[Federal Register Volume 70, Number 99 (Tuesday, May 24, 2005)]
[Notices]
[Pages 29810-29812]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-2585]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 26871; 812-12946]


Touchstone Investment Trust, et al.; Notice of Application

May 18, 2005.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 12(d)(1)(J) of the 
Investment Company Act of 1940 (the ``Act'') for an exemption from 
sections 12(d)(1)(A) and (B) of the Act, under sections 6(c) and 17(b) 
of the Act for an exemption from section 17(a) of the Act, and under 
section 17(d) of the Act and rule 17d-1 under the Act to permit certain 
joint transactions.

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Summary of Application: Applicants request an order to permit certain 
registered open-end management investment companies to invest 
uninvested cash and cash collateral in one or more affiliated money 
market funds in excess of the limits in sections 12(d)(1)(A) and (B) of 
the Act.

Applicants: Touchstone Investment Trust (``TINT''), Touchstone 
Strategic Trust (``TST''), Touchstone Tax-Free Trust (``TTFT''), 
Touchstone Variable Series Trust (``TVST'') (each, a ``Trust,'' and 
collectively, the ``Trusts''), on behalf of all of the existing and 
future series of each Trust (each, a ``Fund,'' and collectively, the 
``Funds''), Touchstone Advisors, Inc. (``Touchstone Advisors''), and 
any other registered open-end management investment company or series 
thereof that is now or in the future advised by Touchstone Advisors or 
a person controlling, controlled by, or under common control with 
Touchstone Advisors (each, including Touchstone Advisors, an 
``Advisor'') (each such investment company or series thereof included 
in the term ``Funds'').

Filing Dates: The application was filed on March 20, 2003, and was 
amended on May 13, 2005.

Hearing or Notification of Hearing: An order granting the application 
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 June 13, 2005, 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, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-0609. Applicants, 221 East Fourth 
Street, Suite 300, Cincinnati, Ohio 45202-4311.

FOR FURTHER INFORMATION CONTACT: Marc R. Ponchione, Senior Counsel, at 
(202) 551-6874, or Nadya B. Roytblat, Assistant Director, at (202) 551-
6821 (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 Desk, 450 Fifth Street, NW., Washington, 
DC 20549-0102 (tel. 202-551-5850).

Applicants' Representations

    1. The Trusts are Massachusetts business trusts that are registered 
under the Act as open-end management investment companies. Each Trust 
is comprised of a number of Funds, each with its own investment 
objectives and policies.\1\
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    \1\ All existing registered investment companies that currently 
intend to rely on the requested order are named as applicants, and 
any other existing or future Fund that subsequently relies on the 
order will comply with the terms and conditions in the application.
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    2. Touchstone Advisors, an Ohio corporation and an investment 
adviser registered under the Advisers Act of 1940, as amended 
(``Advisers Act''), is the investment adviser to each of the Funds. 
Touchstone Advisors has engaged sub-advisors (``Sub-Advisors'') to 
handle the day-to-day portfolio management of each of the Funds.\2\ 
Each Sub-Advisor has discretionary authority to invest all of a 
particular Fund's Cash Balances, as defined below, allocated to it.
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    \2\ Each Advisor and each Sub-Advisor is or will be registered 
under the Advisers Act.
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    3. TINT, TTFT, and TVST each have one or more money market Funds 
that comply with rule 2a-7 under the Act (``Money Market Funds''). The 
Funds that are not Money Market Funds (the ``Non-Money Market Funds'') 
invest in a variety of debt and/or equity securities in accordance with 
their investment objectives and policies.
    4. Applicants state that each Non-Money Market Fund has, or may be 
expected to have cash that has not been invested in portfolio 
securities (``Uninvested Cash''). Uninvested Cash may result from a 
variety of sources, including, but not limited to, dividends or 
interest received from portfolio securities, unsettled securities 
transactions, reserves held for investment strategy purposes, scheduled 
maturity of investments, liquidation of investment securities to meet 
anticipated redemptions and dividend payments, and new monies received 
from investors. The Funds may implement a securities lending program in 
the future under which the Funds will lend portfolio securities to 
registered broker-dealers or other institutional investors. The loans 
will be continuously secured by collateral, which may include cash 
(``Cash Collateral,'' and together with Uninvested Cash, ``Cash 
Balances''), equal at all times in value to at least the market value 
of the securities loaned. Any investment of Cash Collateral will comply 
with all present and future applicable Commission or staff positions 
regarding securities lending arrangements.
    5. Applicants request an order to permit the Non-Money Market Funds 
to use their Cash Balances to purchase and redeem shares of the Money 
Market Funds, and the Money Market Funds to sell their shares to, and 
redeem their shares as requested by, the Non-Money Market Funds. 
Investment of Cash Balances in shares of the Money Market Funds will be 
made only if permitted by the Non-Money Market Fund's investment 
restrictions and to the extent consistent with each Non-Money Market 
Fund's investment restrictions and policies as set forth in its 
prospectus and statement of additional information. Applicants believe 
that the proposed transactions may reduce transaction costs, create 
more liquidity, increase returns, and diversify holdings.

