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
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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)
JILL T. MCGRUDER, 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: 3/31/04
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Date of reporting period: 3/31/04
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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.
ITEM 1. REPORTS TO STOCKHOLDERS.
Annual Report
March 31, 2004
[TOUCHSTONE INVESTMENTS LOGO]
Annual Report
Touchstone Emerging Growth Fund
Touchstone Enhanced 30 Fund
Touchstone Growth Opportunities Fund
Touchstone Large Cap Growth Fund
Touchstone Small Cap Growth Fund
Touchstone Value Plus Fund
Research o Design o Select o Monitor
Capital Appreciation o Total Return
TABLE OF CONTENTS
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Page
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Letter from the President 3
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Management's Discussion of Fund Performance 4-15
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Statements of Assets and Liabilities 16-19
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Statements of Operations 20-21
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Statements of Changes in Net Assets 22-24
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Financial Highlights 25-42
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Notes to Financial Statements 43-54
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Portfolios of Investments:
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Emerging Growth Fund 55-58
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Enhanced 30 Fund 59-60
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Growth Opportunities Fund 61-62
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Large Cap Growth Fund 63-64
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Small Cap Growth Fund 65-68
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Value Plus Fund 69-71
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Report of Independent Auditors 72
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Management of the Trust 73-75
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Other Items 76
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2
LETTER FROM THE PRESIDENT
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Dear Fellow Shareholder:
Enclosed is the Touchstone Strategic Trust Annual Report for the twelve months
ended March 31, 2004. The stock market registered strong gains during the period
and has shown the ability to sustain positive growth. The key drivers behind the
stock market's favorable performance were robust economic growth, strong
earnings, and a unique combination of monetary and fiscal stimulus - low
interest rates and tax cuts.
The markets did witness a correction in the first quarter of 2004. However,
analysts view this as a temporary hindrance and not a reversal. In the first
quarter of 2004, a rotation to larger company stocks was evident. Smaller
company stocks were the best performing in 2003, with technology and consumer
stocks posting the best gains.
Profits and cash flow for U.S. companies continue to improve, which analysts
believe should strengthen capital spending for the remainder of 2004. Recently,
the economy has transitioned from a rapid recovery stage to a moderate expansion
phase. After surging at a 6.1% annual rate in the second half of 2003, GDP is
expected to grow at a 4% to 4.5% pace in 2004. Despite the signs of overall
economic strength, the labor market has shown limited improvement. However, the
March employment report provided an encouraging sign with a more rapid growth of
payrolls since April of 2000.
The weight of evidence of an expanding economy shows an optimistic view toward
equity exposure in the next year. However, some of the underlying risks include
geopolitical uncertainties, unemployment and interest rate movements. Even
though these factors may impact the economy and markets, focusing on a long-term
approach to your portfolio and remaining diversified among various asset classes
may help you better achieve your financial objectives.
Touchstone Investments partners with a select group of sub-advisors who are
experts in their respective investing disciplines. By researching and monitoring
financial market trends, we seek to identify the best possible investment
solutions.
Thank you for the opportunity to assist you in meeting your financial goals. We
appreciate the trust and confidence you have placed with us. We look forward to
serving your investment needs in the future.
Sincerely,
/S/ Jill T. McGruder
Jill T. McGruder
President, Touchstone Strategic Trust
3
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
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EMERGING GROWTH FUND
CURRENT STRATEGY
The Fund's total return was 56.44% for the twelve months ended March 31, 2004.
he Russell 2000 Index was 63.83% and the Russell 2500 Index was 60.64% for the
ame period.
TCW INVESTMENT MANAGEMENT COMPANY
The solid performance this past year was attributable to the building of
positions in 2002 and early 2003 during the bear market. We intensified our
research effort and accumulated positions in many undervalued equities.
Our holdings in Cyclical and Industrial Technology industries benefited in 2003
from a dramatic improvement in order bookings and earnings prospects. As these
stocks appreciated, we reduced our positions and redeployed the proceeds into
freshly researched equities that could enhance future performance.
Given the powerful rally from the March 2003 lows and the tremendous
appreciation in a number of our holdings, we are cutting back positions in those
companies approaching our price targets and redeploying the proceeds into "out
of favor" equities.
There are a host of reasons for our optimism. The stock market gains for most of
the broad indices since the March 11, 2003 lows are now just slightly below the
average historical market recovery nine months into a new bull market following
a recession. Given that productivity growth in the U.S. economy has exceeded
expectations, the Federal Reserve can tolerate higher Gross Domestic Product
growth without worrying about inflation. Indeed the Federal Reserve has learned
from Japan that a premature monetary tightening can send the economy into a
slump. The low level of short-term interest rates provides a powerful inducement
for investors to seek higher returns in equities. The U.S. economy appears to be
in a self-sustaining expansion and corporate profit should continue to surprise
on the upside as we continue through 2004.
WESTFIELD CAPITAL MANAGEMENT COMPANY
Over the past twelve months, our holdings in Health Care stocks notably
outperformed. Despite a slight underweight during the year, the sector was the
largest contributor on an absolute basis. Impressive stock selection and our
disciplined investment process also prevented any serious losses in the sector.
Slightly overweight the benchmark, Industrial exposure was another area where we
added value. Many of our holdings are focused on the business services industry
and we believe that many Industrial products are likely to remain in strong
demand patterns for the first time in a generation.
Over the last year the Technology sector has been the most difficult area to
keep pace. A sizable portion of the gains in Technology was driven by companies
that lose money and do not meet our `buy' criteria. Although Technology stocks
appreciated greatly, we would not have expected our stocks to outperform in last
year's environment. Gains were particularly impressive in the semiconductor
capital equipment makers.
Consumer Discretionary and Financials maintained their position in the portfolio
relative to the benchmark, both in terms of weightings and performance. Many of
the stocks that had good performance in the last year were retail oriented, such
as the specialty and niche retailers. In Financials, notable investments
included our community bank shares, and as we have trimmed our exposure to some
of the reinsurance and property/casualty insurers, we have allocated cash to a
couple of non-standard auto insurers.
4
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
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While we have strong conviction in the natural gas/commodity story in Energy,
our positions in the sector have been detrimental to performance. Energy was the
weakest sector in the benchmark and our overweight in oil service companies
produced gains that trailed the benchmark. The sector should benefit from a
rotation away from higher beta stocks and we believe that the fundamentals
indicate that our holdings are positioned for future success.
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
EMERGING GROWTH FUND - CLASS A*, THE RUSSELL 2000 INDEX
AND THE RUSSELL 2500 INDEX
[LINE CHART]
Emerging Growth A Russell 2000 Russell 2500
----------------- ------------ ------------
09/30/94 9,425 10,000 10,000
03/31/95 10,093 10,265 10,511
03/31/96 12,391 13,247 13,645
06/30/96 12,948 13,909 14,213
09/30/96 12,599 13,957 14,533
12/31/96 13,120 14,682 15,342
03/31/97 12,586 13,923 14,828
06/30/97 14,812 16,180 17,069
09/30/97 17,254 18,588 19,518
12/31/97 17,344 17,965 19,079
03/31/98 18,947 19,772 21,035
06/30/98 18,233 18,851 20,158
09/30/98 14,715 15,053 16,314
12/31/98 17,804 17,508 19,152
03/31/99 17,286 16,559 18,244
06/30/99 20,486 19,134 21,236
09/30/99 20,472 17,924 19,867
12/31/99 25,968 21,230 23,774
03/31/00 30,622 22,733 26,176
06/30/00 31,327 21,873 25,129
09/30/00 33,501 22,116 25,732
12/31/00 32,698 20,588 24,790
03/31/01 29,105 19,248 22,641
06/30/01 33,482 21,998 25,742
09/30/01 28,467 17,425 20,903
12/31/01 35,005 21,100 25,094
03/31/02 35,719 21,939 26,032
06/30/02 31,327 20,107 23,786
09/30/02 24,740 15,804 19,345
12/31/02 26,773 16,778 20,629
03/31/03 25,754 16,025 19,786
06/30/03 30,982 19,778 24,121
09/30/03 33,931 21,573 26,231
12/31/03 38,379 24,706 30,016
03/31/04 42,291 26,253 31,781
EMERGING GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR 5 YEARS SINCE INCEPTION*
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CLASS A 47.42% 17.05% 15.82%
CLASS B 55.86% -- 6.75%
CLASS C 59.68% 17.61% 15.61%
Past performance is not predictive of future performance.
* The chart above represents performance of Class A shares only, which will
vary from the performance of 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 commenced on October 3, 1994
and the initial public offering of Class B and Class C shares commenced on
May 1, 2001 and January 1, 1999, respectively. The Class C performance
information is calculated using the historical performance of the Fund's
predecessor, which was another mutual fund that began operations on October
3, 1994.
** 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.
5
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
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ENHANCED 30 FUND
CURRENT STRATEGY
The Fund's total return was 36.41% for the twelve months ended March 31, 2004.
The total return for the Dow Jones Industrial Average (DJIA) was 32.56% for the
same period.
The Fund outperformed the DJIA for several reasons. An overweighting in the
Technology sector was the largest contributing factor. As investors anticipated
an economic recovery, the Technology sector benefited heavily.
Technology, Consumer Discretionary, Materials, Industrials and Financials
sectors outperformed the DJIA during the past twelve months. The common theme
for these sectors is to leverage an improving economy as the Federal Reserve
remains accommodative. The "flight from quality" was the dominate market trend
during the period. As a point of reference, the 75 lowest quality stocks on the
S&P 500 Index rose almost 80% during the year, while the 30 highest quality
stocks rose only 15%.
The strategy of this Fund is to replace several members of the DJIA with other
stocks that we believe have better valuation and growth characteristics. At
March 31, 2004, the Fund replaced traditional stocks held in the DJIA - Alcoa,
International Paper, Eastman Kodak, General Motors, McDonalds, J.P. Morgan Chase
and AT&T and substituted them with Kimberly-Clark, Best Buy, Anthem, Cardinal
Health, Bank of America, Cisco Systems and Computer Sciences.
As we look ahead, we expect the economic recovery to continue. We also expect
the market to rotate towards higher-quality, dividend-paying stocks, which we
believe should benefit this Fund's investment strategy.
6
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
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COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
ENHANCED 30 FUND - CLASS A* AND THE DOW JONES INDUSTRIAL AVERAGE
[LINE CHART]
ENHANCED 30 - CLASS A DOW JONES INDUSTRIAL AVERAGE
--------------------- ----------------------------
05/16/00 9,425 05/16/00 10,000
05/31/00 9,341 05/31/00 9,634
06/30/00 9,273 06/30/00 9,577
07/31/00 9,171 07/31/00 9,651
08/31/00 9,571 08/31/00 10,310
09/30/00 9,318 09/30/00 9,803
10/31/00 9,588 10/31/00 10,104
11/30/00 9,188 11/30/00 9,615
12/31/00 9,263 12/31/00 9,967
01/31/01 9,263 01/31/01 10,069
02/28/01 8,936 02/28/01 9,728
03/31/01 8,313 03/31/01 9,165
6/30/2001 8,475 6/30/2001 9,782
9/30/2001 7,414 9/30/2001 8,279
12/31/2001 8,434 12/31/2001 9,425
3/31/2002 8,634 3/31/2002 9,826
6/30/2002 7,522 6/30/2002 8,773
9/30/2002 6,003 9/30/2002 7,242
12/31/2002 6,607 12/31/2002 8,009
3/31/2003 6,373 3/31/2003 7,717
6/30/2003 7,571 6/30/2003 8,730
9/30/2003 7,707 9/30/2003 9,060
12/31/2003 8,646 12/31/2003 10,274
3/31/2004 8,693 3/31/2004 10,230
ENHANCED 30 FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR SINCE INCEPTION*
------ ----------------
CLASS A 28.56% (3.55)%
CLASS B 31.37% (2.53)%
CLASS C 35.38% (2.67)%
Past Performance is Not Predictive of Future Performance.
* The chart above represents performance of Class A shares only, which will
vary from the performance of Class B and Class C shares based on the
differences in loads and fees paid by shareholders in the different classes.
The initial public offering of Class A shares was May 1, 2000 and the initial
public offering of Class B and Class C shares commenced on May 1, 2001 and
May 16, 2000, respectively.
** 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.
7
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
================================================================================
GROWTH OPPORTUNITIES FUND
CURRENT STRATEGY
The Fund's total return was 42.20% for the twelve months ended March 31, 2004.
The total return for the Russell 1000 Growth Index was 32.18% and the S&P 500
Index was 35.12% for the same period.
The Fund changed its benchmark from the S&P 500 Index to the Russell 1000 Growth
Index because the Russell 1000 Growth Index more accurately reflects the Fund's
portfolio composition. The Russell 1000 Growth Index measures the performance of
those Russell 1000 securities with higher price-to-book ratios and higher
forecasted growth. (The Russell 1000 securities offer investors access to the
extensive large cap segment of the U.S. equity universe representing
approximately 92% of the U.S. market).
The overall market indexes were positive throughout the twelve months ended
March 31, 2004, driven by expectations of strong earnings. Pre-announcements
continued to be less than expected and GDP statistics confirmed an accelerating
rate of economic activity. The profit recovery is propelling capital spending;
particularly in the Equipment and Software sectors and the ongoing market
recovery appears well founded in earnings, productivity and business spending
fundamentals.
Key drivers for growth equities during the period included an economy that
experienced a rising trend in corporate profits and cash flow, with the
expectation of both continuing throughout 2004. Companies that reported record
operating margins in a difficult environment experienced accelerating earnings
growth in a stabilized setting.
The Fund benefited from its sector focus as well as stock selection. All sectors
contributed positively to performance, but our overweighting of the Technology
and Health Care sectors significantly helped the Fund outperform the benchmark
Russell 1000 Growth index. Our focus on investment firms, rather than banks, in
the Fund's underweighted Financial Services sector also enhanced overall
performance. Although achieving positive results, the Media/ Entertainment
sector did not do as well as the other fund sectors.
The employment numbers during the most recent quarter exhibited increasing
strength. The ISM surveys for manufacturing and non-manufacturing projects
continued economic growth and improvement in broad-based employment. The Federal
Reserve has remained constructively accommodative. The economy marked its 8th
consecutive quarter of growth in the fourth quarter of 2003. Corporate profits
and cash flow are at record highs and are expected to move higher in 2004 as
productivity growth, which has exceeded historical trends for the last several
years, continues. The capital spending recovery also appears to be gathering
strength in response to sales and corporate profits.
Although geopolitical risk persists, as reflected in the terrorist attacks in
Spain and the renewed turmoil in Iraq, the short-term volatility these events
induce should not alter the underlying fundamentals. It appears that conditions
supporting higher valuations exist and have been reinforced by recent
developments. Interest rates remain at 45-year lows, and are likely to persist
longer than many expect. It is important to recognize that bull markets blossom
during periods of negative real rates, increasing the upside potential of the
equity market. The profit cycle adds another dimension to the valuation
prospects for the stock market.
8
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
================================================================================
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
GROWTH OPPORTUNITIES FUND - CLASS A*, THE STANDARD & POOR'S 500 INDEX
AND THE RUSSELL 1000 GROWTH INDEX
[LINE CHART]
Growth Opportunities S&P 500 INDEX Russell 1000 Growth
-------------------- ------------- -------------------
09/29/95 9,425 10,000 10,000
12/31/95 9,915 10,576 10,456
03/31/96 10,792 11,144 11,017
06/30/96 10,895 11,644 11,718
09/30/96 11,084 12,004 12,140
12/31/96 11,963 13,004 12,873
03/31/97 12,067 13,353 12,943
06/30/97 14,174 15,684 15,392
09/30/97 16,037 16,859 16,549
12/31/97 14,807 17,343 16,801
03/31/98 16,497 19,762 19,346
06/30/98 16,790 20,415 20,224
09/30/98 15,363 18,384 18,386
12/31/98 20,591 22,299 23,302
03/31/99 21,427 23,410 24,784
06/30/99 23,277 25,060 25,738
09/30/99 23,412 23,496 24,796
12/31/99 34,644 26,992 31,033
03/31/00 40,472 27,611 33,242
06/30/00 40,196 26,877 32,345
09/30/00 42,319 26,617 30,605
12/31/00 33,758 24,534 24,070
03/31/01 24,923 21,624 19,040
06/30/01 27,520 22,890 20,643
09/30/01 20,170 19,530 16,636
12/31/01 24,151 21,616 19,155
03/31/02 22,690 21,676 18,659
06/30/02 17,285 18,771 15,175
09/30/02 14,577 15,528 12,891
12/31/02 15,514 16,838 13,813
03/31/03 15,851 16,308 13,665
06/30/03 18,846 18,818 15,621
09/30/03 19,545 19,316 16,231
12/31/03 21,679 21,668 17,921
03/31/04 22,541 22,035 18,063
GROWTH OPPORTUNITIES FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR 5 YEARS SINCE INCEPTION*
------ ------- ----------------
CLASS A 34.08% (0.18)% 10.04%
CLASS B 38.70% -- (9.88)%
CLASS C 42.89% -- (1.09)%
Past performance is not predictive of future performance.
* The chart above represents performance of Class A shares only, which will
vary from the performance of Class B and Class C shares based on the
differences in loads and fees paid by shareholders in the different classes.
The initial public offering of Class A shares commenced on September 29,
1995, and the initial public offering of Class B and Class C shares commenced
on May 1, 2001 and August 2, 1999, respectively.
** 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.
9
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
================================================================================
LARGE CAP GROWTH FUND
CURRENT STRATEGY
The Fund's total return was 4.72% for the three months ended March 31, 2004,
since the last report. The total return for the Russell 1000 Growth Index was
0.79% for the same period. The Fund's total return was 38.70% for the twelve
months ended March 31, 2004. The total return for the Russell 1000 Growth Index
was 32.18% for the same period.
2004 started out with the same optimism that 2003 ended with. During January,
the markets enjoyed heavy inflows of fresh capital resulting in a broad rally
for the markets. This optimism unfortunately subsided as January came to a close
and the markets went into a tailspin for much of the remainder of the first
quarter. The two major causes for investors' uneasiness were continued terror
worries, heightened by the bombings in Spain, and a perceived lack of job
growth.
Over the past twelve months, the Fund benefited from a tremendous market rally.
The most exciting thing about the recent rally is that it has been very
broad-based. Our system has been finding quality positions in multiple sectors
including Electronic, Technology, Consumer Durables, Energy, Health Technology,
Consumer Services and Finance. Not only are we finding strength in virtually
every sector, the fundamentals on the stocks in the portfolio are very strong.
Looking forward, we are very optimistic. The fact that we continue to find
strength in multiple sectors confirms that the overall economy is improving.
Fourth quarter earnings were also very strong for our stocks and we firmly
believe that first quarter earnings will be just as strong if not stronger. With
corporate America operating at historically high operating margins, any top-line
sales growth will send earnings soaring. Sales growth will come as soon as
Americans feel more optimistic about the economy. The economy continues to
benefit from low interest rates; one wildcard is when a sizeable increase in new
jobs will commence. Recent job reports indicate that the employment situation is
improving. A strong economy backed by further job growth may serve President
Bush well in the election campaign. Generally speaking, the equity markets tend
to respond positively to lower capital gains taxes. Many investment
professionals worry that a change in the White House could lead to changes in
the tax rates on capital gains, which would put a damper on the markets.
We believe that the market has more room to run absent any cataclysmic events
that could derail the current economic expansion.
