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)
303 Broadway, Suite 1100, Cincinnati, Ohio 45202
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(Address of principal executive offices) (Zip code)
Jill T. McGruder, 303 Broadway, Suite 1100, 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: 3/31/06
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Date of reporting period: 3/31/06
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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, 100 F Street NE,
Washington, DC 20549-2001. 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
Opportunities Fund Touchstone Large Cap Core Equity Fund Touchstone Large Cap
Value Fund Touchstone Micro Cap Growth Fund Touchstone Mid Cap Growth Fund
Touchstone Value Plus Fund Touchstone Growth Opportunities Fund Touchstone Large
Cap Growth Fund Touchstone Large Cap Value Fund Touchstone Micro Cap Growth Fund
Touchstone Small Cap Growth Fund Touchstone Value Plus Fund Touchstone Large Cap
Core Equity Fund Touchstone Large Cap Growth Fund Touchstone Small Cap Growth
March 31, 2006
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[LOGO] TOUCHSTONE
INVESTMENTS
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ANNUAL REPORT
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Touchstone Growth Opportunities Fund
Touchstone Large Cap Core Equity Fund
Touchstone Large Cap Growth Fund
Touchstone Large Cap Value Fund
Touchstone Micro Cap Growth Fund
Touchstone Mid Cap Growth Fund
Touchstone Small Cap Growth Fund
Touchstone Value Plus Fund
RESEARCH o DESIGN o SELECT o MONITOR
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 4-21
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Tabular Presentation of Portfolios of Investments 22
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Statements of Assets and Liabilities 23-26
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Statements of Operations 27-29
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Statements of Changes in Net Assets 30-35
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Financial Highlights 36-60
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Notes to Financial Statements 61-77
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Portfolios of Investments:
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Growth Opportunities Fund 78-79
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Large Cap Core Equity Fund 80-81
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Large Cap Growth Fund 82-83
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Large Cap Value Fund 84-85
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Micro Cap Growth Fund 86-89
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Mid Cap Growth Fund 90-93
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Small Cap Growth Fund 94-98
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Value Plus Fund 99-101
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Report of Independent Registered Public Accounting Firm 102
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Other Items 103-117
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Management of the Trust 118-120
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2
Letter from the President
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Dear Fellow Shareholder:
We are pleased to provide you with the Touchstone Strategic Trust Annual Report.
Inside you will find key financial information and management commentaries for
the twelve months ended March 31, 2006.
At the onset of the period and throughout most of 2005, equity markets struggled
to gain traction as hurricane disasters, escalated energy prices, and
persistently tighter monetary policy led to uncertainty and pressured market
sentiment. In spite of these conditions, equity markets gained momentum in the
latter part of the fiscal year with the S&P 500 Index returning 11.72% for the
twelve months ended March 31, 2006. Mid- and smaller capitalization stocks
outperformed their larger counterparts and growth and value returns ran
virtually parallel for the period.
While continuing its tightening campaign, the Federal Reserve (Fed) increased
rates eight times during the fiscal year, bringing the total to 15 consecutive
rate increases since a low of 1.00% in the spring of 2004. Analysts question
whether an end is near or further monetary tightening will be necessary to
restrain inflation.
Gross Domestic Product (GDP), a measurement of the economy, showed a high degree
of resilience and deflected the impact of natural disasters, record-high energy
prices, rising interest rates and inflationary concerns. Notably, the GDP has
grown at its most consistent pace in 20 years. The labor market has continued to
improve with the unemployment rate falling to 4.8%, a level that has long been
considered "full employment" for the U.S. economy.
With the concerns of a cooling housing market and higher energy costs, it's
uncertain how these key indicators and the effects of interest rates will
influence the economy and markets in the future. Touchstone supports a long-term
investment outlook and encourages you to focus on diversifying your portfolio
with a blend of equity, bond and money market funds. We endeavor to offer a
disciplined approach to investment management that is well suited to helping you
attain your goals.
Touchstone is pleased to announce that we recently launched the Touchstone Large
Cap Value Fund and appointed JS Asset Management (JSAM) as the sub-advisor. Fund
manager John Schneider, president and chief investment officer, brings
impressive credentials that have earned him acclaim throughout his 20-year
career. We are excited to partner with JSAM and bring this new Fund to our
shareholders.
On behalf of my colleagues at Touchstone Investments, I thank you for the
opportunity to assist with your investments and appreciate the trust you've
placed in us. We look forward to serving you in the future. Please visit our Web
site, www.touchstoneinvestments.com, for more information.
Best regards,
/s/ Jill T. McGruder
Jill T. McGruder
President
Touchstone Strategic Trust
3
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
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GROWTH OPPORTUNITIES FUND
MASTRAPASQUA ASSET MANAGEMENT, INC.
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Growth Opportunities Fund Class A was 20.37%
for the twelve months ending March 31, 2006. The total return for the Russell
1000 Growth Index was 13.14% for the same period.
The equity markets were particularly resilient, improving amidst the tug of war
between rising short-term rates and continuing GDP growth coupled with solid
corporate earnings. Core inflation remained tame. Productivity growth and the
competitive pressures of economic globalization played an important role in
containing inflation. The economy was strong--home-ownership was reported at
record levels, and corporate cash flow and profitability increased.
PORTFOLIO REVIEW
The market contended with many anxieties, such as higher energy prices, the
hurricane aftermath, the war in Iraq, increasing short-term interest rates and
confusion over future Fed policy. Yet, solid economic fundamentals and corporate
earnings reports contributed to the Fund's positive results.
The Fund benefited from its Energy, Information Technology and Industrials
sector holdings and was adversely affected by its holdings in companies that are
sensitive to consumer spending.
The unpredictable nature of oil and natural gas prices creates an element of
uncertainty that is likely to persist for some time. The lack of excess capacity
will likely contribute to volatility and prices will be sensitive to global
events. The current level of prices will remain a stimulus to capital spending
due to the cost reductions associated with additional energy efficiency. We
can't forecast where energy prices will be in six to twelve months, but we
believe that energy prices at these levels benefit investors who have some
allocation of their equity investment in the Energy sector as a means of
controlling portfolio risk.
CURRENT STRATEGY AND OUTLOOK
The fundamentals for quality equities, especially in growth sectors, have become
even more attractive relative to other asset classes. Barring unforeseen events,
we believe that equities are positioned to perform well into 2007--particularly
growth companies with experienced management, healthy balance sheets, broad
product mixes, and improving cash flows.
The fact that the market has maintained its positive bias in the midst of higher
oil prices, rising short-term interest rates, and acts of global terrorism
indicates that equities are adjusting to a world with persistently higher oil
prices and increased global terrorism.
We believe that although the consumer remains an active participant in the
economic expansion, leadership will come from capital goods companies.
Therefore, we continued making adjustments to the Fund during the year to take
advantage of this prospect and benefit from increased capital spending due to
the implications of higher energy costs. We increased our holdings in the
Information Technology and Industrials sectors and sold most consumer
spending-sensitive stocks.
4
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
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In our judgment, we are still in the early stages of a multi-year secular bull
market, with the competition from other asset classes (real estate, bonds)
diminishing markedly. Our view is that the level of corporate cash flow and
profitability should increase at a double-digit rate and remain near its high as
a percent of GDP. Double-digit corporate spending gains, as well as acceleration
in the growth rate, seem likely over the next four to eight quarters. It is
important to identify variables that we believe could dominate the economic and
investment landscape for the remainder of 2006, and which would influence our
investment strategy.
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
GROWTH OPPORTUNITIES FUND - CLASS A* AND THE RUSSELL 1000 GROWTH INDEX
[LINE CHART]
GROWTH OPPORTUNITIES FUND - CLASS A RUSSELL 1000 GROWTH INDEX
DATE DATE
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03/31/96 9,425 03/31/96 10,000
06/30/96 9,515 06/30/96 10,636
09/30/96 9,680 09/30/96 11,019
12/31/96 10,448 12/31/96 11,684
03/31/97 10,539 03/31/97 11,748
06/30/97 12,379 06/30/97 13,970
09/30/97 14,006 09/30/97 15,021
12/31/97 12,932 12/31/97 15,249
03/31/98 14,408 03/31/98 17,559
06/30/98 14,664 06/30/98 18,356
09/30/98 13,418 09/30/98 16,688
12/31/98 17,984 12/31/98 21,150
03/31/99 18,714 03/31/99 22,495
06/30/99 20,329 06/30/99 23,361
09/30/99 20,447 09/30/99 22,506
12/31/99 30,257 12/31/99 28,167
03/31/00 35,347 03/31/00 30,172
06/30/00 35,106 06/30/00 29,358
09/30/00 36,960 09/30/00 27,778
12/31/00 29,483 12/31/00 21,847
03/31/01 21,767 03/31/01 17,281
06/30/01 24,035 06/30/01 18,736
09/30/01 17,615 09/30/01 15,100
12/31/01 21,093 12/31/01 17,386
03/31/02 19,817 03/31/02 16,936
06/30/02 15,096 06/30/02 13,774
09/30/02 12,731 09/30/02 11,701
12/31/02 13,549 12/31/02 12,537
03/31/03 13,844 03/31/03 12,403
06/30/03 16,460 06/30/03 14,178
09/30/03 17,070 09/30/03 14,732
12/31/03 18,934 12/31/03 16,266
03/31/04 19,686 03/31/04 16,395
06/30/04 19,468 06/30/04 16,713
09/30/04 18,127 09/30/04 15,839
12/31/04 20,547 12/31/04 17,291
03/31/05 19,533 03/31/05 16,584
06/30/05 20,383 06/30/05 16,992
09/30/05 21,757 09/30/05 17,673
12/31/05 22,412 12/31/05 18,200
03/31/06 23,509 03/31/06 18,762
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GROWTH OPPORTUNITIES FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION*
CLASS A 13.47% 0.36% 8.92% 9.89%
CLASS B 16.15% -- -- (2.39%)
CLASS C 20.40% 0.86% -- 1.79%
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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.
**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
(UNAUDITED)
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LARGE CAP CORE EQUITY FUND
TODD INVESTMENT ADVISORS, INC.
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Large Cap Core Equity Fund Class A was 10.74%
for the twelve months ended March 31, 2006. The total return of the Russell 1000
Index was 13.20% over the same period.
Larger stocks lagged the broader Russell 1000 Index, as the largest 50 stocks
gained only 2.5% for the quarter. This underperformance persisted throughout the
year, and mid-cap stocks were the best performers by a wide margin.
Investors were concerned that the economy would weaken and hopes were high that
the Fed would have the leeway to stop raising rates. These factors are now
reversed, with the economy looking much stronger than many had expected and many
investors now worried that the Fed will keep raising rates. The net result of
this change was that investors bought into stocks and the equity markets set new
recovery highs. Bonds declined as the 10-year U.S. Treasury yield rose.
PORTFOLIO REVIEW
The Fund's overweight in Industrials helped performance. The Fund benefited from
good stock selection in Information Technology, where it also was overweight.
The Fund's best-performing stocks were an eclectic mix from diverse sectors of
the economy. While they all have their individual reasons for good performance,
the common theme was that investors do not expect the economy to falter. U.S.
capital goods production remains strong, and consumers continue to want the
latest-and-greatest digital technology. Those are two trends that we believe
will have legs for some time to come.
CURRENT STRATEGY AND OUTLOOK
The Fund's strategy has always been to hold a limited number of names that offer
better appreciation potential than other stocks because of their attractive
relative valuation and the presence of an active catalyst. The Fund holds 30
stocks at all times, selected from the 200 largest U.S. stocks. Fund managers
then look for catalysts to unlock a stock's value. The end result of this
process is a high-quality portfolio of large-capitalization stocks from
well-known companies that we believe to be attractively valued.
We have fought a number of headwinds over the past quarter and year, most
notably the weakness in large-cap stocks versus their smaller peers. We believe
that trend is going to turn this year and that the Fund is well positioned to
benefit from that change.