Applicants' Legal Analysis

    1. Section 12(d)(1)(A) of the Act provides that no registered 
investment company may acquire the securities of another investment 
company if the

[[Page 29811]]

securities represent more than 3% of the acquired company's outstanding 
voting stock, more than 5% of the acquiring company's total assets, or 
if such securities, together with the securities of other acquired 
investment companies, represent more than 10% of the acquiring 
company's assets. Section 12(d)(1)(B) of the Act provides, in pertinent 
part, that no registered open-end investment company may sell its 
securities to another investment company if the sale will cause the 
acquiring company to own more than 3% of the acquired company's 
outstanding voting stock, or if the sale will cause more than 10% of 
the acquired company to be owned by investment companies.
    2. Section 12(d)(1)(J) of the Act provides that the Commission may 
exempt any person, security, or transaction from any provision of 
section 12(d)(1) if, and to the extent that, the exemption is 
consistent with the public interest and the protection of investors. 
Applicants request relief under section 12(d)(1)(J) of the Act from the 
limitations of sections 12(d)(1)(A) and (B) to permit the Non-Money 
Market Funds to invest Cash Balances in the Money Market Funds.
    3. Applicants state that the proposed arrangement will not result 
in the abuses that sections 12(d)(1)(A) and (B) were intended to 
prevent. Applicants state that because each Money Market Fund will 
maintain a highly liquid portfolio, a Money Market Fund would not need 
to maintain a special reserve or balance to meet redemptions by a Non-
Money Market Fund. Applicants state that the proposed arrangement will 
not result in an inappropriate layering of fees because, to the extent 
a Money Market Fund charges a sales load, redemption fee, asset-based 
distribution fee under a plan adopted under rule 12b-1 under the Act, 
or service fee (as defined in Rule 2830(b)(9) of the Rules of Conduct 
of the National Association of Securities Dealers (the ``NASD Conduct 
Rules''), the Advisor will waive its advisory fee for each Non-Money 
Market Fund in an amount that offsets the amount of such fees incurred 
by a Non-Money Market Fund. If a Money Market Fund offers more than one 
class of shares, each Non-Money Market Fund will invest only in the 
class with the lowest expense ratio at the time of the investment. 
Before the next meeting of the board of trustees (``Board of 
Trustees'') of a Non-Money Market Fund is held for the purpose of 
voting on an advisory contract with the Advisor or Sub-Advisor under 
section 15 of the Act, the Advisor and the Sub-Advisor will provide the 
Board of Trustees with specific information regarding the approximate 
cost to the Advisor and Sub-Advisor of, or the portion of the advisory 
fee under the existing advisory contract with the Advisor or the Sub-
Advisor attributable to, managing the Uninvested Cash of the Non-Money 
Market Fund that can be expected to be invested in the Money Market 
Funds. Before approving any advisory contract with the Advisor or Sub-
Advisor for a Non-Money Market Fund, the Board of Trustees, including a 
majority of the trustees who are not ``interested persons,'' as defined 
in section 2(a)(19) of the Act (``Disinterested Trustees''), shall 
consider to what extent, if any, the advisory fees charged to the Non-
Money Market Fund by the Advisor and the Sub-Advisor should be reduced 
to account for reduced services provided to the Non-Money Market Fund. 
Applicants represent that no Money Market Fund will acquire the 
securities of any investment company or company relying on section 
3(c)(1) or 3(c)(7) of the Act beyond the limits contained in section 
12(d)(1)(A) of the Act.
    4. Section 17(a) of the Act makes it unlawful for any affiliated 
person of a registered investment company, or an affiliated person of 
such person, acting as principal, to sell or purchase any security to 
or from the investment company. ``Affiliated persons,'' as defined in 
section 2(a)(3) of the Act, include persons that are under common 
control. Control is defined in section 2(a)(9) of the Act as ``the 
power to exercise a controlling influence over the management or 
policies of a company, unless such power is solely the result of an 
official position with such company.'' Applicants state that because 
the Funds share a common investment adviser and have identical Boards 
of Trustees, each of the Funds may be deemed to be under common control 
with all of the other Funds, and, therefore, an affiliated person of 
the other Funds.
    5. Section 17(b) of the Act authorizes the Commission to grant an 
order exempting a transaction otherwise prohibited by section 17(a) if 
the terms of the proposed transaction are fair and reasonable and do 
not involve overreaching on the part of any person concerned, and the 
proposed transaction is consistent with the policies of the registered 
investment company involved and with the general purposes of the Act. 
Section 6(c) of the Act permits the Commission to exempt any person or 
transaction from any provision of the Act if such exemption is 
necessary or appropriate in the public interest and consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act.
    6. Applicants submit that the proposed transactions meet the terms 
of section 17(b) of the Act and are consistent with the standards for 
relief set forth in section 6(c) of the Act. Applicants state that the 
proposed transactions are reasonable and fair and would not involve 
overreaching because shares of the Money Market Funds will be purchased 
and redeemed by the Non-Money Market Funds at net asset value. 
Applicants also note that the Non-Money Market Funds will retain their 
ability to invest their Cash Balances directly in short-term 
obligations, as permitted by each Non-Money Market Fund's investment 
objectives and policies. Applicants state that each Money Market Fund 
reserves the right to discontinue selling shares to any of the Non-
Money Market Funds if the Board of Trustees of the Money Market Fund 
determines that such sales would adversely affect its portfolio 
management and operations.
    7. Section 17(d) of the Act and rule 17d-1 under the Act prohibit 
an affiliated person of a registered investment company, acting as 
principal, from participating in or effecting any transaction in 
connection with any joint enterprise or joint arrangement in which the 
investment company participates. Applicants state that the Non-Money 
Market Funds and the Money Market Funds, by participating in the 
proposed transactions, and the Advisor and a Sub-Advisor (to the extent 
that the Sub-Advisor manages the assets of both a Non-Money Market Fund 
and a Money Market Fund), by managing the proposed transactions, could 
be deemed to be participating in a joint arrangement within the meaning 
of section 17(d) of the Act and rule 17d-1 under the Act.
    8. In considering whether to approve a joint transaction under rule 
17d-1 under the Act, the Commission considers whether the investment 
company's participation in the joint transaction is consistent with the 
provisions, policies, and purposes of the Act, and the extent to which 
the participation is on a basis different from or less advantageous 
than that of other participants. Applicants submit that the investment 
by the Non-Money Market Funds in shares of the Money Market Funds would 
be on the same basis as any other shareholder and would be 
indistinguishable from any other shareholder account and that the 
proposed transactions satisfy the standards of rule 17d-1 under the 
Act.