10
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
================================================================================
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 CHART]
Large Cap Growth (CLASS A) Russell 1000 Growth S&P 500
-------------------------- ------------------- -------
12/19/97 9,425 10,000 10,000
12/31/97 9,666 10,300 10,255
03/31/98 10,911 11,861 11,686
06/30/98 11,562 12,400 12,072
09/30/98 10,685 11,273 10,871
12/31/98 13,646 14,287 13,186
03/31/99 15,598 15,196 13,843
06/30/99 15,853 15,780 14,819
09/30/99 15,890 15,202 13,894
12/31/99 22,246 19,025 15,961
03/31/00 26,829 20,380 16,327
06/30/00 25,622 19,830 15,893
09/30/00 28,103 18,764 15,739
12/31/00 20,542 14,759 14,508
03/31/01 14,794 11,674 12,787
06/30/01 15,579 12,657 13,535
09/30/01 13,216 10,200 11,548
12/31/01 15,721 11,744 12,782
03/31/02 15,191 11,441 12,817
06/30/02 13,906 9,304 11,100
09/30/02 12,015 7,904 9,182
12/31/02 11,523 8,470 9,957
03/31/03 11,798 8,379 9,643
06/30/03 13,386 9,578 11,127
09/30/03 13,972 9,953 11,422
12/31/03 15,626 10,989 12,813
03/31/04 16,363 11,076 13,030
LARGE CAP GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR 5 YEARS SINCE INCEPTION*
------ ------- ----------------
CLASS A 30.74% (0.23)% 8.16%
CLASS B -- -- 6.59%***
CLASS C -- -- 10.59%***
Past performance is not predictive of future performance.
* The chart above represents performance of Class A shares only, which will
vary from the performance of 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.
*** Represents total return.
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.
11
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
================================================================================
SMALL CAP GROWTH FUND
CURRENT STRATEGY
The Fund's total return was 68.02% for the twelve months ended March 31, 2004.
The total return for the Russell 2000 Growth Index was 63.16% for the same
period.
LONGWOOD INVESTMENT ADVISORS
The first three months of the Fund's fiscal year were positive for the Fund and
the markets in general. At the time, we reiterated our belief that earnings
estimates were too low. From an economic standpoint this was due to our belief
in a gradually strengthening economy, confirmed excellent productivity
improvements and ample monetary liquidity and low earnings estimates. Most of
these beliefs were proved true and the portfolio and the markets performed well
for the year ended March 31, 2004.
Our holdings in the Fund benefited greatly by our recommitment to Technology, as
well as our continuing commitment to medical stocks. In addition, our correct
call on the Airlines sector in 2003 and stocks selected in the Consumer
Discretionary area also contributed greatly to our portion of the Fund's
returns. Technology benefited from our focus on storage, specialty
semiconductors and equipment as well as network equipment and security
producers. Lower fuel prices, industry consolidation, an improved economy and
confidence made us take some positions in smaller airlines we felt would grow
and benefit from the environment. The medical area also had a couple of stocks
appreciate greatly, which also added to performance.
Today, the economic expansion continues to gain strength. Monetary liquidity
remains ample and we do not believe that the Federal Reserve will decrease
liquidity until job growth is more robust and/or consumer prices rise more
quickly. Productivity growth remains strong and revenue growth is accelerating
due to increased economic activity and a weaker dollar. We feel that this will
lead to many upside earnings revisions that will push the stocks of those
businesses executing their business plan higher. We anticipate that these
revisions will be particularly large because both corporate and brokerage legal
departments are forcing clients to keep estimates low to avoid legal difficulty.
We continue to feel that the environment remains good for small-cap growth
stocks. However, we do not feel that it will be a repeat of the very strong
environment of 2003. This year's environment is more likely to reward the good
stock-picker who can identify cheap stocks of businesses successfully executing
strong growth business plans.
BJURMAN, BARRY & ASSOCIATES
During the past year, positive economic and corporate profit growth, coupled
with tax reduction policies and low interest rates, created a powerful rally in
the stock market.
The outperformance of our holdings in the Fund versus the Russell 2000 Growth
Index was caused by our continued focus on the fastest growing companies that
also exhibit good valuation characteristics in the micro-cap sector.
We continue to be overweight in Technology, Health Care, and Producer
Manufacturing, which all contributed positively to the returns. These sectors
were, and are, overweighted because our models and economic outlook highlight
more companies in these sectors than others.
Low interest rates, tax reductions, and strong economic and corporate earnings
growth provide the fundamental underpinnings for a positive stock market during
the remaining part of 2004.
12
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
================================================================================
Comparison of the Change in Value of a $10,000 Investment in the
Small Cap Growth Fund - Class A* and the Russell 2000 Growth Index
[LINE CHART]
Small Cap Growth A Russell 2000 Growth
------------------ -------------------
10/21/02 9,425 10,000
10/31/02 9,482 10,300
11/30/02 10,236 11,321
12/31/02 9,585 10,540
01/31/03 9,425 10,253
02/28/03 9,086 9,979
03/31/03 9,218 10,130
04/30/03 9,991 11,088
05/31/03 11,018 12,338
06/30/03 11,734 12,576
07/31/03 12,516 13,527
08/31/03 13,261 14,253
09/30/03 13,289 13,892
10/31/03 14,731 15,093
11/30/03 15,108 15,585
12/31/03 14,889 15,655
03/31/04 15,487 16,528
SMALL CAP GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR SINCE INCEPTION*
------ ----------------
CLASS A 58.31% 35.47%
CLASS B 62.99% 37.85%
CLASS C 67.26% 40.31%
Past performance is not predictive of future performance.
* The chart above represents performance of Class A shares only, which will
vary from the performance of Class B and Class C shares based on the
differences in loads and fees paid by shareholders in the different classes.
The initial public offering for Class A, Class B and Class C was October 21,
2002.
** 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
sharesholder would pay on Fund distributions or the redemption of Fund shares.
13
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
================================================================================
VALUE PLUS FUND
CURRENT STRATEGY
The Fund's total return was 37.04% for the twelve months ended March 31, 2004.
The total return for the Russell 1000 Value Index was 40.82% for the same
period.
The Fund changed its benchmark from the S&P 500 Index to the Russell 1000 Value
Index because the Russell 1000 Value Index more accurately reflects the Fund's
portfolio composition. The Russell 1000 Value Index measures the performance of
those Russell 1000 securities with lower price-to-book ratios and lower
forecasted growth. (The Russell 1000 securities offer investors access to the
extensive large cap segment of the U.S. equity universe representing
approximately 92% of the U.S. market).
Continued earnings growth coupled with improving expectations about the strength
of the economy were the primary drivers of a solid movement in the markets. Over
the last year, small capitalization, lower-quality stocks continued their market
leadership as the Russell 2000 Index return was nearly twice that of the S&P 500
Index return, a benchmark for large capitalization stocks.
Historically, this performance leadership is consistent as the economy enters a
recovery stage. However, as the recovery moves into an expansion phase, a shift
in performance leadership into higher capitalization names begins to occur. Our
expectation is to see this shift not only continue, but to broaden and include
outperformance by higher-quality stocks as well. The Fund continues to be well
positioned to benefit from such an environment.
Over the past twelve months, we positioned the Fund to capitalize on the early
cyclical plays of an economic expansion by overweighting the Consumer
Discretionary sector. This strategy helped the Fund as some of our best
performing stocks were in this sector. As we entered the latter part of the
year, we began to pullback on our Financial weighting to reflect our concerns
regarding rising interest rates as a result of an improving economy.
Unfortunately, we were a little early with this strategy. This contributed to
the Fund's underperformance relative to its benchmark - the Russell 1000 Value
Index. Information Technology and Financials were the weakest sectors of the
portfolio.
As we move forward, the trend of strong earnings growth and upward-earnings
revisions is a key factor in supporting the stock market at current levels. This
mainly reflects improved profit margins, which have risen to their highest
levels since the mid 1990s on the back of rising productivity and ongoing cost
cutting.
In our opinion, the main risks for the stock market reside in the political
arena. The tragedy in Spain has served as a painful reminder of the threat of
terrorism, and geopolitical risks have proliferated. Also, the U.S. Presidential
election is shaping up to be close and divisive, with worries about outsourcing
of jobs to Asia looming as an important issue.
14
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
================================================================================
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
VALUE PLUS FUND - CLASS A*, THE RUSSELL 1000 VALUE INDEX AND
THE STANDARD & POOR'S 500 INDEX
[LINE CHART]
Value Plus A Russell 1000 Value S&P 500 Index
------------ ------------------ -------------
05/01/98 9,425 10,000 10,000
05/31/98 9,105 9,852 9,747
06/30/98 9,302 9,978 10,143
09/30/98 8,134 8,823 9,134
12/31/98 9,830 10,288 11,079
03/31/99 10,208 10,435 11,631
06/30/99 11,000 11,612 12,451
09/30/99 10,045 10,474 11,674
12/31/99 11,352 11,043 13,411
03/31/00 11,155 11,096 13,718
06/30/00 11,029 10,576 13,354
09/30/00 10,953 11,407 13,224
12/31/00 11,568 11,818 12,190
03/31/01 11,072 11,125 10,744
06/30/01 11,787 11,668 11,373
09/30/01 10,393 10,390 9,703
12/31/01 11,362 11,156 10,740
03/31/02 11,329 11,611 10,770
06/30/02 9,633 10,622 9,326
09/30/02 7,830 8,628 7,715
12/31/02 8,406 9,424 8,366
03/31/03 8,090 8,966 8,102
06/30/03 9,514 10,514 9,350
09/30/03 9,624 10,731 9,597
12/31/03 10,879 12,253 10,766
03/31/04 11,087 12,625 10,948
VALUE PLUS FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR 5 YEARS SINCE INCEPTION*
------ ------- ----------------
CLASS A 29.23% 0.47% 1.76%
CLASS B 32.04% -- (3.93)%
CLASS C 35.89% 1.03% 1.87%
Past performance is not predictive of future performance.
* The chart above represents performance of Class A shares only, which will
vary from the performance of 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 commenced on May 1, 1998 and
the initial public offering of Class B and Class C shares commenced on May 1,
2001 and January 1, 1999, respectively.
** The average annual total returns shown above are adjusted for maximum
applicable sales charges. The Classs C performance information is calculated
using the historical performance information of the Fund's predecessor, which
was another mutual fund that began operations on May 1, 19998.
The performance of the above Fund does not reflect the deduction of taxes that a
sharesholder would pay on Fund distributions or the redemption of Fund shares.
15
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2004
===============================================================================================
EMERGING GROWTH
GROWTH ENHANCED 30 OPPORTUNITIES
FUND FUND FUND
- -----------------------------------------------------------------------------------------------
ASSETS
Investment securities:
At cost ...................................... $707,578,539 $ 10,953,463 $148,899,989
==========================================
At market value - including $68,034,132 and
$9,187,815 of securities loaned for the
Emerging Growth Fund and the Growth
Opportunities Fund, respectively .......... $820,737,119 $ 12,294,044 $157,091,422
Cash ............................................ 36,069,683 194,434 304
Dividends and interest receivable ............... 93,960 19,138 14,191
Receivable for capital shares sold .............. 6,284,259 3,227 144,379
Receivable for securities sold .................. 9,540,651 -- 7,405,519
Receivable for securities lending income ........ 16,182 -- 566
Receivable from Adviser ......................... -- 2,589 --
Other assets .................................... 8,684 8,304 11,376
------------------------------------------
TOTAL ASSETS .................................... 872,750,538 12,521,736 164,667,757
------------------------------------------
LIABILITIES
Payable for securities loaned ................... 71,525,075 -- 9,507,500
Payable for securities purchased ................ 19,025,466 -- 4,877,827
Payable for capital shares redeemed ............. 5,651,495 -- 350,214
Payable to Adviser .............................. 509,793 -- 113,827
Payable to affiliates ........................... 98,679 7,177 30,832
Other accrued expenses and liabilities .......... 477,239 15,874 104,062
------------------------------------------
TOTAL LIABILITIES ............................... 97,287,747 23,051 14,984,262
------------------------------------------
NET ASSETS ...................................... $775,462,791 $ 12,498,685 $149,683,495
==========================================
NET ASSETS CONSIST OF:
Paid-in capital ................................. $647,440,571 $ 12,874,735 $205,836,155
Undistributed net investment income ............. -- 13,265 --
Accumulated net realized gains (losses)
from security transactions ................... 14,863,640 (1,729,896) (64,344,093)
Net unrealized appreciation on investments ...... 113,158,580 1,340,581 8,191,433
------------------------------------------
NET ASSETS ...................................... $775,462,791 $ 12,498,685 $149,683,495
==========================================
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares ....... $458,523,457 $ 8,783,138 $117,605,326
==========================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ................................ 21,097,098 965,679 6,512,520
==========================================
Net asset value and redemption price per share... $ 21.73 $ 9.10 $ 18.06
==========================================
Maximum offering price per share ................ $ 23.06 $ 9.66 $ 19.16
==========================================
16
STATEMENTS OF ASSETS AND LIABILITIES
(CONTINUED)
================================================================================================
EMERGING GROWTH
GROWTH ENHANCED 30 OPPORTUNITIES
FUND FUND FUND
- ------------------------------------------------------------------------------------------------
PRICING OF CLASS B SHARES
Net assets attributable to Class B shares ........ $ 64,918,101 $ 1,455,988 $ 3,607,935
==========================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ................................. 3,240,900 161,079 208,476
==========================================
Net asset value, offering price and redemption
price per share ............................... $ 20.03 $ 9.04 $ 17.31
==========================================
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares ........ $252,021,233 $ 2,259,559 $ 28,470,234
==========================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ................................. 12,572,773 248,896 1,637,558
==========================================
Net asset value, offering price and redemption
price per share ............................... $ 20.04 $ 9.08 $ 17.39
==========================================
See accompanying notes to financial statements.
17
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2004
========================================================================================================
LARGE CAP SMALL CAP VALUE PLUS
GROWTH FUND GROWTH FUND FUND
- --------------------------------------------------------------------------------------------------------
ASSETS
Investment securities:
At cost ............................................ $ 66,031,167 $ 67,141,048 $ 57,375,412
==============================================
At market value - including $4,305,900 and
$8,826,839 of securities loaned for the Large
Cap Growth Fund and the Small Cap Growth Fund,
respectively .................................... $ 78,733,864 $ 80,290,183 $ 65,709,413
Cash .................................................. 3,900,159 4,329,105 1,502,372
Dividends and interest receivable ..................... 37,229 31,743 84,656
Receivable for capital shares sold .................... 369,021 885,654 28,454
Receivable for securities sold ........................ -- 906,961 --
Receivable for securities lending income .............. 994 4,191 111
Other assets .......................................... 12,743 14,183 5,328
----------------------------------------------
TOTAL ASSETS .......................................... 83,054,010 86,462,020 67,330,334
----------------------------------------------
LIABILITIES
Payable for securities loaned ......................... 4,342,200 9,289,588--
Payable for securities purchased ...................... 2,533,211 1,334,459 --
Payable for capital shares redeemed ................... 37,145 210,757 12,365
Payable to Adviser .................................... 34,685 75,924 40,892
Payable to affiliates ................................. 14,903 12,866 11,988
Other accrued expenses and liabilities ................ 24,825 47,698 32,984
----------------------------------------------
TOTAL LIABILITIES ..................................... 6,986,969 10,971,292 98,229
----------------------------------------------
NET ASSETS ............................................ $ 76,067,041 $ 75,490,728 $ 67,232,105
==============================================
NET ASSETS CONSIST OF:
Paid-in capital ....................................... $ 120,311,614 $ 59,725,854 $ 75,049,190
Undistributed net investment income ................... -- -- 72,939
Accumulated net realized gains (losses) from
security transactions .............................. (56,947,270) 2,615,739 (16,224,025)
Net unrealized appreciation on investments ............ 12,702,697 13,149,135 8,334,001
----------------------------------------------
NET ASSETS ............................................ $ 76,067,041 $ 75,490,728 $ 67,232,105
==============================================
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares ............. $ 69,860,299 $ 53,063,703 $ 64,612,302
==============================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ...................................... 4,035,502 3,306,640 6,369,601
==============================================
Net asset value and redemption price per share ........ $ 17.31 $ 16.05 $ 10.14
==============================================
Maximum offering price per share ...................... $ 18.37 $ 17.03 $ 10.76
==============================================
18
STATEMENTS OF ASSETS AND LIABILITIES
(CONTINUED)
==============================================================================================
LARGE CAP SMALL CAP VALUE PLUS
GROWTH FUND GROWTH FUND FUND
- ----------------------------------------------------------------------------------------------
PRICING OF CLASS B SHARES
Net assets attributable to Class B shares ........ $ 1,897,287 $ 7,831,297 $ 753,135
=========================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ................................. 110,035 492,604 77,422
=========================================
Net asset value, offering price and redemption
price per share ............................... $ 17.24 $ 15.90 $ 9.73
=========================================
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares ........ $ 4,309,455 $14,595,728 $ 1,866,668
=========================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ................................. 249,917 917,638 190,821
=========================================
Net asset value, offering price and redemption
price per share ............................... $ 17.24 $ 15.91 $ 9.78
=========================================
See accompanying notes to financial statements.
19
STATEMENTS OF OPERATIONS
==================================================================================================================
EMERGING GROWTH
GROWTH ENHANCED 30 OPPORTUNITIES
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
2004 2004 2004
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends ............................................... $ 2,633,500 $ 187,477 $ 499,849
Interest ................................................ 85,634 696 18,793
Income from securities loaned ........................... 104,835 -- 5,271
---------------------------------------------------
TOTAL INVESTMENT INCOME ................................. 2,823,969 188,173 523,913
---------------------------------------------------
EXPENSES
Investment advisory fees ................................ 4,133,417 67,854 1,265,516
Distribution expenses, Class A .......................... 741,286 19,392 272,657
Distribution expenses, Class B .......................... 470,182 11,658 31,944
Distribution expenses, Class C .......................... 1,731,146 15,834 271,431
Sponsor fees ............................................ 1,033,362 21,012 --
Transfer agent fees, Class A ............................ 369,067 12,000 182,834
Transfer agent fees, Class B ............................ 96,902 12,000 12,107
Transfer agent fees, Class C ............................ 240,819 12,000 101,003
Postage and supplies .................................... 492,338 9,666 162,140
Administration fees ..................................... 230,008 5,778 74,709
Accounting services fees ................................ 68,000 39,000 51,396
Custodian fees .......................................... 63,151 10,747 40,329
Registration fees ....................................... 6,289 -- --
Registration fees, Class A .............................. 17,918 6,545 12,982
Registration fees, Class B .............................. 11,765 6,210 8,878
Registration fees, Class C .............................. 17,149 7,703 11,251
Reports to shareholders ................................. 55,803 3,113 14,122
Professional fees ....................................... 34,497 10,731 13,695
Trustees' fees and expenses ............................. 8,000 8,480 8,227
Other expenses .......................................... 5,926 971 2,725
---------------------------------------------------
TOTAL EXPENSES .......................................... 9,827,025 280,694 2,537,946
Sponsor fees waived ..................................... (431,162) (21,012) --
Fees waived and/or expenses reimbursed by the Adviser ... -- (133,966) --
Fees from commission recapture .......................... (56,013) (3,195) --
---------------------------------------------------
Net Expenses ............................................ 9,339,850 122,521 2,537,946
---------------------------------------------------
NET INVESTMENT INCOME (LOSS) ............................ (6,515,881) 65,652 (2,014,033)
---------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) from security transactions .. 66,780,165 (68,308) (1,043,414)
Net change in unrealized appreciation/
depreciation on investments .......................... 139,197,290 2,922,052 48,105,851
---------------------------------------------------
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS ....................................... 205,977,455 2,853,744 47,062,437
---------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS .............. $199,461,574 $2,919,396 $45,048,404
===================================================
See accompanying notes to financial statements.
