Frequent Trading or that a specific investor is engaged in Frequent
Trading, particularly with respect to transactions made through accounts such as
omnibus accounts or accounts opened through third-party financial intermediaries
such as broker-dealers and banks ("Intermediary Accounts"). Therefore, this
policy is not applied to omnibus accounts or Intermediary Accounts. Omnibus
account arrangements permit multiple investors to aggregate their respective
share ownership positions and to purchase, redeem, and exchange Fund shares
without the identity of the particular shareholders being known to the Fund.
Like omnibus accounts, Intermediary Accounts normally permit investors to
purchase, redeem, and exchange Fund shares without the identity of the
underlying shareholder being known to the Fund. Accordingly, the ability of the
Fund to monitor and detect Frequent Trading through omnibus accounts and
Intermediary Accounts would be very limited, and there would be no guarantee
that the Fund could identify shareholders who might be engaging in Frequent
Trading through such accounts or curtail such trading. The Advisor currently
does not allow exceptions to the policy.
Intermediaries may apply frequent trading policies that differ from those
described in this prospectus. If you invest with the Fund through an
intermediary, please read that firm's program materials carefully to learn of
any rules or fees that may apply.
Although the Fund has taken steps to discourage Frequent Trading of the Fund's
shares, there is no guarantee that such trading will not occur.
OTHER IMPORTANT INVESTMENT INFORMATION
DIVIDENDS, DISTRIBUTIONS, AND TAXES
The following information is meant as a general summary of the federal income
tax provisions regarding the taxation of the shareholders. Shareholders should
rely on their own tax advisors for advice about the particular federal, state,
and local tax consequences to them of investing in the Fund.
The Fund intends to distribute substantially all of its net investment income
and net realized capital gains to its shareholders at least annually.
Shareholders may elect to take in cash or reinvest in additional Fund shares any
dividends from net investment income or capital gains distributions. Although
the Fund is not taxed on amounts it distributes, shareholders will generally be
taxed on distributions, regardless of whether distributions are paid by the Fund
in cash or are reinvested in additional Fund shares. Distributions to
non-corporate investors attributable to ordinary income and short-term capital
gains are generally taxed as ordinary income, although certain income dividends
may be taxed to non-corporate shareholders as qualified dividend income at
long-term capital gains rates provided certain holding period requirements are
satisfied. Absent further legislation, such long-term capital gains rate will
not apply to qualified dividend income distributed after December 31, 2010.
Distributions of long-term capital gains are generally taxed as long-term
capital gains, regardless of how long a shareholder has held Fund shares.
Distributions may be subject to state and local taxes, as well as federal taxes.
Taxable distributions paid by the Fund to corporate shareholders will be taxed
at corporate tax rates. Corporate shareholders may be entitled to a dividends
received deduction ("DRD") for a portion of the dividends paid and designated by
the Fund as qualifying for the DRD provided certain holding period requirements
are met.
In general, a shareholder who sells or redeems shares will realize a capital
gain or loss, which will be long-term or short-term, depending upon the
shareholder's holding period for the Fund shares, provided that any loss
recognized on the sale of Fund shares held for six months or less will be
treated as long-term capital loss to the extent of capital gain dividends
received with respect to such shares. An exchange of shares may be treated as a
sale and any gain may be subject to tax.
45
As with all mutual funds, the Fund may be required to withhold U.S. federal
income tax (presently at the rate of 28%) on all taxable distributions payable
to shareholders who fail to provide the Fund with their correct taxpayer
identification numbers or to make required certifications, or who have been
notified by the IRS that they are subject to backup withholding. Backup
withholding is not an additional tax; rather, it is a way in which the IRS
ensures it will collect taxes otherwise due. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability.
Shareholders should consult with their own tax advisors to ensure distributions
and sale of Fund shares are treated appropriately on their income tax returns.
FINANCIAL HIGHLIGHTS
The financial highlights shown below are intended to help you understand the
Fund's Institutional Class Shares' financial performance for the previous five
fiscal years and six months and Investor Class Shares' financial performance for
the period indicated below. Certain information reflects financial results for a
single Fund share. The total returns in the table represent the rate that an
investor would have earned (or lost) on an investment in the Fund (assuming
reinvestment of all dividends and distributions). The financial data included in
the table below have been derived from audited financial statements of the Fund.
The financial data in the table through year ended March 31, 2010 have been
audited by BBD, LLP, an independent registered public accounting firm, whose
reports covering such periods are incorporated by reference into the SAI. This
information should be read in conjunction with the Fund's latest audited annual
financial statements and notes thereto and unaudited financial statements, which
are also incorporated by reference to the SAI, a copy of which may be obtained
at no charge by calling the Fund at 1-800-773-3863. Further information about
the performance of the Fund is contained in the Annual Report of the Fund, a
copy of which may also be obtained at no charge by calling the Fund.
INSTITUTIONAL CLASS SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
==================================================================================================================================
Six Month
Period Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
9/30/10(a) 3/31/10 3/31/09 3/31/08 3/31/07 3/31/06
----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.03 $9.68 $10.51 $10.61 $10.41 $10.63
----------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS
Net investment income 0.25 0.55 0.55 0.52 0.49 0.44
Net realized and unrealized (loss) gain on
investments 0.42 1.38 (0.84) (0.09) 0.21 (0.19)
---- ---- ------ ------ ---- ------
----------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.67 1.93 (0.29) 0.43 0.70 0.25
---- ---- ------ ---- ---- ----
----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends (from net investment income) (0.26) (0.58) (0.54) (0.53) (0.50) (0.47)
---- ---- ---- ----
----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.26) (0.58) (0.54) (0.53) (0.50) (0.47)
---- ---- ---- ----
----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.44 $11.03 $9.68 $10.51 $10.61 $10.41
====== ====== ===== ====== ====== ======
----------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (e) 6.15%(c) 20.28% (2.79)% 4.16% 6.84% 2.36%
===== ====== ======= ===== ===== =====
----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (IN THOUSANDS) $16,907 $16,877 $13,075 $34,652 $44,403 $32,012
----------------------------------------------------------------------------------------------------------------------------------
AVERAGE NET ASSETS FOR THE PERIOD (IN THOUSANDS) $17,406 $15,591 $25,623 $41,949 $37,799 $37,536
----------------------------------------------------------------------------------------------------------------------------------
RATIOS OF:
Gross Expenses to Average Net Assets (d) 1.43%(b) 1.56% 1.14% 0.94% 0.95% 0.96%
Net Expense to Average Net Assets (d) 0.40%(b) 0.40% 0.40% 0.40% 0.40% 0.40%
Net Investment Income to Average Net Assets 4.51%(b) 5.10% 5.23% 4.86% 4.66% 4.10%
----------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 11.07%(c) 28.62% 23.61% 19.38% 26.51% 28.13%
==================================================================================================================================
46
(a) Unaudited.
(b) Annualized.
(c) Not annualized.
(d) The expense ratios listed above reflect total expenses prior to any
waivers and reimbursements (gross expense ratio) and after any waivers and
reimbursements (net expense ratio).
(e) Includes adjustments in accordance with accounting principles generally
accepted in the United States and, consequently, the net asset value for
financial reporting purposes and the returns based upon those net asset
values may differ from the net asset values and returns for shareholder
transactions.
47
INVESTOR CLASS SHARES
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
=====================================================================
Six Month
Period
Ended
9/30/10(a)
(b)
---------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
---------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.05
Net realized and unrealized gain on securities 0.01
----
---------------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 0.06
----
---------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends (from net investment income) (0.09)
---------------------------------------------------------------------
TOTAL DISTRIBUTIONS (0.09)
---------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.97
=====
---------------------------------------------------------------------
TOTAL RETURN (d) (e) 0.64%
=====
---------------------------------------------------------------------
NET ASSETS, END OF PERIOD (IN THOUSANDS) $4
---------------------------------------------------------------------
AVERAGE NET ASSETS FOR THE PERIOD (IN THOUSANDS) $4
---------------------------------------------------------------------
RATIOS OF:
Gross Expenses to Average Net Assets (f) 1.68%(c)
Net Expense to Average Net Assets (f) 0.65%(c)
Net Investment Income to Average Net Assets 4.10%(c)
---------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 11.07%(d)
=====================================================================
(a) For the period from August 16, 2010 (Date of Initial Public Investment) to
September 30, 2010.
(b) Unaudited.
(c) Annualized.
(d) Not annualized.
(e) Includes adjustments in accordance with accounting principles generally
accepted in the United States and, consequently, the net asset value for
financial reporting purposes and the returns based upon those net asset
values may differ from the net asset values and returns for shareholder
transactions.
(f) The expense ratios listed reflect total expenses prior to any waivers
(gross expense ratio) and after any waivers (net expense ratio).
48
OTHER BUSINESS
The Trustees of The Nottingham Investment Trust II 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 NOTTINGHAM INVESTMENT TRUST II RECOMMEND APPROVAL OF THE
PLAN AND ANY PROPERLY EXECUTED BUT UNMARKED PROXY CARDS WILL BE VOTED IN FAVOR
OF APPROVAL OF THE PLAN.
49
EXHIBIT A
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") dated as of
________, 2011, by and among: (i) NOTTINGHAM INVESTMENT TRUST II, a business
trust organized under the laws of the Commonwealth of Massachusetts ("NIT"), on
behalf of its investment portfolio EARNEST Partners Fixed Income Trust (the
"Acquired Fund"); and (ii) the TOUCHSTONE FUNDS GROUP TRUST, a Delaware
statutory trust ("TFGT"), on behalf of its investment portfolio Touchstone Total
Return Bond Fund (formerly known as, the Touchstone Core Plus Fixed Income Fund)
(the "Acquiring Fund") (collectively, the "Parties" and each a "Party"). EARNEST
Partners, LLC, a Delaware limited liability company ("Earnest"), 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:
A. The Acquired Fund and the Acquiring Fund are each a separate series of
an open-end, registered investment company of the management type.
B. The Acquired Fund and the Acquiring Fund are each authorized to issue
shares of beneficial interest.
C. 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 (as
defined below) of the Acquired Fund will be transferred to the Acquiring Fund in
exchange for Class A and Class Y shares of the Acquiring Fund and the assumption
by the Acquiring Fund of all of the Acquired Fund's Liabilities (as defined
below), and (2) Class A shares of the Acquiring Fund will be distributed to
holders of Investor Class shares of the Acquired Fund and Class Y shares of the
Acquiring Fund will be distributed to holders of Institutional Class shares of
the Acquired Fund in complete liquidation and termination of the Acquired Fund,
all upon the terms and conditions set forth in this Agreement (the
"Reorganization").
D. 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").
E. The Board of Trustees of NIT (the "NIT 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 NIT, has determined with respect to the Acquired Fund that: (1)
participation in the Reorganization is in the best interests of the Acquired
Fund and its shareholders, and (2) the value of the interests of existing
shareholders of the Acquired Fund will not be diluted as a result of its
effecting the Reorganization.
F. The Board of Trustees of TFGT (the "TFGT Board"), including a majority
of Independent Trustees of TFGT, has determined with respect to the Acquiring
Fund that: (1) participation in the Reorganization is in the best interests of
the Acquiring Fund and its shareholders, and (2) the value of the interests of
existing shareholders of the Acquiring Fund will not be diluted as a result of
its effecting the Reorganization.
A-1
AGREEMENT:
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 Earnest and Touchstone to the extent
indicated above, intending to be legally bound hereby, agree as follows:
ARTICLE I
THE REORGANIZATION
1.1 The Reorganization. In accordance with the Amended and Restated
Declaration of Trust and Amended and Restated By-laws, as they may be amended
from time to time, of NIT (the "NIT 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, the Acquired Fund shall assign, deliver and otherwise transfer all Fund
Assets, subject to all of the liabilities of the Acquired Fund as set forth on
the statement of assets and liabilities to be provided pursuant to paragraph 5.6
(the "Liabilities"), to the Acquiring Fund, and the Acquiring Fund shall assume
all of the Liabilities of the Acquired Fund. In consideration of the foregoing,
the Acquiring Fund, at the Effective Time shall deliver to the Acquired Fund
full and fractional (to the third decimal place) shares of the Acquiring Fund.
The aggregate number of shares of the Acquiring Fund shall be determined as set
forth in paragraph 2.3 by dividing (a) the value of the Fund Assets attributable
to the Acquired Fund, net of the Acquired Fund's 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 share of the corresponding class of the Acquiring
Fund shares (computed as of the Valuation Time in the manner set forth in
paragraph 2.2). Holders of Investor Class shares of the Acquired Fund will
receive Class A shares of the Acquiring Fund and holders of Institutional Class
shares of the Acquired Fund will receive Class Y shares of the Acquiring Fund.
At and after the Effective Time, all of the Fund Assets of the Acquired Fund
shall become and be included in the Fund Assets of the Acquiring Fund and the
Liabilities of the Acquired Fund shall become and be the Liabilities of and
shall attach to the Acquiring Fund. At and after the Effective Time, the
Liabilities of the Acquired Fund may be enforced only against the Acquiring Fund
to the same extent as if such Liabilities had been incurred by the Acquiring
Fund subject to any defense and/or set off that the Acquired Fund was entitled
to assert immediately prior to the Effective Time and further subject to any
defense and/or setoff that TFGT or the Acquiring Fund may from time to time be
entitled to assert.
1.2 The Acquired Fund Assets.
(a) At least ten Business Days prior to the Valuation Time, the
Acquired Fund will provide the Acquiring Fund with a schedule of the securities
and other assets and Liabilities of the Acquired Fund. Prior to the execution of
this Agreement, the Acquiring Fund has provided the Acquired Fund with a copy of
its current investment objective, investment policies, principal investment
strategies, and restrictions and will provide the Acquired Fund with a written
notice of any changes thereto until the Valuation Time. The Acquired Fund
reserves the right to sell any of the securities or other assets shown on the
schedule it provides to the Acquiring Fund pursuant to this paragraph 1.2(a) in
the ordinary course as necessary to meet distribution and redemption
requirements prior to the Valuation Time but will not, without the prior
approval of the Acquiring Fund, acquire any additional securities other than
securities which the Acquiring Fund may purchase in accordance with its stated
investment objective and policies.
A-2
(b) At least five Business Days prior to the Valuation Time, the
Acquiring Fund will advise the Acquired Fund of any investments of the Acquired
Fund shown on the Acquired Fund's schedule provided pursuant to paragraph 1.2(a)
which the Acquiring 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 the Acquiring
Fund in connection with facilitating the orderly transition of the Acquired
Fund's Fund Assets. Under such circumstances, to the extent practicable, the
Acquired Fund will, if requested by the Acquiring Fund 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 the Acquired Fund, dispose of such investments prior to the
Valuation Time. Notwithstanding the foregoing, nothing herein will require the
Acquired Fund to dispose of any portfolio securities or other investments of the
Acquired Fund, if, in the reasonable judgment of the NIT Board or the Acquired
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 the Acquired Fund and its shareholders.
1.3 Assumption of Liabilities. The Acquired Fund will, to the extent
permissible and consistent with its own investment objectives and policies, use
its best efforts to discharge all of the Liabilities of the Acquired Fund prior
to or at the Effective Time. The Acquiring Fund will assume all of the
Liabilities of the Acquired Fund. If prior to the Effective Time either Party
identifies a Liability that the Parties mutually agree should not be assumed by
the Acquiring Fund, 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"). The
Acquiring Fund shall not assume any Liability for any obligation of the Acquired
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 Acquired Fund.
1.4 Distribution of Acquiring Fund Shares. Immediately upon receipt, the
Acquired Fund will distribute (i) the Class A shares of the Acquiring Fund
received by the Acquired Fund from the Acquiring Fund pursuant to paragraph 1.1
(the "Acquiring Fund A Shares"), pro rata to the record holders of Investor
Class shares of the Acquired Fund and (ii) the Class Y shares of the Acquiring
Fund received by the Acquired Fund from the Acquiring Fund pursuant to paragraph
1.1 (the "Acquiring Fund Y Shares", and when used together with Acquiring Fund A
Shares, the "Acquiring Fund Shares"), pro rata to the record holders of
Institutional Class shares of the Acquired Fund. Such distribution will be
accomplished by an instruction, signed by an appropriate officer of the Acquired
Fund, to transfer the Acquiring Fund Shares then credited to the Acquired Fund's
account on the Books and Records of the Acquiring Fund and to open accounts on
the Books and Records of the Acquiring Fund established and maintained by the
Acquiring Fund's transfer agent in the names of record holders of the Acquired
Fund and representing the respective pro rata number of the Acquiring Fund
Shares due to such record holder. All issued and outstanding shares of the
Acquired Fund will be cancelled promptly by the Acquired Fund on the Acquired
Fund's Books and Records. Any such shares issued and outstanding prior to such
cancellation shall thereafter represent only the right to receive the Acquiring
Fund Shares issued to the Acquired Fund in accordance with paragraph 1.1 above.