6
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
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COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
LARGE CAP CORE EQUITY FUND - CLASS A* AND THE RUSSELL 1000 INDEX
[LINE CHART]
LARGE CAP CORE EQUITY - CLASS A RUSSELL 1000 INDEX
DATE DATE
---- ----
05/16/00 9,425 05/16/00 10,000
05/31/00 9,341 05/31/00 9,647
06/30/00 9,273 06/30/00 9,893
07/31/00 9,171 07/31/00 9,729
08/31/00 9,571 08/31/00 10,449
09/30/00 9,318 09/30/00 9,964
10/31/00 9,588 10/31/00 9,844
11/30/00 9,188 11/30/00 8,945
12/31/00 9,263 12/31/00 9,053
01/31/01 9,263 01/31/01 9,351
02/28/01 8,936 02/28/01 8,478
03/31/01 8,313 03/31/01 7,915
6/30/2001 8,475 6/30/2001 8,415
9/30/2001 7,414 9/30/2001 7,133
12/31/2001 8,434 12/31/2001 7,926
3/31/2002 8,634 3/31/2002 7,984
6/30/2002 7,522 6/30/2002 6,910
9/30/2002 6,003 9/30/2002 5,741
12/31/2002 6,607 12/31/2002 6,210
3/31/2003 6,373 3/31/2003 6,027
6/30/2003 7,571 6/30/2003 6,976
9/30/2003 7,707 9/30/2003 7,185
12/31/2003 8,646 12/31/2003 8,066
3/31/2004 8,693 3/31/2004 8,219
6/30/2004 8,904 6/30/2004 8,334
9/30/2004 8,493 9/30/2004 8,183
12/31/2004 9,368 12/31/2004 8,985
3/31/2005 9,155 3/31/2005 8,814
6/30/2005 9,175 6/30/2005 8,994
9/30/2005 9,435 9/30/2005 9,350
12/31/2005 9,675 12/31/2005 9,548
3/31/2006 10,137 3/31/2006 9,977
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LARGE CAP CORE EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR 5 YEARS SINCE INCEPTION*
CLASS A 4.35% 2.83% 0.23%
CLASS B 5.95% -- 1.76%
CLASS C 9.91% 3.37% 0.58%
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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
(UNAUDITED)
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LARGE CAP GROWTH FUND
NAVELLIER & ASSOCIATES, INC.
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Large Cap Growth Fund Class A was 17.24% for
the twelve months ended March 31, 2006. The total return of the Russell 1000
Growth Index was 13.14% for the same period.
PORTFOLIO REVIEW
The Touchstone Large Cap Growth Fund produced another year of double-digit
returns. Overweight positions in the Financial Services and Energy sectors
contributed significantly to the Fund's outperformance. However, underweight
positions in the Consumer Non-Discretionary and Consumer Discretionary sectors
did not meet with our performance expectations.
Money flows over the past year were beneficial for growth stocks and served to
push their prices higher. Even though growth was a better-performing category as
a whole, the large-cap value stocks continued to demonstrate a slight
performance edge over large-cap growth. Energy and Financial Services sector
stocks fit more into the large-cap value category than in the large-cap growth
category, which explained the powerful performance surge in the value indexes
during the most recent quarter. However, we believe that the market factors
needed for the growth style to reassert itself over value continue to develop.
CURRENT STRATEGY AND OUTLOOK
There are several reasons for our optimism. First, we remain in an ideal
economic environment with strong and accelerating earnings growth. Second, the
Fed is likely to be nearing an end to its present tight monetary policy. Third,
as the current Fed tightening cycle begins to slow, price/earnings ratios will
have room to begin an expansive phase. Finally, with 2006 being an election
year, present policy makers are likely to try and keep the U.S. economic engine
chugging through the November elections. Overall, the market is positioned for
strong earnings growth in an environment with inflation under control. These are
ideal conditions for growth stocks.
Despite the fact that oil prices have risen this year due to concerns of
potential global supply disruptions and the possibility of yet another
geopolitical crisis stemming from events in the Middle East, we believe that
consumers are adaptable and they should not be too disturbed by the latest surge
in oil prices. We suspect that Europe, the United States and other countries are
in discussions with major oil producers to see if their oil production can be
boosted in the event that the flow of Middle Eastern oil is disrupted.
Ironically, the geopolitical situation has helped to boost the energy-related
stocks in the Fund.
Even though we remain optimistic, we must advise that anytime the stock market
takes off it typically becomes increasingly selective in the ensuing months. A
narrowing of market leadership fits well into the style of stock selection used
by the Touchstone Large Cap Growth Fund. As a result, we are optimistic about
the performance potential for the Fund's holdings.
8
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
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COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
LARGE CAP GROWTH FUND - CLASS A* AND THE RUSSELL 1000 GROWTH INDEX
[LINE CHART]
LARGE CAP GROWTH - CLASS A RUSSELL 1000 GROWTH INDEX
DATE DATE
---- ----
12/19/97 9,425 12/19/97 10,000
12/31/97 9,666 12/31/97 10,300
03/31/98 10,911 03/31/98 11,861
06/30/98 11,562 06/30/98 12,400
09/30/98 10,685 09/30/98 11,273
12/31/98 13,646 12/31/98 14,287
03/31/99 15,598 03/31/99 15,196
06/30/99 15,853 06/30/99 15,780
09/30/99 15,890 09/30/99 15,202
12/31/99 22,246 12/31/99 19,025
03/31/00 26,829 03/31/00 20,380
06/30/00 25,622 06/30/00 19,830
09/30/00 28,103 09/30/00 18,764
12/31/00 20,542 12/31/00 14,759
03/31/01 14,794 03/31/01 11,674
06/30/01 15,579 06/30/01 12,657
09/30/01 13,216 09/30/01 10,200
12/31/01 15,721 12/31/01 11,744
03/31/02 15,191 03/31/02 11,441
06/30/02 13,906 06/30/02 9,304
09/30/02 12,015 09/30/02 7,904
12/31/02 11,523 12/31/02 8,470
03/31/03 11,798 03/31/03 8,379
06/30/03 13,386 06/30/03 9,578
09/30/03 13,972 09/30/03 9,953
12/31/03 15,626 12/31/03 10,989
03/31/04 16,363 03/31/04 11,076
06/30/04 17,044 06/30/04 11,291
09/30/04 16,439 09/30/04 10,700
12/31/04 18,301 12/31/04 11,682
03/31/05 18,755 03/31/05 11,204
06/30/05 18,869 06/30/05 11,479
09/30/05 20,164 09/30/05 11,940
12/31/05 21,298 12/31/05 12,296
03/31/06 21,988 03/31/06 12,675
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LARGE CAP GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR 5 YEARS SINCE INCEPTION*
CLASS A 10.50% 6.98% 9.98%
CLASS B 12.48% -- 16.02%
CLASS C 16.62% -- 17.08%
CLASS I 17.47% -- 18.96%
- --------------------------------------------------------------------------------
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, Class C and Class I 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 initial
public offering of Class I commenced on November 10, 2004.
** 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.
9
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
- --------------------------------------------------------------------------------
LARGE CAP VALUE FUND
JS ASSET MANAGEMENT, LLC
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Large Cap Value Fund Class A was 1.90% since
the Fund's inception date of March 6, 2006 through March 31, 2006. The total
return of the Russell 1000 Value Index was 0.88% for the same period.
PORTFOLIO REVIEW
The Touchstone Large Cap Value Fund was launched on March 6, 2006. JS Asset
Management pursues a bottom-up approach and focuses on undervalued companies
that we believe have catalysts to improve their valuations over a long-term
investment timeframe. Our investment process is based on fundamental research,
including studying financial statements, speaking with company management,
examining sectors and industries, reviewing competitors, and leveraging
sell-side analysts for data, not their opinions. We look for hidden or
undervalued assets, cost-cutting initiatives, changes in management, increasing
insider ownership or positive sector and industry changes that may be on the
horizon. We are sometimes significantly underweight or overweight sectors in our
concentrated portfolio. We shy away from sector-based investing, especially when
fundamentals do not suggest potential for stock price appreciation.
We assign a price target to every company on our watch list. This watch list is
not static and frequently includes companies with depressed earnings. Stocks are
ranked based on the potential price appreciation expected over the next 18-24
months. We are patient and will maintain our position (or even add to it) as
long as the business fundamentals and the catalyst are in place.
The Fund was positioned toward beneficiaries of increased capital spending,
improving capacity utilization and higher interest rates: companies in the
Industrials, Information Technology, and Financials sectors. We believe that
companies in the Energy and Utility sectors are overvalued. We remain concerned
about consumer sectors and industries (i.e., homebuilders, auto manufacturers,
and the Retail sector) given that so much of the consumer's debt and buying
power is based on short-term interest rates.
CURRENT STRATEGY AND OUTLOOK
We believe that GDP growth will continue to decelerate after a stronger-
than-expected 2005, as the economy reacts to consumer spending and commodity
price inflationary pressures. We believe that the average investor is reaching
for returns with less consideration for risk. With real estate prices leveling
off and financial markets improving, consumers may be looking to financial
markets to sustain their personal wealth and purchasing power. As interest rates
continue to rise, and as investors continue to place money in unsustainable and
risky markets, we fear that the consumer will face a period of declining net
worth with higher debt payments and lower spending. Nevertheless, we think
corporate spending may be enough to offset consumer weakness, thereby providing
the impetus for overall economic growth.
10
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
- --------------------------------------------------------------------------------
MICRO CAP GROWTH FUND
BJURMAN, BARRY & ASSOCIATES
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Micro Cap Growth Fund Class A was 21.95% for
the twelve months ended March 31, 2006. The total return of the Russell 2000
Growth Index was 27.84% and the total return of the Russell Micro Cap Index was
26.47% for the same period.
U.S. equities finished the year ended March 31, 2006 with broad and impressive
gains. All segments of the economy finished the period with gains, but the most
memorable market moves were the dramatic rise in oil prices and the dominant
performance of the Energy sector. The surge in oil and natural gas prices drove
Energy-related companies to record earnings, dramatically boosting their stock
prices. The Energy sector led the market and alone contributed to over one-tenth
of the Russell 2000 Growth Index's annual performance.
Other sectors that showed leadership--Materials, Information Technology, Health
Care, and Industrials--were those that are most sensitive to macroeconomic
forces, which implied a strong economy despite the high commodity prices.
PORTFOLIO REVIEW
The Fund's performance disadvantage is largely attributable to the relative
underperformance of the smallest capitalization companies in which the
Touchstone Micro Cap Growth Fund is concentrated. The companies in the smallest
quintiles of market capitalization did not have the above-average returns
typically associated with them; on the contrary, as a group, they significantly
underperformed during the twelve-month period. In fact, more than three-quarters
of the portfolio was invested in companies in the lowest quintile of market
capitalization, compared to only one in twenty for the benchmark.
Small-cap stocks in general benefited from continued economic growth and
outpaced the broader market as investors favored smaller companies exhibiting
strong earnings momentum. Small- and mid-capitalization stocks have been
supported by strong earnings growth relative to larger capitalization stocks.
CURRENT STRATEGY AND OUTLOOK
The Fund continues to invest in companies that are, on average, smaller in
capitalization and faster in growth than the Index itself. We firmly believe
that the continued economic expansion, corporate earnings strength, and
improving underlying fundamentals for the U.S. economy should benefit these
stocks the most. Instead of reacting to broad market fluctuations, our focus
continues to be selecting the most fundamentally sound and highest-growth
companies, which we believe should produce superior long-term results.
11
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
- --------------------------------------------------------------------------------
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
MICRO CAP GROWTH FUND - CLASS A*, THE RUSSELL 2000 GROWTH INDEX
AND THE RUSSELL MICRO CAP INDEX
[LINE CHART]
MICRO CAP GROWTH FUND RUSSELL 2000 RUSSELL MICRO
- CLASS A GROWTH INDEX CAP INDEX
DATE DATE DATE
---- ---- ----
06/22/04 9,425 06/22/04 10,000 06/22/04 10,000
06/30/04 9,679 06/30/04 10,438 06/30/04 10,393
07/31/04 8,794 07/31/04 9,501 07/31/04 9,536
08/31/04 8,435 08/31/04 9,296 08/31/04 9,411
09/30/04 9,039 09/30/04 9,810 09/30/04 9,815
10/31/04 9,152 10/31/04 10,049 10/31/04 9,936
11/30/04 10,038 11/30/04 10,898 11/30/04 10,832
12/31/04 11,056 12/31/04 11,289 12/31/04 11,336
01/31/05 10,358 01/31/05 10,780 01/31/05 10,887
02/28/05 10,820 02/28/05 10,928 02/28/05 10,921
03/31/05 10,433 03/31/05 10,518 03/31/05 10,493
06/30/05 10,933 06/30/05 10,884 06/30/05 10,825
09/30/05 11,027 09/30/05 11,572 09/30/05 11,481
12/31/05 11,414 12/31/05 11,758 12/31/05 11,626
03/31/06 12,724 03/31/06 13,447 03/31/06 13,270
- --------------------------------------------------------------------------------
MICRO CAP GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR SINCE INCEPTION*
CLASS A 14.89% 14.56%
CLASS C 21.07% 17.60%
CLASS I 22.76% 24.49%
- --------------------------------------------------------------------------------
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 C and Class I shares based on the difference in
loads and fees paid by shareholders in the different classes. The initial public
offering of Class A and Class C shares was June 22, 2004 and the initial public
offering of Class I commenced on October 4, 2004.