20
STATEMENTS OF OPERATIONS
=================================================================================================================
LARGE CAP SMALL CAP VALUE PLUS
GROWTH FUND GROWTH FUND FUND
- -----------------------------------------------------------------------------------------------------------------
THREE MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, DECEMBER 31, MARCH 31, MARCH 31,
2004(A) 2003 2004 2004
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends ................................. $ 89,543 $ 123,589 $ 150,010 $ 1,186,014
Interest .................................. 1,303 2,566 5,718 4,331
Income from securities loaned ............. 1,164 799 66,474 989
-------------------------------------------------------------------
TOTAL INVESTMENT INCOME ................... 92,010 126,954 222,202 1,191,334
-------------------------------------------------------------------
EXPENSES
Investment advisory fees .................. 131,585 220,563 569,567 451,059
Distribution expenses, Class A ............ 47,387 70,325 79,916 144,422
Distribution expenses, Class B ............ 3,521 1,873 47,850 6,045
Distribution expenses, Class C ............ 8,954 4,177 88,140 17,677
Sponsor fees .............................. -- -- 91,131 120,283
Transfer agent and custodian fees (Note 8) -- 38,242 -- --
Transfer agent fees, Class A .............. 14,550 13,433 22,414 35,470
Transfer agent fees, Class B .............. 3,000 2,950 12,000 12,000
Transfer agent fees, Class C .............. 3,000 2,938 12,775 12,000
Accounting services fees .................. 9,128 23,724 41,500 45,000
Registration fees ......................... 47 4,464 2,076 1,212
Registration fees, Class A ................ 5,539 1,991 16,560 8,593
Registration fees, Class B ................ 4,573 1,705 16,810 6,967
Registration fees, Class C ................ 4,980 1,551 16,296 6,817
Administration fees ....................... 9,649 39,924 25,060 33,077
Postage and supplies ...................... 10,595 10,706 26,804 22,691
Custodian fees ............................ 5,184 -- 27,602 11,405
Professional fees ......................... 15,800 20,878 7,817 8,056
Trustees' fees and expenses ............... 2,100 5,476 8,000 8,274
Reports to shareholders ................... 4,312 10,497 861 1,346
Other expenses ............................ 649 3,502 3,293 2,526
-------------------------------------------------------------------
TOTAL EXPENSES ............................ 284,553 478,919 1,116,472 954,920
Sponsor fees waived ....................... -- -- (91,131) (120,283)
Fees waived and/or expenses
reimbursed by the Adviser .............. (45,340) (86,843) (34,709) (36,768)
Fees from commission recapture ............ -- -- (26,617) --
-------------------------------------------------------------------
NET EXPENSES .............................. 239,213 392,076 964,015 797,869
-------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) .............. (147,203) (265,122) (741,813) 393,465
-------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) from
security transactions .................. 47,124 (389,478) 5,703,223 (1,198,463)
Net change in unrealized appreciation/
depreciation on investments ............ 3,345,786 8,932,307 12,527,407 18,679,696
-------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS ......................... 3,392,910 8,542,829 18,230,630 17,481,233
===================================================================
NET INCREASE IN NET ASSETS
FROM OPERATIONS ........................ $3,245,707 $8,277,707 $17,488,817 $17,874,698
===================================================================
(A) Effective after the close of business on December 31, 2003, the Fund
changed its fiscal year end to March 31.
See accompanying notes to financial statements.
21
STATEMENTS OF CHANGES IN NET ASSETS
=================================================================================================================
EMERGING GROWTH FUND ENHANCED 30 FUND
- -----------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2004 2003 2004 2003
- -----------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) ............. $ (6,515,881) $ (3,683,881) $ 65,652 $ 63,336
Net realized gains (losses) from
security transactions ................. 66,780,165 (47,063,902) (68,308) (1,537,329)
Net change in unrealized appreciation/
depreciation on investments ........... 139,197,290 (45,404,160) 2,922,052 (1,241,619)
---------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS FROM OPERATIONS .......... 199,461,574 (96,151,943) 2,919,396 (2,715,612)
---------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income, Class A ...... -- -- (46,333) (70,665)
From net investment income, Class B ...... -- -- (2,433) (254)
From net investment income, Class C ...... -- -- (3,621) (977)
From net realized gains on
security transactions, Class A ........ -- (2,200,015) -- --
From net realized gains on
security transactions, Class B ........ -- (368,104) -- --
From net realized gains on
security transactions, Class C ........ -- (1,412,057) -- --
---------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS
TO SHAREHOLDERS ....................... -- (3,980,176) (52,387) (71,896)
---------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
CLASS A
Proceeds from shares sold ................ 283,769,411 153,227,453 1,024,567 2,116,692
Reinvested distributions ................. -- 1,662,500 45,317 67,181
Payments for shares redeemed ............. (90,112,906) (112,900,182) (577,409) (1,431,828)
---------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM CLASS A SHARE TRANSACTIONS ....... 193,656,505 41,989,771 492,475 752,045
---------------------------------------------------------------------
CLASS B
Proceeds from shares sold ................ 24,903,474 23,072,337 752,347 510,318
Reinvested distributions ................. -- 281,399 1,700 177
Payments for shares redeemed ............. (5,065,669) (4,171,405) (325,712) (370,643)
---------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM CLASS B
SHARE TRANSACTIONS .................... 19,837,805 19,182,331 428,335 139,852
---------------------------------------------------------------------
CLASS C
Proceeds from shares sold ................ 110,372,876 82,033,404 1,390,647 936,253
Reinvested distributions ................. -- 795,733 2,607 648
Payments for shares redeemed ............. (25,081,949) (19,116,468) (440,978) (603,826)
---------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
CLASS C SHARE TRANSACTIONS ............ 85,290,927 63,712,669 952,276 333,075
---------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .. 498,246,811 24,752,652 4,740,095 (1,562,536)
---------------------------------------------------------------------
NET ASSETS
Beginning of year ........................ 277,215,980 252,463,328 7,758,590 9,321,126
---------------------------------------------------------------------
End of year .............................. $775,462,791 $277,215,980 $12,498,685 $ 7,758,590
=====================================================================
UNDISTRIBUTED NET INVESTMENT INCOME ...... $ -- $ -- $ 13,265 $ --
=====================================================================
See accompanying notes to financial statements.
22
STATEMENTS OF CHANGES IN NET ASSETS
====================================================================================================================================
GROWTH OPPORTUNITIES FUND LARGE CAP GROWTH FUND
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR YEAR THREE MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
2004 2003 2004(A) 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss ...................... $ (2,014,033) $(1,981,977) $ (147,203) $ (265,122) $ (132,446)
Net realized gains (losses) from
security transactions ................. (1,043,414) (26,776,581) 47,124 (389,478) (2,363,379)
Net change in unrealized appreciation/
depreciation on investments ........... 48,105,851 (20,227,956) 3,345,786 8,932,307 (2,449,986)
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS ....................... 45,048,404 (48,986,514) 3,245,707 8,277,707 (4,945,811)
-------------------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
CLASS A
Proceeds from shares sold ................ 40,426,967 61,144,588 7,063,457 13,006,843 6,490,743
Proceeds from shares issued in connection
with acquisitions (Note 9) ............ -- -- -- 39,611,752 --
Payments for shares redeemed ............. (42,137,146) (63,343,223) 2,425,623) 12,362,321) (8,548,293)
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CLASS A SHARE TRANSACTIONS ....... (1,710,179) (2,198,635) 4,637,834 40,256,274 (2,057,550)
-------------------------------------------------------------------------------------
CLASS B
Proceeds from shares sold ................ 625,364 948,542 910,158 568,455 --
Proceeds from shares issued in connection
with acquisitions (Note 9) ............ -- -- -- 515,786
Payments for shares redeemed ............. (531,905) (696,286) (78,324) (134,248) --
-------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM CLASS B
SHARE TRANSACTIONS .................... 93,459 252,256 831,834 949,993 --
-------------------------------------------------------------------------------------
CLASS C
Proceeds from shares sold ................ 3,525,808 3,276,197 1,775,058 1,243,707 --
Proceeds from shares issued in connection
with acquisitions (Note 9) ............ -- -- -- 1,189,982 --
Payments for shares redeemed ............. (5,936,530) (9,818,401) (76,996) (95,523) --
-------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CLASS C SHARE TRANSACTIONS ....... (2,410,722) (6,542,204) 1,698,062 2,338,166 --
-------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .. 41,020,962 (57,475,097) 10,413,437 51,822,140 (7,003,361)
-------------------------------------------------------------------------------------
NET ASSETS
Beginning of period ...................... 108,662,533 166,137,630 65,653,604 13,831,464 20,834,825
-------------------------------------------------------------------------------------
End of period ............................ $149,683,495 $ 108,662,533 $76,067,041 $65,653,604 $13,831,464
=====================================================================================
UNDISTRIBUTED NET INVESTMENT INCOME ...... $ -- $ -- $ -- $ -- $ --
=====================================================================================
(A) Effective after the close of business on December 31, 2003, the Fund
changed its fiscal year end to March 31.
See accompanying notes to financial statements.
23
STATEMENTS OF CHANGES IN NET ASSETS
==================================================================================================================
SMALL CAP VALUE PLUS
GROWTH FUND FUND
- ------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2004 2003(A) 2004 2003
- ------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) ............. $ (741,813) $ (120,954) 393,465 $ 358,000
Net realized gains (losses) from
security transactions ................. 5,703,223 (1,047,685) (1,198,463) (14,294,879)
Net change in unrealized appreciation/
depreciation on investments ........... 12,527,407 621,728 18,679,696 (10,053,000)
--------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS ..................... 17,488,817 (546,911) 17,874,698 (23,989,879)
--------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income, Class A ...... -- -- (396,752) (290,370)
From net investment income, Class B ...... -- -- (2,277) (2,133)
From net investment income, Class C ...... -- -- (5,708) --
From net realized gains on
security transactions, Class A ........ (893,115) -- -- --
From net realized gains on
security transactions, Class B ........ (141,855) -- -- --
From net realized gains on
security transactions, Class C ........ (263,016) -- -- --
--------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS ......... (1,297,986) -- (404,737) (292,503)
--------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
CLASS A
Proceeds from shares sold ................ 32,002,458 16,109,642 5,305,222 6,839,769
Reinvested distributions ................. 809,297 -- 392,545 287,400
Payments for shares redeemed ............. (6,656,407) (485,209) (3,988,115) (30,766,383)
--------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CLASS A SHARE TRANSACTIONS ....... 26,155,348 15,624,433 1,709,652 (23,639,214)
--------------------------------------------------------------------
CLASS B
Proceeds from shares sold ................ 5,091,329 1,485,272 332,680 349,616
Reinvested distributions ................. 120,002 -- 1,984 1,748
Payments for shares redeemed ............. (391,038) (46,685) (112,578) (18,628)
--------------------------------------------------------------------
NET INCREASE IN NET ASSETS FROM
CLASS B SHARE TRANSACTIONS ............ 4,820,293 1,438,587 222,086 332,736
--------------------------------------------------------------------
CLASS C
Proceeds from shares sold ................ 10,654,266 3,452,483 351,301 274,722
Reinvested distributions ................. 118,861 -- 5,056 --
Payments for shares redeemed ............. (2,105,797) (311,666) (517,989) (585,691)
--------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS FROM
CLASS C SHARE TRANSACTIONS ............ 8,667,330 3,140,817 (161,632) (310,969)
--------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .. 55,833,802 19,656,926 19,240,067 (47,899,829)
--------------------------------------------------------------------
NET ASSETS
Beginning of period ...................... 19,656,926 -- 47,992,038 95,891,867
--------------------------------------------------------------------
End of period ............................ $75,490,728 $19,656,926 67,232,105 $ 47,992,038
====================================================================
UNDISTRIBUTED NET INVESTMENT INCOME ...... $ -- $ -- 72,939 $ 84,212
====================================================================
(A) Represents the period from commencement of operations (October 21, 2002)
through March 31, 2003.
See accompanying notes to financial statements.
24
EMERGING GROWTH FUND--CLASS A
FINANCIAL HIGHLIGHTS
==========================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------------------------------------------------
THREE
YEAR YEAR YEAR MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2004 2003 2002 2001(A) 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .. $ 13.89 $ 19.52 $ 15.96 $ 17.93 $ 16.96 $ 13.40
------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss .................. (0.13) (0.14) (0.14) -- (0.06) (0.09)
Net realized and unrealized
gains (losses) on investments ..... 7.97 (5.29) 3.76 (1.97) 4.16 6.18
------------------------------------------------------------------------------
Total from investment operations ........ 7.84 (5.43) 3.62 (1.97) 4.10 6.09
------------------------------------------------------------------------------
Distributions from net realized gains ... -- (0.20) (0.06) -- (3.13) (2.53)
------------------------------------------------------------------------------
Net asset value at end of period ........ $ 21.73 $ 13.89 $ 19.52 $ 15.96 $ 17.93 $ 16.96
==============================================================================
Total return(B) ......................... 56.44% (27.90%) 22.72% (10.99%)(C) 25.92% 45.85%
==============================================================================
Net assets at end of period (000's) ..... $ 458,524 $ 153,247 $ 169,781 $ 19,141 $ 15,304 $ 10,743
==============================================================================
Ratio of net expenses to
average net assets ................... 1.49%(D) 1.50% 1.50% 1.50%(E) 1.50% 1.50%
Ratio of net investment loss to
average net assets ................... (0.93%)(D) (1.07%) (1.02%) (0.10%)(E) (0.40%) (0.66%)
Portfolio turnover ...................... 79% 62% 73% 68%(E) 98% 97%
(A) Effective after the close of business on March 31, 2001, the Fund changed
its fiscal year-end to March 31.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 1.50% and the ratio of net investments
loss to average net assets would have been (0.94%).
(E) Annualized.
See accompanying notes to financial statements.
25
EMERGING GROWTH FUND--CLASS B
FINANCIAL HIGHLIGHTS
===========================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
2004 2003 2002(A)
- -----------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .............. $ 12.53 $ 18.25 $ 16.45
----------------------------------------------
Income (loss) from investment operations:
Net investment loss .............................. (0.25) (0.14) (0.09)
Net realized and unrealized gains (losses)
on investments ................................ 7.75 (5.38) 1.95
----------------------------------------------
Total from investment operations .................... 7.50 (5.52) 1.86
----------------------------------------------
Distributions from net realized gains ............... -- (0.20) (0.06)
----------------------------------------------
Net asset value at end of period .................... $ 20.03 $ 12.53 $ 18.25
==============================================
Total return(B) ..................................... 59.86% (30.34%) 11.35%(C)
==============================================
Net assets at end of period (000's) ................. $64,918 $26,226 $15,335
==============================================
Ratio of net expenses to average net assets ......... 2.24%(D) 2.25% 2.25%(E)
Ratio of net investment loss to average net assets .. (1.68%)(D) (1.77%) (1.90%)(E)
Portfolio turnover rate ............................. 79% 62% 73%(E)
(A) Represents the period from commencement of operations (May 1, 2001) through
March 31, 2002.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 2.25% and the ratio of net investments
loss to average net assets would have been (1.69%).
(E) Annualized.
See accompanying notes to financial statements.
26
EMERGING GROWTH FUND--CLASS C
FINANCIAL HIGHLIGHTS
==========================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------------------------------------------------
THREE
YEAR YEAR YEAR MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, DEC. 31, DEC. 31,
2004 2003 2002 2001(A) 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .. $ 12.55 $ 18.26 $ 15.01 $ 16.87 $ 16.29 $ 13.04
---------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) ......... (0.23) (0.13) 0.01 (0.02) (0.17) (0.19)
Net realized and unrealized gains
(losses) on investments ........... 7.72 (5.38) 3.30 (1.84) 3.88 5.97
---------------------------------------------------------------------------
Total from investment operations ........ 7.49 (5.51) 3.31 (1.86) 3.71 5.78
---------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income ............................ -- -- -- -- (3.13) (2.53)
Distributions from net realized gains ... -- (0.20) (0.06) -- -- --
---------------------------------------------------------------------------
Total distributions ..................... -- (0.20) (0.06) -- (3.13) (2.53)
---------------------------------------------------------------------------
Net asset value at end of period ........ $ 20.04 $ 12.55 $ 18.26 $ 15.01 $ 16.87 $ 16.29
===========================================================================
Total return(C) ......................... 59.68% (30.27%) 22.09% (11.03%)(D) 24.58% 44.86%
===========================================================================
Net assets at end of period (000's) ..... $ 252,021 $ 97,743 $ 67,347 $ 7,600 $ 5,466 $ 3,964
===========================================================================
Ratio of net expenses to
average net assets ................... 2.24%(E) 2.25% 2.25% 2.25%(F) 2.25% 2.25%
Ratio of net investment loss to
average net assets ................... (1.68%)(E) (1.77%) (1.61%) (0.63%)(F) (1.15%) (1.41%)
Portfolio turnover ...................... 79% 62% 73% 68%(F) 98% 97%
(A) Effective after the close of business on March 31, 2001, the Fund changed
its fiscal year-end to March 31.
(B) Represents the period from the commencement of operations (January 1, 1999)
through December 31, 1999.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Not annualized.
(E) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 2.25% and the ratio of net investments
loss to average net assets would have been (1.69%).
(F) Annualized.
See accompanying notes to financial statements.
27
ENHANCED 30 FUND--CLASS A
FINANCIAL HIGHLIGHTS
======================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2004 2003 2002 2001(A)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ........ $ 6.71 $ 9.19 $ 8.90 $ 10.00
---------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ...................... 0.07 0.06 0.06 0.05
Net realized and unrealized gains
(losses) on investments ................. 2.37 (2.46) 0.28 (1.10)
---------------------------------------------------------------
Total from investment operations .............. 2.44 (2.40) 0.34 (1.05)
---------------------------------------------------------------
Dividends from net investment income .......... (0.05) (0.08) (0.05) (0.05)
---------------------------------------------------------------
Net asset value at end of period .............. $ 9.10 $ 6.71 $ 9.19 $ 8.90
===============================================================
Total return(B) ............................... 36.41% (26.19%) 3.86% (10.57%)(C)
===============================================================
Net assets at end of period (000's) ........... $8,783 $ 6,109 $7,561 $ 6,208
===============================================================
Ratio of net expenses to average net assets 0.97%(D) 1.00% 1.00% 1.00%(E)
Ratio of net investment income to
average net assets ......................... 0.85%(D) 0.90% 0.70% 0.54%(E)
Portfolio turnover rate ....................... 10% 29% 9% 3%(E)
(A) Represents the period from the commencement of operations (May 1, 2000)
through March 31, 2001.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 1.00% and the ratio of net investments
income to average net assets would have been 0.82%.
(E) Annualized.
See accompanying notes to financial statements.
28
ENHANCED 30 FUND--CLASS B
FINANCIAL HIGHLIGHTS
===========================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
2004 2003 2002(A)
- -----------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ........ $ 6.69 $ 9.13 $ 9.50
-----------------------------------------------
Income (loss) from investment operations:
Net investment income ...................... 0.01 0.01 0.02
Net realized and unrealized gains
(losses) on investments ................. 2.36 (2.45) (0.37)
-----------------------------------------------
Total from investment operations .............. 2.37 (2.44) (0.35)
-----------------------------------------------
Dividends from net investment income .......... (0.02) --(B) (0.02)
-----------------------------------------------
Net asset value at end of period .............. $ 9.04 $ 6.69 $ 9.13
===============================================
Total return(C) ............................... 35.37% (26.70%) (3.60%)(D)
===============================================
Net assets at end of period (000's) ........... $1,456 $ 729 $ 860
===============================================
Ratio of net expenses to average net assets ... 1.72%(E) 1.75% 1.75%(F)
Ratio of net investment income to
average net assets ......................... 0.10%(E) 0.18% 0.03%(F)
Portfolio turnover rate ....................... 10% 29% 9%(F)
(A) Represents the period from the commencement of operations (May 1, 2001)
through March 31, 2002.
