UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-3651
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Touchstone Strategic Trust - Large Cap Growth Fund
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(Exact name of registrant as specified in charter)
221 East Fourth Street, Cincinnati, Ohio 45202
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(Address of principal executive offices) (Zip code)
Michael S. Spangler, 221 East Fourth Street, Cincinnati, Ohio 45202
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(Name and address of agent for service)
Registrant's telephone number, including area code: (513) 362-8000
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Date of fiscal year end: 12/31/03
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Date of reporting period: 12/31/03
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Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
<page>
ITEM 1. REPORTS TO STOCKHOLDERS.
Annual Report for Large Cap Growth Fund
[GRAPHIC]
December 31, 2003
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[LOGO] TOUCHSTONE
INVESTMENTS
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ANNUAL REPORT
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Touchstone Large Cap Growth Fund
Research o Design o Select o Monitor
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Capital Appreciation o Total Return
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TABLE OF CONTENTS
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Page
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Management Discussion and Analysis 3-4
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Statement of Assets and Liabilities 5
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Statement of Operations 6
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Statements of Changes in Net Assets 7
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Financial Highlights 8-10
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Notes to Financial Statements 11-21
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Portfolio of Investments 22-23
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Report of Independent Auditors 24
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2
MANAGEMENT DISCUSSION AND ANALYSIS
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(UNAUDITED)
TOUCHSTONE LARGE CAP GROWTH FUND
Current Strategy
The Fund's total return was 35.60% for the twelve months ended December 31,
2003. The total return for the Russell 1000 Growth Index was 29.75% for the same
period. In the wake of two of the worst years on record, the stock market
rebounded in a dramatic fashion in 2003. Historically low interest rates and a
sharp rebound in overall economic growth resulted in record corporate earnings.
As market conditions improved, investors returned to the equity markets in
droves, which provided the fuel for a broad-based, sustained rally.
2003 not only proved to be a very good year for the markets, it was also a
banner year for the Touchstone Large Cap Growth Fund, outpacing the Russell 1000
Growth Index. The Technology and Internet sectors were the largest contributors
to the strong performance. Losses in the portfolio were not due to any specific
sector exposure and were held to a minimum. We continue to be slightly
overweight in the Technology sector and the Health Care sector. Strong sales
growth, combined with aggressive cost-cutting measures, has resulted in record
earnings for many of our favorite stocks in these sectors. We continue to be
underweight Financials and Retail sectors mainly due to excessive volatility.
We are excited about the outlook for 2004. The Fund has a strong fundamental
profile. Earnings, operating margins, sales growth, and cash flow are all far
superior to the market. With the continued strength in the economy, we believe
that the Fund is positioned to perform favorably for the remainder of the year.
3
MANAGEMENT DISCUSSION AND ANALYSIS
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COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE LARGE CAP GROWTH FUND -CLASS A*, THE RUSSELL 1000 GROWTH INDEX
AND THE STANDARD & POOR'S 500 INDEX
[LINE GRAPH]
Russell 1000 Large Cap S&P 500
Growth Index Growth Class A Index
12/19/97 10,000 9,425 10,000
06/30/98 12,400 11,562 12,072
12/31/98 14,287 13,646 13,186
06/30/99 15,780 15,853 14,819
12/31/99 19,025 22,247 15,961
06/30/00 19,829 25,623 15,893
12/31/00 14,757 20,542 14,507
06/30/01 12,656 15,579 13,536
12/31/01 11,743 15,721 12,783
06/30/02 9,303 13,906 11,101
12/31/02 8,468 11,523 9,958
06/30/03 9,577 13,385 11,128
12/31/03 10,988 15,626 12,814
Large Cap Growth Fund
Average Annual Total Returns**
1 Year 5 Years Since Inception*
Class A 27.84% 1.54% 7.68%
Class B -- -- 1.80%
Class C -- -- 5.80%
Past performance is not predictive of future performance.
* The chart above represents performance of Class A shares only, which
will vary from the performanceof Class B and Class C shares based on
the difference in loads and fees paid by shareholders in the different
classes. The initial public offering of Class A shares was December 19,
1997 and the initial public offering of Class B and Class C commenced
on October 4, 2003.
** The average annual total returns shown above are adjusted for
maximum applicable sales charges.
The performance of the above Fund does not reflect the deduction of
taxes that a shareholder would pay on Fund distributions or the
redemption of Fund shares.
4
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2003
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ASSETS
Investment securities:
At cost .................................................... $ 53,480,021
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At market value (including $1,933,736 of securities loaned) $ 62,836,932
Cash .......................................................... 2,516,553
Cash collateral for securities loaned ......................... 1,987,160
Dividends and interest receivable ............................. 21,269
Receivable for capital shares sold ............................ 385,466
Other assets .................................................. 26,321
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TOTAL ASSETS .................................................. 67,773,701
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LIABILITIES
Payable for capital shares redeemed ........................... 43,610
Payable upon return of securities loaned ...................... 1,987,160
Payable to Adviser ............................................ 33,800
Payable to affiliates ......................................... 14,394
Other accrued expenses and liabilities ........................ 41,133
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TOTAL LIABILITIES ............................................. 2,120,097
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NET ASSETS .................................................... 65,653,604
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NET ASSETS CONSIST OF:
Paid-in capital ............................................... 113,556,209
Distributions in excess of net investment income .............. (265,122)
Accumulated net realized losses from security transactions .... (56,994,394)
Net unrealized appreciation on investments .................... 9,356,911
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NET ASSETS .................................................... $ 65,653,604
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PRICING OF CLASS A SHARES
Net assets attributable to Class A shares ..................... $ 62,186,520
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Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) ......... 3,762,174
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Net asset value and redemption price per share ................ $ 16.53
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Maximum offering price per share .............................. $ 17.54
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PRICING OF CLASS B SHARES
Net assets attributable to Class B shares ..................... $ 1,002,580
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Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) ......... 60,765
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Net asset value, offering price and redemption price per share* $ 16.50
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PRICING OF CLASS C SHARES
Net assets attributable to Class C shares ..................... $ 2,464,504
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Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) ......... 149,360
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Net asset value, offering price and redemption price per share* $ 16.50
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* Redemption price per share varies by length of time shares are held.