** 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.
12
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
- --------------------------------------------------------------------------------
MID CAP GROWTH FUND
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Mid Cap Growth Fund Class A was 22.21% for
the twelve months ended March 31, 2006. The total return of the Russell Mid Cap
Growth Index was 22.68% over the same period. The Fund's name was changed from
the Touchstone Emerging Growth Fund to better reflect its investment strategy.
The year ended March 31, 2006 was a great period for U.S. equities and an even
better period for mid-cap growth stocks. Only small-caps generated better
returns as a class.
TCW INVESTMENT MANAGEMENT COMPANY, LLC
PORTFOLIO REVIEW
Our portion of the Fund staged a strong recovery in the beginning of the period,
but not enough to offset April 2005's performance drag. The portfolio rebounded
handsomely during the third quarter of 2005 from the earlier market selloff only
to be truncated by the twin hurricanes of Katrina and Rita. Worries over the
impact on consumer spending of high gasoline, natural gas, and heating oil
prices sent the equity market into a downturn late in the quarter, temporarily
halting the incipient rotation into our equity holdings, which were weighted
toward Industrial and Information Technology companies.
Our decision to take profits in Energy holdings earlier in the year impacted
performance during the quarter given the spectacular late run up in these
equities, which was driven in part by speculative buying. It has always been
part of our investment philosophy to trim gains in order to protect client
portfolios from capital loss. While giving up some near-term gains, we believe
the redeployment of our Energy sector profits into various undervalued sectors
of the market should ultimately be rewarded with outsized returns. During the
fourth quarter, performance staged a recovery. Based on the patterns and
results, it appears that we are in the early stages of a stock market rotation
back toward our type of holdings, as falling energy prices and a recovery in
corporate capital spending prompt a reallocation of investor funds.
During the first quarter of 2006, performance was driven by broad-based gains in
companies across many sectors, including Financials, Industrials, Retail, and
Information Technology. There has been a surge of acquisition activity in recent
months, involving small- and medium-sized companies in general, including a
number of our holdings that were acquired by competitors or private equity
firms. We believe that there will be a dramatic increase in acquisition
activity, as private equity investors seek to purchase assets in the public
market at discounts to intrinsic valuations. Many companies within the portfolio
sell at discounts to their private market values based on assets, earnings or
cash flow multiples.
Our contrarian approach focuses foremost on undervalued, quality companies, with
an emphasis on accumulating an inventory of inefficiently priced, out-of-favor
stocks that are selling at discounts to their intrinsic values. We sell when
holdings approach full valuation following a period of expanding operating
margins and earnings growth. Despite incurring an opportunity cost during
prolonged holding periods, the inventory of companies in the portfolio
appreciates dramatically when a catalyst unlocks shareholder value. Irrespective
of overall stock market direction, our fundamentals-based, research-driven
investment discipline ferrets out undervalued issues that we hold until they
reach target prices based on a reasonable multiple of normalized earnings and
cash flow.
13
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
- --------------------------------------------------------------------------------
CURRENT STRATEGY AND OUTLOOK
Our methodology forces us at times to overweight out-of-favor stock market
sectors or industries, albeit using a bottom-up, company-specific approach. For
example, we are bullish on several technology companies, because we expect
Information Technology capital spending to pick up even as the economy slows.
Our company and industry contacts have indicated that technology purchases,
which declined for the four years following the tech bubble, are once again
increasing. Corporate America must invest in capital equipment to continue the
surge in productivity that has driven robust growth in gross domestic output.
Conversely, what we view as overly high valuation in Financials stocks has
forced us to underweight the sector. Moreover, a flattening yield curve and
contracting net interest margins have inhibited profit growth for many financial
intermediaries.
We believe the Fed is nearing the end of its tightening campaign, with the
market beginning to discount a less restrictive monetary policy. We believe our
portion of the Fund is well positioned to deliver superior performance over the
balance of this year.
WESTFIELD CAPITAL MANAGEMENT COMPANY, LLC
PORTFOLIO REVIEW
In addition to the high absolute returns posted by the benchmark, our portion of
the Touchstone Mid Cap Growth Fund was able to substantially outperform on a
relative basis. The strong results are due to relative outperformance in five of
the seven invested sectors.
Health Care generated the majority of portfolio gains in the last year, and it
was the strongest relative contributor in two of the previous four quarters. The
portfolio's excess return in this sector was distributed across several
industries, as only Health Care distributors and Health Care supplies detracted
from relative performance. Biotechnology and Pharmaceuticals (the latter
concentrated in bio-pharmaceutical companies) amounted to a substantial portion
of the Health Care sector's relative outperformance.
Information Technology investments were another highlight in the portfolio.
Despite a slight underweight to the sector, Westfield was able to add value with
strong stock selection. We continually found stocks that exhibited strong growth
characteristics and traded at reasonable valuations. Investments were spread
across nine separate industries and we outperformed in six of them.
Specifically, IT Services, Software and Semiconductors led the sector.
Underperformance in the sector, although limited, existed in the Computer
Storage and Data Processing industries.
An overweight position in the Energy sector has been a feature of the portfolio
for the past few years, and our positive outlook on this sector again paid
dividends. The portfolio remained overweight the Energy sector, and we believe
that this sector will continue to be an important contributor to returns.
However, we used market strength to trim Energy exposure, and in combination
with a reweighting of the sector benchmark, the portfolio's overweight versus
the benchmark was reduced. The portfolio's Energy stocks had difficulty in
keeping up with the highest-growth companies in the benchmark but the
portfolio's overweight in the sector offset these relative losses to produce net
outperformance.
The Consumer Discretionary sector was another area where conviction played a key
role in producing excess performance. The sector was among the weakest and we
were significantly underweight this sector, which contributed to relative
outperformance. The few investments that were made, however, proved their worth.
We believe that the true growth stories that we have uncovered in this sector
should be better able to withstand any pricing pressure brought on by general
consumer spending difficulties.
14
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
- --------------------------------------------------------------------------------
Industrials and Materials--two cyclical sectors that we believe possess great
growth opportunities--both added value over the last 12 months. Gains in these
sectors were among the highest in the Index, and while our underexposure was
detrimental to portfolio returns, positive stock selection more than compensated
for this lag. Non-residential construction trends and higher worldwide capital
expenditures should continue to power earnings growth. While rising costs are a
concern, Westfield has positioned the portfolio in companies that we believe can
pass costs through and are better able to grow revenues faster than the rate of
inflation.
Within the Financials sector, we continue to favor asset managers and niche
regional banks. These groups have demonstrated the ability to grow earnings
despite a rising interest rate environment. Unfortunately, many other
sub-industries appear challenging areas in which to invest. We underperformed in
this sector, as our underweight proved detrimental to returns. We also did not
hold many of the companies that are most leveraged to the capital markets, where
mergers & acquisitions, favorable borrowing conditions, and historically low
interest rates allowed REITs and other finance companies to generate substantial
profits.
CURRENT STRATEGY AND OUTLOOK
We are optimistic that our portfolio is well positioned to take advantage of the
market environment in 2006. Our commitment to the price targeting system and
adherence to our growth at a reasonable price philosophy will help us navigate
the maturing economy by seeking growth opportunities to offset the potential of
a rising cost environment.
15
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
- --------------------------------------------------------------------------------
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
MID CAP GROWTH FUND - CLASS A*, THE RUSSELL MID CAP INDEX,
AND THE RUSSELL MID CAP GROWTH INDEX
[LINE CHART]
MID CAP GROWTH A RUSSELL MID CAP RUSSELL MID CAP GROWTH
Date Date Date
---- ---- ----
03/31/96 9,425 03/31/96 10,000 03/31/96 10,000
06/30/96 9,851 06/30/96 10,282 06/30/96 10,374
09/30/96 9,586 09/30/96 10,604 09/30/96 10,727
12/31/96 9,982 12/31/96 11,224 12/31/96 11,037
03/31/97 9,576 03/31/97 11,132 03/31/97 10,634
06/30/97 11,269 06/30/97 12,642 06/30/97 12,199
09/30/97 13,127 09/30/97 14,320 09/30/97 13,906
12/31/97 13,196 12/31/97 14,479 12/31/97 13,523
03/31/98 14,416 03/31/98 16,043 03/31/98 15,138
06/30/98 13,873 06/30/98 15,801 06/30/98 15,129
09/30/98 11,195 09/30/98 13,459 09/30/98 12,604
12/31/98 13,546 12/31/98 15,941 12/31/98 15,940
03/31/99 13,152 03/31/99 15,866 03/31/99 16,485
06/30/99 15,586 06/30/99 17,589 06/30/99 18,203
09/30/99 15,576 09/30/99 16,078 09/30/99 17,291
12/31/99 19,757 12/31/99 18,849 12/31/99 24,116
03/31/00 23,298 03/31/00 20,750 03/31/00 29,209
06/30/00 23,834 06/30/00 19,815 06/30/00 27,045
09/30/00 25,488 09/30/00 21,164 09/30/00 27,727
12/31/00 24,877 12/31/00 20,404 12/31/00 21,280
03/31/01 22,144 03/31/01 18,264 03/31/01 15,943
06/30/01 25,474 06/30/01 20,004 06/30/01 18,523
09/30/01 21,658 09/30/01 16,432 09/30/01 13,373
12/31/01 26,633 12/31/01 19,258 12/31/01 16,992
03/31/02 27,176 03/31/02 20,076 03/31/02 16,691
06/30/02 23,835 06/30/02 18,159 06/30/02 13,644
09/30/02 18,823 09/30/02 14,956 09/30/02 11,300
12/31/02 20,370 12/31/02 16,140 12/31/02 12,335
03/31/03 19,594 03/31/03 15,758 03/31/03 12,332
06/30/03 23,572 06/30/03 18,635 06/30/03 14,646
09/30/03 25,815 09/30/03 19,833 09/30/03 15,694
12/31/03 29,201 12/31/03 22,604 12/31/03 17,603
03/31/04 30,654 03/31/04 23,766 03/31/04 18,453
06/30/04 31,062 06/30/04 24,110 06/30/04 18,647
09/30/04 28,664 09/30/04 23,908 09/30/04 17,839
12/31/04 32,290 12/31/04 27,174 12/31/04 20,326
03/31/05 31,918 03/31/05 27,106 03/31/05 19,987
06/30/05 32,515 06/30/05 28,239 06/30/05 20,672
09/30/05 34,632 09/30/05 29,911 09/30/05 22,026
12/31/05 35,761 12/31/05 30,613 12/31/05 22,784
03/31/06 39,008 03/31/06 32,943 03/31/06 24,518
- --------------------------------------------------------------------------------
MID CAP GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION*
CLASS A 15.16% 10.68% 14.58% 15.28%
CLASS B 17.24% -- -- 9.24%
CLASS C 21.28% 11.25% 14.39% 14.97%
- --------------------------------------------------------------------------------
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.
16
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
- --------------------------------------------------------------------------------
SMALL CAP GROWTH FUND
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Small Cap Growth Fund Class A was 20.46% for
the twelve months ended March 31, 2006. The total return of the Russell 2000
Growth Index was 27.84% for the same period.
U.S. equities finished the year ended March 31, 2006 with broad and impressive
gains. All segments of the economy finished the period with gains, but the most
memorable market moves were the dramatic rise in oil prices and the dominant
performance of the Energy sector. The surge in oil and natural gas prices drove
energy-related companies to record earnings, dramatically boosting their stock
prices. The Energy sector led the market and alone contributed to over one-tenth
of the Russell 2000 Growth Index's annual performance.
Other sectors that showed leadership--Industrials, Materials, Information
Technology, and Health Care--were those that are most economically sensitive,
implying a strong economy despite the high commodity prices.