In addition, each record holder of the Acquired 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 the Acquired Fund at or before the Valuation
Time.
A-3
1.5 Liquidation of the Acquired Fund. As soon as conveniently practicable
after the distribution of the Acquiring Fund Shares pursuant to paragraph 1.4
has been made, the Acquired Fund shall take, in accordance with Delaware law,
the 1940 Act and the NIT Governing Documents, all such other steps as may be
necessary or appropriate to effect a complete liquidation and termination of the
Acquired Fund.
1.6 Transfer Taxes. Any transfer taxes payable on issuance of the
Acquiring Fund Shares in a name other than that of the record holder of the
Acquired Fund shares on the Acquired Fund's Books and Records shall be paid by
the Person to whom such Acquiring Fund Shares are issued and transferred, as a
condition of that transfer.
ARTICLE II
VALUATION
2.1 Net Asset Value of the Acquired Fund. The net asset value of a share
of each class of the Acquired 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 Acquiring Fund as supplemented from time to time, or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.2 Net Asset Value of the Acquiring Fund. The net asset value of a share
of each class of the Acquiring 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 Acquiring Fund as supplemented from time to time, or such other valuation
procedures as shall be mutually agreed upon by the parties.
2.3 Calculation of Number of Acquiring Fund Shares. The number of
Acquiring Fund 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 (i) the net assets of the Acquired Fund
participating therein attributable to Investor Class 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 Acquiring Fund determined in accordance
with the valuation procedures referred to in paragraph 2.2 and (ii) the net
assets of the Acquired Fund participating therein attributable to Institutional
Class shares, determined in accordance with the valuation procedures referred to
in paragraph 2.1 by the net asset value per Class Y share of the Acquiring 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 the Acquiring
Fund, in accordance with its regular practice and the requirements of the 1940
Act.
2.5 Valuation Time. "Valuation Time" shall mean 4:00 PM Eastern Time of
the Business Day preceding the Effective Time.
A-4
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 August 1, 2011, 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, the Acquired Fund shall cause such Fund Assets to be transferred in
accordance with this Agreement at the earliest practical date thereafter. The
closing of the Reorganization 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. The Acquired Fund shall direct
Union Bank, N.A., as custodian for the Acquired Fund, to deliver to the
Acquiring Fund at the Closing a certificate of an authorized officer certifying
that: (a) Union Bank delivered the Fund Assets of the Acquired Fund to the
Acquiring 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 Acquiring Fund Share Records. The Acquiring Fund shall deliver to an
officer of NIT and Earnest at the Closing a confirmation evidencing that: (a)
the appropriate number of Acquiring Fund Shares have been credited to the
account of the Acquired Fund on the Books and Records of the Acquired Fund
pursuant to paragraph 1.1 prior to the actions contemplated by paragraph 1.4,
and (b) the appropriate number of Acquiring Fund Shares have been credited to
the accounts of record holders of the Acquired Fund shares on the Books and
Records of the Acquiring Fund pursuant to paragraph 1.4.
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 the Acquiring Fund or the Acquired 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 the Acquired Fund or the Acquiring Fund, accurate appraisal of the
value of the net assets of the Acquiring Fund or the Acquired 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 NIT. NIT, on behalf of the Acquired
Fund, hereby represents and warrants to TFGT, on behalf of the Acquiring Fund,
as follows, which representations and warranties shall be true and correct on
the date hereof and agrees to confirm the continuing accuracy and completeness
of the following at the Effective Time:
A-5
(a) NIT is a business trust duly organized, validly existing and in
good standing under the Laws of the Commonwealth of Massachusetts 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. The
Acquired Fund has full power under the NIT Governing Documents to conduct its
business as it is now being conducted and to own the properties and assets it
now owns. The Acquired 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 the Acquired Fund.
(b) The execution, delivery and performance of this Agreement by the
Acquired Fund and the consummation of the transactions contemplated herein will
have been duly and validly authorized by the NIT Board, and the NIT Board has
approved the Reorganization and has resolved to recommend the Reorganization to
the shareholders of the Acquired Fund and to call a special meeting of
shareholders of the Acquired 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 the Acquired
Fund in accordance with the provisions of the NIT Governing Documents,
applicable Massachusetts Law and the 1940 Act, no other action on the part of
the Acquired Fund or its shareholders is necessary to authorize the execution,
delivery and performance of this Agreement by the Acquired Fund or the
consummation of the Reorganization contemplated herein. This Agreement has been
duly and validly executed and delivered by the Acquired Fund and assuming due
authorization, execution and delivery hereof by TFGT, is a legal, valid and
binding obligation of the Acquired 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).
(c) The authorized capital of the Acquired Fund consists of an
unlimited number of shares of beneficial interest with a par value of zero cents
($.00) per share. Each share represents a fractional undivided interest in the
Acquired Fund. The issued and outstanding shares of the Acquired Fund are duly
authorized, validly issued, fully paid and non-assessable. In regard to the
statement above that the Acquired Fund shares are nonassessable, it is noted
that NIT is a "Massachusetts business trust" and under Massachusetts' Law,
shareholders could, under certain circumstances, be held personally liable for
the obligations of the Acquired Fund; however, Acquired Fund has included
appropriate provisions disclaiming such liability in all material contracts
entered into between NIT or the Acquired Fund and any third-party. There are no
outstanding options, warrants or other rights of any kind to acquire from the
Acquired Fund any shares of any series or equity interests of the Acquired 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 the
Acquired Fund committed to issue any share appreciation or similar rights or
options, warrants, rights or securities in connection with any series of shares.
The Acquired Fund has no share certificates outstanding.
(d) The Acquired Fund has no subsidiaries.
(e) Except for consents, approvals, or waivers to be received prior
to the Effective Time, including shareholder approval by the Acquired Fund, and
upon the effectiveness of the Registration Statement (as defined below), the
execution, delivery and performance of this Agreement by the Acquired 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 NIT
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
Acquired 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 the Acquired Fund is a
party or by which it is bound, (iii) result in a breach or violation by the
Acquired 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.
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(f) (a) Prior to the execution of this Agreement, the Acquired Fund
has delivered to TFGT true and complete copies of the Acquired Fund's audited
statements of assets and liabilities of as of March 31, 2010, and unaudited
statements of assets and liabilities as of September 30, 2010, 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 the
Acquired 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 the Acquired Fund's Knowledge, except as
reflected or reserved against in the statement of assets and liabilities
included in the Acquired Fund's audited financial statements as of March 31,
2010, and unaudited financial statements as of September 30, 2010, or in the
notes thereto, or as previously disclosed in writing to TFGT, there are no
liabilities against, relating to or affecting the Acquired 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 the Acquired Fund or its properties or
assets. In particular, since September 30, 2010 to the best of the Acquired
Fund's Knowledge and except as disclosed in writing to TFGT, there has not been
any change in the financial condition, properties, assets, liabilities or
business of the Acquired Fund that would have a Material Adverse Effect on the
Acquired Fund or its properties or assets other than changes occurring in the
ordinary course of business.
(iv) As of the date hereof, except as previously disclosed to
TFGT in writing, and except as have been corrected as required by applicable
Law, and to the best of the Acquired Fund's Knowledge, there have been no
material miscalculations of the net asset value of the Acquired Fund during the
twelve-month period preceding the date hereof which would have a Material
Adverse Effect on the Acquired 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 NIT as made
available to TFGT prior to the execution of this Agreement contain a true and
complete record in all material respects of all material action taken at all
meetings and by all written consents in lieu of meetings of the shareholders of
the Acquired Fund, the NIT Board and committees of the NIT Board. The stock
transfer ledgers and other similar records of the Acquired 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
the Acquired Fund.
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(h) The Acquired 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 the Acquired Fund or, to the best of the Acquired
Fund's Knowledge, threatened against, relating to or affecting, the Acquired
Fund.
(j) No agent, broker, finder or investment or commercial banker, or
other Person or firm engaged by or acting on behalf of the Acquired 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) The Acquired 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 the Acquired
Fund is a separate series of NIT duly designated in accordance with applicable
provisions of the NIT Governing Documents and in compliance in all material
respects with the 1940 Act and its rules and regulations;
(l) All federal and other tax returns and reports of the Acquired
Fund required by Law to have been filed by such date (giving effect to
extensions) shall have been timely filed and are or were true, correct and
complete in all material respects as of the time of their filing, and all taxes
of the Acquired Fund which are due and payable (whether or not shown on any tax
return) shall have been timely paid in full. The Acquired Fund is not liable for
taxes of any person other than itself and is not a party to or otherwise bound
by any tax sharing, allocation, assumption or indemnification agreement or
arrangement. All of the Acquired Fund's tax liabilities shall have been
adequately provided for on its Books and Records. The Acquired Fund has not had
any tax deficiency or liability asserted against it or question with respect
thereto raised, and no dispute, audit, investigation, proceeding or claim
concerning any tax liabilities of the Acquired Fund has been raised by the
Internal Revenue Service or by any other governmental authority in writing, and
to the Acquired Fund's Knowledge, no such dispute, audit, investigation,
proceeding or claim is pending, being conducted or claimed.
(m) The Acquired Fund has met the requirements of subchapter M of
the Code for qualification and treatment as a "regulated investment company"
within the meaning of Sections 851 et seq. of the Code in respect of each
taxable year since the commencement of operations, and shall continue to meet
such requirements at all times through the Effective Time. The Acquired Fund has
not at any time since its inception been liable for and is not now liable for
any material income or excise tax pursuant to Section 852 or 4982 of the Code.
The Acquired Fund has no other tax liability (foreign, state, local), except as
accrued on the Acquired Fund's Books and Records. The Acquired Fund has no
earnings and profits accumulated with respect to any taxable year in which the
provisions of Subchapter M of the Code did not apply.
(n) The Acquired Fund is not under the jurisdiction of a court in a
"Title 11 or similar case" (within the meaning of Section 368(a)(3)(A) of the
Code).
(o) Except as otherwise disclosed in writing to the Acquiring Fund,
the Acquired Fund is in compliance in all material respects with the Code and
applicable regulations promulgated under the Code pertaining to the reporting of
dividends and other distributions on and redemptions of its capital stock and
has withheld in respect of dividends and other distributions and paid to the
proper taxing authority all taxes required to be withheld, and is not liable for
any penalties which could be imposed thereunder.
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(p) The Acquired Fund has not granted any waiver, extension or
comparable consent regarding the application of the statute of limitations with
respect to any taxes or tax return that is outstanding, nor has any request for
such waiver or consent been made.
(q) The Acquired Fund does not own any "converted property" (as that
term is defined in Treasury Regulation Section 1.337(d)-7(a)(1)) that is subject
to the rules of Section 1374 of the Code as a consequence of the application of
Section 337(d)(1) of the Code and Treasury Regulations thereunder.
(r) Except as otherwise disclosed to the Acquiring Fund, the
Acquired Fund has not previously been a party to a tax-free reorganization under
the Code.
(s) The Acquired Fund has not received written notification from any
tax authority that asserts a position contrary to any of the above
representations.
(t) All issued and outstanding shares of the Acquired 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. The Acquired 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.
(u) The current prospectus and statement of additional information
of the Acquired Fund, including amendments and supplements thereto, and each
prospectus and statement of additional information of the Acquired 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. The Acquired Fund currently complies in all
material respects with all investment objectives, policies, guidelines and
restrictions and any compliance procedures established by the Acquired Fund.
(v) 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 the Acquired 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 the Acquired 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 the Acquired 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 Acquiring Fund and furnished by TFGT to the Acquired
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.
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(w) Except as previously disclosed in writing to TFGT, at the
Effective Time, the Acquired Fund will have good and marketable title to the
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.
(x) The Acquired Fund has adopted and implemented written policies
and procedures in accordance with Rule 38a-1 under the 1940 Act.
(y) Except as disclosed in writing to the Acquiring Fund, to the
best of the Acquired 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 Acquired Fund or its properties or
assets other than changes occurring in the ordinary course of business.
4.2 Representations and Warranties of TFGT. TFGT, on behalf of the
Acquiring Fund, hereby represents and warrants to the Acquired Fund as follows,
which representations and warranties shall be true and correct on the date
hereof and agrees to confirm the continuing accuracy and completeness of the
following at the Effective Time:
(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 Acquiring 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 Acquiring 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 Acquiring 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 Acquiring Fund, is
necessary to authorize the execution, delivery and performance of this Agreement
by TFGT on behalf of the Acquiring Fund or the consummation of the
Reorganization. This Agreement has been duly and validly executed and delivered
by TFGT on behalf of the Acquiring Fund, and assuming due authorization,
execution and delivery hereof by the Acquired Fund, is a legal, valid and
binding obligation of TFGT, as it relates to the Acquiring 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).
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(c) The authorized capital of the Acquiring Fund consists of an
unlimited number of shares of beneficial interest with a par value of $0.01 per
share. Each share represents a fractional undivided interest in the Acquiring
Fund. All issued and outstanding shares of the Acquiring Fund are duly
authorized, validly issued, fully paid and non-assessable, and all such shares
have been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities Laws,
and 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 the Acquiring Fund 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. The Acquiring 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 registered and sold.. There are no
outstanding options, warrants or other rights of any kind to acquire from the
Acquiring Fund any shares of any series or equity interests of the Acquiring
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 the Acquiring Fund committed to issue any share appreciation or similar
rights or options, warrants, rights or securities in connection with any series
of shares.
(d) Except for consents, approvals, or waivers to be received prior
to the Effective Time, including shareholder approval by the Acquired 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
Acquiring 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 Acquiring 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 Acquiring Fund is bound, (iii) result in a breach or
violation by TFGT or the Acquiring 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.
(e) Except as set forth in writing to the Acquired Fund, there is no
Action or Proceeding pending against TFGT or the Acquiring Fund or, to the best
of TFGT's Knowledge, threatened against, relating to or affecting, TFGT or the
Acquiring Fund.
(f) No agent, broker, finder or investment or commercial banker, or
other Person or firm engaged by or acting on behalf of TFGT or the Acquiring
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.
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(g) 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 Acquiring Fund is a
separate series of TFGT duly designated in accordance with the applicable
provisions of the TFGT Governing Documents and in and compliance in all material
respects with the 1940 Act and its rules and regulations;
(h) The Acquiring Fund has met the requirements of subchapter M of
the Code for qualification and treatment as a "regulated investment company"
within the meaning of Sections 851 et seq. of the Code in respect of each
taxable year since the commencement of operations, and shall continue to meet
such requirements at all times through the Effective Time. The Acquiring Fund
has not at any time since its inception been liable for and is not now liable
for any material income or excise tax pursuant to Section 852 or 4982 of the
Code. The Acquiring Fund has no other tax liability (foreign, state, local),
except as accrued on the Acquiring Fund's Books and Records. The Acquiring Fund
has no earnings and profits accumulated with respect to any taxable year in
which the provisions of Subchapter M of the Code did not apply.
(i) The Acquiring Fund has not had any tax deficiency or liability
asserted against it or question with respect thereto raised, and no dispute,
audit, investigation, proceeding or claim concerning any tax liabilities of the
Acquiring Fund has been raised by the Internal Revenue Service or by any other
governmental authority in writing, and to the Acquiring Fund's Knowledge, no
such dispute, audit, investigation, proceeding or claim is pending, being
conducted or claimed. The Acquiring Fund is not under the jurisdiction of a
court in a "Title 11 or similar case" (within the meaning of Section
368(a)(3)(A) of the Code).
(j) Except as otherwise disclosed in writing to the Acquired Fund,
the Acquiring Fund is in compliance in all material respects with the Code and
applicable regulations promulgated under the Code pertaining to the reporting of
dividends and other distributions on and redemptions of its capital stock and
has withheld in respect of dividends and other distributions and paid to the
proper taxing authority all taxes required to be withheld, and is not liable for
any penalties which could be imposed thereunder.
(k) The shares of the Acquiring Fund to be issued and delivered to
the Acquired Fund for the account of the Acquired 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 Acquiring Fund
shall have any statutory or contractual preemptive right of subscription or
purchase in respect thereof.