See accompanying notes to financial statements.
5
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003(A)
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INVESTMENT INCOME
Interest ..................................................... $ 2,566
Dividends .................................................... 123,589
Income from securities loaned ................................ 799
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TOTAL INVESTMENT INCOME ......................................... 126,954
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EXPENSES
Investment advisory fees ........................................ 220,563
Distribution expenses, Class A .................................. 70,325
Distribution expenses, Class B .................................. 1,873
Distribution expenses, Class C .................................. 4,177
Transfer agent and custodian fees ............................... 38,242
Transfer agent fees, Class A .................................... 13,433
Transfer agent fees, Class B .................................... 2,950
Transfer agent fees, Class C .................................... 2,938
Administration fees ............................................. 39,924
Accounting services fees ........................................ 23,724
Reports to shareholders ......................................... 10,497
Registration fees ............................................... 4,464
Registration fees, Class A ...................................... 1,991
Registration fees, Class B ...................................... 1,705
Registration fees, Class C ...................................... 1,551
Professional fees ............................................... 20,878
Trustees' fees and expenses ..................................... 5,476
Postage and supplies ............................................ 10,706
Insurance expense ............................................... 1,015
Other expenses .................................................. 2,487
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TOTAL EXPENSES .................................................. 478,919
Fees waived and/or expenses reimbursed by the Adviser ........... (86,843)
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NET EXPENSES .................................................... 392,076
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NET INVESTMENT LOSS ............................................. (265,122)
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REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized losses on investments .............................. (389,478)
Net change in unrealized appreciation/depreciation on investments 8,932,307
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NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ................ 8,542,829
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NET INCREASE IN NET ASSETS FROM OPERATIONS ...................... $ 8,277,707
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(A) Except for Class B and Class C shares which represents the period from
commencement of operations (October 4, 2003) through December 31, 2003.
See accompanying notes to financial statements.
6
STATEMENTS OF CHANGES IN NET ASSETS
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FOR THE YEARS ENDED
DECEMBER 31,
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2003(A) 2002
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FROM OPERATIONS
Net investment loss .............................. $ (265,122) $ (132,446)
Net realized losses from security transactions ... (389,478) (2,363,379)
Net change in unrealized appreciation/depreciation
on investments ................................ 8,932,307 (2,449,986)
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NET INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS ....................................... 8,277,707 (4,945,811)
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FROM CAPITAL SHARE TRANSACTIONS
CLASS A
Proceeds from shares sold ........................ 13,006,843 6,490,743
Proceeds from shares issued in connection with
acquisitions (Note 7) ............................ 39,611,752 --
Payments for shares redeemed ..................... (12,362,321) (8,548,293)
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NET INCREASE (DECREASE) IN NET ASSETS FROM CLASS A
SHARE TRANSACTIONS ............................ 40,256,274 (2,057,550)
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CLASS B
Proceeds from shares sold ........................ 568,455 --
Proceeds from shares issued in connection with
acquisitions (Note 7) ......................... 515,786 --
Payments for shares redeemed ..................... (134,248) --
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NET INCREASE IN NET ASSETS FROM CLASS B
SHARE TRANSACTIONS ............................ 949,993 --
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CLASS C
Proceeds from shares sold ........................ 1,243,707 --
Proceeds from shares issued in connection with
acquisitions (Note 7) ......................... 1,189,982 --
Payments for shares redeemed ..................... (95,523) --
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NET INCREASE IN NET ASSETS FROM CLASS C
SHARE TRANSACTIONS ............................ 2,338,166 --
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TOTAL INCREASE (DECREASE) IN NET ASSETS .......... 51,822,140 (7,003,361)
NET ASSETS
Beginning of year ................................ 13,831,464 20,834,825
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End of year ...................................... $ 65,653,604 $ 13,831,464
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(A) Except for Class B and Class C shares which represents the period from
commencement of operations (October 4, 2003) through December 31, 2003.
See accompanying notes to financial statements.
7
LARGE CAP GROWTH FUND--CLASS A
FINANCIAL HIGHLIGHTS
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PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
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YEARS ENDED DECEMBER 31,
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2003 2002 2001 2000 1999
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Net asset value at beginning of year ........................ $ 12.19 $ 16.63 $ 21.73 $ 23.59 $ 14.47
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Income (loss) from investment operations:
Net investment loss .................................... (0.07) (0.12) (0.13) (0.20) (0.12)
Net realized and unrealized gains (losses)on investments 4.41 (4.32) (4.97) (1.61)
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Total from investment operations ............................ 4.34 (4.44) (5.10) (1.81)
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Distributions from net realized gains ....................... -- -- -- (0.05) --
Net asset value at end of year .............................. $ 16.53 $ 12.19 $ 16.63 $ 21.73 $ 23.59
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Total return(A) ............................................. 35.60% (26.70%) (23.47%) (7.66%) 63.03%
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Net assets at end of year (000's) ........................... $ 62,187 $ 13,831 $ 20,835 $ 44,068 $ 12,667
==================================================================
Ratio of net expenses to average net assets ................. 1.39% 1.49% 1.49% 1.48% 1.49%
Ratio of net investment loss to average net assets .......... (0.93%) (0.82%) (0.62%) (1.14%) (0.99%)
Portfolio turnover rate ..................................... 182% 115% 124% 54% 75%
(A) Total returns shown exclude the effect of applicable sales loads.
See accompanying notes to financial statements.