(B) Amount rounds to less than $0.01 per share.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Not annualized.
(E) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 1.75% and the ratio of net investments
income to average net assets would have been 0.07%.
(F) Annualized.
See accompanying notes to financial statements.
29
ENHANCED 30 FUND--CLASS C
FINANCIAL HIGHLIGHTS
=====================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ---------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2004 2003 2002 2001(A)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ........ $ 6.72 $ 9.13 $ 8.88 $ 10.00
---------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ...................... 0.01 0.01 0.01 0.01
Net realized and unrealized gains
(losses) on investments ................. 2.37 (2.41) 0.25 (1.12)
---------------------------------------------------------------
Total from investment operations .............. 2.38 (2.40) 0.26 (1.11)
---------------------------------------------------------------
Dividends from net investment income .......... (0.02) (0.01) (0.01) (0.01)
---------------------------------------------------------------
Net asset value at end of period .............. $ 9.08 $ 6.72 $ 9.13 $ 8.88
===============================================================
Total return(B) ............................... 35.38% (26.32%) 3.00% (11.12%)(C)
===============================================================
Net assets at end of period (000's) ........... $2,260 $ 920 $ 900 $ 128
===============================================================
Ratio of net expenses to average net assets ... 1.72%(D) 1.74% 1.75% 1.73%(E)
Ratio of net investment income (loss) to
average net assets ......................... 0.13%(D) 0.18% (0.05%) (0.46%)(E)
Portfolio turnover rate ....................... 10% 29% 9% 3%(E)
(A) Represents the period from the commencement of operations (May 16, 2000)
through March 31, 2001.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 1.75% and the ratio of net investments
income to average net assets would have been 0.10%.
(E) Annualized.
See accompanying notes to financial statements.
30
GROWTH OPPORTUNITIES FUND--CLASS A
FINANCIAL HIGHLIGHTS
===================================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year ......... $ 12.70 $ 18.18 $ 19.97 $ 32.43 $ 17.50
---------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss ....................... (0.21) (0.19) (0.18) (0.13) (0.16)
Net realized and unrealized gains
(losses) on investments ................ 5.57 (5.29) (1.61) (12.33) 15.51
---------------------------------------------------------------------------------
Total from investment operations ............. 5.36 (5.48) (1.79) (12.46) 15.35
---------------------------------------------------------------------------------
Distributions from net realized gains ........ -- -- -- -- (0.42)
---------------------------------------------------------------------------------
Net asset value at end of year ............... $ 18.06 $ 12.70 $ 18.18 $ 19.97 $ 32.43
=================================================================================
Total return(A) .............................. 42.20% (30.14%) (8.96%) (38.42%) 88.88%
=================================================================================
Net assets at end of year (000's) ............ $117,605 $84,472 $121,791 $107,435 $79,066
=================================================================================
Ratio of net expenses to
average net assets ........................ 1.60% 1.83% 1.49% 1.54% 1.52%
Ratio of net investment loss to
average net assets ........................ (1.23%) (1.40%) (0.98%) (0.66%) (1.05%)
Portfolio turnover rate ...................... 47% 39% 52% 35% 44%
Amount of debt outstanding at
end of year (000's) ....................... n/a $ -- $ -- n/a n/a
Average daily amount of debt outstanding
during the year (000's)(B) ................ n/a $ 242 $ 24 n/a n/a
Average daily number of capital shares
outstanding during the year (000's)(B) .... n/a 8,916 8,481 n/a n/a
Average amount of debt per share
during the year (B) ....................... n/a $ 0.03 $ --(C) n/a n/a
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Based on fund level shares outstanding.
(C) Amount rounds to less than $0.01 per share.
See accompanying notes to financial statements.
31
GROWTH OPPORTUNITIES FUND--CLASS B
FINANCIAL HIGHLIGHTS
============================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------------------------------------------------------------------------------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
2004 2003 2002(A)
- ------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ............. $12.13 $ 17.78 $ 22.74
-----------------------------------------------
Income (loss) from investment operations:
Net investment loss ............................. (0.38) (0.36) (0.17)
Net realized and unrealized gains (losses)
on investments ............................... 5.56 (5.29) (4.79)
-----------------------------------------------
Total from investment operations ................... 5.18 (5.65) (4.96)
-----------------------------------------------
Net asset value at end of period ................... $17.31 $ 12.13 $ 17.78
===============================================
Total return(B) .................................... 42.70% (31.78%) (21.81%)(C)
===============================================
Net assets at end of period (000's) ................ $3,608 $ 2,463 $ 3,380
===============================================
Ratio of net expenses to average net assets ........ 2.84% 3.16% 2.37%(D)
Ratio of net investment loss to average net assets . (2.45%) (2.71%) (1.93%)(D)
Portfolio turnover rate ............................ 47% 39% 52%(D)
Amount of debt outstanding at end of period (000's) n/a $ -- $ --
Average daily amount of debt outstanding
during the period (000's)(E) .................... n/a $ 242 $ 24
Average daily number of capital shares outstanding
during the period (000's)(E) .................... n/a 8,916 8,481
Average amount of debt per share during the period(E) n/a $ 0.03 $ --(F)
(A) Represents the period from the commencement of operations (May 1, 2001)
through March 31, 2002.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
(E) Based on fund level shares outstanding.
(F) Amount rounds to less than $0.01 per share.
See accompanying notes to financial statements.
32
GROWTH OPPORTUNITIES FUND--CLASS C
FINANCIAL HIGHLIGHTS
================================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2004 2003 2002 2001 2000(A)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .......... $ 12.17 $ 17.78 $ 19.74 $ 32.30 $ 18.65
------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss .......................... (0.37) (0.36) (0.32) (0.19) (0.11)
Net realized and unrealized gains
(losses) on investments ................... 5.59 (5.25) (1.64) (12.37) 14.18
------------------------------------------------------------------------
Total from investment operations ................ 5.22 (5.61) (1.96) (12.56) 14.07
------------------------------------------------------------------------
Dividends from net investment income ............ -- -- -- -- (0.42)
------------------------------------------------------------------------
Net asset value at end of period ................ $ 17.39 $ 12.17 $ 17.78 $ 19.74 $ 32.30
========================================================================
Total return(B) ................................. 42.89% (31.55%) (9.93%) (38.89%) 76.52% (C)
========================================================================
Net assets at end of period (000's) ............. $28,470 $21,727 $40,967 $36,475 $10,794
========================================================================
Ratio of net expenses to average net assets ..... 2.60% 2.87% 2.31% 2.19% 2.33%(D)
Ratio of net investment loss to
average net assets ........................... (2.21%) (2.42%) (1.78%) (1.31%) (1.77%)(D)
Portfolio turnover rate ......................... 47% 39% 52% 35% 44%(D)
Amount of debt outstanding at
end of period (000's) ........................ n/a $ -- $ -- n/a n/a
Average daily amount of debt outstanding
during the period (000's)(E) ................. n/a $ 242 $ 24 n/a n/a
Average daily number of capital shares
outstanding during the
period (000's)(E) ............................ n/a 8,916 8,481 n/a n/a
Average amount of debt per share
during the period(E) ......................... n/a $ 0.03 $ --(F) n/a n/a
(A) Represents the period from the commencement of operations (August 2, 1999)
through March 31, 2000.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
(E) Based on fund level shares outstanding.
(F) Amount rounds to less than $0.01 per share.
See accompanying notes to financial statements.
33
LARGE CAP GROWTH FUND--CLASS A
FINANCIAL HIGHLIGHTS
===============================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------------------------------------------------------------
THREE
MONTHS
ENDED YEAR ENDED DECEMBER 31,
MARCH 31, ------------------------------------------------------------------
2004(A) 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .... $ 16.53 $ 12.19 $ 16.63 $ 21.73 $ 23.59 $ 14.47
----------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss .................... (0.03) (0.07) (0.12) (0.13) (0.20) (0.12)
Net realized and unrealized gains
(losses) on investments ............. 0.81 (4.41) (4.32) (0.97) (1.61) 9.24
----------------------------------------------------------------------------------
Total from investment operations .......... 0.78 (4.34) (4.44) (0.10) (1.81) 9.12
----------------------------------------------------------------------------------
Distributions from net realized gains ..... -- -- -- -- (0.05) --
================================================================================
Net asset value at end of period .......... $ 17.31 $ 16.53 $ 12.19 $ 16.63 $ 21.73 $ 23.59
================================================================================
Total return(B) ........................... 4.72%(C) 35.60% 26.70 (23.47%) (7.66%) 63.03%
================================================================================
Net assets at end of period (000's) ....... $ 69,860 $ 62,187 $ 13,831 $ 20,835 $ 44,068 $ 12,667
Ratio of net expenses to
average net assets ..................... 1.30%(D) 1.39% 1.49 1.49% 1.48% 1.49%
Ratio of net investment loss to
average net assets ..................... (0.78%)(D) (0.93%) (0.82) (0.82%) (1.14%) (0.99%)
Portfolio turnover ........................ 60%(D) 60%(E) 115 115% 54% 75%
(A) Effective after the close of business on December 31, 2003, the Fund
changed its fiscal year end to March 31.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
(E) Reflects the portfolio turnover rate after realignment of the portfolio in
connection with the acquisitions described in Note 9.
See accompanying notes to financial statements.
34
LARGE CAP GROWTH FUND--CLASS B
FINANCIAL HIGHLIGHTS
=============================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------
THREE
MONTHS PERIOD
ENDED ENDED
MARCH 31, DECEMBER 31,
2004(A) 2003(B)
- -----------------------------------------------------------------------------
Net asset value at beginning of period ........... $ 16.50 $ 15.45
--------------------
Income (loss) from investment operations:
Net investment loss ........................... (0.03) (0.06)
Net realized and unrealized gains
on investments ............................. 0.77 1.11
--------------------
Total from investment operations ................. 0.74 1.05
--------------------
Net asset value at end of period ................. $ 17.24 $ 16.50
====================
Total return(C) .................................. 4.48% 6.80%
====================
Net assets at end of period (000's) .............. $ 1,897 $ 1,003
====================
Ratio of net expenses to average net assets ...... 2.25%(D) 2.22%(D)
Ratio of net investment loss to average net assets (1.71%)(D) (1.80%)(D)
Portfolio turnover rate(D) ....................... 60% 60%(E)
(A) Effective after the close of business on December 31, 2003, the Fund
changed its fiscal year end to March 31.
(B) Represents the period from commencement of operations (October 4, 2003)
through December 31, 2003.
(C) Total returns shown exclude the effect of applicable sales loads and are
not annualized.
(D) Annualized.
(E) Reflects the portfolio turnover rate after realignment of the portfolio in
connection with the acquisitions described in Note 9.
See accompanying notes to financial statements.
35
LARGE CAP GROWTH FUND--CLASS C
FINANCIAL HIGHLIGHTS
===============================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------------
THREE
MONTHS PERIOD
ENDED ENDED
MARCH 31, DECEMBER 31,
2004(A) 2003(B)
- -------------------------------------------------------------------------------
Net asset value at beginning of period ........... $ 16.50 $ 15.45
----------------------
Income (loss) from investment operations:
Net investment loss ........................... (0.04) (0.05)
Net realized and unrealized gains
on investments ............................. 0.78 1.10
----------------------
Total from investment operations ................. 0.74 1.05
----------------------
Net asset value at end of period ................. $ 17.24 $ 16.50
======================
Total return(C) .................................. 4.48% 6.80%
======================
Net assets at end of period (000's) .............. $ 4,310 $ 2,465
======================
Ratio of net expenses to average net assets ...... 2.25%(D) 2.21%(D)
Ratio of net investment loss to average net assets (1.70%)(D) (1.78%)(D)
Portfolio turnover rate(D) ....................... 60% 60%(E)
(A) Effective after the close of business on December 31, 2003, the Fund
changed its fiscal year end to March 31.
(B) Represents the period from commencement of operations (October 4, 2003)
through December 31, 2003.
(C) Total returns shown exclude the effect of applicable sales loads and are
not annualized.
(D) Annualized.
(E) Reflects the portfolio turnover rate after realignment of the portfolio in
connection with the acquisitions described in Note 9.
See accompanying notes to financial statements.
36
SMALL CAP GROWTH FUND--CLASS A
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2004 2003(A)
- --------------------------------------------------------------------------------
Net asset value at beginning of period ........... $ 9.78 $ 10.00
---------------------
Income (loss) from investment operations:
Net investment loss ........................... (0.14) (0.06)
Net realized and unrealized gains (losses)
on investments ............................. 6.78 (0.16)
---------------------
Total from investment operations ................. 6.64 (0.22)
---------------------
Distributions from net realized gains ............ (0.37) --
---------------------
Net asset value at end of period ................. $ 16.05 $ 9.78
=====================
Total return(B) .................................. 68.02% (2.20%)(C)
=====================
Net assets at end of period (000's) .............. $ 53,064 $15,230
=====================
Ratio of net expenses to average net assets ...... 1.89%(D) 1.95%(E)
Ratio of net investment loss to average net assets (1.34%)(D) (1.61%)(E)
Portfolio turnover ............................... 133% 128%(E)
(A) Represents the period from commencement of operations (October 21, 2002)
through March 31, 2003.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 1.95% and the ratio of net investments
loss to average net assets would have been (1.40%).
(E) Annualized.
See accompanying notes to financial statements.
37
SMALL CAP GROWTH FUND--CLASS B
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2004 2003(A)
- --------------------------------------------------------------------------------
Net asset value at beginning of period ........... $ 9.75 $ 10.00
----------------------
Income (loss) from investment operations:
Net investment loss ........................... (0.21) (0.06)
Net realized and unrealized gains (losses)
on investments ............................. 6.73 (0.19)
----------------------
Total from investment operations ................. 6.52 (0.25)
----------------------
Distributions from net realized gains ............ (0.37) --
----------------------
Net asset value at end of period ................. $ 15.90 $ 9.75
======================
Total return(B) .................................. 66.99% (2.50%)(C)
======================
Net assets at end of period (000's) .............. $ 7,831 $ 1,399
======================
Ratio of net expenses to average net assets ...... 2.63%(D) 2.69%(E)
Ratio of net investment loss to average net assets (2.09%)(D) (2.38%)(E)
Portfolio turnover ............................... 133% 128%(E)
(A) Represents the period from commencement of operations (October 21, 2002)
through March 31, 2003.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 2.70% and the ratio of net investments
loss to average net assets would have been (2.16%).
(E) Annualized.
See accompanying notes to financial statements.
38
SMALL CAP GROWTH FUND--CLASS C
FINANCIAL HIGHLIGHTS
================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2004 2003(A)
- --------------------------------------------------------------------------------
Net asset value at beginning of period ........... 9.74 10.00
----------------------
Income (loss) from investment operations:
Net investment loss ........................... (0.21) (0.07)
Net realized and unrealized gains (losses)
on investments ............................. 6.75 (0.19)
----------------------
Total from investment operations ................. 6.54 (0.26)
----------------------
Distributions from net realized gains ............ (0.37) --
----------------------
Net asset value at end of period ................. 15.91 9.74
======================
Total return(B) .................................. 67.26% (2.60%)(C)
======================
Net assets at end of period (000's) .............. 14,596 3,029
======================
Ratio of net expenses to average net assets ...... 2.63%(D) 2.69%(E)
Ratio of net investment loss to average net assets (2.09%)(D) (2.39%)(E)
Portfolio turnover ............................... 133% 128%(E)
(A) Represents the period from commencement of operations (October 21, 2002)
through March 31, 2003.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 2.70% and the ratio of net investments
loss to average net assets would have been (2.16%).
(E) Annualized.
See accompanying notes to financial statements.
39
VALUE PLUS FUND--CLASS A
FINANCIAL HIGHLIGHTS
=======================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------------------------------------
THREE
YEAR YEAR YEAR MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, DEC. 31, DEC. 31,
2004 2003 2002 2001(A) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ..... $ 7.45 $ 10.49 $ 10.27 $ 10.74 $ 11.77 $ 10.41
-----------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................... 0.06 0.05 0.02 0.01 0.06 0.01
Net realized and unrealized gains
(losses) on investments .............. 2.69 (3.05) 0.22 (0.47) 0.12 1.60
-----------------------------------------------------------------------
Total from investment operations ........... 2.75 (3.00) 0.24 (0.46) 0.18 1.61
-----------------------------------------------------------------------
Less distributions:
Dividends from net investment income .... (0.06) (0.04) (0.02) (0.01) (0.06) (0.01)
Distributions from net realized gains ... -- -- -- -- (0.92) (0.24)
Return of capital ....................... -- -- -- -- (0.23) --
-----------------------------------------------------------------------
Total distributions ........................ (0.06) (0.04) (0.02) (0.01) (1.21) (0.25)
-----------------------------------------------------------------------
Net asset value at end of period ........... $ 10.14 $ 7.45 $ 10.49 $ 10.27 $ 10.74 $ 11.77
=======================================================================
Total return(B) ............................ 37.04% (28.59%) 2.34% (4.29%)(C) 1.91% 15.51%
=======================================================================
Net assets at end of period (000's) ........ $ 64,612 $ 46,113 $ 93,214 $ 51,442 $ 49,807 $ 31,808
=======================================================================
Ratio of net expenses to
average net assets ...................... 1.30% 1.30% 1.30% 1.30%(D) 1.30% 1.30%
Ratio of net investment income
to average net assets ................... 0.68% 0.58% 0.23% 0.37%(D) 0.51% 0.08%
Portfolio turnover ......................... 44% 58% 33% 48%(D) 83% 60%
(A) Effective after the close of business on December 31, 2000, the Fund
changed its fiscal year-end to March 31.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
See accompanying notes to financial statements.
40
VALUE PLUS FUND--CLASS B
FINANCIAL HIGHLIGHTS
=============================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------------------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
2004 2003 2002(A)
- -------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ................. $ 7.18 $ 10.18 $ 10.72
--------------------------------------------
Income (loss) from investment operations:
Net investment loss ................................. --(B) --(B) (0.01)
Net realized and unrealized gains (losses)
on investments ................................... 2.58 (2.96) (0.53)
--------------------------------------------
Total from investment operations ....................... 2.58 (2.96) (0.54)
--------------------------------------------
Dividends from net investment income ................... (0.03) (0.04) --
--------------------------------------------
Net asset value at end of period ....................... $ 9.73 $ 7.18 $ 10.18
============================================
Total return(C) ........................................ 36.04% (29.05%) (5.01%)(D)
============================================
Net assets at end of period (000's) .................... $ 753 $ 367 $ 130
============================================
Ratio of net expenses to average net assets ............ 2.05% 2.05% 2.05%(E)
Ratio of net investment loss to average net assets ..... (0.09%) (0.06%) (0.77%)(E)
Portfolio turnover rate ................................ 44% 58% 33%(E)
(A) Represents the period from the commencement of operations (May 1, 2001)
through March 31, 2002.
(B) Amount rounds to less than $0.01 per share.
(C) Total returns shown exclude the effect of applicable sales loads.