(l) The current prospectus and statement of additional information
of the Acquiring Fund, including amendments and supplements thereto, conform 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 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. The Acquiring Fund currently complies in all material respects with
all investment objectives, policies, guidelines and restrictions and any
compliance procedures established by the Acquiring Fund.
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(m) 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 Acquiring 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 Acquiring 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 the Acquired Fund and furnished by the Acquired 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.
(n) TFGT has adopted and implemented written policies and procedures
in accordance with Rule 38a-1 under the 1940 Act.
(o) The Acquiring 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.
(p) The Acquiring Fund has not received written notification from
any tax authority that asserts a position contrary to any of the above
representations.
(q) As of the date hereof, except as previously disclosed to the
Acquired Fund in writing, and except as have been corrected as required by
applicable Law, and to the best of the Acquiring Fund's Knowledge, there have
been no material miscalculations of the net asset value of the Acquiring Fund
during the twelve-month period preceding the date hereof which would have a
Material Adverse Effect on the Acquiring Fund or its properties or assets, and
all such calculations have been made in accordance with the applicable
provisions of the 1940 Act.
(r) Except as disclosed in writing to the Acquired Fund, to the best
of the Acquiring 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 Acquiring Fund or its properties or
assets other than changes occurring in the ordinary course of business.
ARTICLE V
COVENANTS AND AGREEMENTS
5.1 Conduct of Business. After the date of this Agreement and at or prior
to the Effective Time, the Parties will conduct the businesses of the Acquired
Fund and the Acquiring Fund, respectively, only in the ordinary course and in
accordance with this Agreement and the current prospectuses and statements of
additional information of the Acquired Fund or the Acquiring Fund, 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 the Acquired Fund or the Acquiring Fund, 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. It is the intention of the parties that the transaction contemplated by
this Agreement with respect to the Acquired Fund and the Acquiring Fund will
qualify as a reorganization within the meaning of Section 368(a) of the Code.
None of the Parties to this Agreement shall take any action or cause any action
to be taken that is inconsistent with such treatment or that results in the
failure of the transaction to qualify as a reorganization within the meaning of
Section 368(a) of the Code.
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5.2 Shareholders' Meeting. NIT will call, convene and hold a meeting of
shareholders of the Acquired Fund as soon as practicable, in accordance with
applicable Law and the NIT 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 the NIT 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. The Parties
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 the Parties and
their respective counsel as promptly as practicable. Upon effectiveness of the
Registration Statement, the Acquired Fund will cause the Proxy
Statement/Prospectus to be delivered to shareholders of the Acquired Fund
entitled to vote on this Agreement and the transactions contemplated herein in
accordance with the NIT 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 the Acquired
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 Parties 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. The Parties will furnish to each other, and each other's
accountants, legal counsel and other representatives, as appropriate, throughout
the period prior to the Effective Time, all such documents and other information
concerning the Acquired Fund and the Acquiring Fund, 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 that such Party's employees are
familiar with such documents or information.
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5.5 Notice of Material Changes. Each Party will notify the other Parties
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, the Acquired Fund will deliver
to the Acquiring Fund an unaudited statement of assets and liabilities of the
Acquired 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 in all material respects the financial position and portfolio
investments of the Acquired 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 the Acquired Fund not
disclosed in said financial statements. These financial statements shall be
certified by the Treasurer of NIT as, to the best of his or her Knowledge,
complying with the requirements of the preceding sentence. The Acquired Fund
also will deliver to the Acquiring Fund at the Effective Time, (i) the detailed
tax-basis accounting records for each security or other investment to be
transferred to the Acquiring Fund 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 Acquiring Fund (ii)
a statement of earnings and profits of the Acquired Fund for federal income tax
purposes that shall be carried over by the Acquired Fund as a result of Code
Section 381 and which shall be certified by the Acquired Fund's tax return
preparer and by an officer of the Acquired Fund.
5.7 Other Necessary Action. The Parties will each take all necessary
action and use their 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 the Acquired Fund's taxable years ending prior to the
Valuation Time, the Acquired 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 Acquired 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 the Acquired
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 each 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 Acquiring Fund Shares to be issued and delivered
to the Acquired Fund for the account of the Acquired 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 Acquiring Fund
shall have any statutory or contractual preemptive right of subscription or
purchase in respect thereof. The shareholders of the Acquired Fund shall not pay
any front-end or deferred sales charge in connection with the Reorganization.
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5.11 Liquidation of Acquired Fund. NIT and the Acquired Fund agree that
the liquidation and termination of the Acquired Fund shall be effected in the
manner provided in the NIT Governing Documents in accordance with applicable
law, and that on and after the Effective Time, the Acquired Fund shall not
conduct any business except in connection with its liquidation and termination.
5.12 Final Tax Returns and Forms 1099 of Acquired Fund. After the
Effective Time, except as otherwise agreed to by the parties, the Acquired Fund
shall or shall cause its agents to prepare any federal, state or local returns,
including any Forms 1099, required to be filed by the Acquired Fund with respect
to its final taxable year ending with its complete liquidation and for any prior
periods or taxable years and shall further cause such tax returns and Forms 1099
to be duly filed with the appropriate taxing authorities.
5.13 Compliance Section 15(f). TFGT agrees that, for the minimum time
periods specified in Section 15(f) of the 1940 Act it shall take (or refrain
from taking, as the case may be) such actions as are necessary to ensure that:
(i) at least seventy-five percent (75%) of the trustees of the Acquiring Fund
shall not be "interested persons" (as that term is defined in the 1940 Act) of
the Acquiring Fund's investment adviser or the Acquired Fund's investment
adviser, or any "interested person" (as that term is defined in the 1940 Act)
thereof; (ii) no "unfair burden" (as that term is defined in Section 15(f)(2)(B)
of the 1940 Act) shall be imposed; and (iii) each vacancy among the trustees of
the Acquiring Fund which must be filled by a person who is an interested person
neither of the Acquiring Fund's investment adviser nor of the Acquired Fund's
investment adviser so as to comply with Section 15(f) of the 1940 Act, as if
such Section were applicable, shall be filled by a person who (A) is not an
interested person of the Acquiring Fund's investment adviser or of the Acquired
Fund's investment adviser and (B) has been selected and proposed for election by
a majority of the trustees of the Acquiring Fund who are not such interested
persons. TFGT may elect, in lieu of the covenants set forth in the preceding
sentence, to apply for and obtain an exemptive order under Section 6(c) of the
1940 Act from the provisions of Section 15(f)(1)(A) of the 1940 Act, in form and
substance reasonably acceptable to the Acquired Fund's investment adviser.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent to Obligations of NIT. The obligation of NIT, on
behalf of the Acquired Fund to conclude the transactions provided for herein
shall be subject, at its election, to the performance by TFGT and the Acquiring
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 NIT in writing:
(a) All representations and warranties of TFGT, on behalf of itself
and the Acquiring 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 10 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 the Acquired Fund the opinion of
Pepper Hamilton LLP dated as of the Effective Time, substantially to the effect
that:
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(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 Acquiring 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 the Acquired Fund, such
counsel knows of no material legal proceedings pending or threatened against
TFGT;
(v) this Agreement has been duly authorized, executed and
delivered by TFGT and, assuming due authorization, execution and delivery by the
Acquired 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 the Acquiring 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.
In rendering such opinion, Pepper Hamilton LLP may rely upon certificates
of officers of TFGT and of public officials as to matters of fact.
(c) TFGT shall have furnished to the Acquired Fund a certificate of
TFGT, signed by the President or Vice 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:
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(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) An officer of NIT shall have received the confirmation from the
Acquiring Fund required under paragraph 3.3 of this Agreement.
(e) The Acquiring Fund shall have duly executed and delivered to the
Acquired Fund, on behalf of the Acquiring Fund, such assumptions of Liabilities
and other instruments as the Acquired Fund may reasonably deem necessary or
desirable to evidence the transactions contemplated by this Agreement, including
the assumption of all of the Liabilities of the Acquired Fund by the Acquiring
Fund, other than the Excluded Liabilities.
(f) The Acquired Fund shall be the performance survivor in the
Reorganization, with the result that the Acquiring Fund, as the surviving fund
in the Reorganization, will adopt the performance history of the Acquired Fund.
6.2 Conditions Precedent to Obligations of TFGT. The obligation of TFGT,
on behalf of the Acquiring Fund, to conclude the transactions provided for
herein shall be subject, at its election, to the performance by the Acquired
Fund and NIT of all of their obligations to be performed by them 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 NIT, on behalf of the
Acquired 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 the Acquired Fund and NIT shall be given a period of 10 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) the Acquired Fund shall have furnished to TFGT the opinion of
The Law Offices of John H. Lively & Associates, Inc. dated as of the Effective
Time, substantially to the effect that:
(i) NIT is a business trust, validly existing and in good
standing under Massachusetts Law, and has power under the NIT Governing
Documents to conduct its business and own its assets as described in its
currently effective registration statement on Form N-1A;
(ii) the Acquired 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;
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(iii) all issued and outstanding shares of the Acquired Fund
as of the Effective Time are duly authorized, validly issued, fully paid and
non-assessable under Massachusetts 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 the
Acquired Fund;
(v) this Agreement has been duly authorized, executed and
delivered by the Acquired Fund and, assuming due authorization, execution and
delivery by TFGT, constitutes a valid and legally binding obligation of the
Acquired 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 NIT Governing Documents or any material agreement or
instrument known to such counsel to which the Acquired Fund is a party or by
which any properties belonging to the Acquired 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 the Acquired 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.
In rendering such opinion, The Law Offices of John H. Lively & Associates,
Inc. may rely upon certificates of officers of NIT and of public officials as to
matters of fact.
(c) The Acquired Fund shall have furnished to TFGT the unaudited
statements required by paragraph 5.6.
(d) the Acquired Fund shall have furnished to TFGT a certificate of
the Acquired Fund, signed by the President or Vice President and Treasurer of
the Acquired 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:
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(i) the representations and warranties of the Acquired Fund in
this Agreement are true and correct in all material respects on and as of the
Effective Time and the Acquired 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
the Acquired Fund included in the Proxy Statement/Prospectus (or any supplement
thereto), there has been no Material Adverse Effect on the business or
properties of the Acquired Fund (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) the Acquired Fund shall have duly executed and delivered to TFGT
such bills of sale, assignments, certificates and other instruments of transfer,
including transfer instructions to the Acquired 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 Acquiring
Fund of all of the right, title and interest of the Acquired Fund in and to the
respective Fund Assets of the Acquired Fund. In each case, the Fund Assets of
the Acquired Fund shall be accompanied by all necessary state stock transfer
stamps or cash for the appropriate purchase price therefor.
(f) The Acquiring Fund shall have received: (i) a certificate of an
authorized signatory of Union Bank, N.A., as custodian for the Acquired Fund,
stating that the Fund Assets of the Acquired Fund have been delivered to the
Acquiring Fund; (ii) a certificate of an authorized signatory from Brown
Brothers Harriman & Co., as custodian for the Acquiring Fund, stating that the
Fund Assets of the Acquired Fund have been received; and (iii) a certificate of
an authorized signatory of the Acquired Fund confirming that the Acquired Fund
has delivered its records containing the names and addresses of the record
holders of each series of the Acquired Fund shares and the number and percentage
(to three decimal places) of ownership of each series of the Acquired 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, there shall have been no material miscalculations of the net
asset value of the Acquired 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 Acquired
Fund which are required to be reflected in the net asset value per share of a
share class of the Acquired Fund in accordance with applicable Law will be
reflected in the net asset value per share of the Acquired Fund.
(h) Except for those agreements set forth on Schedule 6.2(h), the
Acquired Fund's agreements with each of its service contractors shall have
terminated at the Effective Time with respect to the Acquired 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 the
Reorganization is subject to the fulfillment, prior to or at the Effective Time,
of each of the following conditions:
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(a) This Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of the NIT
Governing Documents, applicable Massachusetts Law and the 1940 Act.
Notwithstanding anything herein to the contrary, neither the Acquired 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) Each of the Acquiring Fund and the Acquired Fund shall have
received a favorable opinion of Pepper Hamilton LLP substantially to the effect
that, for federal income tax purposes:
(i) The acquisition by the Acquiring Fund of all of the assets
of the Acquired Fund in exchange for the Acquiring Fund's assumption of certain
of the liabilities of the Acquired Fund and issuance of the Acquiring Fund
Shares, followed by the distribution by the Acquired Fund in liquidation of such
Acquiring Fund Shares to the Acquired Fund shareholders in exchange for their
Acquired Fund shares, all as provided in this Agreement, will constitute a
reorganization within the meaning of Section 368(a) of the Code, and the
Acquired Fund and the Acquiring Fund each will be "a party to a reorganization"
within the meaning of Section 368(b) of the Code;
(ii) Under Code Section 361, no gain or loss will be
recognized by the Acquired Fund (i) upon the transfer of its assets to the
Acquiring Fund in exchange for the Acquiring Fund Shares and the assumption by
the Acquiring Fund of certain of the liabilities of the Acquired Fund or (ii)
upon the distribution of the Acquiring Fund Shares by the Acquired Fund to the
Acquired Fund shareholders in liquidation, as contemplated in this Agreement
(iii) Under Code Section 1032, no gain or loss will be
recognized by the Acquiring Fund upon the receipt of the assets of the Acquired
Fund in exchange for the assumption of the liabilities of the Acquired Fund and
issuance of the Acquiring Fund Shares as contemplated in this Agreement;
(iv) Under Code Section 362(b), the tax basis of the assets of
the Acquired Fund acquired by the Acquiring Fund will be the same as the tax
basis of such assets in the hands of the Acquired Fund immediately prior to the
Reorganization;
(v) Under Code Section 1223(2), the holding periods of the
assets of the Acquired Fund in the hands of the Acquiring Fund will include the
periods during which such assets were held by the Acquired Fund;
(vi) Under Code Section 354, no gain or loss will be
recognized by the Acquired Fund shareholders upon the exchange of all of their
Acquired Fund shares for the Acquiring Fund Shares in the Reorganization;
(vii) Under Code Section 358, the aggregate tax basis of the
Acquiring Fund Shares to be received by each Acquired Fund shareholder pursuant
to the Reorganization will be the same as the aggregate tax basis of the
Acquired Fund shares exchanged therefore;
(viii) Under Code Section 1223(1), an Acquired Fund
shareholder's holding period for the Acquiring Fund Shares to be received will
include the period during which the Acquired Fund shares exchanged therefor were
held, provided that the Acquired Fund shareholder held the Acquired Fund shares
as a capital asset on the date of the Reorganization.
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No opinion will be expressed as to (1) the effect of the Reorganization on (A)
the Acquired Fund or the Acquiring Fund with respect to any asset as to which
any unrealized gain or loss is required to be recognized for U.S. federal income
tax purposes at the end of a taxable year (or on the termination or transfer
thereof) under a mark-to-market system of accounting and (B) any Acquired Fund
shareholder or Acquiring Fund shareholder that is required to recognize
unrealized gains and losses for U.S. federal income tax purposes under a
mark-to-market system of accounting, or (C) the Acquired Fund or the Acquiring
Fund with respect to any stock held in a passive foreign investment company as
defined in Section 1297(a) of the Code or (2) any other federal tax issues
(except those set forth above) and all state, local or foreign tax issues of any
kind.
Such opinion shall be based on customary assumptions, limitations and such
representations as Pepper Hamilton LLP may reasonably request, and the Acquired
Fund and Acquiring Fund will cooperate to make and certify the accuracy of such
representations. Such opinion may contain such assumptions and limitations as
shall be in the opinion of such counsel appropriate to render the opinions
expressed therein. Notwithstanding anything herein to the contrary, neither the
Acquiring Fund nor the Acquired Fund 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 the Acquired 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.
ARTICLE VII
EXPENSES
7.1 Touchstone (or any Affiliate thereof) and/or Earnest (or any Affiliate
thereof) will bear and pay all fees and expenses associated with the Parties'
participation in the Reorganization without regard to whether the Reorganization
is consummated. Reorganization expenses include, without limitation, obtaining
shareholder approval of the Reorganization.
7.2 All such fees and expenses so borne and paid by Touchstone, Earnest
and/or their Affiliates shall be solely and directly related to the transactions
contemplated by this Agreement and shall be paid directly by Touchstone, Earnest
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 Earnest (or any Affiliate thereof) as may be agreed by
and between Touchstone and Earnest.
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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 meeting of shareholders of the
Acquired Fund 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 the Acquired 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.