8
LARGE CAP GROWTH FUND--CLASS B
FINANCIAL HIGHLIGHTS
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PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
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PERIOD
ENDED
DECEMBER 31,
2003(A)
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Net asset value at beginning of period ............. $ 15.45
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Income (loss) from investment operations:
Net investment loss ............................ (0.06)
Net realized and unrealized gains on investments 1.11
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Total from investment operations ................... 1.05
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Net asset value at end of period ................... $ 16.50
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Total return(B) .................................... 6.80%(C)
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Net assets at end of period (000's) ................ $ 1,003
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Ratio of net expenses to average net assets ........ 2.22%(D)
Ratio of net investment loss to average net assets . (1.80%)(D)
Portfolio turnover rate ............................ 182%
(A) Class B shares commenced operations on October 4, 2003.
(B) Total return excludes the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
See accompanying notes to financial statements.
9
LARGE CAP GROWTH FUND--CLASS C
FINANCIAL HIGHLIGHTS
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PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
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PERIOD
ENDED
DECEMBER 31,
2003(A)
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Net asset value at beginning of period ............. $ 15.45
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Income (loss) from investment operations:
Net investment loss ............................ (0.05)
Net realized and unrealized gains on investments 1.10
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Total from investment operations ................... 1.05
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Net asset value at end of period ................... $ 16.50
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Total return(B) .................................... 6.80%(C)
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Net assets at end of period (000's) ................ $ 2,465
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Ratio of net expenses to average net assets ........ 2.21%(D)
Ratio of net investment loss to average net assets . (1.78%)(D)
Portfolio turnover rate ............................ 182%
(A) Class C shares commenced operations on October 4, 2003.
(B) Total return excludes the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
See accompanying notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
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1. ORGANIZATION
The Large Cap Growth Fund (the Fund) is a series of Touchstone Strategic Trust
(the Trust). The Trust is registered under the Investment Company Act of 1940,
as amended (the Act), as an open-end management investment company. The Trust
was established as a Massachusetts business trust under a Declaration of Trust
dated November 18, 1982. The Declaration of Trust, as amended, permits the
Trustees to issue an unlimited number of shares of the Fund. Effective October
6, 2003, Class B and Class C shares commenced operations.
Prior to October 6, 2003, the Large Cap Growth Fund was part of the Navellier
Performance Funds. Effective October 6, 2003, the Navellier Performance Fund
Large Cap Growth Fund and the Navellier Millennium Large Cap Growth Fund were
merged into Touchstone Large Cap Growth Fund, a series of the Trust. The
accounting and performance history of the Navellier Performance Large Cap
Growth Fund was carried forward. The Touchstone Large Cap Growth Fund remained
the legal and tax survivor. See Note 7.
The Large Cap Growth Fund seeks long-term growth of capital. Under normal
circumstances, the Fund will invest at least 80% of its assets in a
non-diversified portfolio of common stocks of large cap companies.
The Fund offers three classes of shares: Class A shares (currently sold
subject to a maximum front-end sales load of 5.75% and a distribution fee of
up to 0.25% of average daily net assets), Class B shares (sold subject to a
maximum contingent deferred sales load of 5.00% for a one-year period that is
reduced incrementally over time and a distribution fee of up to 1.00% of average
daily net assets) and Class C shares (sold subject to a 1.00% contingent
deferred sales load for a one-year period and a distribution fee of up to
1.00% of average daily net assets). Each Class A, Class B and Class C
share of the Fund represents identical interests in the investment
portfolio of the Fund and has the same rights, except that (i) Class B and
Class C shares bear the expenses of higher distribution fees, which is expected
to cause Class B and Class C shares to have a higher expense ratio and to pay
lower dividends than Class A shares; (ii) certain other class specific
expenses will be borne solely by the class to which such expenses are
attributable; and (iii) each class has exclusive voting rights with respect to
matters relating to its own distribution arrangements.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Fund's significant accounting policies:
Security valuation -- Securities for which market quotations are readily
available are valued at the last sale price on national securities exchanges,
or, in the absence of recorded sales, at the readily available closing bid price
on such exchanges, or at the quoted bid price in the over-the-counter market.
Securities which are quoted by NASDAQ are valued at the NASDAQ Official Closing
Price. If there are no sales on that day, the securities are valued at the mean
between the closing bid and asked prices as reported by NASDAQ. Securities not
traded on a particular day, or for which a closing 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. Securities for which market quotations are not readily
available are valued at their fair value as determined in good faith in
accordance with consistently applied procedures approved by and under the
general supervision of the Board of Trustees. Money market instruments are
valued at amortized cost which approximates market.
Share valuation -- The net asset value per share of each class of shares of the
Fund is calculated daily by dividing the total value of the Fund's assets
attributable to that class, less liabilities attributable to that class, by the
number of shares of that class outstanding.
11
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
The maximum offering price per share of Class A shares of the Fund is equal to
the net asset value per share plus a sales load equal to 6.10% of the net asset
value (or 5.75% of the offering price). The maximum offering price per share of
Class B and Class C shares of the Fund is equal to the net asset value per
share.
The redemption price per share of each class of shares of the Fund is
equal to the net asset value per share. However, Class B and Class C shares of
the Fund are subject to a contingent deferred sales load of 5% and 1%,
respectively, of the original purchase price if redeemed within a one-year
period from the date of purchase. The contingent deferred sales charge for Class
B shares will be incrementally reduced over time. After the 6th year, there is
no contingent deferred sales charge for Class B shares.
Investment income -- Dividend income is recorded on the ex-dividend date.
Interest income, which includes the amortization of premium and accretion of
discount, if any, is recorded on an accrual basis.
Distributions to shareholders -- Dividends arising from net investment income,
if any, are declared and paid to shareholders quarterly. Net realized short-term
capital gains, if any, may be distributed throughout the year and net realized
long-term capital gains, if any, are distributed at least once each year.
Income dividends and capital gain distributions are determined in accordance
with income regulations.
As discussed in Note 7, as a result of the acquisitions, the accounting survivor
differs from the legal/tax survivor for the Fund as of December 31, 2003.
