[Federal Register Volume 65, Number 68 (Friday, April 7, 2000)]
[Notices]
[Pages 18393-18395]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-8486]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 24371, 812-11952]


Touchstone Advisors, Inc., et al.; Notice of Application

March 31, 2000.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 17(b) of the Investment 
Company Act of 1940 (the ``Act'') for an exemption from section 17(a) 
of the Act.

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SUMMARY OF APPLICATION: Applicants request an order to permit certain 
series of two registered open-end management investment companies to 
acquire all of the assets, subject to certain liabilities, of certain 
series of a third registered open-end management investment company. 
Because of certain affiliations, applicants may not rely on rule 17a-8 
under the Act.

applicants: Touchstone Advisors, Inc. (``Touchstone Advisors''), 
Touchstone Series Trust (``Touchstone Trust''), Countrywide Investment 
Trust (``Investment Trust''), and Countrywide Strategic Trust 
(``Strategic Trust'').

FILING DATES: The application was filed on January 24, 2000. Applicants 
have agreed to file an amendment during the notice period, the 
substance of which is reflected in this notice.

HEARING OR NOTIFICATION OF HEARING: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicants with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on April 25, 2000 and should be accompanied by proof of 
service on applicants, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons may request notification of a hearing by writing to 
the Commission's Secretary.

ADDRESSES: Secretary, Commission, 450 5th Street, NW, Washington, D.C. 
20549-0609. Touchstone Advisors and Touchstone Trust, 311 Pike Street, 
Cincinnati, Ohio 45202; Investment Trust and Strategic Trust, 312 
Walnut Street, Cincinnati, Ohio 45202.

FOR FURTHER INFORMATION CONTACT: Anu Dubey, Senior Counsel, at (202) 
942-0687, or George Zornada, Branch Chief, at (202) 942-0564 (Division 
of Investment Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, 450 5th Street, NW, Washington, 
D.C. 20549-0102 (tel. 202-942-8090).

Applicants' Representations

    1. Touchstone Trust, a Massachusetts business trust, is registered 
under the Act as an open-end management investment company and offers 
eight series, including the Touchstone Bond Fund (``TS Bond''), the 
Touchstone Growth & Income Fund (``TS G & I''), the Touchstone Value 
Plus Fund (``TS Value Plus''), the Touchstone International Equity Fund 
(``TS International'') and the Touchstone Emerging Growth Fund (``TS 
Emerging'') (together, the ``Acquired Funds''). Investment Trust, a 
Massachusetts business trust, is registered under the Act as an open-
end management investment company and offers six series, including 
Countrywide Intermediate Bond Fund (``CW Bond''). Strategic Trust, a 
Massachusetts business trust, is registered under the Act as an open-
end management investment company and will comprise nine series, 
including three newly-organized series. Countrywide Value Plus (``CW 
Value Plus''), Countrywide International Equity Fund (``CW 
International'') and Countrywide Emerging Growth Fund (``CW 
Emerging''). CW Value Plus, CW International and CW Emerging, together 
with CW Bond, are the ``Acquiring Funds''. The Acquiring Funds and the 
Acquired Funds are referred to collectively as the ``Funds''.
    2. Touchstone Advisors, the investment adviser to the Acquired 
Funds, is a wholly-owned subsidiary of The Western-Southern Life 
Assurance Company (``Western-Southern''). Western-Southern is a wholly-
owned subsidiary of The Western and Southern Life Insurance Company 
(``Western Southern Life''). Countrywide Investments, Inc. 
(``Countrywide''), the investment adviser to each Acquiring Fund, is an 
indirect wholly-owned subsidiary of Western Southern Life. Touchstone 
Advisors is the investment adviser to the Acquiring Funds. Both 
Touchstone Advisors and Countrywide are registered as investment 
advisers under the Investment Advisers Act of 1940.
    3. Currently, Western Southern Life and/or Western-Southern own 
more than 5% (and in come cases more than 25%) of the outstanding 
voting securities of each of the Acquired Funds. The initial investment 
in each of CW Value Plus, CW International and CW Emerging will be 
contributed by one or more entities controlling, controlled by or under 
common control with Touchstone Advisors (``Touchstone Affiliates'') 
resulting in Touchstone Affiliates owning 100% of CW Value Plus, CW 
International and CW Emerging.\1\
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    \1\ Western-Southern and Western Southern Life are Touchstone 
Affiliates.
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    3. On January 7, 2000 and February 15, 2000, the board of trustees 
of each of the Touchstone Trust, Investment Trust and Strategic Trust 
(together, the ``Boards''), including a majority of the trustees who 
are not ``interested persons'' as defined in section 2(a)(19) of the 
Act (``Disinterested Trustees''), approved a plan of reorganization 
between the Acquiring Funds and the Acquired Funds (the 
``Reorganization Plan'', and the transaction the