LONGWOOD INVESTMENT ADVISORS
PORTFOLIO REVIEW
Small-cap growth stocks are typically found in two sectors, Health Care and
Information Technology. Over the past year, our portion of the Fund's
performance was hurt by investments in the Health Care sector, but was helped by
an overweight in the Information Technology sector.
Health Care holdings were underweight in our portion of the Fund. We are
actively seeking reasonably priced, growing Health Care companies, and hope to
increase our weighting in the sector. The portfolio was overweight Information
Technology and underweight the Consumer Discretionary sector. All other sectors
were held at roughly the same weight as the benchmark.
Our portion of the Fund was overweight the Energy sector, although the
allocation was smaller than it was last fall and was concentrated in the Energy
Equipment & Services industry. We believe that the price of oil is close to
peaking and will trade within the $58 to $72 price range going forward. Even at
$65 per barrel, oil's inflationary effect seems to be minimal. This elevated
price level should encourage a robust exploration cycle and consolidation in the
sector.
CURRENT STRATEGY AND OUTLOOK
We consistently search for growth stocks that we believe to be sensibly priced.
Employing primary research into company fundamentals, we identify stocks with
high growth rates that are trading at reasonable price-earnings ratios. We meet
with a company's management and research its customers and competitors. We
adhere to a strict "exit strategy" which directs us to begin selling a security
at the point when the fundamentals of the company no longer support its
valuation.
Rising interest rates have just now begun to slow the economy. A danger now is
that the Fed and the central banks in the European Union and Japan will throw
the world economy into a recession by raising rates too much. Still, the economy
is expanding, productivity remains high and inflation appears to be contained.
The U.S. dollar remains at favorable levels to make exports competitive. We
believe that when the Fed stops raising rates, the stage will be set for
well-run companies to appreciate in value.
17
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
- --------------------------------------------------------------------------------
BJURMAN, BARRY & ASSOCIATES
PORTFOLIO REVIEW
Our portion of the Fund's performance disadvantage is largely attributable to
the relative underperformance of the smallest capitalization companies in which
our portion of the Fund is concentrated. More than 75% of the portfolio was
invested in companies in the lowest quintile of market capitalization, compared
to only five percent for the Russell 2000 Growth Index, and the companies in the
smallest quintiles of market capitalization did not have the above-average
returns typically associated with them, as they significantly underperformed as
a group over the twelve-month period.
Small-cap stocks generally benefited from continued economic growth and outpaced
the broader market as investors favored smaller companies exhibiting strong
earnings momentum. Small- and mid-capitalization stocks in particular have been
supported by strong earnings growth, even relative to larger capitalization
stocks.
CURRENT STRATEGY AND OUTLOOK
Our portion of the Fund continues to invest in companies that are, on average,
smaller in capitalization and faster in growth than the Index itself. We firmly
believe that the continued economic expansion, corporate earnings strength, and
improving underlying fundamentals of the U.S. economy should benefit the stocks
in the Fund's portfolio. Instead of reacting to broad market fluctuations, our
focus continues to be selecting the most fundamentally sound and highest
earnings-growing companies, which we believe should bring superior long-term
results.
18
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
- --------------------------------------------------------------------------------
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 FUND - CLASS A RUSSELL 2000 GROWTH INDEX
Date Date
---- ----
10/21/02 9,425 10/21/02 10,000
10/31/02 9,482 10/31/02 10,300
11/30/02 10,236 11/30/02 11,321
12/31/02 9,585 12/31/02 10,540
01/31/03 9,425 01/31/03 10,253
02/28/03 9,086 02/28/03 9,979
03/31/03 9,218 03/31/03 10,130
04/30/03 9,991 04/30/03 11,088
05/31/03 11,018 05/31/03 12,338
06/30/03 11,734 06/30/03 12,576
07/31/03 12,516 07/31/03 13,527
08/31/03 13,261 08/31/03 14,253
09/30/03 13,289 09/30/03 13,892
10/31/03 14,731 10/31/03 15,093
11/30/03 15,108 11/30/03 15,585
12/31/03 14,889 12/31/03 15,655
03/31/04 15,487 03/31/04 16,528
06/30/04 15,323 06/30/04 16,543
09/30/04 14,407 09/30/04 15,549
12/31/04 15,914 12/31/04 17,894
03/31/05 15,111 03/31/05 16,672
06/30/05 15,578 06/30/05 17,252
09/30/05 16,252 09/30/05 18,342
12/31/05 16,132 12/31/05 18,637
03/31/06 18,203 03/31/06 21,314
- --------------------------------------------------------------------------------
SMALL CAP GROWTH FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR SINCE INCEPTION*
CLASS A 13.54% 19.01%
CLASS B 16.01% 19.99%
CLASS C 20.07% 20.40%
CLASS I 20.77% 11.74%
- --------------------------------------------------------------------------------
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, Class C and Class I 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 initial public offering of Class I commenced on May 5, 2004.
**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.
19
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
- --------------------------------------------------------------------------------
VALUE PLUS FUND
FORT WASHINGTON INVESTMENT ADVISORS, INC.
PERFORMANCE AND MARKET OVERVIEW
The total return of the Touchstone Value Plus Fund Class A was 8.13% for the
twelve months ended March 31, 2006. The total return of the Russell 1000 Value
Index was 13.31% for the same period.
March 2006 was the fifth straight month of positive returns for the stock
market. The breadth of the market has also been strong, with nine out of ten
sectors providing positive performance over the twelve-month period. The only
lagging sector was Consumer Discretionary--a fact that reflects investors'
concerns about the health of consumer spending.
Acquisition activity began to pick up as corporations started to spend the cash
hoard that has been building up on their balance sheets over the last couple of
years. Small-cap stocks continued their dominance in the first quarter, handily
outperforming their large-cap brethren by almost ten percent. Lower quality
companies also continued to outperform as investor confidence in the current
economic expansion has allowed them to continue to dip down the risk spectrum.
Surprisingly, the Telecommunications, Information Technology, and Industrials
sectors led the market in the first quarter of 2006. This could be a signal that
the market is discounting a much-anticipated leadership change from the consumer
to corporations, as these are the sectors that benefit from increased capital
spending. We have long believed that this condition would be necessary for
continued economic growth in an already extended cycle.
PORTFOLIO REVIEW
The Fund's relative underperformance to the benchmark can be attributed to stock
selection, specifically in the Information Technology and Industrials sectors,
and sector allocation. Our decision to underweight the strong-performing
Financials sector while overweight the underperforming Consumer Discretionary
sector detracted from performance. Strong stock selection in the Consumer
Discretionary and Health Care sectors contributed positively to the Fund's
performance.
CURRENT STRATEGY AND OUTLOOK
Our assessment of market conditions is that the higher bond yields are likely to
persist for some time, and we expect the stock market to beat its results for
2005. However, there will likely be tests along the way for both of these
markets.
To a large extent, the recent market gains reflect growing investor confidence
about the global economy. The U.S. has rebounded from a hurricane-induced
slowdown in the fourth quarter, and real GDP growth is estimated to have grown
at a four to five percent rate in the first quarter.
So far, government policy actions have not caused an equity market sell-off,
mainly because investors still believe the end of Fed tightening is in sight and
that rate hikes abroad will be gradual. If more policy tightening is in store,
U.S. and world equity markets could become vulnerable. The possibility of a
significant hike in oil prices remains a concern. The United States still faces
a shortage of refining capacity and the prospect of another tumultuous hurricane
season that could send gasoline prices higher. In our opinion, neither of these
risks is sufficiently great to derail the global expansion.
20
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(UNAUDITED)
- --------------------------------------------------------------------------------
A key element for the stock market will be the impact of slowing earnings growth
on investor's confidence. Since the beginning of the year, seven of the ten
market sectors have seen a slowdown in expected operating earnings growth. While
the overall earnings growth is still expected to be healthy, this slowing could
generate more interest in the larger capitalization, higher-quality stocks. This
is an area of the market where we continue to find ample investment
opportunities, and we believe the Fund is well positioned to benefit from this
possible trend.
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
VALUE PLUS FUND - CLASS A* AND THE RUSSELL 1000 VALUE INDEX
[LINE CHART]
VALUE PLUS FUND - CLASS A RUSSELL 1000 VALUE INDEX
Date Date
---- ----
05/01/98 9,425 05/01/98 10,000
05/31/98 9,105 05/31/98 9,852
06/30/98 9,302 06/30/98 9,978
09/30/98 8,134 09/30/98 8,823
12/31/98 9,830 12/31/98 10,288
03/31/99 10,208 03/31/99 10,435
06/30/99 11,000 06/30/99 11,612
09/30/99 10,045 09/30/99 10,474
12/31/99 11,352 12/31/99 11,043
03/31/00 11,155 03/31/00 11,096
06/30/00 11,029 06/30/00 10,576
09/30/00 10,953 09/30/00 11,407
12/31/00 11,568 12/31/00 11,818
03/31/01 11,072 03/31/01 11,125
06/30/01 11,787 06/30/01 11,668
09/30/01 10,393 09/30/01 10,390
12/31/01 11,362 12/31/01 11,156
03/31/02 11,329 03/31/02 11,611
06/30/02 9,633 06/30/02 10,622
09/30/02 7,830 09/30/02 8,628
12/31/02 8,406 12/31/02 9,424
03/31/03 8,090 03/31/03 8,966
06/30/03 9,514 06/30/03 10,514
09/30/03 9,624 09/30/03 10,731
12/31/03 10,879 12/31/03 12,253
03/31/04 11,087 03/31/04 12,625
06/30/04 11,262 06/30/04 12,736
09/30/04 11,054 09/30/04 12,932
12/31/04 11,965 12/31/04 14,274
03/31/05 11,794 03/31/05 14,287
06/30/05 11,761 06/30/05 14,526
09/30/05 12,124 09/30/05 15,089
12/31/05 12,247 12/31/05 15,281
03/31/06 12,753 03/31/06 16,187
- --------------------------------------------------------------------------------
VALUE PLUS FUND
AVERAGE ANNUAL TOTAL RETURNS**
1 YEAR 5 YEARS SINCE INCEPTION*
CLASS A 1.87% 1.65% 3.12%
CLASS B 3.24% -- 0.56%
CLASS C 7.29% 2.10% 3.01%
- --------------------------------------------------------------------------------
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 Class 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, 1998.
**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.
21
TABULAR PRESENTATION OF PORTFOLIOS OF INVESTMENTS
MARCH 31, 2006 (UNAUDITED)
- --------------------------------------------------------------------------------
The illustrations below provide each Fund's sector allocation. We hope it will
be useful to shareholders as it summarizes key information about each Fund's
investments.