Prior to the acquisitions, the accounting survivor had a tax year end of
December 31 and the legal/tax survivor had a tax year end of March 31. The
accounting survivor fund ("Fund") will file a tax return as of the date of
the acquisitions for its pre-acquisition results and will then change its
tax year end to March 31. As December 31, 2003 is not the tax year end for the
Fund, the tax character of accumulated deficit and distributions as of
December 31, 2003 cannot be determined.
Allocations -- Investment income earned, realized capital gains and losses, and
unrealized appreciation and depreciation for the Fund are allocated daily to
each class of shares based upon its proportionate share of total net assets of
the Fund. Class specific expenses are charged directly to the class incurring
the expense. Common expenses, which are not attributable to a specific class,
are allocated daily to each class of shares based upon its proportionate share
of total net assets of the Fund. Expenses not directly billed to a Fund are
allocated proportionally among all Funds in the Trust daily in relation to net
assets of each Fund or another reasonable measure.
Security transactions -- Security transactions are accounted for on the trade
date. Securities sold are determined on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 tax -- It is the Fund's policy to comply with the special
provisions of the Internal Revenue Code applicable to regulated investment
companies. As provided therein, in any fiscal year in which the Fund so
qualifies and distributes at least 90% of its taxable net income, the Fund (but
not the shareholders) will be relieved of federal income tax on the income
distributed. Accordingly, no provision for income taxes has been made.
12
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare and pay as
dividends in each calendar year at least 98% of its net investment income
(earned during the calendar year) and 98% of its net realized capital gains
(earned during the twelve months ending October 31) plus undistributed amounts
from prior years.
The Fund made no distributions during the years ended December 31, 2003 or 2002.
As of December 31, 2003, the aggregate cost of securities for financial
reporting purposes is shown on the Fund's Portfolio of Investments and differs
from market value by unrealized appreciation of securities as follows:
- --------------------------------------------------------------------------------
Unrealized appreciation ................................ $ 9,830,172
Unrealized depreciation ................................ (473,261)
-----------
Net unrealized appreciation ............................ $ 9,356,911
- --------------------------------------------------------------------------------
The aggregate cost of securities for federal income tax purposes is determined
at the Fund's tax year end (see Distributions to Shareholders Note).
As of December 31, 2003, the Fund had accumulated net realized losses on
investments for financial reporting purposes of $56,994,394.
Realized capital loss carryovers which are available to offset future capital
gains are determined at the Fund's tax year end (see Distributions to
Shareholders Note). As a result of the Fund acquisitions, discussed in Note 7,
utilization of capital loss carryovers, if any, may be limited based on certain
provisions of the Internal Revenue Code.
3. INVESTMENT TRANSACTIONS
For the year ended December 31, 2003, the Fund's purchases and sales (including
maturities) of securities (excluding short-term securities) were $49,245,284 and
$48,068,868, respectively.
4. TRANSACTIONS WITH AFFILIATES
The President and certain other officers of the Trust are also officers of
Touchstone Advisors, Inc. (the Adviser), the Trust's investment adviser,
Touchstone Securities, Inc. (the Underwriter), the Trust's principal
underwriter, or Integrated Fund Services, Inc. (Integrated), the Trust's
administrator, transfer agent and accounting services agent. The Adviser, the
Underwriter and Integrated are each wholly-owned, indirect subsidiaries of The
Western and Southern Life Insurance Company.
13
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
MANAGEMENT AGREEMENT
Through October 5, 2003, Navellier Management, Inc. (Navellier) served as the
investment adviser to the Fund. For such services, Navellier earned a fee,
computed and accrued daily and paid monthly, at an annual rate of 0.84%.
Effective October 6, 2003 (the merger date, see Note 7), Touchstone Advisers,
Inc. became the adviser to the Fund. The Adviser provides general investment
supervisory services for the Fund, under the terms of a Management Agreement.
Under the Management Agreement, the Large Cap Growth Fund pays the Adviser a
fee, which is computed and accrued daily and paid monthly, at an annual rate of
0.75% on the first $200 million of average daily net assets; 0.70% of the next
$300 million of average daily net assets; and 0.50% of such assets in excess of
$500 million.
Effective October 6, 2003, Navellier has been retained by the Adviser to manage
the investments of the Fund. The Adviser (not the Fund) pays Navellier a fee for
these services.
The Adviser has entered into an agreement to contractually limit operating
expenses of the Fund. The maximum operating expense limit in any year with
respect to the Fund is based on a percentage of the average daily net
assets of the Fund. The Adviser has agreed to waive advisory fees and reimburse
expenses in order to maintain expense limitations for the Large Cap Growth Fund
as follows: 1.30% for Class A shares, 2.25% for Class B shares, and 2.25% for
Class C shares. These expense limitations remain in effect until October 6,
2005. Prior to October 6, 2003, Navellier contractually agreed to limit
operating expenses of the Fund to 1.49%.
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement, Integrated supplies executive
and regulatory compliance services, supervises the preparation of tax returns,
and coordinates the preparation of reports to shareholders and reports to and
filings with the Securities and Exchange Commission and state securities
authorities and materials for meetings of the Board of Trustees. For these
services, Integrated receives a monthly fee from the Fund.
TRANSFER AGENT AND SHAREHOLDER SERVICE AGREEMENT
Under the terms of the Transfer Agency Agreement between the Trust and
Integrated, Integrated maintains the records of each shareholder's account,
answers shareholders' inquiries concerning their accounts, processes purchases
and redemptions of the Fund's shares, acts as dividend and distribution
disbursing agent and performs other shareholder service functions. For these
services, Integrated receives a monthly fee per shareholder account from the
Fund, subject to a minimum monthly fee for each class of shares of the Fund, as
applicable. In addition, the Fund pays Integrated out-of-pocket expenses
including, but not limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement between the Trust and
Integrated, Integrated calculates the daily net asset value per share and
maintains the financial books and records of the Fund. For these services,
Integrated receives a monthly fee, based on current net asset levels from the
Fund. In addition, the Fund pays Integrated certain out-of-pocket expenses
incurred by Integrated in obtaining valuations of the Fund's portfolio
securities.