[[Page 18394]]

``Reorganization'').\2\ The Reorganization is expected to occur on 
April 28, 2000 (``Closing Date''). Under the Reorganization Plan, each 
Acquiring Fund will acquire all of the assets, subject to the 
liabilities, of each corresponding Acquired Fund in exchange for Class 
A and Class C shares of the respective Acquiring Fund having an 
aggregate net asset value equal to the aggregate net asset value of the 
corresponding Acquired Fund's shares determined on the date immediately 
prior to the Closing Date. The value of the assets of the Funds will be 
determined in the manner set forth in the Funds' then current 
prospectuses and statements of additional information. The Acquiring 
Fund shares received by the Acquired Funds will be distributed pro rata 
by each Acquired Fund to its shareholders and each Acquired Fund will 
liquidate and dissolve.
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    \2\ The Funds will combine as follows: TS Bond with and into CW 
Bond, TS G & I with and into CW Value Plus, TS Value Plus with and 
into CW Value Plus, TS International with and into CW International 
and TS Emerging with and into CW Emerging.
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    4. Applicants state that the investment objectives and policies of 
each Acquired Fund are substantially similar to those of its 
corresponding Acquiring Fund. Each Acquired Fund offers (i) class A 
shares, which are subject to a sales load and rule 12b-1 distribution 
fee, and (ii) class C shares, which are subject to a contingent 
deferred sales charge (``CDSC'') and rule 12b-1 distribution fee.\3\ 
The holding period used to determine whether a CDSC will apply to a 
holder of Class C shares of an Acquiring Fund who becomes a shareholder 
as a result of the Reorganization will include any period of time that 
the shareholder held shares of the Acquired Fund. No sales charges will 
be imposed in connection with the Reorganization. Touchstone Advisors 
and/or one of the Touchstone Affiliates will pay the Reorganization 
expenses.
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    \3\ Class A shares of each Acquired Fund and each Acquiring Fund 
have the same maximum sales load. Class A shares of TS G & I, TS 
Value Plus, TS International and TS Emerging and each corresponding 
Acquiring Fund have the same maximum distribution fee. Class A 
shares of TS Bond have a maximum distribution fee of 0.25% and Class 
A shares of CW Bond have a maximum distribution fee of 0.35%. From 
May 1, 2000 to October 31, 2001, Touchstone Advisors will waive a 
portion of the distribution fee on Class A shares of CW Bond so that 
the maximum distribution fee on the shares will be 0.25%. Class C 
shares of each Acquired Fund and each Acquiring Fund have the same 
maximum CDSC and the same maximum distribution fee. Class C shares 
of each Acquired Fund are not subject to a sales load while Class C 
shares of each Acquiring Fund have a maximum sales load of 1.25%. 
The 1.25% sales load will be waived on future purchases of Class C 
shares of the Acquiring Funds by the current shareholders of the 
Acquired Funds.
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    5. The Boards, including a majority of the Disinterested Trustees, 
determined that the Reorganization is in the best interests of each 
Fund, and that the interests of the existing shareholders of each Fund 
will not be diluted by the Reorganization. In assessing the 
Reorganization, the Boards considered various factors, including (a) 
the terms and conditions of the Reorganization Plan, (b) the investment 
advisory and other fees projected to be paid by an Acquiring Fund, and 
the projected expense ratio of an Acquiring Fund, as compared to those 
of the corresponding Acquired Fund,\4\ (c) the investment objectives, 
policies, practices and restrictions of the Acquiring Fund and their 
compatibility with those of the corresponding Acquired Fund, (d) that 
Touchstone Advisors and/or one of the Touchstone Affiliates would pay 
the expenses of the Reorganization, (e) the potential economies of 
scale to be gained from combining the assets of the Acquired Funds into 
the corresponding Acquiring Funds, and (f) the anticipated tax-free 
nature of the Reorganization.
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    \4\ The Board's consideration of this factor included 
considering that, upon giving effect to the waivers of certain fees, 
that the advisory fees and other fees of an Acquiring Fund will be 
no higher than those paid by the corresponding Acquired Fund.
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    6. The Reorganization is subject to a number of conditions 
precedent, including that (a) the shareholders of each Acquired Fund 
shall have approved the Reorganization Plan; (b) applicants shall have 
received exemptive relief from the Commission that is the subject of 
the application; (c) a registration statement on Form N-14, relating to 
the Acquiring Funds shall have become effective; and (d) applicants 
shall have received an opinion of counsel with respect to certain 
federal tax consequences of the Reorganization. The Reorganization Plan 
may be terminated and the Reorganization abandoned upon the mutual 
agreement of the Funds, upon a material breach of the Reorganization 
Plan by a Fund, or due to the failure to meet a condition precedent to 
consummation of the Reorganization Plan. Applicants agree not to make 
any material changes to the Reorganization Plan without prior approval 
of the Commission.
    7. The definitive prospectus/proxy statement will be filed with the 
Commission and will be mailed to shareholders of the Acquired Funds on 
or about March 30, 2000. A special meeting of the shareholders will be 
held on or about April 19, 2000.