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 the Acquired 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 Acquiring Fund;
(c) by TFGT (i) following a material breach by the Acquired Fund of
any of its representations, warranties or covenants contained in this Agreement,
provided that the Acquired 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 Acquired Fund ;
(d) by either TFGT or the Acquired Fund by written notice to the
other 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 TFGT or the Acquired Fund if the Effective Time does
not occur by September 30, 2011.
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 Parties prior to such
issuance.
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9.2 Confidentiality. (2) The Parties, Touchstone and Earnest (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.
(b) In the event of a termination of this Agreement, the Parties,
Touchstone and Earnest 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):
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If to NIT:
c/o EARNEST Partners, LLC
Attention: President
1180 Peachtree Street, Suite 2300
Atlanta, Georgia 30309
Telephone No.: (____) ____-_____
Facsimile No.: (____) ____-_____
E-mail: ___________
With a copy (which shall not constitute notice) to:
Peter D. Fetzer
Foley & Lardner LLP
777 East Wisconsin Avenue
Suite 3800
Milwaukee, Wisconsin 53202
Telephone No.: (414) 297-5596
Facsimile No.: (414) 297-4900
E-mail: pfetzer@foley.com
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If to TFGT:
Touchstone Funds Group Trust
303 Broadway, Suite 1100
Cincinnati, OH 45202
Attention: Steven M. Graziano
Telephone No.: (513) 362-8292
Facsimile No.: (513) 362-8315
E-mail: steve.graziano@touchstoneinvestments.com
With a copy (which shall not constitute notice) to:
Law Department
Western & Southern Financial Group, Inc.
400 Broadway
Cincinnati, OH 45202
Attention: Kevin L. Howard, Esq.
Telephone No.: (513) 361-6675
Facsimile No.: (513) 629-1044
E-mail: kevin.howard@wslife.com
John M. Ford, Esq.
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103-2799
Telephone No.: (215) 981-4009
Facsimile No.: (215) 981-4750
E-mail: fordjm@pepperlaw.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 any Party without the written consent of all other Parties. 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, 5.12,
5.13, 9.2, 10.9, 10.13 and 10.14, this paragraph 10.5 and Article VII shall
survive the consummation of the transactions contemplated hereunder.
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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, 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 each Party hereto each of the items
required under this Agreement as a condition to such Party's obligations
hereunder. In addition, the Acquired Fund shall deliver or cause to be delivered
to TFGT at the Closing, the Books and Records of the Acquired 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 the Acquiring Fund or the Acquired Fund).
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 September 7, 1998, as amended through
November 17, 2006, and all Persons dealing with TFGT or the Acquiring Fund must
look solely to the property of TFGT or the Acquiring 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 other
portfolio of TFGT shall be liable for any claims against the Acquiring Fund. The
Parties, along with Touchstone and Earnest, specifically acknowledge and agree
that any liability of TFGT under this Agreement with respect to the Acquiring
Fund, or in connection with the transactions contemplated herein with respect to
the Acquiring Fund, shall be discharged only out of the assets of the Acquiring
Fund and that no other portfolio of TFGT shall be liable with respect thereto.
A-27
10.14 NIT Liability. The name "Nottingham Investment Trust II" is the
designation of the trustees for the time being under an Amended and Restated
Declaration of Trust, dated June 3, 1995, as amended through June 30, 2009, and
all Persons dealing with the Acquired Fund or NIT must look solely to the
property of the Acquired Fund or NIT 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 NIT. No other portfolio of NIT shall
be liable for any claims against the Acquired Fund. The Parties, along with
Touchstone and Earnest, specifically acknowledge and agree that any liability of
NIT under this Agreement with respect to the Acquired Fund, or in connection
with the transactions contemplated herein with respect to the Acquired Fund,
shall be discharged only out of the assets of the Acquired Fund and that no
other portfolio of NIT shall be liable with respect thereto.
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.
"Acquiring Fund" has the meaning specified in the preamble.
"Acquiring Fund Shares" has the meaning specified in paragraph 1.4.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such first Person.
"Affiliated Person" shall mean, with respect to any Person, an "affiliated
person" of such Person as such term is defined in Section 2(a)(3) of the 1940
Act.
"Agreement" has the meaning specified in the preamble.
"Books and Records" means a Parties' 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 the Parties
with respect to the Acquired Fund or the Acquiring 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.
"Earnest" has the meaning specified in the preamble.
"Effective Time" has the meaning specified in paragraph 3.1.
"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
the Acquired 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 the
Acquired Fund, and any prepaid expenses shown on the Acquired 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) the Acquired Fund's rights under this Agreement.
A-28
"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.
"JPMorgan" has the meaning specified in paragraph 2.4.
"Knowledge" means (i) with respect to NIT and the Acquired Fund, the
actual knowledge after reasonable inquiry of the NIT's trustees or officers and
Earnest in its capacity as adviser to the Acquired Fund; and (ii) with respect
to TFGT and the Acquiring 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.
"Law" means any law, statute, rule, regulation or ordinance of any
Governmental or Regulatory Body.
"Liabilities" means all existing liabilities of the Acquired Fund
reflected on the unaudited statement of assets and liabilities of the Acquired
Fund prepared by the Acquired 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 NIT at the Effective Time. "Liabilities" does
not include, and TFGT and the Acquiring Fund 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 the Acquired
Fund or Acquiring 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."
"Acquired Fund" has the meaning specified in the preamble.
"NIT Board" has the meaning specified in the recitals.
"NIT" has the meaning specified in the preamble.
"NYSE" means New York Stock Exchange.
"1940 Act" means the Investment Company Act of 1940, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
A-29
"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.
"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.
"Acquired Fund" has the meaning specified in the preamble.
"NIT Governing Documents" has the meaning specified in paragraph 1.1.
"SEC" means the U.S. Securities and Exchange Commission.
"TFGT" has the meaning specified in the preamble.
"TFGT Board" has the meaning specified in the recitals.
"TFGT Governing Documents" has the meaning specified in paragraph 4.3(a).
"Transfer Documents" has the meaning specified in paragraph 6.2(e).
"Valuation Time" has the meaning specified in paragraph 2.5.
A-30
IN WITNESS WHEREOF, the Parties, Touchstone and Earnest have caused this
Agreement to be duly executed and delivered by their duly authorized officers,
as of the day and year first above written.
NOTTINGHAM INVESTMENT TRUST II, ON BEHALF OF ITS INVESTMENT PORTFOLIO EARNEST
PARTNERS FIXED INCOME TRUST
By: _______________________
Name: _______________________
Title: _______________________
TOUCHSTONE FUNDS GROUP TRUST, ON BEHALF OF ITS INVESTMENT PORTFOLIO [______]
By: _______________________
Name: _______________________
Title: _______________________
EARNEST PARTNERS, LLC
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: _______________________
Title: _______________________
Solely for purposes of Article VII and
Paragraphs 9.2, 10.5, 10.13 and 10.14
A-31
STATEMENT OF ADDITIONAL INFORMATION
June 17, 2011
Acquisition of Assets of
EARNEST PARTNERS FIXED INCOME TRUST
INVESTOR CLASS TICKER: EPFIX
INSTITUTIONAL CLASS TICKER: EPFTX
a series of
THE NOTTINGHAM INVESTMENT TRUST II
116 South Franklin Street, P. O. Box 69
Rocky Mount, North Carolina 27802-0069
(800) 525-3863
By and In Exchange For Shares of
TOUCHSTONE TOTAL RETURN BOND FUND
CLASS A TICKER: TCPAX
CLASS Y TICKER: TCPYX
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 June 17, 2011, relating specifically to the
proposed transfer of the assets and liabilities of the EARNEST Partners Fixed
Income Trust (the "EARNEST Fund"), a series of The Nottingham Investment Trust
II, to Touchstone Total Return Bond Fund (the "Touchstone Fund"), a series of
Touchstone Funds Group Trust, in exchange for shares of beneficial interest of
the Touchstone Fund (to be issued to holders of shares of the EARNEST Fund). A
copy of the Prospectus/Proxy Statement may be obtained without charge by calling
or writing to The Nottingham Investment Trust II at the telephone number or
address set forth above. The transfer is to occur pursuant to an Agreement and
Plan of Reorganization.
1
TABLE OF CONTENTS
PAGE
INCORPORATION BY REFERENCE.................................................3
PRO FORMA FINANCIAL STATEMENTS.............................................4
2
INCORPORATION BY REFERENCE
This SAI incorporates by reference the following documents:
(1) The Statement of Additional Information of Touchstone Funds Group Trust
dated January 28, 2011, as amended May 9, 2011 (previously filed on EDGAR,
Accession No. 0001144204-11-027050);
(2) Annual Report of Touchstone Funds Group Trust, for the fiscal year ended
September 30, 2010 (previously filed on EDGAR, Accession No.
0001104659-10-061496);
(3) Semiannual Report of The Nottingham Investment Trust II, for the six
months ended September 30, 2010 (previously filed on EDGAR, Accession No.
0000869351-10-000047); and
(4) Annual Report of The Nottingham Investment Trust II, for the fiscal year
ended March 31, 2010 (previously filed on EDGAR, Accession No.
0000869351-10-000013).
3
PRO FORMA FINANCIAL STATEMENTS
TOUCHSTONE FUNDS GROUP TRUST
TOUCHSTONE TOTAL RETURN BOND FUND
PRO FORMA NOTES TO COMBINING FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 (UNAUDITED)
DESCRIPTION OF THE FUND
The acquiring fund, Touchstone Total Return Bond Fund (the "Acquiring Fund"), is
registered under the Investment Company Act of 1940, as amended, as an open-end,
management investment company portfolio consisting of Class A , Class C, Class
Y, and Institutional Class shares. The target fund, EARNEST Partners Fixed
Income Trust (the "Target Fund"), is registered under the Investment Company Act
of 1940, as amended, as an open-end, management investment company portfolio
consisting of Institutional Class and Investor Class shares.
BASIS OF COMBINATION
The accompanying unaudited pro forma financial statements are presented to show
the effect of the transfer of assets and liabilities of the Target Fund in
exchange for shares of the Acquiring Fund (for purposes of maintaining the
financial statements and performance).
Under the terms of the Plan of Reorganization, the combination of the Acquiring
Fund and the Target Fund will be accounted for by the method of accounting for
tax-free mergers of investment companies. The statement of assets and
liabilities and the related statement of operations of the Acquiring Fund and
the Target Fund have been combined as of and for the twelve months ended
September 30, 2010. In accordance with U.S. generally accepted accounting
principles ("GAAP"), the historical cost of investment securities will be
carried forward to the Acquiring Fund and the results of operations for
pre-combination periods of the Acquiring Fund will not be restated.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements of the Acquiring Fund and the Target Fund included
in their respective annual reports dated September 30, 2010 and March 31, 2010,
respectively.
The following notes refer to the accompanying pro forma financial statements as
if the above-mentioned acquisition of the Target Fund by the Acquiring Fund had
taken place as of October 1, 2010.
PORTFOLIO VALUATION
The Funds' portfolio securities are valued as of the close of the regular
session of trading on the New York Stock Exchange (currently 4:00 p.m., Eastern
time). Portfolio securities traded on stock exchanges are valued at the last
sale price and portfolio securities quoted by NASDAQ are valued at the NASDAQ
Official Closing Price (NOCP). Securities not traded on a particular day, or for
which the last sale price is not readily available, are valued at their last
broker-quoted bid prices as obtained from one or more of the major market makers
for such securities by an independent pricing service. Debt securities for which
market quotations are readily available are valued at their most recent bid
prices as obtained from one or more of the major market makers for such
securities by an independent pricing service. Money market instruments and other
debt securities with a remaining maturity of less than 60 days are valued at
amortized cost, which approximates market value. Securities for which market
quotations or the NOCP are not readily available are valued based on fair value
as determined by or under the direction of the Board of Trustees. Shares of open
end mutual funds in which the Funds invest are valued at their respective net
asset values as reported by the underlying funds. The prices for foreign
securities are reported in local currency and converted to U.S. dollars using
currency exchange rates.
4
CAPITAL SHARES
The pro forma net asset value per share assumes the issuance of shares of the
Acquiring Fund that would have been issued at September 30, 2010, in connection
with the proposed reorganization. The number of shares assumed to be issued is
equal to the net asset value of shares of the Target Fund, as of September 30,
2010, divided by the net asset value per share of the shares of the Acquiring
Fund as of September 30, 2010.
The pro forma number of shares outstanding for the combined fund consists of the
following at September 30, 2010:
Additional Shares
Shares of Acquiring Assumed Issued in Total Outstanding
Class of Shares Fund Pre-Combination Reorganization Shares Post-Combination
----------------------------------------------------------------------------------------------------------------------
Class A (Investor Class for Target Fund) Open pending filing 0 0
date
Class C 0 - 0
Class Y (Institutional Class for Target
Fund) 0 0 0
Institutional Class 0 - 0
ESTIMATES
The preparation of financial statements in conformity with U.S. 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.
5
EARNEST PARTNERS FIXED INCOME TRUST
TOUCHSTONE TOTAL RETURN BOND FUND (FORMERLY TOUCHSTONE
CORE PLUS FIXED INCOME FUND)
PRO FORMA COMBINED STATEMENT OF ASSETS & LIABILITIES
TOUCHSTONE FUNDS GROUP TRUST
TOUCHSTONE TOTAL RETURN BOND FUND
PRO FORMA COMBINING
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2010
(UNAUDITED)
TOUCHSTONE
THE NOTTINGHAM TOUCHSTONE FUNDS GROUP
INVESTMENT FUNDS GROUP TRUST
TRUST II TRUST PRO FORMA
EARNEST PARTNERS TOTAL RETURN TOTAL RETURN
FIXED INCOME BOND PRO FORMA BOND
TRUST FUND ADJUSTMENTS FUND
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities:
At cost $ 15,953,041 $ 23,860,105 $ $ 39,813,146
------------------------------------------------------------------------------------------------------------------------------------
Affiliated securities, at market value $ - $ 1,567,366 $ $ 1,567,366
Non-affiliated securities, at market value 16,702,662 23,042,468 39,745,130
------------------------------------------------------------------------------------------------------------------------------------
At market value $ 16,702,662 $ 24,609,834 $ $ 41,312,496
Foreign currency, at cost of $3,477 for the Total Return Bond Fund - 3,549 3,549
Unrealized appreciation on forward foreign currency contracts - 7,177 7,177
Dividends and interest receivable 184,138 264,772 448,910
Receivable for capital shares sold 10,883 171,204 182,087
Receivable for securities sold - 359,399 359,399
Receivable from Advisor 11,235 - 11,235
Tax reclaims receivable - 264 264
Other assets 24,027 9,183 33,210
------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 16,932,945 25,425,382 - 42,358,327
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Dividends payable 3,285 70,815 74,100
Unrealized depreciation on forward foreign currency contracts - 44,397 44,397
Payable for capital shares redeemed 13,457 6,682 20,139
Payable for securities purchased - 1,421,546 1,421,546
Payable to Advisor - 3,615 3,615
Payable to Trustees - 5,412 5,412
Other accrued expenses and liabilities 5,248 44,985 50,233
------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 21,990 1,597,452 - 1,619,442
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 16,910,955 $ 23,827,930 $ - $ 40,738,885
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid-in capital $ 17,920,927 $ 23,072,676 $ $ 40,993,603
Accumulated net investment loss (10,871) (82,980) (93,851)
Accumulated net realized gains (losses) from security transactions (1,748,722) 124,989 (1,623,733)
Net unrealized appreciation on investments 749,621 749,729 1,499,350
Net unrealized depreciation on foreign currency and translation
of other assets and liabilities denominated in foreign currency - (36,484) (36,484)
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 16,910,955 $ 23,827,930 $ $ 40,738,885
------------------------------------------------------------------------------------------------------------------------------------
By Class:
Net Assets:
Class A (Investor Class for EARNEST Partners Fixed Income Trust) $ 4,024 $ 4,818,632 $ 4,822,656
Class C $ - $ 1,867,919 $ 1,867,919
Class Y (Institutional Class for EARNEST Partners Fixed Income Trust) $ 16,906,931 $ 816,560 $ 17,723,491
Institutional Class $ - $ 16,324,819 $ 16,324,819
Outstanding Shares:
Class A (Investor Class for EARNEST Partners Fixed Income Trust) 403 462,966 387(A) 463,353
Class C - 179,589 - 179,589
Class Y (Institutional Class for EARNEST Partners Fixed Income Trust) 1,477,490 78,404 1,624,105(A) 1,702,509
Institutional Class - 1,567,671 - 1,567,671
Net Asset Value:
Class A (Investor Class for EARNEST Partners Fixed Income Trust) $ 9.97 $ 10.41 $ 10.41
Class C $ - $ 10.40 $ 10.40
Class Y (Institutional Class for EARNEST Partners Fixed Income Trust) $ 11.44 $ 10.41 $ 10.41
Institutional Class $ - $ 10.41 $ 10.41
(A) Represents the issuance of shares of the Total Return Bond Fund at NAV for
outstanding shares of the EARNEST Partners Fixed Income Trust
See accompanying pro forma notes to combining financial statements.