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
41
VALUE PLUS FUND--CLASS C
FINANCIAL HIGHLIGHTS
======================================================================================================================
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------------------
THREE
YEAR YEAR YEAR MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, DEC. 31, DEC. 31,
2004 2003 2002 2001(A) 2000 1999(B)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .... $ 7.22 $ 10.18 $ 10.02 $ 10.50 $ 11.48 $ 10.26
-----------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss .................... --(C) (0.02) (0.04) (0.01) (0.02) (0.07)
Net realized and unrealized gains
(losses) on investments ............. 2.59 (2.94) 0.20 (0.47) 0.19 1.53
-----------------------------------------------------------------------
Total from investment operations .......... 2.59 (2.96) 0.16 (0.48) 0.17 1.46
-----------------------------------------------------------------------
Less distributions:
Dividends from net investment income ... (0.03) -- -- -- -- --
Distributions from net realized gains .. -- -- -- -- (0.92) (0.24)
Return of capital ...................... -- -- -- -- (0.23) --
-----------------------------------------------------------------------
Total distributions ....................... (0.03) -- -- -- (1.15) (0.24)
-----------------------------------------------------------------------
Net asset value at end of period .......... $ 9.78 $ 7.22 $ 10.18 $ 10.02 $ 10.50 $ 11.48
=======================================================================
Total return(D) ........................... 35.89% (29.08%) 1.60% (4.57%)(E) 1.87% 14.24%
=======================================================================
Net assets at end of period (000's) ....... $ 1,867 $ 1,512 $ 2,548 $ 1,705 $ 2,011 $ 548
=======================================================================
Ratio of net expenses to
average net assets ..................... 2.05% 2.05% 2.05% 2.05%(F) 2.05% 2.05%
Ratio of net investment loss to
average net assets ........................ (0.05%) (0.15%) (0.51%) (0.33%)(F) (0.21%) (0.65%)
Portfolio turnover ........................ 44% 58% 33% 48%(F) 83% 60%
(A) Effective after the close of business on December 31, 2000, the Fund
changed its fiscal year-end to March 31.
(B) Represents the period from the commencement of operations (January 1, 1999)
through December 31, 1999.
(C) Amount rounds to less than $0.01 per share.
(D) Total returns shown exclude the effect of applicable sales loads.
(E) Not annualized.
(F) Annualized.
See accompanying notes to financial statements.
42
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2004
================================================================================
1. ORGANIZATION
The Emerging Growth Fund, Enhanced 30 Fund, Growth Opportunities Fund, Large Cap
Growth Fund, Small Cap Growth Fund and Value Plus Fund (individually, a Fund,
and collectively, the Funds) are each 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 each Fund.
Prior to May 1, 2000, the Emerging Growth Fund and Value Plus Fund were part of
the Touchstone Series Trust, a Massachusetts business trust organized on
February 7, 1994 and registered under the Act as an open-end management
investment company. Effective May 1, 2000, the Funds were merged into separate
series of the Trust and their fiscal year ends were subsequently changed from
December 31 to March 31.
Prior to October 4, 2003, the Large Cap Growth Fund was a series of the
Navellier Performance Funds. Effective October 4, 2003, the Navellier
Performance Large Cap Growth Portfolio and the Navellier Millennium Large Cap
Growth Portfolio were merged into the Large Cap Growth Fund. The accounting and
performance history of the Navellier Performance Large Cap Growth Portfolio was
carried forward. The Large Cap Growth Fund was the legal and tax survivor.
Effective January 1, 2004, the Fund changed its fiscal year end from December 31
to March 31.
The Emerging Growth Fund seeks to increase the value of Fund shares as a primary
goal and to earn income as a secondary goal by investing primarily (at least 65%
of its assets) in emerging growth companies.
The Enhanced 30 Fund seeks to achieve a total return that is higher than the
total return of the Dow Jones Industrial Average. The Fund's portfolio is based
on the 30 stocks that comprise the Dow Jones Industrial Average.
The Growth Opportunities Fund seeks long-term capital appreciation primarily
through equity investments in companies whose valuation may not reflect the
prospects for accelerated earnings/cash flow growth. The Fund invests primarily
in stocks of mid to large cap domestic growth companies that the sub-adviser
believes have a demonstrated record of achievement with excellent prospects for
earnings and/or cash flow growth over a 3 to 5 year period.
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 portfolio of
common stocks of large cap companies.
The Small Cap Growth Fund seeks long-term growth of capital. Under normal
circumstances, the Fund will invest at least 80% of its assets in common stock
of small cap companies.
The Value Plus Fund seeks to increase the value of Fund shares over the
long-term by investing primarily (at least 65% of its assets) in common stocks
of larger companies that the sub-adviser believes are undervalued.
Each Fund offers three classes of shares: Class A shares (currently sold subject
to a maximum front-end sales load of 5.75% and a maximum distribution fee of up
to 0.25%), Class B shares (sold subject to a maximum contingent deferred sales
load of 5.00% for a one-year period and incrementally reduced over time and a
maximum 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 maximum distribution fee of up to 1.00% of average daily net
assets). Each Class A,
43
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
Class B and Class C share of a Fund represents identical interests in the
investment portfolio of such 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 Funds' significant accounting policies:
Security valuation -- The Funds' portfolio securities are valued as of the close
of the regular session of trading on the New York Stock Exchange (currently 4:00
p.m., Eastern time). Portfolio securities traded on stock exchanges are valued
at the last sale price and portfolio securities quoted by NASDAQ are valued at
the NASDAQ Official Closing Price (NOCP). Securities not traded on a particular
day, or for which the last sale price is not readily available, are valued at
their last broker-quoted bid prices as obtained from one or more of the major
market makers for such securities by an independent pricing service. Securities
for which market quotations or the NOCP are not readily available are valued
based on fair value as determined by or under the direction of the Board of
Trustees.
Portfolio Securities Loaned - As of March 31, 2004, the Emerging Growth Fund,
Growth Opportunities Fund, Large Cap Growth Fund and Small Cap Growth Fund
loaned common stocks having a fair value of approximately $68,034,132,
$9,187,815, $4,305,900 and $8,826,839 and received collateral of $71,525,075,
$9,507,500, $4,342,200 and $9,289,588 for the loans, respectively. All
collateral received as cash and securities is received, held and administered by
the Funds' custodian for the benefit of the Funds in the applicable custody
account or other account established for the purpose of holding collateral.
Funds participating in securities lending receive compensation in the form of
fees, or retain a portion of interest or dividends on the investment of any cash
received as collateral. The Funds also continue to receive interest or dividends
on the securities loaned. The loans are secured by collateral valued at least
equal, at all times, to the fair value of the securities loaned plus accrued
interest. Unrealized gain or loss on the fair value of the securities loaned
that may occur during the term of the loan are recognized by the Funds. The
Funds have the right under the lending agreement to recover the securities from
the borrower on demand.
Repurchase agreements -- Repurchase agreements, which are collateralized by U.S.
Government obligations, are valued at cost, which, together with accrued
interest, approximates market. At the time each Fund enters into a repurchase
agreement, the seller agrees that the value of the underlying securities,
including accrued interest, will at all times, be equal to or exceed the face
amount of the repurchase agreement.
Share valuation -- The net asset value per share of each class of shares of each
Fund is calculated daily by dividing the total value of a Fund's assets
attributable to that class, less liabilities attributable to that class, by the
number of outstanding shares of that class.
The maximum offering price per share of Class A shares of the Funds 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 Funds is equal to the net asset value per
share.
44
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
The redemption price per share of each class of shares of the Funds is equal to
the net asset value per share. However, Class B and Class C shares of the Funds
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 load for Class B shares will be
incrementally reduced over time. After the 6th year, there is no contingent
deferred sales load for Class B shares.
Investment income -- Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date. Discounts and premiums on securities purchased
are recorded on an accrual basis.
Distributions to shareholders -- Dividends arising from net investment income,
if any, are declared and paid to shareholders annually for each Fund. With
respect to each Fund, 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 tax regulations.
Allocations -- Investment income earned, realized capital gains and losses, and
unrealized appreciation and depreciation for the Funds 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 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 each 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 a 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.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also each 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.
45
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
The tax character of distributions paid for the years ended March 31, 2004 and
2003 was as follows:
- ------------------------------------------------------------------------------------------------------------
EMERGING GROWTH
GROWTH ENHANCED 30 OPPORTUNITIES
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2004 2003 2004 2003 2004 2003
- ------------------------------------------------------------------------------------------------------------
From ordinary income ........... $ -- $3,671,302 $ 52,387 $ 71,896 $ -- $ --
From long-term capital gains ... -- 308,874 -- -- -- --
-------------------------------------------------------------------------
$ -- $3,980,176 $ 52,387 $ 71,896 $ -- $ --
=========================================================================
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
LARGE CAP SMALL CAP
GROWTH GROWTH VALUE PLUS
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2004 2003 2004 2003 2004 2003
- ------------------------------------------------------------------------------------------------------------
From ordinary income ........... $ -- $ -- $1,229,562 $ -- $ 404,737 $ 292,503
From long-term capital gains ... -- -- 68,424 -- -- --
-------------------------------------------------------------------------
$ -- $ -- $1,297,986 $ -- $ 404,737 $ 292,503
=========================================================================
- ------------------------------------------------------------------------------------------------------------
The following information is computed on a tax basis for each item as of March
31, 2004:
- ------------------------------------------------------------------------------------------------
EMERGING GROWTH
GROWTH ENHANCED 30 OPPORTUNITIES
FUND FUND FUND
- ------------------------------------------------------------------------------------------------
Cost of portfolio investments ........... $ 711,583,416 $11,037,265 $ 148,899,989
==================================================
Gross unrealized appreciation ........... 127,352,635 1,915,593 29,483,979
Gross unrealized depreciation ........... (18,198,932) (658,814) (21,292,546)
--------------------------------------------------
Net unrealized appreciation ............. 109,153,703 1,256,779 8,191,433
Post-October losses ..................... -- (81,328) (816,953)
Capital loss carryforward ............... -- 1,564,766) (63,527,140)
Undistributed ordinary income ........... -- 13,265 --
Undistributed long-term capital gains ... 18,868,517 -- --
==================================================
Accumulated earnings (deficit) ....... $ 128,022,220 $ (376,050) $ (56,152,660)
==================================================
- ------------------------------------------------------------------------------------------------
46
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
- --------------------------------------------------------------------------------------------------
LARGE CAP SMALL CAP
GROWTH GROWTH VALUE PLUS
FUND FUND FUND
- --------------------------------------------------------------------------------------------------
Cost of portfolio investments ........... $ 66,031,167 $67,565,691 $ 59,434,717
===================================================
Gross unrealized appreciation ........... 12,905,727 16,176,941 9,403,856
Gross unrealized depreciation ........... (203,030) (3,452,449) (3,129,160)
---------------------------------------------------
Net unrealized appreciation ............. 12,702,697 12,724,492 6,274,696
Post-October losses ..................... (652,281) -- --
Capital loss carryforward ............... (56,294,989) -- (14,164,720)
Undistributed ordinary income ........... -- 1,709,786 72,939
Undistributed long-term capital gains ... -- 1,330,596 --
===================================================
Accumulated earnings (deficit) ....... $(44,244,573) $15,764,874 $ (7,817,085)
===================================================
- --------------------------------------------------------------------------------------------------
The difference between the tax cost of portfolio investments and the financial
statement cost is primarily due to wash sales.
As of March 31, 2004, the Funds had the following capital loss carryforwards for
federal income tax purposes.
- --------------------------------------------------------------------------------
EXPIRES
FUND AMOUNT MARCH 31,
- --------------------------------------------------------------------------------
Enhanced 30 Fund .............................. $ 99,480 2009
24,780 2010
414,728 2011
1,025,778 2012
------------
1,564,766
============
Growth Opportunities Fund ..................... $ 2,005,441 2009
22,448,509 2010
21,975,058 2011
17,098,132 2012
------------
63,527,140
============
Large Cap Growth Fund* ........................ $ 1,492,562 2008
17,152,661 2009
14,651,841 2010
19,675,611 2011
3,322,314 2012
------------
56,294,989
============
Value Plus Fund ............................... $ 209,088 2009
5,826,294 2011
8,129,338 2012
------------
14,164,720
============
- --------------------------------------------------------------------------------
The capital loss carryforwards and Post-October losses may be utilized in future
years to offset net realized capital gains, if any, prior to distributing such
gains to shareholders.
Certain reclassifications, the result of permanent differences between financial
statement and income tax reporting requirements have been made to the components
of capital. These reclassifications have no impact on the net assets or net
asset value per share of the Funds.
* A portion of these capital loss carryforwards may be limited under tax
regulations.
47
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments and U.S. Government
securities) were as follows for the period ended March 31, 2004:
- -------------------------------------------------------------------------------------
EMERGING GROWTH
GROWTH ENHANCED 30 OPPORTUNITIES
FUND FUND FUND
- -------------------------------------------------------------------------------------
Purchases of investment securities .... $ 663,940,689 $ 2,795,612 $ 63,960,589
--------------------------------------------
Proceeds from sales and maturities
of investment securities ........... $ 382,393,192 $ 1,028,039 $ 71,642,537
--------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
LARGE CAP SMALL CAP
GROWTH GROWTH VALUE PLUS
FUND FUND FUND
- -------------------------------------------------------------------------------------
Purchases of investment securities .... $ 18,410,016 $ 91,802,878 $ 26,627,729
--------------------------------------------
Proceeds from sales and maturities
of investment securities ........... $ 10,248,194 $ 57,568,854 $ 25,599,372
--------------------------------------------
- -------------------------------------------------------------------------------------
4. TRANSACTIONS WITH AFFILIATES
Certain officers of the Trust are also officers of Touchstone Advisors, Inc.
(the Adviser), the Trust's investment adviser, or Touchstone Securities, Inc.
(the Underwriter), the Trust's principal underwriter, and 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.
MANAGEMENT AGREEMENTS
The Adviser provides general investment supervisory services for the Funds,
under the terms of a Management Agreement. Under the Management Agreement, the
Enhanced 30 Fund pays the Adviser a fee, which is computed and accrued daily and
paid monthly, at an annual rate of 0.65% on the first $100 million of average
daily net assets; 0.60% of the next $100 million of average daily net assets;
0.55% of the next $100 million of average daily net assets; and 0.50% of such
assets in excess of $300 million. The Growth Opportunities Fund pays the Adviser
a fee, which is computed and accrued daily and paid monthly, at an annual rate
of 1.00% on the first $50 million of average daily net assets; 0.90% of the next
$50 million of average daily net assets; 0.80% of the next $100 million of
average daily net assets; and 0.75% of such assets in excess of $200 million.
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. The Value Plus 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 $100 million of average daily net assets;
0.70% of the next $100 million of average daily net assets; 0.65% of the next
$100 million of average daily net assets; and 0.60% of such assets in excess of
$300 million. The Emerging Growth Fund and Small Cap Growth Fund each pay the
Adviser a fee, which is computed and accrued daily and paid monthly, at an
annual rate of 0.80% and 1.25%, respectively, of average daily net assets.
48
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
TCW Investment Management Company (TCW) and Westfield Capital Management
Company, Inc. (Westfield) have been retained by the Adviser to manage the
investments of the Emerging Growth Fund. The Adviser (not the Fund) pays TCW and
Westfield a fee for these services.
Todd Investment Advisors, Inc. (Todd), an Affiliate of the Adviser, has been
retained by the Adviser to manage the investments of the Enhanced 30 Fund. The
Adviser (not the Fund) pays Todd a fee for these services.
Mastrapasqua Asset Management, Inc. (Mastrapasqua) has been retained by the
Adviser to manage the investments of the Growth Opportunities Fund. The Adviser
(not the Fund) pays Mastrapasqua a fee for these services.
Navellier Management, Inc. (Navellier) has been retained by the Adviser to
manage the investments of the Large Cap Growth Fund. The Adviser (not the Fund)
pays Navellier a fee for these services.
Longwood Investment Advisors, Inc. (Longwood) and Bjurman, Barry & Associates
(Bjurman) have been retained by the Adviser to manage the investments of the
Small Cap Growth Fund. The Adviser (not the Fund) pays Longwood and Bjurman a
fee for these services.
Fort Washington Investment Advisors, Inc. (Fort Washington), an Affiliate of the
Adviser, has been retained by the Adviser to manage the investments of the Value
Plus Fund. The Adviser (not the Fund) pays Fort Washington a fee for these
services.
The Adviser has entered into an agreement to contractually limit operating
expenses of certain Funds. The maximum operating expense limit in any year with
respect to a 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 shall remain in effect until October 6,
2005.
Pursuant to a Sponsor Agreement, between the Adviser and the Trust, the Adviser
has agreed to waive its fees and reimburse expenses in order to limit certain
Fund's annual expenses as follows: Emerging Growth Fund - 1.50% for Class A
shares, 2.25% for Class B and Class C shares; Enhanced 30 Fund - 1.00% for Class
A shares, 1.75% for Class B and Class C shares; Small Cap Growth Fund - 1.95%
for Class A shares, 2.70% for Class B and Class C shares; Value Plus Fund -
1.30% for Class A shares, 2.05% for Class B and Class C shares. These fee
waivers and expense limitations are in effect until March 31, 2005.
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 each Fund.
TRANSFER AGENT AGREEMENT
Under the terms of the Transfer Agent 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 each 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 each
Fund, subject to a minimum monthly fee for each Fund, or for each class of
shares of a Fund, as applicable. In addition, each Fund pays Integrated
out-of-pocket expenses including, but not limited to, postage and supplies.
49
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
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. For these services, Integrated
receives a monthly fee, based on current net asset levels from each Fund. In
addition, each Fund pays Integrated certain out-of-pocket expenses incurred by
Integrated in obtaining valuations of such Fund's portfolio securities.
UNDERWRITING AGREEMENT
The Underwriter is the Funds' principal underwriter and, as such, acts as the
exclusive agent for distribution of the Funds' shares. Under the terms of the
Underwriting Agreement between the Trust and Underwriter, the Underwriter earned
$245,317, $4,253, $13,314, $11,590, $41,383 and $4,423 from underwriting and
broker commissions on the sale of shares of the Emerging Growth Fund, Enhanced
30 Fund, Growth Opportunities Fund, Large Cap Growth Fund, Small Cap Growth
Fund, and Value Plus Fund, respectively, during the period ended March 31, 2004.
In addition, the Underwriter collected $142,079, $8,470, $14,836, $5,930,
$10,788, and $3,061 of contingent deferred sales loads on the redemption of
Class B and Class C shares of the Emerging Growth Fund, Enhanced 30 Fund, Growth
Opportunities Fund, Large Cap Growth Fund, Small Cap Growth Fund and Value Plus
Fund, respectively.
PLANS OF DISTRIBUTION
The Trust has a Plan of Distribution (Class A Plan) under which Class A shares
of each Fund may directly incur or reimburse the Adviser or the Underwriter 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 each Fund may directly incur or reimburse the
Adviser or the Underwriter 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.
SPONSOR AGREEMENT
The Trust, on behalf of the Emerging Growth Fund, Enhanced 30 Fund, Small Cap
Growth Fund, and Value Plus Fund, has entered into a Sponsor Agreement with the
Adviser. The Adviser provides oversight of the various service providers to the
Funds, including the Funds' administrator, custodian and transfer agent. The
Adviser receives a fee from each Fund equal on an annual basis to 0.20% of the
average daily net assets of that Fund. The Adviser agreed to waive all fees
until March 31, 2005, as needed to maintain each Fund's expenses at a set level.
The Sponsor Agreement may be terminated by the Adviser, the Board of Trustees or
the vote of a majority of the outstanding voting securities of each Fund with 30
days written notice.