Applicant's Legal Analysis

    1. Section 17(a) of the Act generally prohibits an affiliated 
person of a registered investment company, or an affiliated person, 
acting as principal, from selling any security to, or purchasing any 
security from, the company. Section 2(a)(3) of the Act defines an 
``affiliated person'' of another person to include (a) any person 
directly or indirectly owning, controlling, or holding with power to 
vote 5% or more of the outstanding voting securities of the other 
person; (b) any person 5% or more of whose securities are directly or 
indirectly owned, controlled, or held with power to vote by the other 
person; (c) any person directly or indirectly controlling, controlled 
by, or under common control with the other person, and (d) if the other 
person is an investment company, any investment adviser of that 
company. Applicants state that the Funds may be deemed affiliated 
persons and thus the Reorganization may be prohibited by section 17(a).
    2. Rule 17a-8 under the Act exempts from the prohibitions of 
section 17(a) mergers, consolidations, or purchases or sales of 
substantially all of the assets of registered investment companies that 
are affiliated persons, or affiliated persons of an affiliated person, 
solely by reason of having a common investment adviser, common 
directors, and/or common officers, provided that certain conditions set 
forth in the rule are satisfied.
    3. Applicants state that they may not reply on rule 17a-8 because 
the Funds may be deemed to be affiliated for reasons other than those 
set forth in the rule. By virtue of the direct or indirect ownership by 
one or more Touchstone Affiliates of 5% or more (and in some cases 25% 
or more) of the outstanding voting securities of each of the Acquired 
Funds and of each of the Acquiring Funds (except CW Bond), each 
Acquired Fund may be deemed to be an affiliated person of an affiliated 
person of the Acquiring Fund. Thus, each Acquired Fund may be deemed to 
be an affiliated person of an affiliated person of the Acquiring Fund 
for reasons other than having a common investment adviser, common 
directors and/or common officers.
    4. Section 17(b) of the Act provides that the Commission may exempt 
a transaction from the provisions of section 17(a) if the evidence 
establishes that the terms of the proposed transaction, including the 
consideration to be paid, a reasonable and fair and do not involve 
overreaching on the part of any person concerned, and that the

[[Page 18395]]

proposed transaction is consistent with the policy of each registered 
investment company concerned and with the general purposes of the Act.
    5. Applicants request an order under section 17(b) of the Act 
exempting them from section 17(a) of the Act to the extent necessary to 
permit applicants to consummate the Reorganization. Applicants submit 
that the Reorganization satisfied the standards of section 17(b) of the 
Act. Applicants states that the Boards, including a majority of the 
Disinterested Trustees, have found that participation in the 
Reorganization is in the best interests of each Fund, and that the 
interests of the existing shareholders will not be diluted as a result 
of the Reorganization. In addition, applicants state that the 
Reorganization will be on the basis of net asset value.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-8486 Filed 4-6-00; 8:45 am]
BILLING CODE 8010-01-M