- -------------------------------------------------------------
GROWTH OPPORTUNITIES FUND
SECTOR ALLOCATION (% OF NET ASSETS)
Information Technology 35.8
Industrials 24.4
Health Care 18.0
Energy 13.1
Consumer Discretionary 4.4
Materials 2.1
Financials 2.0
Investment Funds 6.1
Other Assets/Liabilities (net) (5.9)
----------
100.0
----------
- -------------------------------------------------------------
- -------------------------------------------------------------
LARGE CAP GROWTH FUND
SECTOR ALLOCATION (% OF NET ASSETS)
Financials 23.4
Health Care 18.0
Information Technology 17.5
Energy 14.5
Industrials 8.7
Materials 5.1
Consumer Staples 3.5
Telecommunication 3.4
Utilities 2.8
Investment Funds 6.6
Other Assets/Liabilities (net) (3.5)
----------
100.0
----------
- -------------------------------------------------------------
MICRO CAP GROWTH FUND
SECTOR ALLOCATION (% OF NET ASSETS)
Information Technology 36.8
Industrials 18.9
Consumer Discretionary 17.2
Health Care 15.7
Consumer Staples 4.8
Financials 2.6
Materials 2.5
Energy 1.0
Investment Funds 24.5
Other Assets/Liabilities (net) (24.0)
----------
100.0
----------
- -------------------------------------------------------------
- -------------------------------------------------------------
SMALL CAP GROWTH FUND
SECTOR ALLOCATION (% OF NET ASSETS)
Information Technology 40.7
Industrials 18.4
Health Care 12.1
Consumer Staples 7.1
Energy 6.3
Consumer Discretionary 5.1
Financials 4.7
Telecommunication 3.8
Materials 0.8
Investment Funds 25.0
Other Assets/Liabilities (net) (24.0)
----------
100.0
----------
- -------------------------------------------------------------
- -------------------------------------------------------------
LARGE CAP CORE EQUITY FUND
SECTOR ALLOCATION (% OF NET ASSETS)
Information Technology 19.5
Industrials 17.0
Financials 16.2
Consumer Staples 14.9
Consumer Discretionary 10.7
Health Care 9.4
Telecommunication 3.4
Materials 3.3
Energy 3.0
Investment Funds 2.6
----------
100.0
----------
- -------------------------------------------------------------
- -------------------------------------------------------------
LARGE CAP VALUE FUND
SECTOR ALLOCATION (% OF NET ASSETS)
Financials 29.7
Industrials 13.9
Information Technology 10.4
Consumer Discretionary 9.6
Health Care 7.5
Materials 6.1
Miscellaneous 5.9
Consumer Staples 5.7
Utilities 2.7
Investment Funds 8.8
Other Assets/Liabilities (net) (0.3)
----------
100.0
----------
- -------------------------------------------------------------
- -------------------------------------------------------------
MID CAP GROWTH FUND
SECTOR ALLOCATION (% OF NET ASSETS)
Information Technology 25.7
Health Care 21.0
Consumer Discretionary 15.8
Industrials 12.4
Financials 10.1
Energy 9.5
Materials 2.5
Consumer Staples 0.8
Investment Funds 15.2
Other Assets/Liabilities (net) (13.0)
----------
100.0
----------
- -------------------------------------------------------------
- -------------------------------------------------------------
VALUE PLUS FUND
SECTOR ALLOCATION (% OF NET ASSETS)
Financials 26.1
Health Care 12.3
Energy 11.7
Information Technology 11.6
Consumer Discretionary 10.2
Industrials 9.6
Consumer Staples 6.4
Utilities 5.2
Telecommunication 3.7
Materials 1.3
Investment Funds 3.6
Other Assets/Liabilities (net) (1.7)
----------
100.0
----------
- -------------------------------------------------------------
22
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2006
- ---------------------------------------------------------------------------------------------------------------------------------
GROWTH LARGE CAP
OPPORTUNITIES CORE EQUITY LARGE CAP LARGE CAP
FUND FUND GROWTH FUND VALUE FUND
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities:
At cost ..................................... $ 113,323,506 $ 24,557,578 $ 1,029,205,006 $ 12,146,094
==============================================================================
Affiliated securities at market value ....... $ 7,507,740 $ 751,420 $ 73,598,390 $ 1,080,290
Non-affiliated securities at market value ... 123,419,888 28,054,074 1,087,574,691 11,200,789
------------------------------------------------------------------------------
At market value - including $7,270,251 and
$38,309,218 of securities loaned
for the Growth Opportunities Fund and
Large Cap Growth Fund, respectively ....... 130,927,628 28,805,494 1,161,173,081 12,281,079
Dividends and interest receivable .............. 31,323 43,643 753,029 13,347
Receivable for capital shares sold ............. 85,144 1,248 9,925,754 214,077
Receivable for securities sold ................. 1,086,603 -- 62,348,030 --
Receivable for securities lending income ....... 308 -- 748 --
Receivable from Advisor ........................ -- -- -- 6,220
Other assets ................................... 13,883 5,122 60,152 30,726
------------------------------------------------------------------------------
TOTAL ASSETS ................................... 132,144,889 28,855,507 1,234,260,794 12,545,449
------------------------------------------------------------------------------
LIABILITIES
Bank overdrafts ................................ 412,522 -- -- --
Payable upon return of securities loaned ....... 7,507,740 -- 39,303,072 --
Payable for securities purchased ............... -- -- 70,304,172 283,861
Payable for capital shares redeemed ............ 339,737 678 1,968,000 --
Payable to Advisor ............................. 96,174 14,952 665,761 --
Payable to other affiliates .................... 66,569 8,528 421,115 4,732
Payable to Trustees ............................ 2,081 4,196 4,295 --
Other accrued expenses and liabilities ......... 74,131 22,354 228,078 11,989
------------------------------------------------------------------------------
TOTAL LIABILITIES .............................. 8,498,954 50,708 112,894,493 300,582
------------------------------------------------------------------------------
NET ASSETS ..................................... $ 123,645,935 $ 28,804,799 $ 1,121,366,301 $ 12,244,867
==============================================================================
NET ASSETS CONSIST OF:
Paid-in capital ................................ $ 160,230,283 $ 26,140,406 $ 1,018,617,381 $ 12,041,744
Undistributed net investment income ............ -- 184,135 -- 10,661
Undistributed net realized gains (losses)
from security transactions .................. (54,188,470) (1,767,658) (29,219,155) 57,477
Net unrealized appreciation on investments ..... 17,604,122 4,247,916 131,968,075 134,985
------------------------------------------------------------------------------
NET ASSETS ..................................... $ 123,645,935 $ 28,804,799 $ 1,121,366,301 $ 12,244,867
==============================================================================
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares ...... $ 98,003,730 $ 25,693,072 $ 838,120,547 $ 11,684,046
==============================================================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ............................... 4,543,382 2,449,226 36,036,098 1,146,707
==============================================================================
Net asset value and redemption price per share.. $ 21.57 $ 10.49 $ 23.26 $ 10.19
==============================================================================
Maximum offering price per share ............... $ 22.89 $ 11.13 $ 24.68 $ 10.81
==============================================================================
23
STATEMENTS OF ASSETS AND LIABILITIES
(CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------
GROWTH LARGE CAP
OPPORTUNITIES CORE EQUITY LARGE CAP LARGE CAP
FUND FUND GROWTH FUND VALUE FUND
- ---------------------------------------------------------------------------------------------------------------------
PRICING OF CLASS B SHARES
Net assets attributable to Class B shares ... $ 3,230,457 $ 1,712,377 $ 27,781,158 $ --
=====================================================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ............................ 158,405 165,457 1,216,714 --
=====================================================================
Net asset value, offering price and
redemption price per share* .............. $ 20.39 $ 10.35 $ 22.83 $ --
=====================================================================
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares ... $ 22,411,748 $ 1,399,350 $ 188,809,684 $ 560,821
=====================================================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ............................ 1,088,135 134,623 8,252,209 55,071
=====================================================================
Net asset value, offering price and
redemption price per share* .............. $ 20.60 $ 10.39 $ 22.88 $ 10.18
=====================================================================
PRICING OF CLASS I SHARES
Net assets attributable to Class I shares ... $ -- $ -- $ 66,654,912 $ --
=====================================================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ............................ -- -- 2,856,916 --
=====================================================================
Net asset value, offering price and
redemption price per share ............... $ -- $ -- $ 23.33 $ --
=====================================================================
* Redemption price per share varies by length of time shares are held.
See accompanying notes to financial statements.
24
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2006
- -----------------------------------------------------------------------------------------------------------------------
MICRO CAP MID CAP SMALL CAP VALUE PLUS
GROWTH FUND GROWTH FUND GROWTH FUND FUND
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
Investment securities:
At cost ...................................... $ 97,880,048 $ 989,651,102 $ 453,460,602 $ 66,920,175
-------------------------------------------------------------------
Affiliated securities at market value ........ $ 23,509,894 $ 158,810,613 $ 107,044,344 $ 2,746,686
Non-affiliated securities at market value .... 95,386,933 1,024,207,846 425,574,238 73,584,486
-------------------------------------------------------------------
At market value - including $21,879,579,
$131,577,739, $86,143,163 and
$1,246,780 of securities loaned for the
Micro Cap Growth Fund, Mid Cap Growth
Fund, Small Cap Growth Fund and Value
Plus Fund, respectively .................... 118,896,827 1,183,018,459 532,618,582 76,331,172
Cash ............................................ 36,282 -- 50,237 --
Dividends and interest receivable ............... 15,674 854,348 247,030 125,914
Receivable for capital shares sold .............. 754,701 3,579,340 2,739,049 50,401
Receivable for securities sold .................. 875,757 12,027,629 2,868,353 3,227,665
Receivable for securities lending income ........ 28,562 7,241 78,469 582
Other assets .................................... 12,474 19,721 23,439 4,210
-------------------------------------------------------------------
TOTAL ASSETS .................................... 120,620,277 1,199,506,738 538,625,159 79,739,944
-------------------------------------------------------------------
LIABILITIES
Payable upon return of securities loaned ........ 22,331,621 135,475,672 88,338,869 1,297,296
Payable for securities purchased ................ 1,933,252 8,796,246 19,167,057 3,251,542
Payable for capital shares redeemed ............. 266,481 6,614,190 647,770 52,268
Payable to Advisor .............................. 93,735 857,162 472,362 55,838
Payable to other affiliates ..................... 52,057 616,661 68,327 28,131
Payable to Trustees ............................. 4,295 4,295 4,196 4,259
Other accrued expenses and liabilities .......... 38,167 222,140 84,694 23,191
-------------------------------------------------------------------
TOTAL LIABILITIES ............................... 24,719,608 152,586,366 108,783,275 4,712,525
-------------------------------------------------------------------
NET ASSETS ...................................... $ 95,900,669 $1,046,920,372 $ 429,841,884 $ 75,027,419
===================================================================
NET ASSETS CONSIST OF:
Paid-in capital ................................. $ 77,720,867 $ 823,523,027 $ 355,420,082 $ 72,687,706
Undistributed net investment income ............. -- -- -- 629,055
Undistributed net realized gains (losses)
from security transactions ................... (2,836,977) 30,029,988 (4,736,178) (7,700,339)
Net unrealized appreciation on investments ...... 21,016,779 193,367,357 79,157,980 9,410,997
-------------------------------------------------------------------
NET ASSETS ...................................... $ 95,900,669 $1,046,920,372 $ 429,841,884 $ 75,027,419
===================================================================
PRICING OF CLASS A SHARES
Net assets attributable to Class A shares ....... $ 61,914,809 $ 639,500,816 $ 48,697,283 $ 72,504,173
====================================================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ................................ 4,585,506 26,624,181 2,651,102 6,249,162
-------------------------------------------------------------------
Net asset value and redemption price per share .. $ 13.50 $ 24.02 $ 18.37 $ 11.60
===================================================================
Maximum offering price per share ................ $ 14.32 $ 25.49 $ 19.49 $ 12.31
===================================================================
25
STATEMENTS OF ASSETS AND LIABILITIES
(CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------
MICRO CAP MID CAP SMALL CAP VALUE PLUS
GROWTH FUND GROWTH FUND GROWTH FUND FUND
- -----------------------------------------------------------------------------------------------------------------------
PRICING OF CLASS B SHARES
Net assets attributable to Class B shares ....... $ -- $ 79,552,387 $ 9,857,648 $ 812,889
===================================================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ................................ -- 3,701,137 547,813 73,871
===================================================================
Net asset value, offering price and
redemption price per share* .................. $ -- $ 21.49 $ 17.99 $ 11.00
===================================================================
PRICING OF CLASS C SHARES
Net assets attributable to Class C shares ....... $ 33,309,632 $ 327,867,169 $ 20,964,458 $ 1,710,357
===================================================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ................................ 2,498,343 15,239,049 1,164,203 154,569
===================================================================
Net asset value, offering price and
redemption price per share* .................. $ 13.33 $ 21.51 $ 18.01 $ 11.07
===================================================================
PRICING OF CLASS I SHARES
Net assets attributable to Class I shares ....... $ 676,228 $ -- $ 350,322,495 $ --
===================================================================
Shares of beneficial interest outstanding
(unlimited number of shares authorized,
no par value) ................................ 49,363 -- 18,950,781 --
===================================================================
Net asset value, offering price and
redemption price per share ................... $ 13.70 $ -- $ 18.49 $ --
===================================================================
* Redemption price per share varies by length of time shares are held.
See accompanying notes to financial statements.