50
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:
- -----------------------------------------------------------------------------------------------------------------------------------
EMERGING GROWTH
GROWTH ENHANCED 30 OPPORTUNITIES
FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2004 2003 2004 2003 2004 2003
- -----------------------------------------------------------------------------------------------------------------------------------
CLASS A
Shares sold ................................... 14,941,630 9,611,435 120,345 286,492 2,561,302 4,692,700
Shares reinvested -- 110,981 5,313 9,547 -- --
Shares redeemed ............................... (4,876,741) (7,387,223) (69,892) (209,119) (2,699,942) (4,740,449)
----------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding . 10,064,889 2,335,193 55,766 86,920 (138,640) (47,749)
Shares outstanding, beginning of year ......... 11,032,209 8,697,016 909,913 822,993 6,651,160 6,698,909
----------------------------------------------------------------------------------
Shares outstanding, end of year ............... 21,097,098 11,032,209 965,679 909,913 6,512,520 6,651,160
==================================================================================
CLASS B
Shares sold ................................... 1,436,646 1,551,627 91,503 67,375 39,997 67,258
Shares reinvested ............................. -- 20,616 188 26 -- --
Shares redeemed ............................... (288,448) (319,901) (39,542) (52,640) (34,568) (54,304)
----------------------------------------------------------------------------------
Net increase in shares outstanding ............ 1,148,198 1,252,342 52,149 14,761 5,429 12,954
Shares outstanding, beginning of year ......... 2,092,702 840,360 108,930 94,169 203,047 190,093
----------------------------------------------------------------------------------
Shares outstanding, end of year ............... 3,240,900 2,092,702 161,079 108,930 208,476 203,047
==================================================================================
CLASS C
Shares sold ................................... 6,236,733 5,488,550 162,890 131,520 230,034 240,662
Shares reinvested ............................. -- 58,253 288 93 -- --
Shares redeemed ............................... (1,454,131) (1,445,076) (51,128) (93,364) (377,297) (759,693)
----------------------------------------------------------------------------------
Net increase (decrease) in shares outstanding . 4,782,602 4,101,727 112,050 38,249 (147,263) (519,031)
Shares outstanding, beginning of year ......... 7,790,171 3,688,444 136,846 98,597 1,784,821 2,303,852
----------------------------------------------------------------------------------
Shares outstanding, end of year ............... 12,572,773 7,790,171 248,896 136,846 1,637,558 1,784,821
==================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
51
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
LARGE CAP SMALL CAP
GROWTH GROWTH VALUE PLUS
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
THREE
MONTHS YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2004 2003 2002 2004 2003(A) 2004 2003
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A
Shares sold ....................... 416,560 916,519 469,930 2,140,689 1,605,827 576,417 819,488
Shares reinvested ................. -- 2,561,534 -- 52,792 -- 42,224 37,132
Shares redeemed ................... (143,232) (850,347) (588,022) (444,544) (48,124) (436,399) (3,553,400)
------------------------------------------------------------------------------------------------
Net increase (decrease) in
shares outstanding ............. 273,328 2,627,706 (118,092) 1,748,937 1,557,703 182,242 (2,696,780)
Shares outstanding, beginning
of period ...................... 3,762,174 1,134,468 1,252,560 1,557,703 -- 6,187,359 8,884,139
------------------------------------------------------------------------------------------------
Shares outstanding, end of period . 4,035,502 3,762,174 1,134,468 3,306,640 1,557,703 6,369,601 6,187,359
================================================================================================
CLASS B
Shares sold ....................... 53,919 35,834 -- 367,456 148,131 38,408 40,736
Shares reinvested ................. -- 33,380 -- 7,879 -- 221 233
Shares redeemed ................... (4,649) (8,449) -- (26,164) (4,698) (12,353) (2,533)
------------------------------------------------------------------------------------------------
Net increase in shares outstanding 49,270 60,765 -- 349,171 143,433 26,276 38,436
Shares outstanding,
beginning of period ............ 60,765 -- -- 143,433 -- 51,146 12,710
------------------------------------------------------------------------------------------------
Shares outstanding, end of period . 110,035 60,765 -- 492,604 143,433 77,422 51,146
================================================================================================
CLASS C
Shares sold ....................... 105,172 78,268 -- 745,002 341,792 38,680 34,029
Shares reinvested ................. -- 77,097 -- 7,805 -- 570 --
Shares redeemed ................... (4,615) (6,005) -- (145,961) (31,000) (57,927) (74,724)
------------------------------------------------------------------------------------------------
Net increase (decrease) in
shares outstanding ............. 100,557 149,360 -- 606,846 310,792 (18,677) (40,695)
Shares outstanding,
beginning of period ............ 149,360 -- -- 310,792 -- 209,498 250,193
------------------------------------------------------------------------------------------------
Shares outstanding, end of period . 249,917 149,360 -- 917,638 310,792 190,821 209,498
================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
(A) Represents the period from commencement of operations (October 31, 2002)
through March 31, 2003.
52
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
6. RISKS ASSOCIATED WITH FOREIGN SECURITIES
Investments in securities of foreign issuers carry certain risks not ordinarily
associated with investments in securities of domestic issuers. Such risks
include future political and economic developments and the possible imposition
of exchange controls or other foreign governmental laws and restrictions. In
addition, with respect to certain countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social instability
or diplomatic developments, which could adversely affect investments in those
countries.
Certain countries may also impose substantial restrictions on investments in
their capital markets by foreign entities, including restrictions on investments
in issuers or industries deemed sensitive to relevant national interests. These
factors may limit the investment opportunities available to a Fund or result in
a lack of liquidity and high price volatility with respect to securities of
issuers from developing countries.
7. RISKS ASSOCIATED WITH SMALL CAPITALIZATION INVESTING
Emerging growth funds and small cap funds typically carry additional risks since
smaller companies generally have a higher risk of failure. Historically, smaller
companies have experienced a greater degree than average of market volatility.
8. PRIOR SERVICE PROVIDERS
Prior to September 8, 2003, FBR National Bank and Trust Company (FBR) provided
transfer agency, dividend disbursing and other shareholder services to the Large
Cap Growth Fund. In addition, FBR served as custodian of the Fund's assets. Fees
paid to FBR for these fees are presented on the Statement of Operations as
"Transfer agent and custodian fees" and cannot be broken out separately for the
fiscal year ended December 31, 2003. Transfer agent fees listed by class on the
Statement of Operations represent fees paid to Integrated after September 8,
2003.
9. ACQUISITIONS
On October 3, 2003, a Special Meeting of Shareholders of the Navellier
Performance Large Cap Growth Portfolio, a series of the Navellier Performance
Funds, and of the Navellier Millennium Large Cap Growth Portfolio, a series of
the Navellier Millenium Funds, 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 Portfolio and
Navellier Millennium Large Cap Growth Portfolio by Touchstone Large Cap Growth
Fund, 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 4, 2003. Upon completion of the merger,
Navellier Performance Large Cap Growth Portfolio became the accounting and
performance survivor, while the Touchstone Large Cap Growth Fund remained as the
legal and tax survivor.
53
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
The following is a summary of shares outstanding, net assets, net asset value
per share, unrealized appreciation (depreciation) and accumulated net realized
gains (losses) immediately before and after the reorganization:
AFTER
BEFORE REORGANIZATION REORGANIZATION
- ---------------------------------------------------------------------------------------------------
NAVELLIER NAVELLIER
PERFORMANCE MILLENNIUM TOUCHSTONE TOUCHSTONE
LARGE CAP LARGE CAP LARGE CAP LARGE CAP
GROWTH GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO FUND FUND
- ---------------------------------------------------------------------------------------------------
Shares:
Class A ....................... 1,289,869 74,609 4,159,880 3,851,401
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 Gains ... $(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.
10. COMMISSION RECAPTURE
Included in the Statements of Operations under the caption "Fees from commission
recapture" are amounts received by the Funds from certain brokers to whom
brokerage transactions have been directed.
11. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Funds enter into contracts that contain a
variety of representations and warranties and which provide general
indemnifications. The Funds' maximum exposure under these arrangements is
unknown, as this would involve future claims that may be made against the Funds
that have not yet occurred. However, based on experience, the Funds expect the
risk of loss to be remote.
54
EMERGING GROWTH FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
================================================================================
MARKET
COMMON STOCKS -- 96.6% SHARES VALUE
- --------------------------------------------------------------------------------
ELECTRONICS -- 11.8%
AMETEK, Inc. ........................................ 303,500 $ 7,781,740
Arrow Electronics Inc.* ............................. 344,200 8,763,332
ATMI, Inc.* ......................................... 170,500 4,487,560
Celestica, Inc.* .................................... 505,700 8,293,480
LSI Logic* .......................................... 707,700 6,609,918
National Semiconductor Corp.* ....................... 88,900 3,949,827
NVIDIA Corp.* ....................................... 325,000 8,609,250
Power Integrations Inc.* ............................ 150,400 4,411,232
Semtech Corp.* ...................................... 254,700 5,814,801
Thermo Electron* .................................... 583,500 16,501,379
Varian Semiconductor Equipment Associates Inc.* ..... 197,100 8,278,200
Vishay Intertechnology Inc.* ........................ 362,400 7,733,616
-----------
91,234,335
-----------
MEDICAL SUPPLIES -- 9.3%
Apogent Technologies Inc.* .......................... 227,600 6,982,768
Beckman Coulter Inc. ................................ 115,600 6,304,824
Edwards Lifesciences Corp.* ......................... 216,900 6,929,955
Integra LifeSciences Holdings* ...................... 149,300 4,571,566
Omnicare, Inc. ...................................... 127,900 5,669,807
PolyMedica Corp. .................................... 193,600 5,192,352
Quest Diagnostics Inc ............................... 105,000 8,697,150
Tektronix Inc. ...................................... 320,000 10,467,200
Teradyne Inc.* ...................................... 483,700 11,526,571
Wright Medical Group Inc.* .......................... 194,500 5,971,150
-----------
72,313,343
-----------
COMMERCIAL SERVICES -- 6.6%
Anixter International Inc. .......................... 248,900 7,031,425
Career Education Corp.* ............................. 183,600 10,399,104
LECG Corp.* ......................................... 190,900 3,713,005
Navigant Consulting, Inc.* .......................... 182,000 3,681,860
NDCHealth Corp. ..................................... 197,300 5,356,695
PerkinElmer Inc. .................................... 358,510 7,417,572
Sylvan Learning Systems Inc.* ....................... 201,300 7,067,643
University of Phoenix Online* ....................... 74,400 6,474,288
-----------
51,141,592
-----------
OIL & GAS -- 5.7%
Chesapeake Energy Corp. ............................. 570,900 7,650,060
Cooper Cameron Corp.* ............................... 181,400 7,990,670
Devon Energy Corp. .................................. 126,200 7,338,530
ENSCO International Inc. ............................ 139,700 3,935,349
Pride International Inc.* ........................... 199,800 3,408,588
Transocean Inc.* .................................... 366,300 10,216,107
Varco International Inc.* ........................... 203,100 3,657,831
-----------
44,197,135
-----------
55
EMERGING GROWTH FUND
(CONTINUED)
================================================================================
MARKET
COMMON STOCKS -- 96.6% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
BANKING -- 5.7%
Banknorth Group Inc. ................................ 224,050 $ 7,626,662
East West Bancorp Inc. .............................. 116,400 6,518,400
Greater Bay Bancorp ................................. 224,400 6,563,700
North Fork Bancorporation ........................... 191,000 8,083,120
Southwest Bancorporation of Texas ................... 97,500 3,678,675
The South Financial Group, Inc. ..................... 123,300 3,648,447
Wintrust Financial Corp. ............................ 83,200 4,046,016
Zions Bancorporation ................................ 67,600 3,866,720
-----------
44,031,740
-----------
HEALTH CARE PROVIDERS -- 5.2%
Community Health Systems, Inc.* ..................... 117,600 3,272,808
Health Management Associates, Inc. - Class A ........ 185,200 4,298,492
Health Net Inc.* .................................... 319,350 7,961,396
Humana, Inc.* ....................................... 44,000 836,880
Manor Care .......................................... 286,000 10,092,940
PacifiCare Health Systems, Inc.* .................... 194,800 7,704,340
Triad Hospitals, Inc.* .............................. 198,600 6,120,852
-----------
40,287,708
-----------
RETAILERS -- 4.7%
99 Cents Only Stores* ............................... 121,600 2,969,472
Cost Plus Inc.* ..................................... 165,000 6,888,750
Dollar Tree Stores, Inc.* ........................... 157,900 4,877,531
J.C. Penney Company Inc. ............................ 319,900 11,126,122
Tech Data Corp.* .................................... 106,600 4,364,204
Williams-Sonoma Inc.* ............................... 176,900 6,049,980
-----------
36,276,059
-----------
COMPUTER SOFTWARE & PROCESSING -- 4.5%
Alliance Data Systems Corp.* ........................ 245,700 8,243,235
Ascential Software Corp.* ........................... 82,600 1,810,592
CheckFree Corp.* .................................... 209,200 6,163,032
Network Associates Inc.* ............................ 487,700 8,778,600
SRA International, Inc. - Class A* .................. 102,800 3,797,432
Transaction Systems Architects, Inc. - Class A* ..... 250,300 5,791,942
-----------
34,584,833
-----------
COMPUTERS & INFORMATION -- 3.8%
Emulex Corp.* ....................................... 95,000 2,022,550
Maxtor Corp.* ....................................... 750,400 6,115,760
RSA Security Inc.* .................................. 261,900 4,921,101
Storage Technology Corp.* ........................... 118,500 3,297,855
The Reynolds & Reynolds Company - Class A ........... 238,300 6,770,103
Unisys Corp.* ....................................... 451,700 6,450,276
-----------
29,577,645
-----------
HEAVY MACHINERY -- 3.4%
Dover Corp. ......................................... 124,500 4,826,865
Pall Corp. .......................................... 187,400 4,252,106
Phelps Dodge Corp.* ................................. 35,600 2,907,096
W.W. Grainger, Inc. ................................. 163,600 7,852,800
York International Corp. ............................ 173,400 6,816,354
-----------
26,655,221
-----------
56
EMERGING GROWTH FUND
(CONTINUED)
================================================================================
MARKET
COMMON STOCKS -- 96.6% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING -- 2.6%
E.W. Scripps Co. .................................... 61,800 $ 6,248,598
Entravision Communications Corp. - Class A* ......... 234,200 2,100,774
The Readers Digest Association, Inc. ................ 410,800 5,784,064
Westwood One, Inc.* ................................. 216,800 6,384,760
-----------
20,518,196
-----------
BIOTECHNOLOGY -- 2.6%
Celgene Corp.* ...................................... 168,900 8,048,085
Charles River Laboratories International, Inc.* ..... 192,600 8,252,910
QLT Inc.* ........................................... 150,100 3,833,554
-----------
20,134,549
-----------
APPAREL RETAILERS -- 3.7%
American Eagle Outfitters Inc.* ..................... 411,600 11,096,736
Jones Apparel Group, Inc. ........................... 256,380 9,268,137
The Talbots Inc. .................................... 234,300 8,383,254
-----------
28,748,127
-----------
INDUSTRIAL -- 2.5%
Actuant Corp. - Class A* ............................ 166,600 6,535,718
Roper Industries, Inc. .............................. 145,100 7,001,075
Varian Inc.* ........................................ 147,600 5,929,092
-----------
19,465,885
-----------
PHARMACEUTICALS -- 2.4%
Elan Corp. plc* ..................................... 599,800 12,367,876
The Medicines Company* .............................. 204,000 6,570,840
-----------
18,938,716
-----------
HOUSEHOLD PRODUCTS -- 2.1%
Leggett & Platt, Inc. ............................... 263,200 6,240,472
Maytag Corp. ........................................ 199,200 6,288,744
Rohm and Haas Company ............................... 88,900 3,541,776
-----------
16,070,992
-----------
RESTAURANTS -- 1.9%
Darden Restaurants, Inc ............................. 352,100 8,728,559
P.F. Chang's China Bistro, Inc.* .................... 114,400 5,755,464
-----------
14,484,023
-----------
CONSTRUCTION -- 1.8%
D.R. Horton, Inc. ................................... 220,200 7,801,686
The Ryland Group, Inc. .............................. 73,500 6,529,005
-----------
14,330,691
-----------
INSURANCE -- 1.7%
Bristol West Holdings, Inc.* ........................ 189,200 3,859,680
Direct General Corp. ................................ 84,600 3,062,520
Old Republic International Corp. .................... 264,800 6,503,488
-----------
13,425,688
-----------
COMMUNICATIONS -- 1.4%
Advanced Fibre Communication, Inc.* ................. 261,100 5,752,033
QLogic Corp.* ....................................... 162,200 5,354,222
-----------
11,106,255
-----------
WASTE DISPOSAL -- 1.4%
Republic Services Inc. .............................. 194,600 5,267,822
Waste Connections Inc.* ............................. 134,100 5,337,180
-----------
10,605,002
-----------
57
EMERGING GROWTH FUND
(CONTINUED)
================================================================================
MARKET
COMMON STOCKS -- 96.6% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
TECHNOLOGY -- 1.2%
Concur Technologies, Inc.* ........................ 222,200 $ 2,488,640
Keane, Inc.* ...................................... 442,400 6,963,376
-------------
9,452,016
-------------
FINANCIAL SERVICES -- 1.1%
CapitalSource Inc.* ............................... 154,800 3,475,260
Countrywide Financial Corp. ....................... 47,033 4,510,465
Piper Jaffray Companies, Inc.* .................... 12,160 658,464
-------------
8,644,189
-------------
COAL -- 1.0%
Peabody Energy Corp. .............................. 173,500 8,069,485
-------------
STEEL -- 1.0%
United States Steel Corp. ......................... 206,200 7,685,074
-------------
ADVERTISING -- 1.0%
The Interpublic Group of Companies, Inc.* ......... 494,800 7,610,024
-------------
ENGINEERING SERVICES -- 1.0%
EMCOR Group, Inc.* ................................ 206,300 7,571,210
-------------
AEROSPACE & DEFENSE -- 0.9%
Alliant Techsystems Inc.* ......................... 124,000 6,745,600
-------------
EMPLOYMENT SERVICES -- 0.9%
Monster Worldwide Inc.* ........................... 255,000 6,681,000
-------------
ENTERTAINMENT & LEISURE -- 0.8%
Metro-Goldwyn-Mayer Inc.* ......................... 378,400 6,584,160
-------------
DEEP SEA PASSENGER TRANSPORTATION -- 0.8%
Royal Caribbean Cruises Ltd. ...................... 141,800 6,253,380
-------------
AIRLINES -- 0.8%
Southwest Airlines Co. ............................ 433,900 6,165,719
-------------
COTTON -- 0.5%
Delta and Pine Land Company ....................... 140,200 3,497,990
-------------
COSMETICS & TOILETRIES -- 0.4%
Estee Lauder Companies - Class A .................. 71,100 3,152,574
-------------
RAILROAD EQUIPMENT -- 0.4%
Wabtec Corp ....................................... 208,700 2,971,888
-------------
Total Common Stocks ............................... $ 749,212,044
-------------
INVESTMENT FUNDS -- 9.2%
BBH Securities Lending Fund** ..................... 71,525,075 $ 71,525,075
-------------
TOTAL INVESTMENT SECURITIES (COST $707,578,539) ... $ 820,737,119
LIABILITIES IN EXCESS OF OTHER ASSETS -- 5.8% ..... (45,274,328)
-------------
NET ASSETS -- 100.0% .............................. $ 775,462,791
=============
* Non-income producing security.
** Represents collateral for securities loaned.
See accompanying notes to financial statements.