TOUCHSTONE FUNDS GROUP TRUST
TOUCHSTONE TOTAL RETURN BOND FUND
PRO FORMA COMBINING
STATEMENTS OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2010
(UNAUDITED)
TOUCHSTONE
THE NOTTINGHAM TOUCHSTONE FUNDS GROUP
INVESTMENT FUNDS GROUP TRUST
TRUST II TRUST PRO FORMA
EARNEST PARTNERS TOTAL RETURN TOTAL RETURN
FIXED INCOME BOND PRO FORMA BOND
TRUST FUND ADJUSTMENTS FUND
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from affiliated securities $ - $ 3,648 $ $ 3,648
Dividends from non-affiliated securities 15 - 15
Interest Income (A) 860,403 551,126 1,411,529
Other Income 53 - 53
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 860,471 554,774 1,415,245
------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Investment advisory fees 76,163 58,358 - 134,521
Distribution expenses, Class A 1 5,289 - 5,290
Distribution expenses, Class C - 11,612 - 11,612
Administration fees 53,874 25,937 (19,888)(B) 59,923
Transfer Agent fees, Fund level 23,669 - (23,669)(B) -
Transfer Agent fees, Class A - 1,375 - 1,375
Transfer Agent fees, Class C - 372 - 372
Transfer Agent fees, Class Y - 220 2,841 (B) 3,061
Transfer Agent fees, Institutional Class - 220 - 220
Postage and supplies - 8,170 - 8,170
Reports to shareholders 21 3,155 - 3,176
Registration fees, Fund level 8,902 - (8,902)(C) -
Registration fees, Class A - 2,174 - 2,174
Registration fees, Class C - 935 - 935
Registration fees, Class Y - 534 - 534
Registration fees, Institutional Class - 548 - 548
Professional fees 31,269 36,041 (30,000)(C) 37,310
Custodian fees 5,089 3,040 (1,140)(C) 6,989
Trustees' fees and expenses 5,554 7,362 (5,554)(D) 7,362
Compliance fees and expenses 21,251 1,776 (18,944)(C) 4,083
Other expenses 25,149 14,618 39,767
------------------------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 250,942 181,736 (105,257) 327,421
Fees waived by the Administrator - (25,937) - (25,937)
Fees waived and/or expenses reimbursed by the Advisor (183,177) (66,104) 54,953 (E) (194,328)
------------------------------------------------------------------------------------------------------------------------------------
NET EXPENSES 67,765 89,695 (50,304) 107,156
------------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 792,706 465,079 50,304 1,308,089
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) from security transactions (56,908) 157,838 100,930
Net realized gains (losses) from foreign currency transactions - (85,574) (85,574)
Net change in unrealized appreciation/
depreciation on investments 966,328 749,729 1,716,057
Net change in unrealized appreciation/
depreciation on foreign currency transactions - (36,484) (36,484)
------------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 909,420 785,509 1,694,929
------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 1,702,126 $ 1,250,588 $ 50,304 $ 3,003,018
------------------------------------------------------------------------------------------------------------------------------------
$ - $ 104 $ $ 104
(A) Net of foreign tax withholding of:
(B) Based on differences in contractual expense agreements in effect as of
September 30, 2010.
(C) Decrease due to the elimination of duplicate expenses achieved by merging
the funds.
(D) Based on director compensation plan
(E) Based on expense limitation agreement in effect as of September 30, 2010.
See accompanying pro forma notes to combining financial statements.
TOUCHSTONE FUNDS GROUP TRUST
TOUCHSTONE TOTAL RETURN BOND FUND
PRO FORMA COMBINING
PORTFOLIO OF INVESTMENTS
SEPTEMBER 30, 2010
(UNAUDITED)
PRO FORMA COMBINED
TOUCHSTONE TOUCHSTONE
EARNEST PARTNERS TOTAL RETURN PRO FORMA TOTAL RETURN
FIXED INCOME TRUST BOND FUND ADJUSTMENTS BOND FUND
------------------------------------------------------------------------------------
PRINCIPAL MARKET PRINCIPAL MARKET PRINCIPAL MARKET PRINCIPAL MARKET
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------- --------- ------ --------- -----------
CORPORATE BONDS -- 37.5% (*)
FINANCIALS -- 15.5% (*)
Ally Financial Inc, 6.875%, 8/28/12 $175,000 $ 182,284 $ - $ - $ - $ - $ 175,000 $ 182,284
Ameriprise Financial, Inc., 7.300%, 6/28/19 - - 30,000 37,183 - - 30,000 37,183
Ameriprise Financial, Inc., 5.300%, 3/15/20 - - 30,000 33,146 - - 30,000 33,146
Bank of America Corp., 8.000%, 12/31/49 (a) - - 31,000 31,978 - - 31,000 31,978
Bank of America Corp., 4.500%, 4/1/15 - - 205,000 215,095 - - 205,000 215,095
Bank of America Corp., 5.750%, 12/1/17 - - 30,000 32,075 - - 30,000 32,075
Bank of America Corp. MTN, 7.375%, 5/15/14 - - 25,000 28,734 - - 25,000 28,734
Barclays Bank PLC, 6.750%, 5/22/19 - - 100,000 118,837 - - 100,000 118,837
Brandywine Operating Partnership LP,
7.500%, 5/15/15 - - 80,000 89,677 - - 80,000 89,677
Cantor Fitzgerald LP, 144a, 7.875%, 10/15/19 - - 90,000 94,485 - - 90,000 94,485
Capital One Capital V, 10.250%, 8/15/39 - - 40,000 43,300 - - 40,000 43,300
Capital One Financial Corp., 7.375%, 5/23/14 - - 20,000 23,347 - - 20,000 23,347
CB Richard Ellis Services, Inc.,
11.625%, 6/15/17 - - 17,000 19,677 - - 17,000 19,677
Citigroup, Inc., 8.500%, 5/22/19 - - 200,000 247,268 - - 200,000 247,268
CommonWealth REIT, 5.875%, 9/15/20 - - 65,000 64,684 - - 65,000 64,684
Credit Suisse AG, 5.400%, 1/14/20 - - 65,000 69,339 - - 65,000 69,339
Developers Diversified Realty Corp.,
9.625%, 3/15/16 - - 15,000 16,735 - - 15,000 16,735
Developers Diversified Realty Corp.,
7.500%, 4/1/17 - - 15,000 15,586 - - 15,000 15,586
Digital Realty Trust LP, 144a,
5.875%, 2/1/20 - - 20,000 21,262 - - 20,000 21,262
Digital Realty Trust LP, 144a,
4.500%, 7/15/15 - - 100,000 103,243 - - 100,000 103,243
Equinix, Inc., 8.125%, 3/1/18 - - 31,000 33,093 - - 31,000 33,093
Fidelity National Financial, Inc.,
6.600%, 5/15/17 - - 25,000 25,797 - - 25,000 25,797
Fifth Third Bancorp, 4.500%, 6/1/18 - - 120,000 118,716 - - 120,000 118,716
General Electric Capital Corp. MTN,
0.731%, 1/8/16 (a) - - 20,000 18,554 - - 20,000 18,554
General Electric Capital Corp. MTN,
3.500%, 6/29/15 - - 100,000 104,623 - - 100,000 104,623
Genworth Financial, Inc., 7.700%, 6/15/20 - - 25,000 26,470 - - 25,000 26,470
Glencore Funding LLC, 144a, 6.000%, 4/15/14 - - 110,000 114,112 - - 110,000 114,112
Goldman Sachs Group, Inc., 5.375%, 3/15/20 - - 45,000 47,431 - - 45,000 47,431
Goldman Sachs Group, Inc. MTN, 6.000%, 5/1/14 - - 40,000 44,626 - - 40,000 44,626
Healthcare Realty Trust, Inc., 6.500%, 1/17/17 - - 120,000 129,982 - - 120,000 129,982
Host Hotels & Resorts LP, Ser O,
6.375%, 3/15/15 - - 35,000 35,831 - - 35,000 35,831
Icahn Enterprises LP /
Icahn Enterprises Finance Corp.,
8.000%, 1/15/18 - - 25,000 25,125 - - 25,000 25,125
International Lease Finance Corp., 144a,
8.625%, 9/15/15 - - 15,000 16,050 - - 15,000 16,050
Jefferies Group, Inc., 8.500%, 7/15/19 - - 65,000 75,472 - - 65,000 75,472
Jefferies Group, Inc., 6.875%, 4/15/21 - - 25,000 26,222 - - 25,000 26,222
Jefferies Group, Inc., 6.250%, 1/15/36 - - 25,000 22,954 - - 25,000 22,954
JP Morgan Chase & Co., 6.300%, 4/23/19 - - 85,000 98,503 - - 85,000 98,503
KeyCorp MTN, 3.750%, 8/13/15 - - 90,000 91,827 - - 90,000 91,827
Kilroy Realty LP, 144a, 6.625%, 6/1/20 - - 65,000 65,940 - - 65,000 65,940
KKR Group Finance Co., 144a, 6.375%, 9/29/20 - - 140,000 142,981 - - 140,000 142,981
Lazard Group LLC, 7.125%, 5/15/15 - - 65,000 70,911 - - 65,000 70,911
Liberty Mutual Group, Inc., 144a,
10.750%, 6/15/58 (a) - - 90,000 106,200 - - 90,000 106,200
Lincoln National Corp., 4.300%, 6/15/15 - - 25,000 26,505 - - 25,000 26,505
Lincoln National Corp., 8.750%, 7/1/19 - - 20,000 25,727 - - 20,000 25,727
Lloyds TSB Bank PLC MTN, 144a, 6.500%, 9/14/20 - - 215,000 217,072 - - 215,000 217,072
Mack-Cali Realty LP, 7.750%, 8/15/19 - - 40,000 47,604 - - 40,000 47,604
Macquarie Group Ltd., 144a, 7.300%, 8/1/14 - - 25,000 28,267 - - 25,000 28,267
Macquarie Group Ltd., 144a, 7.625%, 8/13/19 - - 50,000 58,215 - - 50,000 58,215
MetLife, Inc., 6.750%, 6/1/16 - - 75,000 89,532 - - 75,000 89,532
MetLife, Inc., 10.750%, 8/1/39 - - 105,000 136,238 - - 105,000 136,238
Morgan Stanley MTN, 5.625%, 9/23/19 - - 100,000 104,115 - - 100,000 104,115
NASDAQ OMX Group, Inc., 5.550%, 1/15/20 - - 75,000 79,703 - - 75,000 79,703
National Retail Properties, Inc.,
6.875%, 10/15/17 - - 45,000 51,031 - - 45,000 51,031
National Rural Utilities Cooperative
Finance Corp., 10.375%, 11/1/18 - - 135,000 193,322 - - 135,000 193,322
Nationwide Mutual Insurance Co., 144a,
9.375%, 8/15/39 - - 15,000 17,713 - - 15,000 17,713
Pacific Life Insurance Co., 144a,
9.250%, 6/15/39 - - 15,000 18,954 - - 15,000 18,954
Principal Financial Group, Inc.,
7.875%, 5/15/14 - - 75,000 88,856 - - 75,000 88,856
Private Export Funding Corp, 4.300%, 12/15/21 75,000 82,442 - - - - 75,000 82,442
ProLogis, 7.375%, 10/30/19 - - 15,000 15,138 - - 15,000 15,138
ProLogis, 7.625%, 8/15/14 - - 25,000 27,018 - - 25,000 27,018
Provident Cos Inc, 7.000%, 7/15/18 375,000 410,488 - - - - 375,000 410,488
Raymond James Financial, Inc., 8.600%, 8/15/19 - - 130,000 155,758 - - 130,000 155,758
Regions Financial Corp., 5.750%, 6/15/15 - - 60,000 61,036 - - 60,000 61,036
Regions Financial Corp., 7.750%, 11/10/14 - - 40,000 43,329 - - 40,000 43,329
Royal Bank of Scotland PLC (The),
5.625%, 8/24/20 - - 110,000 115,331 - - 110,000 115,331
Senior Housing Properties Trust,
6.750%, 4/15/20 - - 40,000 41,700 - - 40,000 41,700
Simon Property Group LP, 10.350%, 4/1/19 - - 125,000 174,719 - - 125,000 174,719
SLM Corp. MTN, 8.000%, 3/25/20 - - 50,000 49,616 - - 50,000 49,616
Standard Chartered PLC, 144a, 3.850%, 4/27/15 - - 150,000 156,456 - - 150,000 156,456
SunTrust Bank, 7.250%, 3/15/18 - - 100,000 113,726 - - 100,000 113,726
Tanger Properties LP, 6.125%, 6/1/20 - - 85,000 92,792 - - 85,000 92,792
Terremark Worldwide, Inc., 12.000%, 6/15/17 - - 20,000 22,850 - - 20,000 22,850
USB Capital IX, 6.189%, 12/29/49 275,000 215,875 - - - - 275,000 215,875
Validus Holdings Ltd., 8.875%, 1/26/40 - - 115,000 125,485 - - 115,000 125,485
Wachovia Capital Trust III, 5.800%, 3/15/42 275,000 241,312 - - - - 275,000 241,312
Willis North America, Inc., 7.000%, 9/29/19 - - 45,000 49,466 - - 45,000 49,466
Willis North America, Inc., 6.200%, 3/28/17 - - 20,000 21,311 - - 20,000 21,311
Zions Bancorp., 7.750%, 9/23/14 - - 65,000 68,874 - - 65,000 68,874
---------- ----------- ------ -----------
1,132,401 5,264,530 - 6,396,931
---------- ----------- ------ -----------
UTILITIES -- 4.5% (*)
AES Corp., 7.750%, 10/15/15 - - 30,000 32,100 - - 30,000 32,100
Ameren Corp., 8.875%, 5/15/14 - - 125,000 144,804 - - 125,000 144,804
CenterPoint Energy, Inc., 6.500%, 5/1/18 - - 110,000 127,677 - - 110,000 127,677
Commonwealth Edison Co, 5.900%, 3/15/36 200,000 223,022 - - - - 200,000 223,022
Copano Energy LLC/Copano Energy Finance Corp.,
8.125%, 3/1/16 - - 33,000 33,660 - - 33,000 33,660
Dominion Resources, Inc., 8.875%, 1/15/19 - - 100,000 136,027 - - 100,000 136,027
Duquesne Light Holdings, Inc., 144a,
6.400%, 9/15/20 - - 80,000 81,367 - - 80,000 81,367
Dynegy Holdings, Inc., 7.750%, 6/1/19 - - 15,000 10,275 - - 15,000 10,275
El Paso Pipeline Partners Operating Co. LLC,
6.500%, 4/1/20 - - 25,000 26,988 - - 25,000 26,988
Energy Transfer Partners LP, 9.700%, 3/15/19 - - 90,000 119,399 - - 90,000 119,399
FPL Group Capital Inc, 6.350%, 10/1/66 200,000 190,000 - - - - 200,000 190,000
Nevada Power Co., 5.875%, 1/15/15 375,000 430,014 - - - - 375,000 430,014
Nevada Power Co., 6.500%, 8/1/18 - - 65,000 78,650 - - 65,000 78,650
NRG Energy, Inc., 7.250%, 2/1/14 - - 38,000 38,997 - - 38,000 38,997
Plains All American Pipeline LP,
8.750%, 5/1/19 - - 45,000 57,114 - - 45,000 57,114
Plains All American Pipeline LP /
PAA Finance Corp., 3.950%, 9/15/15 - - 30,000 31,469 - - 30,000 31,469