26
STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
GROWTH LARGE CAP
OPPORTUNITIES CORE EQUITY LARGE CAP LARGE CAP
FUND FUND GROWTH FUND VALUE FUND
- -----------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2006 2006 2006 2006(B)
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from affiliated securities ......... $ 22,024 $ 17,483 $ 599,782 $ 2,499
Dividends from non-affiliated securities(A) .. 588,417 387,391 6,527,898 14,749
Interest ..................................... 3,463 1,553 108,252 3,915
Income from securities loaned ................ 6,226 125 105,919 --
----------------------------------------------------------------
TOTAL INVESTMENT INCOME ...................... 620,130 406,552 7,341,851 21,163
----------------------------------------------------------------
EXPENSES
Investment advisory fees ..................... 1,053,963 130,011 5,021,672 5,781
Distribution expenses, Class A ............... 220,106 42,555 1,320,929 1,895
Distribution expenses, Class B ............... 30,582 16,855 184,374 --
Distribution expenses, Class C ............... 218,942 12,928 1,039,339 128
Postage and supplies ......................... 161,375 12,764 518,480 210
Transfer agent fees, Class A ................. 108,798 12,172 222,354 839
Transfer agent fees, Class B ................. 12,000 12,000 25,294 --
Transfer agent fees, Class C ................. 57,092 12,000 85,050 839
Transfer agent fees, Class I ................. -- -- 12,000 --
Administration fees .......................... 61,496 11,000 296,223 424
Accounting services fees ..................... 51,000 39,000 76,500 2,621
Registration fees ............................ 134 1,427 59,413 1,179
Registration fees, Class A ................... 12,085 7,417 35,089 --
Registration fees, Class B ................... 9,420 7,060 12,815 --
Registration fees, Class C ................... 10,628 6,971 20,403 --
Registration fees, Class I ................... -- -- 17,557 --
Reports to shareholders ...................... 27,594 9,325 70,200 500
Custodian fees ............................... 28,331 3,076 66,709 200
Professional fees ............................ 18,037 16,449 43,069 9,800
Sponsor fees ................................. -- 40,002 -- 1,542
Trustees' fees and expenses .................. 6,999 8,757 9,023 --
Compliance fees and expenses ................. 553 24 1,975 10
Other expenses ............................... 5,600 1,878 9,698 100
----------------------------------------------------------------
TOTAL EXPENSES ............................... 2,094,735 403,671 9,148,166 26,068
Sponsor fees waived .......................... -- (40,002) -- (1,542)
Fees waived and/or expenses
reimbursed by the Advisor ................. -- (141,251) -- (14,024)
Fees reduced by Custodian .................... -- -- (2,417) --
----------------------------------------------------------------
NET EXPENSES ................................. 2,094,735 222,418 9,145,749 10,502
----------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) ................. (1,474,605) 184,134 (1,803,898) 10,661
----------------------------------------------------------------
27
STATEMENTS OF OPERATIONS
(CONTINUED)
- -----------------------------------------------------------------------------------------------------------------
GROWTH LARGE CAP
OPPORTUNITIES CORE EQUITY LARGE CAP LARGE CAP
FUND FUND GROWTH FUND VALUE FUND
- -----------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2006 2006 2006 2006(B)
- -----------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses)
from security transactions ................ $ 11,406,421 $ (107,665) $ 31,472,152 $ 57,477
Net change in unrealized appreciation/
depreciation on investments ............... 10,683,651 2,459,434 86,612,989 134,985
----------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS ............................ 22,090,072 2,351,769 118,085,141 192,462
----------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS ........................... $ 20,615,467 $ 2,535,903 $ 116,281,243 $ 203,123
================================================================
(A) Net of foreign tax withholding of: $ -- $ -- $ 112,008 $ --
(B) Represents the period from commencement of operations (March 6, 2006)
through March 31, 2006.
See accompanying notes to financial statements.
28
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2006
- -----------------------------------------------------------------------------------------------------------------
MICRO CAP MID CAP SMALL CAP VALUE PLUS
GROWTH FUND GROWTH FUND GROWTH FUND FUND
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from affiliated securities ......... $ 28,298 $ 798,687 $ 417,804 $ 57,646
Dividends from non-affiliated securities(A) .. 239,813 7,727,013 921,392 1,560,311
Interest ..................................... 6,315 249,853 87,796 10,383
Income from securities loaned ................ 301,694 104,925 564,732 1,813
----------------------------------------------------------------
TOTAL INVESTMENT INCOME ...................... 576,120 8,880,478 1,991,724 1,630,153
----------------------------------------------------------------
EXPENSES
Investment advisory fees ..................... 831,824 7,640,242 3,192,578 566,439
Distribution expenses, Class A ............... 108,960 1,467,774 105,003 182,355
Distribution expenses, Class B ............... -- 738,830 91,640 8,532
Distribution expenses, Class C ............... 227,790 2,940,374 196,297 17,300
Sponsor fees ................................. 133,093 1,910,078 510,816 151,052
Transfer agent fees, Class A ................. 50,985 607,650 81,022 31,930
Transfer agent fees, Class B ................. -- 130,094 16,415 12,000
Transfer agent fees, Class C ................. 27,743 403,714 32,094 12,000
Transfer agent fees, Class I ................. 12,000 -- 12,218 --
Postage and supplies ......................... 69,545 775,838 104,010 20,795
Administration fees .......................... 36,599 384,261 128,546 41,538
Reports to shareholders ...................... 19,419 164,529 65,639 7,637
Registration fees ............................ -- -- 20,847 14
Registration fees, Class A ................... 15,172 51,332 17,768 8,687
Registration fees, Class B ................... -- 14,510 11,790 6,801
Registration fees, Class C ................... 10,854 22,949 12,268 4,053
Registration fees, Class I ................... 16,893 -- 25,057 --
Accounting services fees ..................... 43,976 69,000 66,550 45,000
Custodian fees ............................... 17,834 107,026 55,762 17,956
Professional fees ............................ 17,196 57,785 24,391 18,149
Trustees' fees and expenses .................. 8,834 9,503 8,757 8,798
Compliance fees and expenses ................. 219 3,601 628 152
Other expenses ............................... 3,912 27,386 6,058 1,437
----------------------------------------------------------------
TOTAL EXPENSES ............................... 1,652,848 17,526,476 4,786,154 1,162,625
Sponsor fees waived .......................... (121,013) (438,781) (277,120) (115,502)
Expenses Reimbursed by the Advisor ........... (55,353) -- (9,162) (32,159)
Fees reduced by Custodian .................... (6,664) -- (29,653) (13,866)
----------------------------------------------------------------
NET EXPENSES ................................. 1,469,818 17,087,695 4,470,219 1,001,098
----------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) ................. (893,698) (8,207,217) (2,478,495) 629,055
----------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) from
security transactions ..................... (55,796) 110,218,729 (2,306,993) 6,831,578
Net change in unrealized appreciation/
depreciation on investments ............... 14,612,858 87,621,113 63,629,222 (1,612,200)
----------------------------------------------------------------
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS ............................ 14,557,062 197,839,842 61,322,229 5,219,378
----------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS ........................... $ 13,663,364 $ 189,632,625 $ 58,843,734 $ 5,848,433
----------------------------------------------------------------
(A) Net of foreign tax withholding of: ....... $ 331 $ 53,912 $ 348 $ 1,248
See accompanying notes to financial statements.
29
STATEMENTS OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND LARGE CAP CORE EQUITY FUND
- -------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2006 2005 2006 2005
- -------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) ............. $ (1,474,605) $ (1,658,581) $ 184,134 $ 123,232
Net realized gains (losses) from
security transactions ................. 11,406,421 (1,250,798) (107,665) 69,903
Net change in unrealized appreciation/
depreciation on investments ........... 10,683,651 (1,270,962) 2,459,434 447,901
----------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS FROM OPERATIONS ............ 20,615,467 (4,180,341) 2,535,903 641,036
----------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income, Class A ...... -- -- (18,047) (104,022)
From net investment income, Class B ...... -- -- (1,229) (6,024)
From net investment income, Class C ...... -- -- (883) (6,291)
----------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS ......... -- -- (20,159) (116,337)
----------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
CLASS A
Proceeds from shares sold ................ 21,208,137 18,493,777 14,836,971 1,314,451
Reinvested distributions ................. -- -- 17,934 102,649
Payments for shares redeemed ............. (20,506,533) (51,241,202) (725,593) (1,242,101)
----------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CLASS A SHARE TRANSACTIONS ...... 701,604 (32,747,425) 14,129,312 174,999
----------------------------------------------------------------
CLASS B
Proceeds from shares sold ................ 212,449 306,152 140,037 615,003
Reinvested distributions ................. -- -- 1,059 5,126
Payments for shares redeemed ............. (597,425) (758,312) (254,100) (487,110)
----------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CLASS B SHARE TRANSACTIONS ....... (384,976) (452,160) (113,004) 133,019
----------------------------------------------------------------
CLASS C
Proceeds from shares sold ................ 1,780,414 1,446,418 497,532 324,160
Reinvested distributions ................. -- -- 694 4,213
Payments for shares redeemed ............. (5,233,525) (7,583,036) (893,879) (991,375)
----------------------------------------------------------------
NET DECREASE IN NET ASSETS
FROM CLASS C SHARE TRANSACTIONS ....... (3,453,111) (6,136,618) (395,653) (663,002)
----------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .. 17,478,984 (43,516,544) 16,136,399 169,715
NET ASSETS
Beginning of year ........................ 106,166,951 149,683,495 12,668,400 12,498,685
----------------------------------------------------------------
End of year .............................. $ 123,645,935 $ 106,166,951 $ 28,804,799 $ 12,668,400
================================================================
UNDISTRIBUTED NET INVESTMENT INCOME ...... $ -- $ -- $ 184,135 $ 20,160
================================================================
See accompanying notes to financial statements.
30
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
LARGE CAP LARGE CAP
GROWTH FUND VALUE FUND
- -----------------------------------------------------------------------------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
2006 2005(A) 2006(B)
- -----------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) ................ $ (1,803,898) $ (547,767) $ 10,661
Net realized gains (losses) from
security transactions .................... 31,472,152 (3,744,037) 57,477
Net change in unrealized appreciation/
depreciation on investments .............. 86,612,989 32,652,389 134,985
-----------------------------------------------------
NET INCREASE IN NET ASSETS FROM OPERATIONS .. 116,281,243 28,360,585 203,123
-----------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
CLASS A
Proceeds from shares sold ................... 568,379,032 203,259,563 11,482,648
Payments for shares redeemed ................ (92,877,929) (21,915,861) --
-----------------------------------------------------
NET INCREASE IN NET ASSETS FROM
CLASS A SHARE TRANSACTIONS .............. 475,501,103 181,343,702 11,482,648
-----------------------------------------------------
CLASS B
Proceeds from shares sold ................... 16,436,489 8,537,367 --
Payments for shares redeemed ................ (2,160,230) (703,491) --
-----------------------------------------------------
NET INCREASE IN NET ASSETS FROM
CLASS B SHARE TRANSACTIONS .............. 14,276,259 7,833,876 --
-----------------------------------------------------
CLASS C
Proceeds from shares sold ................... 133,078,009 42,222,881 559,096
Payments for shares redeemed ................ (8,919,886) (1,452,263) --
-----------------------------------------------------
NET INCREASE IN NET ASSETS FROM
CLASS C SHARE TRANSACTIONS ............... 124,158,123 40,770,618 559,096
-----------------------------------------------------
CLASS I
Proceeds from shares sold ................... 26,164,019 45,601,562 --
Payments for shares redeemed ................ (11,438,736) (3,553,094) --
-----------------------------------------------------
NET INCREASE IN NET ASSETS FROM
CLASS I SHARE TRANSACTIONS ............... 14,725,283 42,048,468 --
-----------------------------------------------------
TOTAL INCREASE IN NET ASSETS ................ 744,942,011 300,357,249 12,244,867
NET ASSETS
Beginning of period ......................... 376,424,290 76,067,041 --
-----------------------------------------------------
End of period ............................... $ 1,121,366,301 $ 376,424,290 $ 12,244,867
=====================================================
UNDISTRIBUTED NET INVESTMENT INCOME ......... $ -- $ -- $ 10,661
=====================================================
(A) Except for Class I shares, which represents the period from commencement
of operations (November 10, 2004) through March 31, 2005.
(B) Represents the period from commencement of operations (March 6, 2006)
through March 31, 2006.
See accompanying notes to financial statements.