UNDERWRITING AGREEMENT
The Underwriter is the Fund's principal underwriter and, as such, acts as the
exclusive agent for distribution of the Fund's shares. Under the terms of the
Underwriting Agreement between the Trust and Underwriter, the Underwriter earned
$12,877 from underwriting and broker commissions on the sale of shares of the
Fund during the period October 6, 2003 through December 31, 2003. In addition,
the Underwriter collected $2,396, of contingent deferred sales loads on the
redemption of Class B and Class C shares of the Fund. Prior to October 6,
Navellier Securities Corp. was the Fund's Distributor.
14
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
PLANS OF DISTRIBUTION
The Trust has a Plan of Distribution (Class A Plan) under which Class A shares
of the Fund may directly incur or reimburse the Adviser for expenses related to
the distribution and promotion of shares. The annual limitation for payment of
such expenses under the Class A Plan is 0.25% of average daily net assets
attributable to such shares.
The Trust also has a Plan of Distribution (Class B and Class C Plan) under which
Class B and Class C shares of the Fund may directly incur or reimburse the
Adviser for expenses related to the distribution and promotion of shares. The
annual limitation for payment of such expenses under the Class B and Class C
Plan is 1.00% of average daily net assets attributable to Class B and Class C
shares.
PORTFOLIO SECURITIES LOANED
As of December 31, 2003, the Fund loaned common stocks having a fair value of
approximately $1,933,736 and received cash collateral of $1,987,160 for the
loan. All collateral received as cash and securities is received, held and
administered by the Fund's custodian for the benefit of the Fund in the
applicable custody account or other account established for the purpose of
holding collateral. The Fund receives compensation in the form of fees, or it
retains a portion of interest on the investment of any cash received as
collateral.
The Fund also continues to receive interest or dividends on the securities
loaned. The loans are secured by collateral at least equal, at all times, to the
fair value of the securities loaned plus accrued interest. Gain or loss in the
fair value of the securities loaned that may occur during the term of the loan
will be for the account of the Fund. The Fund has the right under the lending
agreement to recover the securities from the borrower on demand.
15
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
5. CAPITAL SHARE TRANSACTIONS
Proceeds and payments on capital shares as shown in the Statements of Changes in
Net Assets are the result of the following capital share transactions for the
periods shown:
- --------------------------------------------------------------------------------
Large Cap Growth Fund
- --------------------------------------------------------------------------------
Year Ended Year Ended
December 31, December 31,
2003 2002
- --------------------------------------------------------------------------------
CLASS A
Shares sold ...................................... 916,519 469,930
Shares issued in connection with acquisitions .... 2,561,534 --
Shares redeemed .................................. (850,347) (588,022)
---------- ----------
Net increase (decrease) in shares outstanding .... 2,627,706 (118,092)
Shares outstanding, beginning of year ............ 1,134,468 1,252,560
---------- ----------
Shares outstanding, end of year .................. 3,762,174 1,134,468
---------- ----------
CLASS B
Shares sold ...................................... 35,834 --
Shares issued in connection with acquisitions .... 33,380 --
Shares redeemed .................................. (8,449) --
---------- ----------
Net increase in shares outstanding ............... 60,765 --
Shares outstanding, beginning of period .......... -- --
---------- ----------
Shares outstanding, end of period ................ 60,765 --
---------- ----------
Class C
Shares sold ...................................... 78,268 --
Shares issued in connection with acquisitions .... 77,097 --
Shares redeemed .................................. (6,005) --
---------- ----------
Net increase in shares outstanding ............... 149,360 --
Shares outstanding, beginning of period .......... -- --
---------- ----------
Shares outstanding, end of period ................ 149,360 --
---------- ----------
- --------------------------------------------------------------------------------
6. PRIOR SERVICE AGREEMENTS
Prior to September 8, 2003, the date when Integrated began servicing the Fund,
FBR National Bank and Trust Company (FBR) provided transfer agency, dividend
disbursing and other shareholder services to the Fund. Fees paid to FBR for
these services are presented on the Statement of Operations as "Transfer agent
and custodian fees". Transfer agent fees listed by class on the Statement of
Operations represent fees paid to Integrated after September 8, 2003.
16
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
7. ACQUISITIONS
On October 3, 2003, a Special Meeting of Shareholders of the Navellier
Performance Large Cap Growth Fund, a series of the Navellier Performance Trust,
was held to approve or disapprove an Agreement and Plan of Reorganization
providing for the acquisition of all of the assets and liabilities of Navellier
Performance Large Cap Growth Fund and Navellier Millennium Large Cap Growth Fund
by Touchstone Large Cap Growth Fund, a series of the Trust, in exchange for
shares of the Touchstone Large Cap Growth Fund Class A, Class B and Class C
shares.
The merger was completed on October 6, 2003. Upon completion of the merger,
Navellier Performance Large Cap Growth Fund became the accounting and
performance survivor, while the Touchstone Large Cap Growth Fund remained as the
legal and tax survivor.