Regency Energy Partners LP/
Regency Energy Finance Corp.,
9.375%, 6/1/16 - - 8,000 8,820 - - 8,000 8,820
Sempra Energy, 9.800%, 2/15/19 - - 65,000 90,621 - - 65,000 90,621
---------- ----------- ------ -----------
843,036 1,017,968 - 1,861,004
---------- ----------- ------ -----------
CONSUMER DISCRETIONARY -- 2.1% (*)
Advance Auto Parts, Inc., 5.750%, 5/1/20 - - 60,000 64,713 - - 60,000 64,713
AMC Entertainment, Inc., 8.750%, 6/1/19 - - 12,000 12,645 - - 12,000 12,645
Comcast Corp., 6.450%, 3/15/37 - - 55,000 61,098 - - 55,000 61,098
DISH DBS Corp., 6.625%, 10/1/14 - - 25,000 26,125 - - 25,000 26,125
Exide Technologies, Ser B, 10.500%, 3/15/13 - - 20,000 20,450 - - 20,000 20,450
GameStop Corp., 8.000%, 10/1/12 - - 12,000 12,285 - - 12,000 12,285
GeoEye, Inc., 9.625%, 10/1/15 - - 45,000 49,106 - - 45,000 49,106
Goodyear Tire & Rubber, 10.500%, 5/15/16 - - 49,000 55,493 - - 49,000 55,493
Intelsat Subsidiary Holding Co. SA,
8.500%, 1/15/13 - - 25,000 25,281 - - 25,000 25,281
Lennar Corp., 6.950%, 6/1/18 - - 40,000 37,100 - - 40,000 37,100
NBC Universal, Inc., 144a, 5.950%, 4/1/41 - - 75,000 77,146 - - 75,000 77,146
Nebraska Book Co., Inc., 10.000%, 12/1/11 - - 45,000 45,562 - - 45,000 45,562
NetFlix, Inc., 8.500%, 11/15/17 - - 30,000 33,450 - - 30,000 33,450
News America, Inc., 6.900%, 8/15/39 - - 20,000 23,569 - - 20,000 23,569
Pokagon Gaming Auth., 144a, 10.375%, 6/15/14 - - 30,000 31,312 - - 30,000 31,312
Royal Caribbean Cruises Ltd., 6.875%, 12/1/13 - - 10,000 10,525 - - 10,000 10,525
Scientific Games International, Inc.,
9.250%, 6/15/19 - - 5,000 5,313 - - 5,000 5,313
Seneca Gaming Corp., Ser B, 7.250%, 5/1/12 - - 35,000 34,475 - - 35,000 34,475
Starwood Hotels & Resorts Worldwide, Inc., - - 7,000 7,840 - - 7,000 7,840
7.875%, 10/15/14
Starwood Hotels & Resorts Worldwide, Inc., - - 10,000 10,725 - - 10,000 10,725
7.875%, 5/1/12
Sun Media Corp., 7.625%, 2/15/13 - - 20,000 20,100 - - 20,000 20,100
Time Warner Cable, Inc., 8.750%, 2/14/19 - - 80,000 105,648 - - 80,000 105,648
Time Warner, Inc., 6.100%, 7/15/40 - - 45,000 48,457 - - 45,000 48,457
Toys R Us Property Co. I LLC,
10.750%, 7/15/17 - - 15,000 16,950 - - 15,000 16,950
Videotron Ltee, 6.875%, 1/15/14 - - 10,000 10,150 - - 10,000 10,150
Wyndham Worldwide Corp., 7.375%, 3/1/20 - - 20,000 21,375 - - 20,000 21,375
---------- ----------- ------ -----------
- 866,893 - 866,893
---------- ----------- ------ -----------
ENERGY -- 1.7% (*)
Berry Petroleum Co., 10.250%, 6/1/14 - - 50,000 56,375 - - 50,000 56,375
Bill Barrett Corp., 9.875%, 7/15/16 - - 30,000 32,775 - - 30,000 32,775
BP Capital Markets PLC, 4.500%, 10/1/20 - - 40,000 40,905 - - 40,000 40,905
Chesapeake Energy Corp., 6.625%, 8/15/20 - - 40,000 41,800 - - 40,000 41,800
Cie Generale de Geophysique-Veritas,
7.500%, 5/15/15 - - 40,000 40,700 - - 40,000 40,700
Comstock Resources, Inc., 8.375%, 10/15/17 - - 32,000 33,000 - - 32,000 33,000
Denbury Resources, Inc., 8.250%, 2/15/20 - - 28,000 30,555 - - 28,000 30,555
Encore Acquisition Co., 9.500%, 5/1/16 - - 34,000 37,952 - - 34,000 37,952
Geokinetics Holdings USA, Inc., 144a,
9.750%, 12/15/14 - - 20,000 17,500 - - 20,000 17,500
Linn Energy LLC /
Linn Energy Finance Corp., 144a,
8.625%, 4/15/20 - - 10,000 10,600 - - 10,000 10,600
Mariner Energy, Inc., 7.500%, 4/15/13 - - 35,000 36,269 - - 35,000 36,269
Nexen, Inc., 7.500%, 7/30/39 - - 55,000 67,579 - - 55,000 67,579
Petrobras International Finance Co.,
7.875%, 3/15/19 - - 65,000 81,062 - - 65,000 81,062
Plains Exploration & Production Co.,
7.750%, 6/15/15 - - 39,000 40,901 - - 39,000 40,901
Pride International, Inc., 8.500%, 6/15/19 - - 70,000 81,200 - - 70,000 81,200
QEP Resources, Inc., 6.875%, 3/1/21 - - 15,000 16,238 - - 15,000 16,238
Quicksilver Resources, Inc., 11.750%, 1/1/16 - - 38,000 44,555 - - 38,000 44,555
---------- ----------- ------ -----------
- 709,966 - 709,966
---------- ----------- ------ -----------
TELECOMMUNICATION SERVICES -- 1.7% (*)
British Telecommunications PLC,
9.875%, 12/15/30 - - 65,000 90,504 - - 65,000 90,504
Cellco Partnership /
Verizon Wireless Capital LLC,
8.500%, 11/15/18 - - 80,000 108,930 - - 80,000 108,930
Frontier Communications Corp., 7.875%, 1/15/27 - - 34,000 34,340 - - 34,000 34,340
NII Capital Corp., 8.875%, 12/15/19 - - 40,000 44,450 - - 40,000 44,450
Qwest Communications International, Inc., - - 53,000 54,060 - - 53,000 54,060
Ser B, 7.500%, 2/15/14
Qwest Corp., 8.875%, 3/15/12 - - 60,000 65,850 - - 60,000 65,850
Rogers Communications, Inc., 7.500%, 3/15/15 - - 90,000 110,017 - - 90,000 110,017
Sprint Nextel Corp., 8.375%, 8/15/17 - - 41,000 44,485 - - 41,000 44,485
Telecom Italia Capital SA, 7.175%, 6/18/19 - - 75,000 88,027 - - 75,000 88,027
Verizon Communications, Inc., 8.950%, 3/1/39 - - 30,000 43,988 - - 30,000 43,988
Windstream Corp., 7.000%, 3/15/19 - - 20,000 19,600 - - 20,000 19,600
---------- ----------- ------ -----------
- 704,251 - 704,251
---------- ----------- ------ -----------
INDUSTRIALS -- 7.5% (*)
American Airlines Pass Through Trust 2001-01, 344,419 292,756 - - - - 344,419 292,756
6.977%, 5/23/21
ARAMARK Corp., 8.500%, 2/1/15 - - 40,000 41,600 - - 40,000 41,600
ARAMARK Corp., 5.000%, 6/1/12 - - 10,000 10,025 - - 10,000 10,025
Avis Budget Car Rental LLC /
Avis Budget Finance, Inc.,
7.750%, 5/15/16 - - 64,000 62,880 - - 64,000 62,880
Avis Budget Car Rental LLC /
Avis Budget Finance, Inc.,
9.625%, 3/15/18 - - 10,000 10,575 - - 10,000 10,575
BE Aerospace, Inc., 6.875%, 10/1/20 - - 10,000 10,200 - - 10,000 10,200
Bombardier, Inc., 144a, 7.750%, 3/15/20 - - 15,000 16,200 - - 15,000 16,200
Bristow Group, Inc., 6.125%, 6/15/13 - - 50,000 50,625 - - 50,000 50,625
Burlington Northern and Santa Fe Railway Co 212,330 245,913 - - - - 212,330 245,913
1998-C Pass Through Trust, 6.230%, 7/2/18
Canadian Pacific Railway Co., 7.250%, 5/15/19 - - 45,000 55,685 - - 45,000 55,685
Case New Holland, Inc., 7.750%, 9/1/13 - - 15,000 16,294 - - 15,000 16,294
Continental Airlines
2000-2 Class A-1 Pass Through Trust,
7.707%, 4/2/21 264,409 283,578 - - - - 264,409 283,578
CSXT TRUST 1998 A, 6.550%, 6/15/13 300,000 334,060 - - - - 300,000 334,060
Federal Express Corp 1999 Pass Through Trust, 105,043 138,252 - - - - 105,043 138,252
7.650%, 1/15/22
Ford Motor Credit Co LLC, 7.375%, 2/1/11 250,000 254,631 - - - - 250,000 254,631
FTI Consulting, Inc., 7.625%, 6/15/13 - - 42,000 42,735 - - 42,000 42,735
FTI Consulting, Inc., 144a, 6.750%, 10/1/20 - - 45,000 45,337 - - 45,000 45,337
GATX Financial Corp, 6.273%, 6/15/11 500,000 512,788 - - - - 500,000 512,788
Kansas City Southern Railway,
13.000%, 12/15/13 - - 20,000 24,225 - - 20,000 24,225
Meccanica Holdings USA, 144a,
6.250%, 7/15/19 - - 100,000 110,906 - - 100,000 110,906
Pall Corp., 5.000%, 6/15/20 - - 40,000 43,421 - - 40,000 43,421
Pulte Group Inc, 5.250%, 1/15/14 325,000 325,812 - - - - 325,000 325,812
RailAmerica, Inc., 9.250%, 7/1/17 - - 26,000 28,502 - - 26,000 28,502
Roper Industries, Inc., 6.250%, 9/1/19 - - 20,000 23,148 - - 20,000 23,148
SPX Corp., 144a, 6.875%, 9/1/17 - - 20,000 21,200 - - 20,000 21,200
Union Pacific Railroad Co
2001 Pass Through Trust,
6.630%, 1/27/22 79,882 97,049 - - - - 79,882 97,049
---------- ----------- ------ -----------
2,484,839 613,558 - 3,098,397
---------- ----------- ------ -----------
MATERIALS -- 1.2% (*)
Ball Corp., 6.750%, 9/15/20 - - 5,000 5,300 - - 5,000 5,300
Buckeye Technologies, Inc., 8.500%, 10/1/13 - - 25,000 25,313 - - 25,000 25,313
Cellu Tissue Holdings, Inc., 11.500%, 6/1/14 - - 42,000 49,350 - - 42,000 49,350
Clearwater Paper Corp., 10.625%, 6/15/16 - - 53,000 59,625 - - 53,000 59,625
Domtar Corp., 10.750%, 6/1/17 - - 59,000 73,455 - - 59,000 73,455
International Paper Co., 9.375%, 5/15/19 - - 25,000 32,432 - - 25,000 32,432
Masco Corp., 7.125%, 3/15/20 - - 30,000 30,733 - - 30,000 30,733
Massey Energy Co., 6.875%, 12/15/13 - - 60,000 61,500 - - 60,000 61,500
Nalco Co., 8.875%, 11/15/13 - - 30,000 30,675 - - 30,000 30,675
Rock-Tenn Co., 9.250%, 3/15/16 - - 18,000 19,755 - - 18,000 19,755
Solutia, Inc., 8.750%, 11/1/17 - - 30,000 32,775 - - 30,000 32,775
Solutia, Inc., 7.875%, 3/15/20 - - 10,000 10,688 - - 10,000 10,688
Southern Copper Corp., 6.750%, 4/16/40 - - 30,000 32,754 - - 30,000 32,754
Steel Dynamics, Inc., 6.750%, 4/1/15 - - 17,000 17,382 - - 17,000 17,382
Teck Resources Ltd., 10.250%, 5/15/16 - - 30,000 36,450 - - 30,000 36,450
---------- ----------- ------ -----------
- 518,187 - 518,187
---------- ----------- ------ -----------
HEALTH CARE -- 1.1% (*)
Biomet, Inc., 10.000%, 10/15/17 - - 35,000 38,631 - - 35,000 38,631
Boston Scientific Corp., 4.500%, 1/15/15 - - 70,000 71,609 - - 70,000 71,609
Boston Scientific Corp., 6.000%, 1/15/20 - - 20,000 21,331 - - 20,000 21,331
CHS / Community Health Systems, Inc., - - 43,000 45,687 - - 43,000 45,687
8.875%, 7/15/15
Coventry Health Care, Inc., 6.300%, 8/15/14 - - 30,000 32,121 - - 30,000 32,121
DaVita, Inc., 6.625%, 3/15/13 - - 20,000 20,325 - - 20,000 20,325
HCA, Inc., 7.250%, 9/15/20 - - 25,000 26,750 - - 25,000 26,750
HCA, Inc., 9.250%, 11/15/16 - - 55,000 59,537 - - 55,000 59,537
Life Technologies Corp., 6.000%, 3/1/20 - - 50,000 56,641 - - 50,000 56,641
Mylan, Inc., 144a, 7.625%, 7/15/17 - - 20,000 21,275 - - 20,000 21,275
Omnicare, Inc., 6.125%, 6/1/13 - - 50,000 49,938 - - 50,000 49,938
---------- ----------- ------ -----------
- 443,845 - 443,845
---------- ----------- ------ -----------
INFORMATION TECHNOLOGY -- 0.9% (*)
BMC Software, Inc., 7.250%, 6/1/18 - - 50,000 60,373 - - 50,000 60,373
Brocade Communications Systems, Inc., - - 15,000 15,750 - - 15,000 15,750
6.875%, 1/15/20
CC Holdings, 144a, 7.750%, 5/1/17 - - 130,000 143,650 - - 130,000 143,650
Crown Castle International Corp., - - 11,000 12,127 - - 11,000 12,127
9.000%, 1/15/15
Seagate Technology International, 144a, - - 55,000 64,900 - - 55,000 64,900
10.000%, 5/1/14
Stream Global Services, Inc., - - 25,000 24,625 - - 25,000 24,625
11.250%, 10/1/14
Xerox Corp., 6.750%, 12/15/39 - - 40,000 47,307 - - 40,000 47,307
---------- ----------- ------ -----------
- 368,732 - 368,732
---------- ----------- ------ -----------
CONSUMER STAPLES -- 1.3% (*)
Alliance One International, Inc.,
10.000%, 7/15/16 - - 30,000 32,475 - - 30,000 32,475
Altria Group, Inc., 9.700%, 11/10/18 - - 25,000 33,840 - - 25,000 33,840
Bunge Ltd. Finance Corp., 8.500%, 6/15/19 - - 45,000 54,390 - - 45,000 54,390
CVS Caremark Corp., 6.600%, 3/15/19 - - 25,000 30,338 - - 25,000 30,338
CVS Pass-Through Trust, 6.036%, 12/10/28 181,561 192,123 - - - - 181,561 192,123
CVS Pass-Through Trust, 144a, 7.507%, 1/10/32 - - 128,584 150,875 - - 128,584 150,875
Stater Brothers Holdings, 8.125%, 6/15/12 - - 53,000 53,066 - - 53,000 53,066
---------- ----------- ------ -----------
192,123 354,984 - 547,107
---------- ----------- ------ -----------
TOTAL CORPORATE BONDS $4,652,399 $10,862,914 $ - $15,515,313
U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS -- 21.1% (*)
Federal Agricultural Mortgage Corp,
6.765%, 4/25/13 257,561 274,707 - - - - 257,561 274,707
FHA Downtowner Apts, 8.375%, 11/1/11 12,968 13,045 - - - - 12,968 13,045
FHA Reilly #046, 6.513%, 6/1/14 9,834 9,680 - - - - 9,834 9,680
FHA USGI #87, 7.430%, 8/1/23 32,036 32,196 - - - - 32,036 32,196
FHLMC Gold, Pool #G01838, 5.000%, 7/1/35 - - 111,844 118,334 - - 111,844 118,334
FHLMC Gold, Pool #G01665, 5.500%, 3/1/34 - - 197,422 211,873 - - 197,422 211,873
FHLMC, Pool #G03871, 5.500%, 2/1/38 - - 44,762 47,811 - - 44,762 47,811
FHLMC Gold, Pool #G05888, 5.500%, 10/1/39 - - 89,886 96,006 - - 89,886 96,006
FHLMC, Pool #G02558, 6.000%, 1/1/37 - - 212,027 228,442 - - 212,027 228,442
FHLMC Gold, Pool #G04123, 6.000%, 3/1/38 - - 195,148 209,586 - - 195,148 209,586