31
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
MICRO CAP MID CAP
GROWTH FUND GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2006 2005(A) 2006 2005
- --------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss ..................... $ (893,698) $ (306,311) $ (8,207,217) $ (9,852,791)
Net realized gains (losses) from
security transactions ................ (55,796) (2,781,181) 110,218,729 56,815,359
Net change in unrealized appreciation/
depreciation on investments .......... 14,612,858 6,403,921 87,621,113 (7,412,336)
------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS ...................... 13,663,364 3,316,429 189,632,625 39,550,232
------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net realized gains on
security transactions, Class A ....... -- -- (48,278,538) (30,707,187)
From net realized gains on
security transactions, Class B ....... -- -- (6,904,962) (4,178,621)
From net realized gains on
security transactions, Class C ....... -- -- (27,469,527) (16,875,744)
------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS ........ -- -- (82,653,027) (51,761,552)
------------------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
CLASS A
Proceeds from shares sold ............... 31,959,289 31,541,033 182,193,772 288,690,322
Reinvested distributions ................ -- -- 40,192,341 24,935,700
Payments for shares redeemed ............ (11,352,679) (1,614,570) (227,066,281) (192,878,196)
------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CLASS A SHARE TRANSACTIONS ...... 20,606,610 29,926,463 (4,680,168) 120,747,826
------------------------------------------------------------------------
CLASS B
Proceeds from shares sold ............... -- -- 5,341,975 13,522,238
Reinvested distributions ................ -- -- 5,214,041 3,177,338
Payments for shares redeemed ............ -- -- (10,398,008) (8,140,115)
------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM CLASS B SHARE TRANSACTIONS ...... -- -- 158,008 8,559,461
------------------------------------------------------------------------
CLASS C
Proceeds from shares sold ............... 15,256,655 16,065,265 64,491,763 92,363,704
Reinvested distributions ................ -- -- 17,374,992 9,991,538
Payments for shares redeemed ............ (2,837,606) (706,257) (69,103,989) (63,213,832)
------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM CLASS C SHARE TRANSACTIONS ...... 12,419,049 15,359,008 12,762,766 39,141,410
------------------------------------------------------------------------
32
STATEMENTS OF CHANGES IN NET ASSETS
(CONTINUED)
- --------------------------------------------------------------------------------------------------------------------
MICRO CAP MID CAP
GROWTH FUND GROWTH FUND
- --------------------------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2006 2005(A) 2006 2005
- --------------------------------------------------------------------------------------------------------------------
CLASS I
Proceeds from shares sold ............... 620,735 100 -- --
Payments for shares redeemed ............ (11,089) -- -- --
------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM CLASS I SHARE TRANSACTIONS ...... 609,646 100 -- --
TOTAL INCREASE IN NET ASSETS ............ 47,298,669 48,602,000 115,220,204 156,237,377
NET ASSETS
Beginning of period ..................... 48,602,000 -- 931,700,168 775,462,791
------------------------------------------------------------------------
End of period ........................... $ 95,900,669 $ 48,602,000 $ 1,046,920,372 $ 931,700,168
========================================================================
UNDISTRIBUTED NET INVESTMENT INCOME ..... $ -- $ -- $ -- $ --
========================================================================
(A) Represents the period from commencement of operations (June 22, 2004)
through March 31, 2005 for Class A and Class C shares; (October 2, 2004)
through March 31, 2005 for Class I shares.
See accompanying notes to financial statements.
33
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,
2006 2005(A) 2006 2005
- -------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss) ............. $ (2,478,495) $ (1,449,143) $ 629,055 $ 334,149
Net realized gains (losses) from
security transactions ................. (2,306,993) (2,004,542) 6,831,578 1,692,108
Net change in unrealized appreciation/
depreciation on investments ........... 63,629,222 2,379,623 (1,612,200) 2,689,196
----------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS ....................... 58,843,734 (1,074,062) 5,848,433 4,715,453
----------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
From net investment income, Class A ...... -- -- (83,713) (320,278)
From net investment income, Class B ...... -- -- (1,062) --
From net investment income, Class C ...... -- -- (2,035) --
From net realized gains on
security transactions, Class A ........ -- (1,246,812) -- --
From net realized gains on
security transactions, Class B ........ -- (224,660) -- --
From net realized gains on
security transactions, Class C ........ -- (488,471) -- --
From net realized gains on
security transactions, Class I ........ -- (1,079,040) -- --
----------------------------------------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS ......... -- (3,038,983) (86,810) (320,278)
----------------------------------------------------------------
FROM CAPITAL SHARE TRANSACTIONS
CLASS A
Proceeds from shares sold ................ 16,421,249 23,301,967 4,480,528 15,037,600
Reinvested distributions ................. -- 1,133,280 82,562 315,342
Payments for shares redeemed ............. (13,567,855) (36,962,457) (11,245,582) (10,606,767)
----------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CLASS A SHARE TRANSACTIONS ....... 2,853,394 (12,527,210) (6,682,492) 4,746,175
----------------------------------------------------------------
CLASS B
Proceeds from shares sold ................ 530,205 2,217,143 103,011 237,082
Reinvested distributions ................. -- 191,118 930 --
Payments for shares redeemed ............. (1,277,366) (857,512) (226,040) (164,408)
----------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CLASS B SHARE TRANSACTIONS ....... (747,161) 1,550,749 (122,099) 72,674
----------------------------------------------------------------
34
STATEMENTS OF CHANGES IN NET ASSETS
(CONTINUED)
- -------------------------------------------------------------------------------------------------------------
SMALL CAP VALUE PLUS
GROWTH FUND FUND
- -------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2006 2005(A) 2006 2005
- -------------------------------------------------------------------------------------------------------------
CLASS C
Proceeds from shares sold ................ 3,804,161 8,502,606 147,769 332,945
Reinvested distributions ................. -- 240,827 1,820 --
Payments for shares redeemed ............. (5,269,759) (3,735,034) (405,653) (452,623)
----------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM CLASS C SHARE TRANSACTIONS ....... (1,465,598) 5,008,399 (256,064) (119,678)
----------------------------------------------------------------
CLASS I
Proceeds from shares sold ................ 243,795,484 84,391,152 -- --
Reinvested distributions ................. -- 1,078,915 -- --
Payments for shares redeemed ............. (21,642,746) (2,674,911) -- --
----------------------------------------------------------------
NET INCREASE IN NET ASSETS
FROM CLASS I SHARE TRANSACTIONS ....... 222,152,738 82,795,156 -- --
----------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS .. 281,637,107 72,714,049 (1,299,032) 9,094,346
NET ASSETS
Beginning of year ........................ 148,204,777 75,490,728 76,326,451 67,232,105
----------------------------------------------------------------
End of year .............................. $ 429,841,884 $ 148,204,777 $ 75,027,419 $ 76,326,451
================================================================
UNDISTRIBUTED NET INVESTMENT INCOME ...... $ -- $ -- $ 629,055 $ 86,810
================================================================
(A) Except for Class I shares, which represents the period from commencement
of operations (May 5, 2004) through March 31, 2005.
See accompanying notes to financial statements.
35
GROWTH OPPORTUNITIES FUND--CLASS A
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
--------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year ....... $ 17.92 $ 18.06 $ 12.70 $ 18.18 $ 19.97
================================================================================
Income (loss) from investment operations:
Net investment loss ..................... (0.21) (0.24) (0.21) (0.19) (0.18)
Net realized and unrealized gains
(losses) on investments ............... 3.86 0.10 5.57 (5.29) (1.61)
--------------------------------------------------------------------------------
Total from investment operations ........... 3.65 (0.14) 5.36 (5.48) (1.79)
--------------------------------------------------------------------------------
Net asset value at end of year ............. $ 21.57 $ 17.92 $ 18.06 $ 12.70 $ 18.18
================================================================================
Total return(A) ............................ 20.37% (0.78%) 42.20% (30.14%) (8.96%)
================================================================================
Net assets at end of year (000's) .......... $ 98,004 $ 81,313 $ 117,605 $ 84,472 $ 121,791
================================================================================
Ratio of net expenses to
average net assets ...................... 1.64% 1.68% 1.60% 1.83% 1.49%
Ratio of net investment loss to
average net assets ...................... (1.09%) (1.14%) (1.23%) (1.40%) (0.98%)
Portfolio turnover rate .................... 80% 35% 47% 39% 52%
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 n/a n/a $ 242 $ 24
Average daily number of capital shares
outstanding during the year (000's)(B) .. n/a n/a n/a 8,916 8,481
Average amount of debt per share
during the year (B) ..................... n/a n/a n/a $ 0.03 $ --(C)
(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.
36
GROWTH OPPORTUNITIES FUND--CLASS B
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED MARCH 31, ENDED
------------------------------------------------------- MARCH 31,
2006 2005 2004 2003 2002(A)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ......... $ 16.97 $ 17.31 $ 12.13 $ 17.78 $ 22.74
======================================================================
Income (loss) from investment operations:
Net investment loss ......................... (0.46) (0.43) (0.38) (0.36) (0.17)
Net realized and unrealized gains (losses)
on investments ............................ 3.88 0.09 5.56 (5.29) (4.79)
----------------------------------------------------------------------
Total from investment operations ............... 3.42 (0.34) 5.18 (5.65) (4.96)
----------------------------------------------------------------------
Net asset value at end of period ............... $ 20.39 $ 16.97 $ 17.31 $ 12.13 $ 17.78
======================================================================
Total return(B) ................................ 20.15% (1.96%) 42.70% (31.78%) (21.81%)(C)
======================================================================
Net assets at end of period (000's) ............ $ 3,230 $ 3,064 $ 3,608 $ 2,463 $ 3,380
======================================================================
Ratio of net expenses to average net assets .... 2.97% 2.95% 2.84% 3.16% 2.37%(D)
Ratio of net investment loss to
average net assets .......................... (2.39%) (2.38%) (2.45%) (2.71%) (1.93%)(D)
Portfolio turnover rate ........................ 80% 35% 47% 39% 52%(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 n/a n/a $ 242 $ 24
Average daily number of capital shares
outstanding during the period (000's)(E) .... n/a n/a n/a 8,916 8,481
Average amount of debt per share
during the period(E) ........................ n/a n/a 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.
37
GROWTH OPPORTUNITIES FUND--CLASS C
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------------------------
2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year ......... $ 17.11 $ 17.39 $ 12.17 $ 17.78 $ 19.74
======================================================================
Income (loss) from investment operations
Net investment loss ....................... (0.40) (0.40) (0.37) (0.36) (0.32)
Net realized and unrealized gains
(losses) on investments ................. 3.89 0.12 5.59 (5.25) (1.64)
----------------------------------------------------------------------
Total from investment operations ............. 3.49 (0.28) 5.22 (5.61) (1.96)
----------------------------------------------------------------------
Net asset value at end of year ............... $ 20.60 $ 17.11 $ 17.39 $ 12.17 $ 17.78
======================================================================
Total return(A) .............................. 20.40% (1.61%) 42.89% (31.55%) (9.93%)
======================================================================
Net assets at end of year (000's) ............ $ 22,412 $ 21,789 $ 28,470 $ 21,727 $ 40,967
======================================================================
Ratio of net expenses to average net assets .. 2.57% 2.61% 2.60% 2.87% 2.31%
Ratio of net investment loss to
average net assets ........................ (2.01%) (2.04%) (2.21%) (2.42%) (1.78%)
Portfolio turnover rate ...................... 80% 35% 47% 39% 52%
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 n/a $ n/a $ 242 $ 24
Average daily number of capital shares
outstanding during the year (000's)(B) .... n/a n/a n/a 8,916 8,481
Average amount of debt per share
during the year(B) ........................ n/a n/a $ n/a $ 0.03 $ --(C)
(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.
38
LARGE CAP CORE EQUITY FUND--CLASS A
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year ......... $ 9.48 $ 9.10 $ 6.71 $ 9.19 $ 8.90
=========================================================================
Income (loss) from investment operations:
Net investment income ..................... 0.06 0.11 0.07 0.06 0.06
Net realized and unrealized gains
(losses) on investments ................. 0.96 0.38 2.37 (2.46) 0.28
-------------------------------------------------------------------------
Total from investment operations ............. 1.02 0.49 2.44 (2.40) 0.34
-------------------------------------------------------------------------
Dividends from net investment income ......... (0.01) (0.11) (0.05) (0.08) (0.05)
-------------------------------------------------------------------------
Net asset value at end of year ............... $ 10.49 $ 9.48 $ 9.10 $ 6.71 $ 9.19
=========================================================================
Total return(A) .............................. 10.74% 5.32% 36.41% (26.19%) 3.86%
=========================================================================
Net assets at end of year (000's) ............ $ 25,693 $ 9,328 $ 8,783 $ 6,109 $ 7,561
=========================================================================
Ratio of net expenses to average net assets .. 1.00% 1.00% 0.97%(B) 1.00% 1.00%
Ratio of net investment income to
average net assets ........................ 1.03% 1.18% 0.85%(B) 0.90% 0.70%
Portfolio turnover rate ...................... 6% 7% 10% 29% 9%
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 1.00% and the ratio of net investment
income to average net assets would have been 0.82%.