The following is a summary of shares outstanding, net assets, net asset value
per share, unrealized appreciation and accumulated net realized losses
immediately before and after the reorganization:
BEFORE AFTER
REORGANIZATION REORGANIZATION
-----------------------------------------------------------
NAVELLIER NAVELLIER
PERFORMANCE MILLENNIUM TOUCHSTONE TOUCHSTONE
LARGE CAP LARGE CAP LARGE CAP LARGE CAP
GROWTH FUND GROWTH FUND GROWTH FUND GROWTH FUND
- ---------------------------------------------------------------------------------------------
SHARES:
Class A .................... 1,289,869 74,609 4,159,880 3,851,403
Class B .................... -- 60,117 19,779 33,380
Class C .................... -- 49,371 103,777 77,097
NET ASSETS:
Class A .................... $ 19,929,229 $ 431,538 $ 39,180,214 $ 59,540,981
Class B .................... $ -- $ 341,599 $ 174,187 $ 515,786
Class C .................... $ -- $ 279,161 $ 910,821 $ 1,189,982
NET ASSET VALUE:
Class A .................... $ 15.45 $ 5.78 $ 9.42 $ 15.46
Class B .................... $ -- $ 5.68 $ 8.81 $ 15.45
Class C .................... $ -- $ 5.65 $ 8.78 $ 15.45
UNREALIZED APPRECIATION ....... $ 3,625,953 $ 206,378 $ 1,099,700 $ 4,932,031
ACCUMULATED NET REALIZED LOSSES $(21,253,352) $ (428,229) 35,298,142 $(56,979,723)
- ---------------------------------------------------------------------------------------------
The merger discussed above qualified as a tax-free exchange for Federal income tax purposes.
17
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
8. SPECIAL MEETING OF SHAREHOLDERS
A Special Meeting of Shareholders of the Trust was held August 22, 2003 to
approve or disapprove a proposal to change the investment restriction of the
Fund to allow the Fund to change from a diversified to a non-diversified Fund.
The proposal was approved as follow:
Number of Shares
-----------------------------------------
For Against Abstain
-----------------------------------------
3,675,547 22,094 16,496
9. CHANGE IN DISTRIBUTION POLICY
Effective January 1, 2004, the Fund will distribute dividends arising from net
investment income annually.
18
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
10. MANAGEMENT OF THE TRUST (UNAUDITED)
Listed below is basic information regarding the Trustees and principal officers
of the Trust. The Trust's Statement of Additional Information includes
additional information about the Trustees and is available, without charge, upon
request by calling 1.800.543.0407.
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES1:
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
FUNDS
OVERSEEN
NAME POSITION(S) TERM OF OFFICE2 IN THE OTHER
ADDRESS HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) TOUCHSTONE DIRECTORSHIPS
AGE TRUST TIME SERVED DURING PAST 5 YEARS FAMILY3 HELD4
- ------------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder Trustee Until retirement President and a director of IFS 29 Director of
Touchstone Advisors, Inc. at age 75 or Financial Services, Inc. (a holding LaRosa's (a
221 East Fourth Street until she resigns company), Touchstone Advisors, Inc. restaurant
Cincinnati, OH or is removed. (the Trust's investment advisor) chain).
Age: 47 Trustee since and Touchstone Securities, Inc.
1999. (the Trust's principal
underwriter). She is Senior Vice
President of The Western and
Southern Life Insurance Company and
a director of Capital Analysts
Incorporated (a registered
investment advisor and
broker-dealer), Integrated Fund
Services, Inc. (the Trust's
administrator and transfer agent)
and IFS Fund Distributors, Inc. (a
registered broker-dealer). She is
also President and a director of
IFS Agency Services, Inc. (an
insurance agency), IFS Insurance
Agency, Inc. and Fort Washington
Brokerage Services, Inc. (a
registered broker-dealer).
- ------------------------------------------------------------------------------------------------------------------------------------
John F. Barrett Trustee Until retirement Chairman of the Board, President 29 Director of
The Western and Southern at age 75 or and Chief 29 Executive Officer of The Andersons
Life Insurance Company until he resigns The Western and Southern Life (an
400 Broadway or is removed. Insurance Company and Western- agribusiness
Cincinnati, OH Trustee since Southern Life Assurance Company; and retailing
Age: 54 2002. Director and Vice Chairman of company);
Columbus Life Insurance Company; Convergys
Director of Eagle Realty Group, Corporation
Inc., and Chairman of Fort (a provider
Washington Investment Advisors, of integrated
Inc. billing
solutions,
customer care
services
and employee
care services
and Fifth
Third Bancorp.
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
J. Leland Brewster II Trustee Until retirement Retired Senior Partner of Frost 29 Director of
5155 Ivyfarm Road in 2005 or until Brown Todd LLC (a law firm). Consolidated
Cincinnati, OH he resigns or is Health
Age: 75 removed. Services, Inc.
Trustee since
2000.
- ------------------------------------------------------------------------------------------------------------------------------------
William O. Coleman Trustee Until retirement Retired Vice President of The 29 Director of
c/o Touchstone Advisors, Inc. at age 75 or Procter & Gamble Company. A Trustee LCA-Vision (a
221 East Fourth Street until he resigns of The Procter & Gamble Profit laser vision
Cincinnati, OH or is removed. Sharing Plan and the Procter & correction
Age: 73 Trustee since Gamble Employee Stock Ownership company) and
1999. Plan. Millenium
Bancorp.
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip R. Cox Trustee Until retirement President and Chief Executive 29 Director of
105 East Fourth Street at age 75 or Officer of Cox Financial Corp. (a the Federal
Cincinnati, OH until he resigns financial services company). Reserve Bank
Age: 56 or is removed. of Cleveland;
Trustee since Broadwing,
1999. Inc. (a
communication
company); and
Cinergy
Corporation
(a utility
company).
- ------------------------------------------------------------------------------------------------------------------------------------
19
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
Independent Trustees (Continued):
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
FUNDS
OVERSEEN
NAME POSITION TERM OF OFFICE IN THE OTHER
ADDRESS HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) TOUCHSTONE DIRECTORSHIPS
AGE TRUST1 TIME SERVED DURING PAST FIVE YEARS FAMILY2 HELD
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
H. Jerome Lerner Trustee Until retirement Principal of HJL Enterprises (a 29 None
4700 Smith Road at age 75 or privately held investment company);
Cincinnati, OH until he resigns Chairman of Crane Electronics, Inc.
Age: 65 or is removed. (a manufacturer of electronic
Trustee since connectors).
1989.