58
ENHANCED 30 FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
================================================================================
MARKET
COMMON STOCKS -- 98.4% SHARES VALUE
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 19.2%
Cisco Systems, Inc.* .............................. 16,500 $ 388,080
Computer Sciences Corp.* .......................... 10,200 411,366
Hewlett-Packard Co. ............................... 18,300 417,972
Intel Corp. ....................................... 13,800 375,360
International Business Machines Corp. (IBM) ....... 4,300 394,912
Microsoft Corp. ................................... 16,400 409,508
-----------
2,397,198
-----------
INDUSTRIAL -- 19.0%
3M Co. ............................................ 5,000 409,350
Boeing Co. ........................................ 9,400 386,058
Caterpiller, Inc. ................................. 5,400 426,978
General Electric Co. .............................. 12,400 378,448
Honeywell International, Inc. ..................... 11,800 399,430
United Technologies Corp. ......................... 4,400 379,720
-----------
2,379,984
-----------
CONSUMER STAPLES -- 17.1%
Altria Group, Inc. ................................ 7,400 402,930
Coca-Cola Co. ..................................... 7,800 392,340
Kimberly-Clark Corp. .............................. 6,700 422,770
Procter & Gamble Co. .............................. 4,000 419,520
Wal-Mart Stores, Inc. ............................. 8,400 501,396
-----------
2,138,956
-----------
HEALTH -- 13.9%
Anthem, Inc.* ..................................... 5,800 525,712
Cardinal Health, Inc. ............................. 5,800 399,620
Johnson & Johnson ................................. 7,600 385,472
Merck & Co., Inc. ................................. 9,500 419,805
-----------
1,730,609
-----------
FINANCIAL SERVICES -- 10.1%
American Express Co. .............................. 7,500 388,875
Bank of America Corp. ............................. 5,100 412,998
Citigroup, Inc. ................................... 9,016 466,127
-----------
1,268,000
-----------
CONSUMER DISCRETIONARY -- 9.9%
Best Buy Co., Inc. ................................ 8,200 424,104
Home Depot, Inc. .................................. 10,800 403,488
The Walt Disney Co. ............................... 16,300 407,337
-----------
1,234,929
-----------
ENERGY -- 3.3%
Exxon Mobil Corp. ................................. 9,800 407,582
-----------
TELECOMMUNICATION SERVICE -- 3.0%
SBC Communications, Inc. .......................... 15,400 377,916
-----------
59
ENHANCED 30 FUND
(CONTINUED)
================================================================================
MARKET
COMMON STOCKS -- 98.4% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
MATERIALS -- 2.9%
Du Pont (E.I.) DE Nemours ......................... 8,500 $ 358,870
-----------
TOTAL COMMON STOCKS (COST $10,953,463) ............ $12,294,044
OTHER ASSETS IN EXCESS OF LIABILITIES -- 1.6% ..... 204,641
-----------
NET ASSETS -- 100.0% .............................. $12,498,685
===========
* Non-income producing security.
See accompanying notes to financial statements.
60
GROWTH OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
================================================================================
MARKET
COMMON STOCKS -- 98.3% SHARES VALUE
- --------------------------------------------------------------------------------
TECHNOLOGY -- 29.3%
Analog Devices, Inc.* ............................. 90,000 $ 4,320,900
EMC Corp.* ........................................ 366,500 4,988,065
Intel Corp. ....................................... 145,000 3,944,000
Jabil Circuit, Inc.* .............................. 150,000 4,414,500
Novellus Systems, Inc.* ........................... 80,000 2,543,200
Oracle Corp.* ..................................... 353,000 4,239,530
Seagate Technology* ............................... 150,000 2,419,500
Sun Microsystems, Inc.* ........................... 650,000 2,704,000
Symantec Corp.* ................................... 130,000 6,019,000
Texas Instruments, Inc. ........................... 153,000 4,470,660
VERITAS Software Corp.* ........................... 138,000 3,713,580
-----------
43,776,935
-----------
HEALTH -- 29.2%
Affymetrix, Inc.* ................................. 150,000 5,062,500
Alcon Inc. ........................................ 50,000 3,165,000
Amgen, Inc.* ...................................... 68,700 3,996,279
Biogen Idec Inc.* ................................. 100,000 5,560,000
Cephalon Inc.* .................................... 60,000 3,438,600
Fisher Scientific International Inc.* ............. 91,000 5,008,640
Genentech, Inc.* .................................. 42,600 4,507,932
Genzyme Corp.* .................................... 85,000 3,998,400
Invitrogen Corp.* ................................. 57,400 4,115,006
Waters Corp.* ..................................... 118,000 4,819,120
-----------
43,671,477
-----------
TRANSPORTATION -- 8.6%
Expeditors International of Washington, Inc. ...... 90,000 3,554,100
FedEx Corp. ....................................... 50,000 3,758,000
Ryder Systems, Inc. ............................... 115,000 4,453,950
Southwest Airlines Co. ............................ 80,000 1,136,800
-----------
12,902,850
-----------
FINANCIAL SERVICES -- 7.0%
Goldman Sachs Group, Inc .......................... 34,000 3,547,900
Merrill Lynch & Co., Inc. ......................... 74,000 4,407,440
Morgan Stanley .................................... 45,000 2,578,500
-----------
10,533,840
-----------
RETAIL -- 5.9%
Home Depot, Inc. .................................. 122,000 4,557,920
The Gap, Inc. ..................................... 195,000 4,274,400
-----------
8,832,320
-----------
OIL & GAS -- 4.4%
Halliburton Company ............................... 100,000 3,039,000
Schlumberger Limited .............................. 55,000 3,511,750
-----------
6,550,750
-----------
MEDIA -- 4.3%
International Game Technology ..................... 55,000 2,472,800
Walt Disney Company ............................... 160,000 3,998,400
-----------
6,471,200
-----------
61
GROWTH OPPORTUNITIES FUND
(CONTINUED)
================================================================================
MARKET
COMMON STOCKS -- 98.3% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS -- 4.3%
Cisco Systems, Inc.* .............................. 272,000 $ 6,397,440
------------
RESTAURANTS -- 4.2%
Ruby Tuesday, Inc ................................. 55,000 1,768,250
Wendy's International, Inc. ....................... 112,000 4,557,280
------------
6,325,530
------------
HOTELS & MOTELS -- 1.1%
MGM MIRAGE* ....................................... 37,000 1,677,580
------------
TOTAL COMMON STOCKS ............................... $147,139,922
------------
INVESTMENT FUNDS -- 6.4%
BBH Securities Lending Fund** ..................... 9,507,500 $ 9,507,500
------------
CASH EQUIVALENTS -- 0.3%
Merrill Lynch Premier Money Market - Institutional 444,000 $ 444,000
------------
TOTAL INVESTMENT SECURITIES -- 105.0%
(Cost $148,899,989) ............................... $157,091,422
LIABILITIES IN EXCESS OF OTHER ASSETS -- 5.0% ..... (7,407,927)
------------
NET ASSETS -- 100.0% .............................. $149,683,495
============
* Non-income producing security.
** Represents collateral for securities loaned.
See accompanying notes to financial statements.
62
LARGE CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
================================================================================
MARKET
COMMON STOCKS -- 97.8% SHARES VALUE
- --------------------------------------------------------------------------------
HEALTH -- 21.3%
Alcon, Inc ........................................ 43,405 $ 2,747,536
Boston Scientific Corp.* .......................... 73,975 3,135,060
Guidant Corp. ..................................... 40,165 2,545,256
Stryker Corp. ..................................... 31,720 2,808,171
Teva Pharmaceutical Industries Ltd. - ADR ......... 34,850 2,209,839
Zimmer Holdings, Inc.* ............................ 36,970 2,727,647
-----------
16,173,509
-----------
TELECOMMUNICATIONS -- 17.2%
America Movil S.A. - ADR .......................... 77,290 2,987,259
Corning, Inc.* .................................... 140,030 1,565,535
Mobile Telesystems - ADR .......................... 20,000 2,630,000
Nextel Communications - Class A* .................. 85,060 2,103,534
QUALCOMM, Inc. .................................... 57,065 3,790,257
-----------
13,076,585
-----------
INTERNET -- 14.1%
Amazon.com, Inc.* ................................. 22,240 962,547
Cisco Systems, Inc.* .............................. 128,940 3,032,669
eBay, Inc.* ....................................... 48,595 3,369,091
Yahoo!, Inc.* ..................................... 68,690 3,337,647
-----------
10,701,954
-----------
OIL & GAS -- 11.2%
Apache ............................................ 34,870 1,505,338
ConocoPhillips .................................... 28,625 1,998,311
Imperial Oil Ltd. ................................. 55,995 2,510,816
Occidental Petroleum Corp. ........................ 53,675 2,471,734
-----------
8,486,199
-----------
CONSUMER, CYCLICAL -- 8.0%
Avon Products, Inc. ............................... 25,780 1,955,929
NIKE, Inc. - Class B .............................. 31,700 2,468,478
The Gap, Inc. ..................................... 75,015 1,644,329
-----------
6,068,736
-----------
COMPUTERS & INFORMATION -- 7.7%
Dell, Inc.* ....................................... 68,150 2,291,203
Hewlett-Packard ................................... 72,390 1,653,388
International Business Machines ................... 21,130 1,940,579
-----------
5,885,170
-----------
FINANCIAL -- 4.0%
Progressive Corp.* ................................ 34,870 3,054,612
-----------
UTILITY -- 3.8%
Entergy Corp. ..................................... 48,620 2,892,890
-----------
BASIC MATERIALS -- 3.3%
Newmont Mining Corp. .............................. 53,890 2,512,891
-----------
63
LARGE CAP GROWTH FUND
(CONTINUED)
================================================================================
MARKET
COMMON STOCKS -- 97.8% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
RECREATIONAL PRODUCTS -- 2.7%
International Game Technology ..................... 46,475 $ 2,089,516
-----------
INDUSTRIAL -- 2.4%
Applied Materials* ................................ 85,070 1,818,797
-----------
TECHNOLOGY -- 2.1%
Computer Associates International, Inc. ........... 60,715 1,630,805
-----------
TOTAL COMMON STOCKS ............................... $74,391,664
-----------
INVESTMENT FUNDS -- 5.7%
BBH Securities Lending Fund** ..................... 4,342,200 $ 4,342,200
-----------
TOTAL INVESTMENT SECURITIES (COST $66,031,167) .... $78,733,864
LIABILITIES IN EXCESS OF OTHER ASSETS -- 3.5% ..... (2,666,823)
-----------
NET ASSETS -- 100.0% .............................. $76,067,041
===========
* Non-income producing security.
** Represents collateral for securities loaned.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
64
SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
================================================================================
MARKET
COMMON STOCKS -- 94.1% SHARES VALUE
- --------------------------------------------------------------------------------
TECHNOLOGY -- 19.8%
Ask Jeeves, Inc* .................................. 14,400 $ 514,512
Bel Fuse Inc. ..................................... 15,000 491,100
CNET Networks, Inc.* .............................. 153,700 1,587,720
Digi International Inc.* .......................... 40,000 394,800
Entrust, Inc.* .................................... 107,850 471,305
Epicor Software Corp.* ............................ 29,600 392,792
Extreme Networks, Inc.* ........................... 216,600 1,561,686
F5 Networks, Inc.* ................................ 14,900 504,365
FARO Technologies, Inc.* .......................... 14,000 321,580
Genesis Microchip Inc.* ........................... 44,400 744,144
Gerber Scientific, Inc.* .......................... 39,800 270,640
Macromedia, Inc.* ................................. 45,500 913,185
Magma Design Automation, Inc.* .................... 16,400 342,924
Manchester Technologies, Inc.* .................... 50,000 191,000
Network Equipment Technologies, Inc.* ............. 60,450 603,291
NIC Inc.* ......................................... 55,000 332,200
NVE Corp.* ........................................ 8,620 411,002
OmniVision Technologies, Inc.* .................... 12,000 327,720
Performance Technologies, Inc.* ................... 30,000 506,700
RadiSys Corp.* .................................... 16,900 353,210
RealNetworks, Inc.* ............................... 138,850 833,100
SafeNet, Inc.* .................................... 12,500 469,250
SkillSoft PLC* .................................... 128,559 1,658,410
SS & C Technologies, Inc. ......................... 15,000 364,050
Tyler Technologies, Inc.* ......................... 40,500 393,255
-----------
14,953,941
-----------
INDUSTRIAL PRODUCTS & SERVICES -- 12.9%
CDI Corp. ......................................... 53,103 1,714,164
Crown Holdings, Inc.* ............................. 126,858 1,182,316
EVCI Career Colleges Inc.* ........................ 32,200 412,482
Gevity HR, Inc. ................................... 18,800 548,960
Kulicke and Soffa Industries, Inc.* ............... 90,000 1,054,800
Laidlaw International Inc.* ....................... 77,400 1,126,170
Netease.com Inc. - ADR* ........................... 18,200 906,178
SupportSoft, Inc.* ................................ 88,850 978,239
ValueClick, Inc.* ................................. 44,350 478,980
Veeco Instruments Inc.* ........................... 35,900 1,006,995
World Fuel Services Corp. ......................... 8,000 293,840
-----------
9,703,124
-----------
OIL & GAS -- 10.9%
Brigham Exploration Company* ...................... 67,950 499,433
Hydril* ........................................... 19,250 504,350
KCS Energy, Inc.* ................................. 69,450 743,115
Petroleum Development Corp.* ...................... 27,900 799,335
Spinnaker Exploration Company* .................... 30,599 1,099,116
Varco International, Inc.* ........................ 66,103 1,190,515
Veritas DGC Inc.* ................................. 63,500 1,314,450
Westport Resources Corp.* ......................... 61,950 2,043,730
-----------
8,194,044
-----------
65
SMALL CAP GROWTH FUND
(CONTINUED)
================================================================================
MARKET
COMMON STOCKS -- 94.1% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
COMMUNICATIONS -- 10.6%
Comtech Telecommunications Corp* .................. 12,000 $ 278,400
Concord Communications, Inc.* ..................... 15,000 216,150
Crown Castle International Corp.* ................. 87,453 1,104,531
Foundry Networks, Inc.* ........................... 45,000 772,650
NII Holdings, Inc. - Class B* ..................... 61,200 2,143,836
Sierra Wireless* .................................. 64,900 2,368,201
Sonus Networks, Inc.* ............................. 202,050 749,606
Standard Microsystems Corp.* ...................... 15,000 399,600
----------
8,032,974
----------
BIOTECHNOLOGY -- 7.3%
Axonyx Inc.* ...................................... 79,650 520,115
Connetics Corp.* .................................. 64,400 1,427,748
FMC Corp.* ........................................ 28,600 1,224,652
Gen-Probe Inc.* ................................... 44,350 1,481,733
Genitope Corp.* ................................... 27,500 316,250
Genta Inc.* ....................................... 49,350 518,175
----------
5,488,673
----------
PHARMACEUTICALS -- 5.5%
Adolor Corp.* ..................................... 81,150 1,219,685
Bradley Pharmaceuticals, Inc.* .................... 11,000 276,980
Cell Genesys, Inc.* ............................... 28,600 344,344
Columbia Laboratories, Inc.* ...................... 17,300 85,635
First Horizon Pharmaceutical Corp.* ............... 20,000 315,200
Inspire Pharmaceuticals, Inc.* .................... 42,950 553,196
Maxim Pharmaceuticals, Inc.* ...................... 91,200 776,112
VaxGen, Inc.* ..................................... 53,900 611,226
----------
4,182,378
----------
MEDICAL SUPPLIES -- 4.8%
Arrhythmia Research Technology, Inc. .............. 9,200 196,420
Candela Corp.* .................................... 50,000 685,500
DJ Orthopedics Inc.* .............................. 38,050 983,593
Escalon Medical Corp.* ............................ 16,000 361,760
Exactech, Inc.* ................................... 27,000 496,800
Merit Medical Systems, Inc.* ...................... 18,666 403,932
Palomar Medical Technologies, Inc.* ............... 27,800 501,512
----------
3,629,517
----------
FINANCIAL SERVICES -- 4.7%
First Cash Financial Services, Inc.* .............. 7,400 248,862
Friedman, Billings, Ramsey Group, Inc. ............ 84,900 2,291,451
Metris Companies Inc.* ............................ 123,800 995,352
----------
3,535,665
----------
PRODUCER MANUFACTURING -- 3.2%
Daktronics, Inc.* ................................. 19,400 437,858
Met-Pro Corp. ..................................... 25,000 420,000
Nam Tai Electronics, Inc. ......................... 15,000 381,150
Rofin-Sinar Technologies, Inc.* ................... 12,000 358,200
Technology Research Corp. ......................... 30,000 379,800
Ultralife Batteries, Inc.* ........................ 19,700 420,201
----------
2,397,209
----------
66
SMALL CAP GROWTH FUND
(CONTINUED)
================================================================================
MARKET
COMMON STOCKS -- 94.1% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
HEALTHCARE -- 3.2%
American Healthways, Inc.* ........................ 20,000 $ 488,400
Bio-Reference Laboratories, Inc.* ................. 20,000 316,200
eResearch Technology, Inc.* ....................... 15,000 420,750
Healthcare Services Group, Inc. ................... 29,750 489,388
Horizon Health Corp.* ............................. 16,000 368,320
National Medical Health Card Systems, Inc.* ....... 12,000 305,880
-----------
2,388,938
-----------
CONSUMER NON-DURABLES -- 2.8%
Hansen Natural Corp.* ............................. 30,700 429,800
Rocky Shoes & Boots, Inc.* ........................ 10,100 244,420
Sylvan Learning Systems, Inc.* .................... 34,100 1,197,251
USANA Health Sciences, Inc.* ...................... 9,500 221,635
-----------
2,093,106
-----------
ELECTRONIC TECHNOLOGY -- 2.4%
Authentidate Holding Corp.* ....................... 43,100 571,075
Concurrent Computer Corp.* ........................ 107,600 371,220
Interphase Corp.* ................................. 9,500 114,760
Metrologic Instruments, Inc.* ..................... 21,000 491,400
PAR Technology Corp.* ............................. 24,100 253,291
RAE Systems Inc.* ................................. 10,700 43,442
-----------
1,845,188
-----------
RETAIL -- 2.1%
Cache, Inc.* ...................................... 10,000 329,700
PC Mall, Inc.* .................................... 25,700 471,338
The Finish Line, Inc.* ............................ 10,400 384,592
The Sportsman's Guide, Inc.* ...................... 20,000 410,000
-----------
1,595,630
-----------
MEDIA -- 1.8%
Avocent Corp.* .................................... 36,650 1,348,354
-----------
BASIC MATERIALS -- 1.0%
Ceradyne, Inc.* ................................... 11,000 397,650
Metal Management, Inc.* ........................... 10,000 366,800
-----------
764,450
-----------
CONSUMER DURABLES -- 0.5%
Keystone Automotive Industries, Inc.* ............. 14,000 383,040
-----------
CONSUMER SERVICES -- 0.3%
Greg Manning Auctions, Inc.* ...................... 17,400 247,428
-----------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES -- 0.3%
Lexar Media, Inc.* ................................ 13,100 216,936
-----------
TOTAL COMMON STOCKS ............................... $71,000,595
-----------
67
SMALL CAP GROWTH FUND
(CONTINUED)
================================================================================
MARKET
INVESTMENT FUNDS -- 12.3% SHARES VALUE
- --------------------------------------------------------------------------------
BBH Securities Lending Fund ** .................... 9,289,588 $ 9,289,588
-----------
TOTAL INVESTMENT SECURITIES (COST $67,141,048) .... $80,290,183
LIABILITIES IN EXCESS OF OTHER ASSETS -- 6.4% ..... (4,799,455)
-----------
NET ASSETS -- 100.0% .............................. $75,490,728
===========
* Non-income producing security.