FHLMC, Pool #G04346, 6.000%, 5/1/38 - - 56,166 60,686 - - 56,166 60,686
FHLMC Gold, Pool #G02419, 6.500%, 10/1/36 - - 25,693 28,059 - - 25,693 28,059
FHLMC Gold, Pool #G03633, 6.500%, 12/1/37 - - 53,235 58,052 - - 53,235 58,052
FHLMC Gold, Pool #G05680, 6.500%, 4/1/39 - - 8,587 9,364 - - 8,587 9,364
FNMA Grantor Trust, Series 2001-T2, Class A, 26,499 26,494 - - - - 26,499 26,494
5.780%, 11/25/10
FNMA, Pool #AD1608, 4.000%, 2/1/25 339,244 355,267 - - - - 339,244 355,267
FNMA, Pool #AB1152, 4.000%, 6/1/25 169,355 177,354 - - - - 169,355 177,354
FNMA, Pool #AA3414, 4.500%, 3/1/39 164,598 171,621 - - - - 164,598 171,621
FNMA, Pool #AD1656, 4.500%, 3/1/40 167,598 174,723 - - - - 167,598 174,723
FNMA, Pool #AD0786, 4.501%, 1/1/20 198,863 220,301 - - - - 198,863 220,301
FNMA, Pool #AD0910, 4.601%, 4/1/20 174,300 193,035 - - - - 174,300 193,035
FNMA, Pool #AD0342, 4.639%, 10/1/19 148,360 163,190 - - - - 148,360 163,190
FNMA, Pool #AD0166, 4.875%, 8/1/19 148,145 165,717 - - - - 148,145 165,717
FNMA, Pool #958736, 4.940%, 5/1/19 154,689 174,510 - - - - 154,689 174,510
FNMA, Pool #735925, 5.000%, 10/1/35 - - 647,396 684,356 - - 647,396 684,356
FNMA, Pool #745275, 5.000%, 2/1/36 181,616 191,985 638,862 675,335 - - 820,478 867,320
FNMA, Pool #926050, 5.000%, 4/1/38 182,397 192,145 - - - - 182,397 192,145
FNMA, Pool #874210, 5.260%, 1/1/25 124,291 136,953 - - - - 124,291 136,953
FNMA, Pool #889684, 5.500%, 8/1/37 - - 170,379 182,209 - - 170,379 182,209
FNMA, Pool #995023, 5.500%, 8/1/37 - - 639,927 684,360 - - 639,927 684,360
FNMA, Pool #929317, 5.500%, 3/1/38 - - 228,974 244,402 - - 228,974 244,402
FNMA, Pool #888829, 5.832%, 6/1/37 57,763 63,694 - - - - 57,763 63,694
FNMA, Pool #831811, 6.000%, 9/1/36 - - 77,109 83,565 - - 77,109 83,565
FNMA, Pool #888222, 6.000%, 2/1/37 - - 175,697 189,765 - - 175,697 189,765
FNMA, Pool #911586, 6.000%, 4/1/37 - - 185,790 201,448 - - 185,790 201,448
FNMA, Pool #995196, 6.000%, 7/1/38 - - 13,421 14,495 - - 13,421 14,495
FNMA, Pool #995226, 6.000%, 11/1/38 - - 99,576 107,145 - - 99,576 107,145
FNMA, Pool #931293, 6.000%, 6/1/39 123,879 134,615 - - - - 123,879 134,615
GNMA II, Pool #4441, 5.000%, 5/20/39 190,524 202,869 - - - - 190,524 202,869
GNMA II, Pool #3665, 5.500%, 1/20/35 345,643 372,804 - - - - 345,643 372,804
GNMA Trust, Series 2005-32, Class B, 170,507 173,316 - - - - 170,507 173,316
4.385%, 8/16/30
GNMA Trust, Series 2006-8, Class A, 11,118 11,215 - - - - 11,118 11,215
3.942%, 8/16/25
GNMA Trust, Series 2009-114, Class A, 148,149 154,463 - - - - 148,149 154,463
3.103%, 12/16/38
GNMA Trust, Series 2009-27, Class B, 175,000 189,501 - - - - 175,000 189,501
4.353%, 2/16/41
GNMA, Pool #698387, 5.000%, 7/15/39 - - 407,036 435,452 - - 407,036 435,452
GNMA, Pool #712690, 5.000%, 4/15/39 - - 151,500 162,119 - - 151,500 162,119
---------- ----------- ------ -----------
TOTAL U.S. GOVERNMENT MORTGAGE-BACKED OBLIGATIONS $3,975,400 $ 4,732,864 $ - $ 8,708,264
---------- ----------- ------ -----------
U.S. GOVERNMENT AGENCY OBLIGATIONS -- 16.2% (*)
Alter Barge Line Inc, 6.000%, 3/1/26 201,000 240,651 - - - - 201,000 240,651
Ecuador Government AID Bond, 7.050%, 5/1/15 24,390 27,500 - - - - 24,390 27,500
Matson Navigation Co Inc, 5.337%, 9/4/28 468,000 528,358 - - - - 468,000 528,358
Perforadora Central SA de CV,
5.240%, 12/15/18 255,071 288,814 - - - - 255,071 288,814
Reinauer Maritime Co LLC, 5.875%, 11/30/26 544,000 628,244 - - - - 544,000 628,244
Rowan Cos Inc, 2.800%, 10//13 249,994 250,329 - - - - 249,994 250,329
SBA 2005-20L , 5.390%, 12/1/25 126,375 139,399 - - - - 126,375 139,399
SBA Series 1992-20H, 7.400%, 8/1/12 31,108 32,068 - - - - 31,108 32,068
SBA Series 1995-20-L, 6.450%, 12/1/15 46,706 49,562 - - - - 46,706 49,562
SBA Series 1997-20A, 7.150%, 1/1/17 32,903 35,924 - - - - 32,903 35,924
SBA Series 1998-20B, 6.150%, 2/1/18 107,639 117,637 - - - - 107,639 117,637
SBA Series 1999-20I, 7.300%, 9/1/19 107,939 120,049 - - - - 107,939 120,049
SBA Series 2000-20K, 7.220%, 11/1/20 289,528 319,187 - - - - 289,528 319,187
SBA Series 2001-20A, 6.290%, 1/1/21 206,098 225,072 - - - - 206,098 225,072
SBA Series 2001-20K, 5.340%, 11/1/21 349,707 377,589 - - - - 349,707 377,589
SBA Series 2002-10B, 5.300%, 3/1/12 97,810 99,793 - - - - 97,810 99,793
SBA Series 2002-20H, 5.310%, 8/1/22 128,299 139,064 - - - - 128,299 139,064
SBA Series 2003-10B, 3.390%, 3/1/13 101,013 102,905 - - - - 101,013 102,905
SBA Series 2004-20D, 4.770%, 4/1/24 142,978 154,276 - - - - 142,978 154,276
SBA Series 2005-20B, 4.625%, 2/1/25 203,742 219,757 - - - - 203,742 219,757
SBA Series 2006-20H, 5.700%, 8/1/26 135,590 152,746 - - - - 135,590 152,746
SBA Series 2006-20K, 5.360%, 11/1/26 448,312 497,765 - - - - 448,312 497,765
SBA Series 2007-20A, 5.320%, 1/1/27 142,843 158,613 - - - - 142,843 158,613
SBA Series 2007-20G, 5.820%, 7/1/27 91,812 102,078 - - - - 91,812 102,078
SBA Series 2008-20A, 5.170%, 1/1/28 155,077 172,499 - - - - 155,077 172,499
SBA Series 2008-20A, 5.560%, 9/1/27 146,013 164,088 - - - - 146,013 164,088
SBA Series 2008-20C, 5.490%, 3/1/28 173,107 192,553 - - - - 173,107 192,553
SBA Series 2008-20D, 5.370%, 4/1/28 164,802 184,804 - - - - 164,802 184,804
SBA Series 2008-20E, 5.490%, 5/1/28 104,911 117,368 - - - - 104,911 117,368
SBA Series 2008-20I, 5.600%, 9/1/28 180,079 201,801 - - - - 180,079 201,801
SBA Series 2009-20C, 4.660%, 3/1/29 89,943 98,859 - - - - 89,943 98,859
SBA Series 2009-20F, 4.950%, 6/1/29 137,075 151,872 - - - - 137,075 151,872
Sterling Equipment, 6.125%, 9/28/19 210,050 235,525 - - - - 210,050 235,525
Tennessee Valley Authority, 4.650%, 6/15/35 150,000 160,617 - - - - 150,000 160,617
- - - -
---------- ----------- ------ -----------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS $6,687,366 $ - $ - $ 6,687,366
---------- ----------- ------ -----------
COMMERCIAL MORTGAGE-BACKED SECURITIES -- 8.1% (*)
Banc of America Commercial Mortgage, Inc., - - 210,000 230,187 - - 210,000 230,187
Ser 2008-1, Class A4, 6.339%, 2/10/51 (a)
Banc of America Funding Corp., - - 67,249 67,349 - - 67,249 67,349
Ser 2004-A, Class 2A1, 4.531%, 5/20/34 (a)
Banc of America Funding Corp., - - 107,581 102,050 - - 107,581 102,050
Ser 2005-G, Class A3, 5.210%, 10/20/35 (a)
Bear Stearns Commercial Mortgage Securities, - - 152,000 164,083 - - 152,000 164,083
Ser 2007-PW17, Class A4, 5.694%, 6/11/50 (a)
Bear Stearns Commercial Mortgage Securities, - - 155,000 171,994 - - 155,000 171,994
Ser 2007-T28, Class A4, 5.742%, 9/11/42 (a)
Citigroup Commercial Mortgage Trust, - - 111,000 118,834 - - 111,000 118,834
Ser 2007-C6, Class A4, 5.887%, 12/10/49 (a)
Citigroup/Deutsche Bank
Commercial Mortgage Trust
Ser CD3 AJ, 5.688%, 10/15/48 655,000 487,807 - - - - 655,000 487,807
Commercial Mortgage Pass Through Certificates, - - 150,000 163,272 - - 150,000 163,272
Ser 2007-C9, Class A4, 6.009%, 12/10/49 (a)
Deutsche ALT-A Securities, Inc.
Alternate Loan Trust,
Ser 2005-1, Class 1A1, 0.756%, 2/25/35 (a) - - 111,830 84,149 - - 111,830 84,149
Greenwich Capital Commercial Funding Corp., - - 176,000 185,523 - - 176,000 185,523
Ser 2007-GG9, Class A4, 5.444%, 3/10/39
GSR Mortgage Loan Trust, - - 31,022 29,502 - - 31,022 29,502
Ser 2004-9, Class 4A1, 2.910%, 8/25/34 (a)
GSR Mortgage Loan Trust, - - 36,643 37,548 - - 36,643 37,548
Ser 2005-4F, Class 6A1, 6.500%, 2/25/35
JP Morgan Chase Commercial Mortgage
Securities Corp.,
Ser 2006-LDP9, Class A3, 5.336%, 5/15/47 - - 182,000 189,281 - - 182,000 189,281
JP Morgan Chase Commercial Mortgage
Securities Corp.,
Ser 2006-CB17, Class A3, 5.450%, 12/12/43 300,000 314,876 - - - - 300,000 314,876
JP Morgan Chase Commercial Mortgage
Securities Corp.,
Ser 2007-CB18, Class A4, 5.440%, 6/12/47 - - 145,000 151,987 - - 145,000 151,987
JP Morgan Chase Commercial Mortgage
Securities Corp.,
Ser 2007-CB20, Class A4, 5.794%, 2/12/51 (a) - - 171,000 183,981 - - 171,000 183,981
JP Morgan Mortgage Trust, - - 25,000 25,231 - - 25,000 25,231
Ser 2003-A2, Class 2A3, 4.694%, 11/25/33 (a)
JP Morgan Mortgage Trust, - - 73,000 73,642 - - 73,000 73,642
Ser 2005-A2, Class 5A2, 4.309%, 4/25/35 (a)
Merrill Lynch/Countrywide Commercial
Mortgage Trust
Ser 2006-3, Class AM, 5.456%, 7/12/46 320,000 309,713 - - - - 320,000 309,713
Residential Asset Mortgage Products, Inc., - - 37,571 38,188 - - 37,571 38,188
Ser 2004-SL1, Class A7, 7.000%, 11/25/31
Structured Adjustable Rate Mortgage Loan Trust, - - 24,046 22,260 - - 24,046 22,260
Ser 2004-12, Class 6A, 2.986%, 9/25/34 (a)
Wells Fargo Mortgage Backed Securities Trust, - - 104,325 98,657 - - 104,325 98,657
Ser 2005-AR8, Class 3A2, 2.886%, 6/25/35 (a)
Wells Fargo Mortgage Backed Securities Trust, - - 80,811 80,449 - - 80,811 80,449
Ser 2007-5, Class 1A1, 5.500%, 5/25/37
Wells Fargo Mortgage Backed Securities Trust, - - 16,296 16,368 - - 16,296 16,368
Ser 2007-5, Class 2A3, 5.500%, 5/25/22
---------- ----------- ------ -----------
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES $1,112,396 $ 2,234,535 $ - $ 3,346,931
---------- ----------- ------ -----------
U.S. TREASURY OBLIGATIONS -- 7.7% (*)
U.S. Treasury Note, 4.875%, 6/30/12 - - 715,000 771,362 - - 715,000 771,362
U.S. Treasury Note, 1.875%, 4/30/14 - - 1,775,000 1,840,592 - - 1,775,000 1,840,592
U.S. Treasury Note, 3.500%, 5/15/20 - - 140,000 151,966 - - 140,000 151,966
U.S. Treasury Note, 3.500%, 2/15/39 - - 415,000 401,512 - - 415,000 401,512
---------- ----------- ------ -----------
TOTAL U.S. TREASURY OBLIGATIONS $ - $ 3,165,432 $ - $ 3,165,432
---------- ----------- ------ -----------
SOVEREIGN GOVERNMENT OBLIGATIONS -- 4.2% (*)
Australia Government Bond,Ser 125,
6.250%, 6/15/14 - - 235,000 237,792 - - 235,000 237,792
Australia Government Bond,Ser 118,
6.500%, 5/15/13 - - 472,000 475,551 - - 472,000 475,551
Canadian Government Bond, 3.500%, 6/1/20 - - 297,000 306,612 - - 297,000 306,612
Corp. Andina de Fomento, 8.125%, 6/4/19 - - 40,000 49,793 - - 40,000 49,793
New Zealand Government Bond,Ser 1217,
6.000%, 12/15/17 - - 195,000 153,868 - - 195,000 153,868
New Zealand Government Bond,Ser 521,
6.000%, 5/15/21 - - 335,000 264,582 - - 335,000 264,582
United Kingdom Gilt, 4.500%, 3/7/19 - - 132,000 234,056 - - 132,000 234,056
---------- ----------- ------ -----------
TOTAL SOVEREIGN GOVERNMENT OBLIGATIONS $ - $ 1,722,254 $ - $ 1,722,254
---------- ----------- ------ -----------
ASSET-BACKED SECURITIES -- 0.8% (*)
Countrywide Asset-Backed Certificates,
Ser 2004-15, Class AF4,
4.614%, 12/25/32 (a) - - 12,979 12,871 - - 12,979 12,871
Merrill Lynch Mortgage Trust,
Ser 2007-C1, Class A4,
6.020%, 6/12/50 (a) - - 132,000 141,165 - - 132,000 141,165
Morgan Stanley Home Equity Loan Trust,
Ser 2007-2, Class A1, 0.356%, 4/25/37 (a) - - 76,272 69,560 - - 76,272 69,560
Newcastle Investment Trust,
Ser 2010-MH1, Class M1, 144a,
6.000%, 7/10/35 - - 100,000 100,873 - - 100,000 100,873
---------- ----------- ------ -----------
TOTAL ASSET-BACKED SECURITIES $ - $ 324,469 $ - $ 324,469
---------- ----------- ------ -----------
MARKET MARKET MARKET MARKET
INVESTMENT FUNDS -- 4.4% (*) SHARES VALUE SHARES VALUE SHARES VALUE SHARES VALUE
--------- --------- --------- ---------- --------- ------ --------- -----------
Dreyfus Treasury Cash Management, 0.01% 275,101 $ 275,101 - $ - - - 275,101 $ 275,101
Touchstone Institutional Money Market Fund^ - - 1,567,366 1,567,366 - - 1,567,366 1,567,366
---------- ----------- ------ -----------
TOTAL INVESTMENT FUNDS 275,101 1,567,366 - 1,842,467
---------- ----------- ------ -----------
TOTAL INVESTMENT SECURITIES -- 100.0% (*)
(COST $39,813,146) $16,702,662 $24,609,834 - $41,312,496
---------- ----------- ------ -----------
(a) Variable rate security- the rate reflected is the rate in effect as of
September 30, 2010.