- ------------------------------------------------------------------------------------------------------------------------------------
Oscar P. Robertson Trustee Until retirement President of Orchem, Inc. (a 29 Director of
621 Tusculum Avenue at age 75 or chemical specialties distributor), Countrywide
Cincinnati, OH until he resigns Orpack Stone Corporation (a Credit
Age: 65 or is removed. corrugated box manufacturer) and Industries,
Trustee since ORDMS (a solution planning firm). Inc.
1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert E. Stautberg Trustee Until retirement Retired Partner and Director of 29 Trustee of
4815 Drake Road at age 75 or KPMG LLP (a certified public Tri-Health,
Cincinnati, OH until he resigns accounting firm). He is a Vice Inc., Good
Age: 69 or is removed. President of St. Xavier High Samaritan
Trustee since School. Hospital and
1999. Bethesda
Hospital.
- ------------------------------------------------------------------------------------------------------------------------------------
John P. Zanotti Trustee Until CEO and Chairman of Avaton, Inc. (a 29 Director of
5400 Waring Drive retirement wireless entertainment company). Avaton, Inc.
Cincinnati, OH at age 75 or President of Cincinnati Biomedical.
Age: 55 until he CEO and Chairman of Astrum Digital
resigns or Information (an information
is removed. monitoring company) from 2000 until
Trustee 2001; President of Great American
since 2002 Life Insurance Company from 1999
until 2000; A Director of Chiquita
Brands International, Inc. until
2000; Senior Executive of American
Financial Group, Inc. (a financial
services company) from 1996 until
1999.
- ------------------------------------------------------------------------------------------------------------------------------------
1 Ms. McGruder, as President and a director of the Adviser and the Underwriter, is an "interested
person" of the Trust within the meaning of Section 2(a)(19) of the Investment Company Act of 1940. Mr.
Barrett, as President and Chairman of The Western and Southern Life Insurance Company and Western-Southern
Life Assurance Company, parent companies of the Adviser and the Underwriter, and Chairman of Fort
Washington, a Trust sub-advisor, is an "interested person" of the Trust within the meaning of Section 2(a)(19)
of the Investment Company Act of 1940.
2 Each Trustee is elected to serve until the age of 75 or after five years of service, whichever is greater, or
until he or she resigns or is removed.
3 The Touchstone Family of Funds consists of six series of the Trust, six series of Touchstone Tax-Free Trust,
six series of Touchstone Investment Trust and eleven variable annuity series of Touchstone Variable Series
Trust.
4 Each Trustee is also a Trustee of Touchstone Tax-Free Trust, Touchstone Investment Trust and Touchstone
Variable Series Trust.
20
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OFFICERS:
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
FUNDS
OVERSEEN
NAME POSITION TERM OF OFFICE IN THE OTHER
ADDRESS HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) TOUCHSTONE DIRECTORSHIPS
AGE TRUST1 TIME SERVED DURING PAST FIVE YEARS FAMILY2 HELD
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Patrick T. Bannigan President Until he sooner Senior Vice President of 29 None
Touchstone Advisor, Inc. dies, resigns, Touchstone Advisors, Inc. and
221 East Fourth Street is removed or Touchstone Securities, Inc.;
Cincinnati, OH becomes Senior Vice President of Evergreen
Age: 37 disqualified. Investment Services until March
President since 2002.
2002.
- ------------------------------------------------------------------------------------------------------------------------------------
Brian E Hirsch Vice Until Director of Compliance of Fort 29 None
Touchstone Advisors, Inc. President retirement at Washington Brokerage Services,
221 East Fourth Street age 75 or until Inc.; Chief Compliance Officer of
Cincinnati, OH he resigns or Puglisi & Co., from May 2001 until
Age: 46 is removed. August 2002; Vice President-
Vice President Compliance of Palisade Capital
since 2003. Management from June 1997 until
January 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Michael S. Spangler Vice Until he sooner Vice President of Touchstone 29 None
Touchstone Advisors, Inc. President dies, resigns, Advisors, Inc. and Touchstone
221 East Fourth Street is removed or Securities, Inc.; Vice President
Cincinnati, OH becomes of Evergreen Investment Services
Age: 36 disqualified. until July 2002.
Vice President
since 2002.
- ------------------------------------------------------------------------------------------------------------------------------------
Terrie A. Wiedenheft Controller Until she Senior Vice President, Chief 29 None
Touchstone Advisors, Inc. and sooner dies, Financial Officer and Treasurer of
221 East Fourth Street Treasurer resigns, is Integrated Fund Services, Inc.,
Cincinnati, OH removed or IFS Fund Distributors, Inc. and
Age: 40 becomes Fort Washington Brokerage
disqualified. Services, Inc. She is Chief
Controller Financial Officer of IFS Financial
since 2000. Services, Inc., Touchstone
Treasurer since Advisors, Inc. and Touchstone
2003. Securities, Inc. and Assistant
Treasurer of Fort Washington
Investment Advisors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Tina Hosking Bloom Secretary Until she sooner Vice President - Managing Attorney 29 None
Integrated Fund Services, Inc. dies, resigns, of Integrated Fund Services, Inc.
221 East Fourth Street is removed or and IFS Fund Distributors, Inc.
Cincinnati, OH becomes
Age: 35 disqualified.
Secretary
since 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
1 Each officer also holds the same office with Touchstone Investment Trust, Touchstone Tax-Free Trust and
Touchstone Variable Series Trust.
2 The Touchstone Family of Funds consists of six series of the Trust, six series of Touchstone
Tax-Free Trust, six series of Touchstone Investment Trust and eleven variable annuity series
of Touchstone Variable Series Trust.