** Represents collateral for securities loaned.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
68
VALUE PLUS FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2004
================================================================================
MARKET
COMMON STOCKS -- 97.7% SHARES VALUE
- --------------------------------------------------------------------------------
BANKING -- 10.6%
Bank of America ................................... 19,845 $1,607,048
Bank One Corp. .................................... 22,365 1,219,340
Citigroup ......................................... 41,787 2,160,388
JP Morgan Chase ................................... 35,560 1,491,742
Wells Fargo ....................................... 11,045 625,920
----------
7,104,438
----------
OIL & GAS -- 9.7%
Baker Hughes, Inc. ................................ 17,390 634,387
ChevronTexaco ..................................... 13,885 1,218,825
ConocoPhillips .................................... 25,393 1,772,685
Exxon Mobil ....................................... 32,718 1,360,742
Noble Corp.* ...................................... 21,230 815,657
Pioneer Natural Resources ......................... 21,345 689,444
----------
6,491,740
----------
COMPUTERS & INFORMATION -- 9.4%
Computer Sciences Corp.* .......................... 40,260 1,623,686
First Data Corp. .................................. 36,105 1,522,187
Hewlett-Packard ................................... 65,860 1,504,242
International Business Machines ................... 7,300 670,432
Lexmark International Group* ...................... 10,805 994,060
----------
6,314,607
----------
PHARMACEUTICALS -- 9.1%
McKesson Corp. .................................... 56,110 1,688,350
Merck ............................................. 19,805 875,183
Pfizer ............................................ 56,765 1,989,613
WellPoint Health Networks* ........................ 14,035 1,596,060
----------
6,149,206
----------
BEVERAGE, FOOD & TOBACCO -- 7.5%
Anheuser Busch .................................... 26,705 1,361,955
Darden Restaurants ................................ 46,315 1,148,149
Diageo PLC - ADR .................................. 20,505 1,084,304
McDonald's ........................................ 50,275 1,436,357
----------
5,030,765
----------
INDUSTRIAL - DIVERSIFIED -- 6.3%
General Electric .................................. 46,010 1,404,225
Ingersoll-Rand .................................... 20,455 1,383,781
Tyco International ................................ 50,530 1,447,684
----------
4,235,690
----------
FINANCIAL SERVICES -- 5.5%
Fannie Mae ........................................ 16,070 1,194,805
Freddie Mac ....................................... 26,105 1,541,760
Lehman Brothers Holdings .......................... 11,250 932,288
----------
3,668,853
----------
RETAILERS -- 4.8%
CVS ............................................... 39,615 1,398,410
Home Depot ........................................ 49,330 1,842,968
----------
3,241,378
----------
69
VALUE PLUS FUND
(CONTINUED)
================================================================================
MARKET
COMMON STOCKS -- 97.7% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
MEDIA - BROADCASTING & PUBLISHING -- 3.8%
Clear Channel Communications, Inc ................. 16,745 $ 709,151
Time Warner, Inc.* ................................ 71,740 1,209,536
Viacom, Inc. - Class B ............................ 16,210 635,594
----------
2,554,281
----------
INSURANCE -- 3.6%
Allstate .......................................... 15,905 723,041
Chubb ............................................. 12,990 903,325
Radian Group, Inc. ................................ 18,810 801,306
----------
2,427,672
----------
TELEPHONE SYSTEMS -- 3.4%
Alltell ........................................... 20,750 1,035,218
SBC Communications ................................ 24,995 613,377
Verizon Communications ............................ 18,285 668,134
----------
2,316,729
----------
ELECTRONICS -- 3.4%
Analog Devices .................................... 16,440 789,284
Intel ............................................. 33,375 907,800
STMicroelectronics N.V. ........................... 25,290 596,844
----------
2,293,928
----------
HOUSEHOLD PRODUCTS -- 2.6%
Kimberly-Clark .................................... 27,960 1,764,276
----------
BUILDING PRODUCTS -- 2.6%
Masco ............................................. 56,340 1,714,426
----------
ELECTRIC UTILITIES -- 2.5%
Cinergy ........................................... 17,345 709,237
Dominion Resources ................................ 15,105 971,252
----------
1,680,489
----------
HEALTH CARE -- 2.4%
HCA, Inc. ......................................... 40,170 1,631,705
----------
TRANSPORTATION -- 2.0%
Union Pacific Corp. ............................... 22,225 1,329,500
----------
HEAVY MACHINERY -- 1.9%
Caterpiller ....................................... 16,350 1,292,795
----------
FOREST PRODUCTS & PAPER -- 1.9%
International Paper Company ....................... 30,080 1,271,181
----------
CHEMICALS -- 1.3%
Du Pont (E.I.) DE Nemours ......................... 20,840 879,865
----------
AUTOMOTIVE -- 1.3%
Magna International, Class A ...................... 11,090 878,328
----------
70
VALUE PLUS FUND
(CONTINUED)
================================================================================
MARKET
COMMON STOCKS -- 97.7% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
MEDICAL SUPPLIES -- 1.2%
Johnson & Johnson ................................. 16,350 $ 829,272
-----------
METALS -- 0.9%
Alcoa ............................................. 17,535 608,289
-----------
TOTAL COMMON STOCKS (COST $57,375,412) ............ $65,709,413
-----------
OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.3% ..... 1,522,692
-----------
NET ASSETS -- 100.0% .............................. $67,232,105
===========
* Non-income producing security.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
71
REPORT OF INDEPENDENT AUDITORS
================================================================================
To the Board of Trustees and Shareholders
Touchstone Strategic Trust
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Touchstone Strategic Trust (comprised of
Emerging Growth Fund, Enhanced 30 Fund, Growth Opportunities Fund, Large Cap
Growth Fund, Small Cap Growth Fund, and Value Plus Fund) (the "Funds") as of
March 31, 2004, and for the Emerging Growth Fund and Value Plus Fund, the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the three years in the period ended March 31,
2004, the three months ended March 31, 2001, and the two years in the period
ended December 31, 1999; for the Enhanced 30 Fund, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the three years in the period then ended and the period ended March 31,
2001; for the Growth Opportunities Fund, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of the five
years in the period ended March 31, 2004; for the Large Cap Growth Fund, the
related statements of operations and changes in net assets and financial
highlights for the three months ended March 31, 2004 and for the year ended
December 31, 2003; and for the Small Cap Growth Fund, the statements of
operations for the year then ended and the statements of changes in net assets
and financial highlights for each of the two years or periods in the period then
ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. 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, for Large Cap Growth Fund, 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 audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits 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 and financial highlights. Our procedures included
confirmation of securities owned as of March 31, 2004, by correspondence with
the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. 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
audits provide 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 each
of the respective portfolios comprising Touchstone Strategic Trust at March 31,
2004, the results of their operations, the changes in their net assets and their
financial highlights for the periods referred to above, except for those periods
audited by other auditors, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Cincinnati, Ohio
May 11, 2004
72
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 TRUSTEES(1):
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF FUNDS
NAME POSITION(S) TERM OF OFFICE(2) OVERSEEN IN THE OTHER
ADDRESS HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) TOUCHSTONE DIRECTORSHIPS
AGE TRUST TIME SERVED DURING PAST 5 YEARS FAMILY(3) HELD(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder President Until retirement Senior Vice President of The 29 Director of
Touchstone Advisors, Inc. and Trustee at age 75 or Western and Southern Life LaRosa's (a
221 East Fourth Street until she resigns Insurance Company. President restaurant
Cincinnati, OH or is removed. and a director of IFS chain).
Age: 48 Trustee since Financial Services, Inc. (a
1999. holding company). She is a
director of Capital Analysts
Incorporated (an investment
advisor and broker- dealer),
Integrated Fund Services, Inc.
(the Trust's administrator and
transfer agent), IFS Fund
Distributors, Inc. (a
broker-dealer), Touchstone
Advisors, Inc. (the Trust's
investment advisor) and
Touchstone Securities, Inc.
(the Trust's distributor). She
is also President and a
director of IFS Agency
Services, Inc. (an insurance
agency) and W&S Financial
Group Distributors, Inc. She
is Vice President and a
Director of Fort Washington
Brokerage Services, Inc. (a
broker-dealer). She was
President of Touchstone
Tax-Free Trust, Touchstone
Investment Trust, Touchstone
Variable Series Trust and
Touchstone Strategic Trust
until 2002. She was President
of Touchstone Advisors, Inc.
and Touchstone Securities,
Inc. until 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
John F. Barrett Trustee Until retirement Chairman of the Board, 29 Director of The
The Western and Southern at age 75 or President and Chief Executive Andersons Inc. (an
Life Insurance Company until he resigns Officer of The Western and agribusiness and
400 Broadway or is removed. Southern Life Insurance retailing company),
Cincinnati, OH Trustee since Company and Western- Southern Convergys
Age: 54 2002. Life Assurance Company; Corporation (a
Director and Chairman of provider of
Columbus Life Insurance integrated billing
Company, Fort Washington solutions, customer
Investment Advisors, Inc., care services and
Integrity Life Insurance employee care
Company and National Integrity services) and Fifth
Life Insurance Company; Third Bancorp.
Director of Eagle Realty
Group, Inc. and Eagle Realty
Investments, Inc.; Director,
Chairman and CEO of WestAd,
Inc.; President and Trustee of
Western & Southern Foundation.
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES:
- ------------------------------------------------------------------------------------------------------------------------------------
J. Leland Brewster II Trustee Until retirement Retired Senior Partner of 29 Director of
5155 Ivyfarm Road in 2005 or until Frost Brown Todd LLC (a law Consolidated Health
Cincinnati, OH he resigns or is firm). Services, Inc.
Age: 75 removed.
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 LCA-Vision (a laser
221 East Fourth Street until he resigns Trustee of The Procter & vision correction
Cincinnati, OH or is removed. Gamble Profit Sharing Plan and company) and
Age: 74 Trustee since The Procter & Gamble Employee Millenium Bancorp.
1999. Stock Ownership Plan.
- ------------------------------------------------------------------------------------------------------------------------------------
73
MANAGEMENT OF THE TRUST
(CONTINUED)
================================================================================
INDEPENDENT TRUSTEES (CONTINUED):
- ----------------------------------------------------------------------------------------------------------------------------------
NAME POSITION(S) TERM OF OFFICE(2) NUMBER OF FUNDS OTHER
ADDRESS HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN IN THE DIRECTORSHIPS
AGE TRUST TIME SERVED DURING PAST 5 YEARS TOUCHSTONE FAMILY(3) HELD(4)
- ----------------------------------------------------------------------------------------------------------------------------------
Phillip R. Cox Trustee Until retirement President and Chief Executive 29 Director of the Federal
105 East Fourth Street at age 75 or Officer of Cox Financial Corp. Reserve Bank of
Cincinnati, OH until he resigns (a financial services company). Cleveland; Broadwing,
Age: 56 or is removed. Inc. (a communications
Trustee since company); and Cinergy
1999. Corporation (a utility
company).
- ----------------------------------------------------------------------------------------------------------------------------------
H. Jerome Lerner Trustee Until retirement Principal of HJL Enterprises (a 29 None
2828 Highland Avenue at age 75 or privately held investment
Cincinnati, OH until he resigns company);
Age: 65 or is removed.
Trustee since
1989.
- ----------------------------------------------------------------------------------------------------------------------------------
Robert E. Stautberg Trustee Until retirement Retired Partner and Director of 29 Trustee of Tri-Health,
4815 Drake Road at age 75 or KPMG LLP (a certified public Inc., Good Samaritan
Cincinnati, OH until he resigns accounting firm). He is a Vice Hospital and Bethesda
Age: 69 or is removed. President of St. Xavier High Hospital.
Trustee since School.
1999.
- ----------------------------------------------------------------------------------------------------------------------------------
John P. Zanotti Trustee Until retirement CEO and Chairman of Avaton, 29 None
5400 Waring Drive at age 75 or Inc. (a wireless entertainment
Cincinnati, OH until he resigns company). President of
Age: 55 or is removed. Cincinnati Biomedical. CEO and
Trustee since Chairman of Astrum Digital
2002. Information (an information
monitoring company) from 2000
until 2001; President of Great
American 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 a director of Touchstone Advisors, Inc., the Trust's
investment advisor, and Touchstone Securities, Inc., the Trust's
distributor, is an "interested person" of the Trust within the meaning of
Section 2(a)(19) of the 1940 Act. Mr. Barrett, as President and Chairman of
The Western and Southern Life Insurance Company and Western-Southern Life
Assurance Company, parent companies of Touchstone Advisors, Inc. and
Touchstone Securities, Inc., and Chairman of Fort Washington Investment
Advisors, Inc., a Trust sub-advisor, is an "interested person" of the Trust
within the meaning of Section 2(a)(19) of the 1940 Act.
(2) Each Trustee is elected to serve until the age of 75 or after five years of
service, whichever is greater, or until he sooner resigns or is removed.
(3) The Touchstone Funds consist 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.
74
MANAGEMENT OF THE TRUST
(CONTINUED)
================================================================================
PRINCIPAL OFFICERS:
- ----------------------------------------------------------------------------------------------------------------------------------
NAME POSITION(S) TERM OF OFFICE(2) NUMBER OF FUNDS OTHER
ADDRESS HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN IN THE DIRECTORSHIPS
AGE TRUST TIME SERVED DURING PAST 5 YEARS TOUCHSTONE FAMILY(3) HELD(4)
- ----------------------------------------------------------------------------------------------------------------------------------
Brian E. Hirsch Vice Until he sooner Vice President-Compliance of 29 None
Touchstone Advisors, Inc. President dies, resigns, is IFS Financial Services, Inc.,
221 E. Fourth Street and removed or Director of Compliance of Fort
Cincinnati, OH Compliance becomes Washington Brokerage Services,
Age: 47 Officer disqualified Inc.; Chief Compliance Officer
Vice President of Puglisi & Co. from May 2001
since 2003 until August 2002; Vice
President - Compliance of
Palisade Capital Management
from June 1997 until January
2000.
- ----------------------------------------------------------------------------------------------------------------------------------
James R. Grifo Vice Until he sooner President of Touchstone 29 None
Touchstone Securities, Inc. President dies, resigns, is Securities, Inc. Managing
221 E. Fourth Street removed or Director, Deutsche Asset
Cincinnati, OH becomes Management until 2003.
Age: 52 disqualified
Vice President
since 2004
- ----------------------------------------------------------------------------------------------------------------------------------
Terrie A. Wiedenheft Controller Until she sooner Senior Vice President, Chief 29 None
Touchstone and dies, resigns, is Financial Officer and Treasurer
Advisors, Inc. Treasurer removed or of Integrated Fund Services,
221 E. Fourth Street becomes Inc., IFS Fund Distributors,
Cincinnati, OH disqualified Inc. and Fort Washington
Age: 41 Controller since Brokerage Services, Inc. She is
2000 Chief Financial Officer of IFS
Treasurer since Financial Services, Inc.,
2003 Touchstone Advisors, Inc. and
Touchstone Securities, Inc. and
Assistant Treasurer of Fort
Washington Investment Advisors,
Inc.
- ----------------------------------------------------------------------------------------------------------------------------------
Tina H. Bloom Secretary Until she sooner Vice President - Managing 29 None
Integrated Fund Services, Inc. dies, resigns, is Attorney of Integrated Fund
221 E. Fourth Street removed or Services, Inc. and IFS Fund
Cincinnati, OH becomes Distributors, Inc.
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 Funds consist 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.
75
OTHER ITEMS
(UNAUDITED)
================================================================================
DIVIDEND RECEIVED DEDUCTION
For corporate shareholders, the following ordinary dividends paid during the
year ended March 31 2004 qualify for the corporate dividends received deduction:
Enhanced 30 Fund 100%
Small Cap Growth Fund 5%
Value Plus Fund 100%
PROXY VOTING
A description of the policies and procedures that each Fund uses to determine
how to vote proxies relating to its portfolio securities is available without
charge upon request by calling toll free 1-800-543-0407 or on the Securities and
Exchange Commission's website @ http:\www.sec.gov.
76
TOUCHSTONE INVESTMENTS
DISTRIBUTOR
Touchstone Securities, Inc.
221 East Fourth Street
Cincinnati, Ohio 45202-4094
800.638.8194
www.touchstoneinvestments.com
INVESTMENT ADVISER
Touchstone Advisors, Inc.
221 East Fourth Street
Cincinnati, Ohio 45202-4094
TRANSFER AGENT
Integrated Fund Services, Inc.
P.O. Box 5354
Cincinnati, Ohio 45201-5354
SHAREHOLDER SERVICE
800.543.0407
A Member of Western & Southern Financial Group(R)
- --------------------------------------------------------------------------------
Touchstone Securities, Inc.
221 East Fourth Street
Cincinnati, Ohio 45202-4133
[TOUCHSTONE INVESTMENTS LOGO]
TSF-262-0404
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.
(a) AUDIT FEES. Audit fees totaled approximately $68,900 for the March 31, 2004
fiscal year and approximately $35,500 for the March 31, 2003 fiscal year.
(b) AUDIT-RELATED FEES. Audit-Related fees totaled approximately $141,000 for
the March 31, 2004 fiscal year, of which $46,000 consisted of due diligence
services for fund acquisitions and $95,000 consisted of SAS 70 internal control
reviews of the registrant's fund accountant and transfer agent. Audit-Related
fees totaled approximately $90,000 for the March 31, 2003 fiscal year and
consisted of SAS 70 internal control reviews of the registrant's fund accountant
and transfer agent.
(c ) TAX FEES. Tax fees totaled approximately $15,000 for the March 31, 2004
fiscal year and approximately $24,900 for the March 31, 2003 fiscal year and
consisted of fees for tax compliance services during both years.
(d) ALL OTHER FEES. There were no other fees for the March 31, 2004 or March 31,
2003 fiscal years.
(e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICIES. The Audit Committee's
pre-approval policies describe the types of audit, audit-related, tax and other
services that have the general pre-approval of the Audit Committee. The
pre-approval policies provide that annual audit service fees, tax services not
specifically granted pre-approval, services exceeding pre-approved cost levels
and other services that have not received general pre-approval will be subject
to specific pre-approval by the Audit Committee. The pre-approval policies
further provide that the Committee may grant general pre-approval to other audit
services (statutory audits and services associated with SEC registration
statements, periodic reports and other documents filed with the SEC or other
documents issued in connection with securities offerings), audit-related
services (accounting consultations related to accounting, financial reporting or
disclosure matters not classified as "audit services," assistance with
understanding and implementing new accounting and financial reporting guidance
from rulemaking authorities, agreed-upon or expanded audit procedures related to
accounting and/or billing records required to respond to or comply with
financial, accounting or regulatory reporting matters and assistance with
internal control reporting requirements under Form N-SAR and Form N-CSR), tax
services that have historically been provided by the auditor that the Committee
believes would not impair the independence of the auditor and are consistent
with the SEC's rules on auditor independence and permissible non-audit services
classified as "all other services" that are routine and recurring services.
(e)(2) All services described in paragraphs (b) through (d) of Item 4 were
approved by the Audit Committee.
(f) Not applicable
(g) The aggregate non-audit fees for services to the registrant, its investment
adviser and any entity controlling, controlled by, or under common control with
the adviser that provides ongoing services to the registrant were approximately
$238,800 for the fiscal year ended March 31, 2004 and approximately $170,200 for
the fiscal year ended March 31, 2003.
(h) Not applicable
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable
ITEM 6. SCHEDULE OF INVESTMENTS.
The Schedule of Investments in securities of unaffiliated issuers is included in
the Annual Report.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The registrant does not have procedures by which shareholders may recommend
nominees to its Board of Trustees.
ITEM 10. 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 11. EXHIBITS.
(a)(1) The Code of Ethics for Senior Financial Officers was filed on March 9,
2004 with registrant's N-CSR for the Large Cap Growth Fund and is
hereby incorporated by reference.
(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/ Jill T. McGruder
- --------------------------------------------------------------------------------
Jill T. McGruder
President
Date: June 4, 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/ Jill T. McGruder
- --------------------------------------------------------------------------------
Jill T. McGruder
President
Date: June 4, 2004
/s/ Terrie A. Wiedenheft
- --------------------------------------------------------------------------------
Terrie A. Wiedenheft
Controller & Treasurer
Date: June 4, 2004