^ Affiliated Fund, sub-advised by Fort Washington Investment
Advisors, Inc..
(*) Calculated based on total investment securities at market value of the Pro
Forma Combined Touchstone Total Return Bond Fund.
144a - This is a restricted security that was sold in a transaction exempt from
Rule 144a of the Securities Acto of 1933. This security may be sold in
transactions exempt from registration, normally to qualified
institutional buyers.
See accompanying pro forma notes to combining financial statements.
PART C. OTHER INFORMATION
ITEM 15. INDEMNIFICATION:
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. 8 to Registrant's Registration Statement on Form N-1A
(File No. 033-70958), 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. 8 to
Registrant's Registration Statement on Form N-1A (File No. 033-70958),
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. 8 to Registrant's Registration Statement on Form N-1A
(File No. 033-70958), 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. 033-70958), 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. 8 to Registrant's Registration Statement
on Form N-1A (File No. 033-70958), filed with the SEC on November 24,
1998.
(f) Certificate 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.
033-70958), 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. 033-70958
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. 033-70958
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. 033-70958 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 filed herewith.
(5) INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
Instruments Defining Rights of Security Holders are herein incorporated
by reference to Exhibit (c) of Post-Effective Amendment No. 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.
(b)(1) 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. 033-70958 and 811-08104), filed with the SEC on February 1,
2008.
2
(b)(2) 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. 033-70958 and 811-08104), filed with the SEC on February 1,
2008.
(b)(3) Addendum to Sub-Advisory Agreement between Touchstone Advisors, Inc.
and Turner Investment Partners, Inc. dated May 15, 2008 is herein
incorporated by reference to Exhibit (d)(2)(iv) of Post-Effective
Amendment No. 41 to Registrant's Registration Statement on Form N-1A
(File Nos. 033-70958 and 811-08104), filed with the SEC on February 1,
2009.
(c) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Sands
Capital 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.
(d) Sub-Advisory Agreement between Touchstone Advisors, Inc. and
Miller/Howard Investments Inc. dated May 20, 2008 is herein
incorporated by reference to Exhibit (d)(6) of Post-Effective Amendment
No. 40 to Registrant's Registration Statement on Form N-1A (File Nos.
002-80859 and 811-03651), filed with the SEC on September 15, 2008.
(e) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Fort
Washington Investment Advisors, Inc. dated February 20, 2009 is herein
incorporated by reference to Exhibit (d)(9) of Post-Effective Amendment
No. 43 to Registrant's Registration Statement on Form N-1A (File Nos.
033-70958 and 811-08104), filed with the SEC on May 4, 2009.
(f) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Longfellow
Investment Management Co. LLC dated February 19, 2009 is herein
incorporated by reference to Exhibit (d)(10) of Post-Effective
Amendment No. 43 to Registrant's Registration Statement on Form N-1A
(File Nos. 033-70958 and 811-08104), filed with the SEC on May 4, 2009.
(g) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Milne LLC
(d/b/a JK Milne Asset Management) dated April 22, 2009 is herein
incorporated by reference to Exhibit (d)(10) of Post-Effective
Amendment No. 46 to Registrant's Registration Statement on Form N-1A
(File Nos. 033-70958 and 811-08104), filed with the SEC on July 13,
2009.
(h) Sub-Advisory Agreement between Touchstone Advisors, Inc. and AGF
Investments America, Inc. dated October 1, 2009 is herein incorporated
by reference to Exhibit (d)(9) of Post-Effective Amendment No. 48 to
Registrant's Registration Statement on Form N-1A (File Nos. 033-70958
and 811-08104), filed with the SEC on October 15, 2009.
(i) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Farr,
Miller & Washington LLC dated October 1, 2009 is herein incorporated by
reference to Exhibit (d)(12) of Post-Effective Amendment No. 47 to
Registrant's Registration Statement on Form N-1A (File Nos. 033-70958
and 811-08104), filed with the SEC on September 30, 2009.
(j) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Lee Munder
Investments, Ltd. dated October 1, 2009 is herein incorporated by
reference to Exhibit (d)(13) of Post-Effective Amendment No. 47 to
Registrant's Registration Statement on Form N-1A (File Nos. 033-70958
and 811-08104), filed with the SEC on September 30, 2009.
(k) Sub-Advisory Agreement between Touchstone Advisors, Inc. and
Cornerstone Real Estate Advisers LLC dated October 1, 2009 is herein
incorporated by reference to Exhibit (d)(14) of Post-Effective
Amendment No. 47 to Registrant's Registration Statement on Form N-1A
(File Nos. 033-70958 and 811-08104), filed with the SEC on September
30, 2009.
3
(l) Sub-Advisory Agreement between Touchstone Advisors, Inc. and EARNEST
Partners LLC dated October 1, 2009 is herein incorporated by reference
to Exhibit (d)(15) of Post-Effective Amendment No. 47 to Registrant's
Registration Statement on Form N-1A (File Nos. 033-70958 and
811-08104), filed with the SEC on September 30, 2009.
(m) Sub-Advisory Agreement between Touchstone Advisors, Inc. and London
Company of Virginia dated October 1, 2009 is herein incorporated by
reference to Exhibit (d)(16) of Post-Effective Amendment No. 47 to
Registrant's Registration Statement on Form N-1A (File Nos. 033-70958
and 811-08104), filed with the SEC on September 30, 2009.
(n) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Bedlam
Asset Management PLC dated October 1, 2009 is herein incorporated by
reference to Exhibit (d)(17) of Post-Effective Amendment No. 47 to
Registrant's Registration Statement on Form N-1A (File Nos. 033-70958
and 811-08104), filed with the SEC on September 30, 2009.
(o) Sub-Advisory Agreement between Touchstone Advisors, Inc. and
Aronson+Johnson+Ortiz dated October 1, 2009 is herein incorporated by
reference to Exhibit (d)(18) of Post-Effective Amendment No. 47 to
Registrant's Registration Statement on Form N-1A (File Nos. 033-70958
and 811-08104), filed with the SEC on September 30, 2009.
(o)(i) Amendment to Sub-Advisory Agreement between Touchstone Advisors, Inc.
and Aronson+Johnson+Ortiz dated March 29, 2010 is herein incorporated
by reference to Exhibit (d)(15)(i) of Post-Effective Amendment No. 56
to Registrant's Registration Statement on Form N-1A (File Nos.
033-70958 and 811-08104), filed with the SEC on January 28, 2011.
(p) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Bradford &
Marzec LLC dated October 1, 2009 is herein incorporated by reference to
Exhibit (d)(19) of Post-Effective Amendment No. 47 to Registrant's
Registration Statement on Form N-1A (File Nos. 033-70958 and
811-08104), filed with the SEC on September 30, 2009.
(q) Sub-Advisory Agreement between Touchstone Advisors, Inc. and GAM
International Management Limited dated October 1, 2010 is herein
incorporated by reference to Exhibit (d)(17) of Post-Effective
Amendment No. 56 to Registrant's Registration Statement on Form N-1A
(File Nos. 033-70958 and 811-08104), filed with the SEC on January 28,
2011.
(r) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Fort
Washington Investment Advisors, Inc. dated December 31, 2009 is herein
incorporated by reference to Exhibit (d)(19) of Post-Effective
Amendment No. 50 to Registrant's Registration Statement on Form N-1A
(File Nos. 033-70958 and 811-08104), filed with the SEC on December 28,
2009.
(s) Sub-Advisory Agreement between Touchstone Advisors, Inc. and Deprince,
Race & Zollo, Inc. dated December 6, 2010 is herein incorporated by
reference to Exhibit (d)(19) of Post-Effective Amendment No. 56 to
Registrant's Registration Statement on Form N-1A (File Nos. 033-70958
and 811-08104), filed with the SEC on January 28, 2011.
(t) Interim Sub-Advisory Agreement between Touchstone Advisors, Inc. and
EARNEST Partners LLC is filed herewith.
(u) Form of Sub-Advisory Agreement between Touchstone Advisors, Inc. and
EARNEST Partners LLC 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.
4
(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.
(8) BONUS OR PROFIT SHARING PLAN
Touchstone Trustee Deferred Compensation Plan is herein incorporated by
reference to Exhibit (f) of Post-Effective Amendment No. 51 to
Registrant's Registration Statement on Form N-1A (File Nos. 033-70958
and 811-08104), filed with the SEC on January 28, 2010.
(9) CUSTODIAN AGREEMENTS
Custodian Agreement between the Registrant and Brown Brother Harriman &
Co. dated February 25, 2008 is herein incorporated by reference to
Exhibit (g) of Post-Effective Amendment No. 41 to Registrant's
Registration Statement on Form N-1A (File Nos. 033-70958 and
811-08104), filed with the SEC on February 1, 2009.
(10) RULE 12B-1 PLAN AND RULE 18F-3 PLAN
(a) Distribution and Shareholder Services Plan for Class A Shares is herein
incorporated by reference to Exhibit (10)(a) of Form N-14 (File Nos.
333-165902 and 811-08104) filed with the SEC on April 5, 2010.
(b) Distribution and Shareholder Services Plan for Class C Shares is herein
incorporated by reference to Exhibit (10)(b) of Form N-14 (File Nos.
333-165902 and 811-08104) filed with the SEC on April 5, 2010.
(c) Shareholder Services Plan for Class Z Shares is herein incorporated by
reference to Exhibit (m)(3) of Post-Effective Amendment No. 41 to
Registrant's Registration Statement on Form N-1A (File Nos. 033-70958
and 811-08104), filed with the SEC on February 1, 2009.
(d) Amended and Restated Rule 18f-3 Multiple Class Plan is herein
incorporated by reference to Exhibit (n)(1) of Post-Effective Amendment
No. 47 to Registrant's Registration Statement on Form N-1A (File Nos.
033-70958 and 811-08104), filed with the SEC on September 30, 2009.
(11) AN OPINION AND CONSENT OF COUNSEL (AS TO LEGALITY OF SECURITIES BEING
REGISTERED)
Opinion and Consent of Pepper Hamilton LLP, as to legality of
securities being registered, is filed herewith.
(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) Amended Sub-Administration Agreement between Touchstone Advisors, Inc.
and JPMorgan Chase Bank, N.A. is herein incorporated by reference to
Exhibit (h)(2) of Post-Effective Amendment No. 47 to Registrant's
Registration Statement on Form N-1A (File Nos. 033-70958 and
811-08104), filed with the SEC on September 30, 2009. (c) 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. 033-70958 and
811-08104), filed with the SEC on February 1, 2008.
5
(d) Transfer Agency Agreement between the Registrant and JPMorgan Chase
Bank N.A. (fka Integrated Investment Services, Inc.) is herein
incorporated by reference to Exhibit (h)(4) of Post-Effective Amendment
No. 47 to Registrant's Registration Statement on Form N-1A (File Nos.
033-70958 and 811-08104), filed with the SEC on September 30, 2009.
(e) 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. 033-70958 and
811-08104), filed with the SEC on February 1, 2008.
(f) 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. 033-70958 and
811-08104), filed with the SEC on February 1, 2008.
(g) Fidelity Bond Allocation Agreement dated April 1, 2010 is herein
incorporated by reference to Exhibit (h)(7) of Post-Effective Amendment
No. 56 to Registrant's Registration Statement on Form N-1A (File Nos.
033-70958 and 811-08104), filed with the SEC on January 28, 2011.
(h) Expense Limitation Agreement is filed herewith.
(i) Expense Limitation Agreement with regards to the Sands Capital Select
Growth Fund is herein incorporated by reference to Exhibit (h)(9) of
Post-Effective Amendment No. 55 to Registrant's Registration Statement
on Form N-1A (File Nos. 033-70958 and 811-08104), filed with the SEC on
November 15, 2010.
(14) CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(i) Consent of BBD, LLP will be filed by amendment.
(ii) Consent of Ernst & Young, LLP is filed herewith
(15) OMITTED FINANCIAL STATEMENT
Not Applicable.
(16) POWERS OF ATTORNEY
Powers of Attorney for Phillip R. Cox, H. Jerome Lerner, Donald C.
Siekmann, Susan J. Hickenlooper and John P. Zannotti are filed
herewith.
(17) ADDITIONAL EXHIBITS
(i) Definitive Prospectus for the Touchstone Total Return Bond Fund
(formerly, the Touchstone Core Plus Bond Fund) and Statement of
Additional Information is herein incorporated by reference to
Post-Effective Amendment No. 56 to Registrant's Registration Statement
on Form N-1A (File Nos. 033-70958 and 811-08104), filed with the SEC on
January 28, 2011 and 497 filings made on April 19, 2011 (filed on
EDGAR, Accession Nos. 0001144204-11-022970 and 0001144204-11-022891).
6
(ii) Annual Report to Shareholders of the Touchstone Total Return Bond Fund
for the fiscal year ended September 30, 2010 is herein incorporated by
reference to the Registrant's Certified Shareholder Report on Form
N-CSR, filed with the SEC on December 7, 2010 (File No. 811-08104).
ITEM 17. UNDERTAKINGS:
(1) The undersigned registrant agrees that prior to any public reoffering of the
securities registered through the use of a prospectus which is a part of this
registration statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act of 1933, as amended (the
"1933 Act"), the reoffering prospectus will contain the information called for
by the applicable registration form for the reofferings by persons who may be
deemed underwriters, in addition to the information called for by the other
items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed under
paragraph (1) above will be filed as a part of an amendment to the registration
statement and will not be used until the amendment is effective, and that, in
determining any liability under the 1933 Act, each post-effective amendment
shall be deemed to be a new registration statement for the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering of them.
(3) The undersigned registrant agrees that it shall file a final executed
version of the legal and consent opinion as to tax matters as an exhibit to the
subsequent post-effective amendment to its registration statement on Form N-14
filed with the SEC upon the closing of the reorganization contemplated by this
registration statement on Form N-14.
7
SIGNATURES
As required by the Securities Act of 1933, this registration statement on Form
N-14 has been signed on behalf of the registrant, in the City of Cincinnati and
State of Ohio, on the 18th day of May, 2011.
TOUCHSTONE FUNDS GROUP TRUST
By: /s/ Jill T. McGruder
--------------------------------------
Jill T. McGruder
President
As required by the Securities Act of 1933, this Registration Statement on Form
N-14 has been signed by the following persons in the capacities and on the dates
indicated.
* Trustee May 18, 2011
----------------------------
Phillip R. Cox
* Trustee May 18, 2011
----------------------------
Donald C. Siekmann
* Trustee May 18, 2011
----------------------------
H. Jerome Lerner
* Trustee May 18, 2011
----------------------------
John P. Zanotti
* Trustee May 18, 2011
----------------------------
Susan J. Hickenlooper
/s/ Jill T. McGruder Trustee and May 18, 2011
---------------------------- President
Jill T. McGruder
/s/ Terrie A. Wiedenheft Controller, May 18, 2011
---------------------------- Treasurer and
Terrie A. Wiedenheft Principal Financial
Officer
* By: /s/ Jay S. Fitton
-----------------------------
Jay S. Fitton
(Attorney-in-Fact Pursuant to Power of Attorney)
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EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
(4) The Agreement and Plan of Reorganization is filed herewith.
(6)(a) Investment Advisory Agreement between the Registrant and Touchstone
Advisors, Inc. is filed herewith.
(6)(t) Interim Sub-Advisory Agreement between Touchstone Advisors, Inc. and
EARNEST Partners LLC is filed herewith.
(6)(u) Form of Sub-Advisory Agreement between Touchstone Advisors, Inc. and
EARNEST Partners LLC is filed herewith.
(11) Opinion and Consent of Pepper Hamilton LLP, as to legality of
securities being registered, is filed herewith.
(12) Form of Tax Opinion is filed herewith.
(13)(h) Expense Limitation Agreement is filed herewith.
(14)(ii) Consent of Ernst & Young, LLP
(16) Powers of Attorney for Phillip R. Cox, H. Jerome Lerner, Donald C.
Siekmann, Susan J. Hickenlooper and John P. Zannotti are filed
herewith.
9