LARGE CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 2003
================================================================================
MARKET
COMMON STOCKS -- 95.7% ......................... SHARES VALUE
- --------------------------------------------------------------------------------
HEALTH -- 19.5%
Alcon, Inc. .................................... 26,550 $ 1,607,337
Boston Scientific Corp.* ....................... 67,630 2,486,078
Gilead Sciences, Inc.* ......................... 17,890 1,040,125
Guidant Corp. .................................. 37,035 2,229,507
Stryker Corp. .................................. 15,450 1,313,405
Teva Pharmaceutical Industries Ltd. - ADR ...... 31,795 1,803,094
Zimmer Holdings, Inc.* ......................... 34,110 2,401,343
----------
12,880,889
----------
INTERNET -- 16.3%
Amazon.com, Inc.* .............................. 34,955 1,840,031
Cisco Systems, Inc.* ........................... 117,750 2,860,148
eBay, Inc.* .................................... 44,430 2,869,734
Yahoo!, Inc.* .................................. 69,525 3,140,443
----------
10,710,356
----------
TELECOMMUNICATIONS -- 12.1%
America Movil S.A. - ADR ....................... 46,925 1,282,930
Corning, Inc.* ................................. 127,900 1,333,997
Nextel Communications - Class A* ............... 77,660 2,179,140
QUALCOMM, Inc. ................................. 57,880 3,121,467
----------
7,917,534
----------
CONSUMER, CYCLICAL -- 12.1%
Avon Products, Inc. ............................ 22,205 1,498,615
Bed Bath & Beyond, Inc.* ....................... 29,695 1,287,278
Lowe's Companies, Inc. ......................... 24,150 1,337,669
NIKE, Inc. - Class B* .......................... 12,070 826,312
Nissan Motor Co., Ltd. - ADR ................... 61,245 1,375,563
The Gap, Inc. .................................. 68,555 1,591,162
----------
7,916,599
----------
COMPUTERS & Information -- 8.2%
Dell, Inc.* .................................... 61,780 2,098,048
Hewlett-Packard ................................ 66,110 1,518,547
International Business Machines ................ 19,270 1,785,944
----------
5,402,539
----------
OIL & GAS -- 6.2%
Apache ......................................... 15,800 1,281,380
Imperial Oil Ltd. .............................. 33,300 1,479,186
Occidental Petroleum Corp. ..................... 31,600 1,334,784
----------
4,095,350
----------
TECHNOLOGY -- 5.6%
Computer Associates International, Inc. ........ 57,915 1,583,396
Emulex Corp.* .................................. 16,000 426,880
Microsoft Corp. ................................ 60,835 1,675,396
----------
3,685,672
----------
FINANCIAL -- 4.1%
Progressive Corp.* ............................. 31,825 2,660,252
----------
22
LARGE CAP GROWTH FUND
(CONTINUED)
================================================================================
COMMON STOCKS-- 95.7% Shares Market Value
- ------------------------------------------------------------------------------
ENTERTAINMENT-- 3.0%
Fox Entertainment Group - Class A* ................. 66,545 $ 1,939,787
-----------
INDUSTRIAL -- 2.6%
Applied Materials* ................................. 77,110 1,731,120
-----------
UTILITY-- 2.1%
Entergy Corp. ...................................... 24,170 1,380,832
-----------
RECREATIONAL PRODUCTS -- 2.0%
International Game Technology ...................... 35,925 1,282,523
-----------
BASIC MATERIALS-- 1.9%
Newmont Mining Corp.* .............................. 25,375 1,233,479
-----------
TOTAL COMMON STOCKS -- 95.7%
(Cost $53,480,021) ................................. 62,836,932
OTHER ASSETS IN EXCESS OF LIABILITIES-- 4.3% ....... 2,816,672
-----------
NET ASSETS-- 100.0% ................................ $65,653,604
===========
* Non-income producing security
ADR - American Depository Receipt
See accompanying notes to financial statements
23
REPORT OF INDEPENDENT AUDITORS
================================================================================
To the Board of Trustees and Shareholders of
Touchstone Strategic Trust
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of the Large Cap Growth Fund (the "Fund"), a
series of the Touchstone Strategic Trust, as of December 31, 2003, and the
related statement of operations, statement of changes in net assets and
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net assets
for the year ended December 31, 2002 and the financial highlights for each of
the four years in the period ended December 31, 2002 were audited by other
auditors whose report dated February 12, 2003 expressed an unqualified opinion
on that statement of changes in net assets and those financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 2003, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Large Cap Growth Fund of the Touchstone Strategic Trust as of December 31, 2003,
and the results of its operations, the changes in its net assets and financial
highlights for the year then ended, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
Cincinnati, Ohio
February 18, 2004
24
<page>
ITEM 2. CODE OF ETHICS.
At the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to its principal executive officer and principal
financial officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that the registrant has at
least one audit committee financial expert serving on its audit committee. Mr.
Robert Stautberg is the registrant's audit committee financial expert and is an
independent trustee within the meaning of the Investment Company Act of 1940, as
amended (the "1940 Act").
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
3-31-2003 3-31-2002
Audit Fees $ 35,500 $ 34,500
Audit-Related Fees 0 0
Tax Fees 24,900 35,500
All Other Fees 0 0
Item 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable
Item 6. RESERVED
Item 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. RESERVED
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based on an evaluation of the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the 1940 Act) the
registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosures and
procedures are effective as of a date within 90 days of the filing
date of this report.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act)
that occurred during the registrant's second fiscal half-year that
have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a)(1) Code of Ethics for Senior Financial Officers is filed herewith.
(a)(2) Certifications required by Item 10(a)(2) of Form N-CSR are filed
herewith.
(b) Certification required by Item 10(b) of Form N-CSR is filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Touchstone Strategic Trust
-------------------------------------------------------------------
By (Signature and Title)
/s/ Michael S. Spangler
- -------------------------------------------------------------------------------
Michael S. Spangler
President
Date: March 8, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)
/s/ Michael S. Spangler
- -------------------------------------------------------------------------------
Michael S. Spangler
President
Date: March 8, 2004
/s/ Terrie A. Wiedenheft
- ------------------------------------------------------------------------------
Terrie A. Wiedenheft
Controller & Treasurer
Date: March 8, 2004