[[Page 29812]]

Applicants' Conditions

    Applicants agree that any order of the Commission granting the 
requested relief will be subject to the following conditions:
    1. The shares of the Money Market Funds sold to and redeemed by the 
Non-Money Market Funds may be subject to a sales load, redemption fee, 
asset-based distribution fee under a plan adopted under Rule 12b-1 
under the 1940 Act, or service fee (as defined in Rule 2830(b)(9) of 
the NASD Conduct Rules). The Advisor will waive its advisory fee for 
each Non-Money Market Fund in an amount that offsets the amount of such 
fees incurred by a Non-Money Market Fund.
    2. Before the next meeting of the Board of Trustees of a Non-Money 
Market Fund is held for the purpose of voting on an advisory contract 
with the Advisor or Sub-Advisor under section 15 of the Act, the 
Advisor and the Sub-Advisor will provide the Board of Trustees with 
specific information regarding the approximate costs to the Advisor and 
the Sub-Advisor of, or portion of the advisory fee under the existing 
advisory contract with the Advisor and the Sub-Advisor attributable to, 
managing the Uninvested Cash of the Non-Money Market Fund that can be 
expected to be invested in the Money Market Funds. Before approving any 
advisory contract with the Advisor or a Sub-Advisor for a Non-Money 
Market Fund, the Board of Trustees, including a majority of the 
Disinterested Trustees, shall consider to what extent, if any, the 
advisory fees charged to the Non-Money Market Fund by the Advisor and 
the Sub-Advisor should be reduced to account for the reduced services 
provided to the Non-Money Market Fund by the Advisor and the Sub-
Advisor as a result of Uninvested Cash being invested in the Money 
Market Funds. The Non-Money Market Fund's minute books will record 
fully the Board of Trustees' consideration in approving the advisory 
contract with the Advisor or a Sub-Advisor, including the 
considerations relating to fees referred to above.
    3. Each of the Non-Money Market Funds will invest Uninvested Cash 
in, and hold shares of, the Money Market Funds only to the extent that 
the Non-Money Market Fund's aggregate investment of Uninvested Cash in 
the Money Market Funds does not exceed 25% of the Non-Money Market 
Fund's total assets.
    4. Investment of Cash Balances in shares of the Money Market Funds 
will be in accordance with each Non-Money Market Fund's respective 
investment restrictions, if any, and will be consistent with each Non-
Money Market Fund's policies as set forth in its prospectus and 
statement of additional information.
    5. Each Non-Money Market Fund and Money Market Fund that may rely 
on the order shall be advised by an Advisor and will be in the same 
group of investment companies (as defined in section 12(d)(1)(G) of the 
Act).
    6. No Money Market Fund shall acquire securities of any investment 
company or company relying on section 3(c)(1) or 3(c)(7) of the Act in 
excess of the limits contained in section 12(d)(1)(A) of the Act.
    7. Before a Fund may participate in a securities lending program, a 
majority of the Fund's Board of Trustees, including a majority of the 
Disinterested Trustees, will approve the Fund's participation in the 
securities lending program. The Board of Trustees also will evaluate 
the securities lending program and its results no less frequently than 
annually and determine that any investment of Cash Collateral in the 
Money Market Funds is in the best interest of the shareholders of the 
Fund.
    8. The securities lending program of each Fund will comply with all 
present and future Commission and staff positions regarding securities 
lending programs.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2585 Filed 5-23-05; 8:45 am]
BILLING CODE 8010-01-P