See accompanying notes to financial statements.
39
LARGE CAP CORE EQUITY FUND--CLASS B
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED MARCH 31, ENDED
---------------------------------------------------------- MARCH 31,
2006 2005 2004 2003 2002(A)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ....... $ 9.42 $ 9.04 $ 6.69 $ 9.13 $ 9.50
=========================================================================
Income (loss) from investment operations:
Net investment income ..................... 0.03 0.04 0.01 0.01 0.02
Net realized and unrealized gains
(losses) on investments ................. 0.91 0.37 2.36 (2.45) (0.37)
-------------------------------------------------------------------------
Total from investment operations ............. 0.94 0.41 2.37 (2.44) (0.35)
-------------------------------------------------------------------------
Dividends from net investment income ......... (0.01) (0.03) (0.02) --(B) (0.02)
-------------------------------------------------------------------------
Net asset value at end of period ............. $ 10.35 $ 9.42 $ 9.04 $ 6.69 $ 9.13
=========================================================================
Total return(C) .............................. 9.95% 4.55% 35.37% (26.70%) (3.60%)(D)
=========================================================================
Net assets at end of period (000's) .......... $ 1,713 $ 1,665 $ 1,456 $ 729 $ 860
=========================================================================
Ratio of net expenses to average net assets .. 1.75% 1.75% 1.72%(F) 1.75% 1.75%(E)
Ratio of net investment income to
average net assets ........................ 0.26% 0.46% 0.10%(F) 0.18% 0.03%(E)
Portfolio turnover rate ...................... 6% 7% 10% 29% 9%(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.
(F) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 1.75% and the ratio of net investment
income to average net assets would have been 0.07%.
See accompanying notes to financial statements.
40
LARGE CAP CORE EQUITY FUND--CLASS C
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year ......... $ 9.46 $ 9.08 $ 6.72 $ 9.13 $ 8.88
=========================================================================
Income (loss) from investment operations:
Net investment income ..................... 0.03 0.04 0.01 0.01 0.01
Net realized and unrealized gains
(losses) on investments ................. 0.91 0.37 2.37 (2.41) 0.25
-------------------------------------------------------------------------
Total from investment operations ............. 0.94 0.41 2.38 (2.40) 0.26
-------------------------------------------------------------------------
Dividends from net investment income ......... (0.01) (0.03) (0.02) (0.01) (0.01)
-------------------------------------------------------------------------
Net asset value at end of year ............... $ 10.39 $ 9.46 $ 9.08 $ 6.72 $ 9.13
=========================================================================
Total return(A) .............................. 9.91% 4.52% 35.38% (26.32%) 3.00%
=========================================================================
Net assets at end of year (000's) ............ $ 1,399 $ 1,675 $ 2,260 $ 920 $ 900
=========================================================================
Ratio of net expenses to average net assets .. 1.75% 1.75% 1.72%(B) 1.74% 1.75%
Ratio of net investment income (loss) to
average net assets ........................ 0.26% 0.41% 0.13%(B) 0.18% (0.05%)
Portfolio turnover rate ...................... 6% 7% 10% 29% 9%
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 1.75% and the ratio of net investment
income to average net assets would have been 0.10%.
See accompanying notes to financial statements.
41
LARGE CAP GROWTH FUND--CLASS A
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------------------------------------------------------
THREE
YEAR YEAR MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, MARCH 31, --------------------------------
2006 2005 2004(A) 2003 2002 2001
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .............. $ 19.84 $ 17.31 $ 16.53 $ 12.19 $ 16.63 $ 21.73
=========================================================================
Income (loss) from investment operations:
Net investment loss .............................. (0.02) (0.02) (0.03) (0.07) (0.12) (0.13)
Net realized and unrealized gains
(losses) on investments ....................... 3.44 2.55 0.81 4.41 (4.32) (4.97)
-------------------------------------------------------------------------
Total from investment operations .................... 3.42 2.53 0.78 4.34 (4.44) (5.10)
-------------------------------------------------------------------------
Net asset value at end of period .................... $ 23.26 $ 19.84 $ 17.31 $ 16.53 $ 12.19 $ 16.63
=========================================================================
Total return(B) ..................................... 17.24% 14.62% 4.72%(C) 35.60% (26.70%) (23.47%)
=========================================================================
Net assets at end of period (000's) ................. $ 838,120 $ 274,121 $ 69,860 $ 62,187 $ 13,831 $ 20,835
=========================================================================
Ratio of net expenses to average net assets ........ 1.17% 1.26% 1.30%(D) 1.39% 1.49% 1.49%
Ratio of net investment loss to average net assets .. (0.13%) (0.23%) (0.78%)(D) (0.93%) (0.82%) (0.62%)
Portfolio turnover .................................. 104% 127% 60%(D) 60% 115% 124%
(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.
See accompanying notes to financial statements.
42
LARGE CAP GROWTH FUND--CLASS B
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------------------------------------------------------------------------------------------------------------
THREE
YEAR YEAR MONTHS PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31,
2006 2005 2004(A) 2003(B)
- ------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .............. $ 19.60 $ 17.24 $ 16.50 $ 15.45
==========================================================
Income (loss) from investment operations:
Net investment loss .............................. (0.15) (0.12) (0.03) (0.06)
Net realized and unrealized gains
on investments ................................. 3.38 2.48 0.77 1.11
----------------------------------------------------------
Total from investment operations .................... 3.23 2.36 0.74 1.05
----------------------------------------------------------
Net asset value at end of period .................... $ 22.83 $ 19.60 $ 17.24 $ 16.50
==========================================================
Total return(C) ..................................... 16.48% 13.69% 4.48%(D) 6.80%(D)
==========================================================
Net assets at end of period (000's) ................. $ 27,781 $ 10,579 $ 1,897 $ 1,003
==========================================================
Ratio of net expenses to average net assets ......... 2.08% 2.25% 2.25%(E) 2.22%(E)
Ratio of net investment loss to average net assets .. (1.02%) (1.23%) (1.71%)(E) (1.80%)(E)
Portfolio turnover rate ............................. 104% 127% 60%(E) 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.
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
43
LARGE CAP GROWTH FUND--CLASS C
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------------------------------------
THREE
YEAR YEAR MONTHS PERIOD
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, DECEMBER 31,
2006 2005 2004(A) 2003(B)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .............. $ 19.62 $ 17.24 $ 16.50 $ 15.45
==============================================================
Income (loss) from investment operations:
Net investment loss .............................. (0.11) (0.08) (0.04) (0.05)
Net realized and unrealized gains
on investments ................................. 3.37 2.46 0.78 1.10
--------------------------------------------------------------
Total from investment operations .................... 3.26 2.38 0.74 1.05
--------------------------------------------------------------
Net asset value at end of period .................... $ 22.88 $ 19.62 $ 17.24 $ 16.50
==============================================================
Total return(C) ..................................... 16.62% 13.81% 4.48%(D) 6.80%(D)
==============================================================
Net assets at end of period (000's) ................. $ 188,810 $ 48,446 $ 4,310 $ 2,465
==============================================================
Ratio of net expenses to average net assets ......... 1.98% 2.03% 2.25%(E) 2.21%(E)
Ratio of net investment loss to average net assets .. (0.93%) (0.97%) (1.70%)(E) (1.78%)(E)
Portfolio turnover rate ............................. 104% 127% 60%(E) 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.
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
44
LARGE CAP GROWTH FUND--CLASS I
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2006 2005(A)
- --------------------------------------------------------------------------------------------
Net asset value at beginning of period ..................... $ 19.86 $ 18.34
==========================
Income from investment operations:
Net investment income ................................... 0.03 0.01
Net realized and unrealized gains on investments ........ 3.44 1.51
--------------------------
Total from investment operations ........................... 3.47 1.52
--------------------------
Net asset value at end of period ........................... $ 23.33 $ 19.86
==========================
Total return ............................................... 17.47% 8.29%(B)
==========================
Net assets at end of period (000's) ........................ $ 66,655 $ 43,279
==========================
Ratio of net expenses to average net assets ................ 0.93% 1.01%(C)
Ratio of net investment income to average net assets ....... 0.12% 0.21%(C)
Portfolio turnover rate .................................... 104% 127%(C)
(A) Represents the period from commencement of operations (November 10, 2004)
through March 31, 2005.
(B) Not annualized.
(C) Annualized.
See accompanying notes to financial statements.
45
LARGE CAP VALUE FUND--CLASS A
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
PERIOD
ENDED
MARCH 31,
2006(A)
- --------------------------------------------------------------------------------
Net asset value at beginning of period .......................... $ 10.00
==========
Income from investment operations:
Net investment income ........................................ 0.01
Net realized and unrealized gains on investments ............. 0.18
----------
Total from investment operations ................................ 0.19
----------
Net asset value at end of period ................................ $ 10.19
==========
Total return(B) ................................................. 1.90%
==========
Net assets at end of period (000's) ............................. $ 11,684
==========
Ratio of net expenses to average net assets(C) .................. 1.35%
Ratio of net investment income to average net assets(C) ......... 1.34%
Portfolio turnover rate(C) ...................................... 68%
(A) Represents the period from commencement of operations (March 6, 2006)
through March 31, 2006.
(B) Total return shown excludes the effect of applicable sales load and is not
annualized.
(C) Annualized.
See accompanying notes to financial statements.
46
LARGE CAP VALUE FUND--CLASS C
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD
- --------------------------------------------------------------------------------
PERIOD
ENDED
MARCH 31,
2006(A)
- --------------------------------------------------------------------------------
Net asset value at beginning of period ........................... $ 10.00
=========
Income from investment operations:
Net investment income ......................................... -- (B)
Net realized and unrealized gains on investments .............. 0.18
---------
Total from investment operations ................................. 0.18
---------
Net asset value at end of period ................................. $ 10.18
=========
Total return(C) .................................................. 1.80%
=========
Net assets at end of period (000's) .............................. $ 561
=========
Ratio of net expenses to average net assets(D) ................... 1.89%
Ratio of net investment income to average net assets(D) .......... 0.25%
Portfolio turnover rate(D) ....................................... 68%
(A) Represents the period from commencement of operations (March 6, 2006)
through March 31, 2006.
(B) Amount rounds to less than $0.01 per share.
(C) Total return shown excludes the effect of applicable sales load and is not
annualized.
(D) Annualized.
See accompanying notes to financial statements.
47
MICRO 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,
2006 2005(A)
- --------------------------------------------------------------------------------------
Net asset value at beginning of period ............... $ 11.07 $ 10.00
===========================
Income (loss) from investment operations:
Net investment loss ............................... (0.10) (0.06)
Net realized and unrealized gains on investments .. 2.53 1.13
---------------------------
Total from investment operations ..................... 2.43 1.07
---------------------------
Net asset value at end of period ..................... $ 13.50 $ 11.07
===========================
Total return(B) ...................................... 21.95% 10.70%(C)
===========================
Net assets at end of period (000's) .................. $ 61,915 $ 32,378
===========================
Ratio of net expenses to average net assets .......... 1.95% 1.95%(D)
Ratio of net investment loss to average net assets ... (1.08%) (1.27%)(D)
Portfolio turnover rate .............................. 90% 101%(D)
(A) Represents the period from commencement of operations (June 22, 2004)
through March 31, 2005.
(B) Total returns shown exclude the effect of applicable sales loads.
(C) Not annualized.
(D) Annualized.
See accompanying notes to financial statements.
48
MICRO 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,
2006 2005(A)
- --------------------------------------------------------------------------------------
Net asset value at beginning of period ............... $ 11.01 $ 10.00
===========================
Income (loss) from investment operations:
Net investment loss ............................... (0.17) (0.08)
Net realized and unrealized gains on investments .. 2.49 1.09
---------------------------
Total from investment operations ..................... 2.32 1.01
---------------------------
Net asset value at end of period ..................... $ 13.33 $ 11.01
===========================
Total return(B) ...................................... 21.07% 10.10%(C)
===========================
Net assets at end of period (000's) .................. $ 33,310 $ 16,224
===========================
Ratio of net expenses to average net assets .......... 2.70% 2.70%(D)
Ratio of net investment loss to average net assets ... (1.84%) (2.07%)(D)
Portfolio turnover rate .............................. 90% 101%(D)
(A) Represents the period from commencement of operations (June 22, 2004)
through March 31, 2005.
(B) Total returns shown exclude the effect of applicable
sales loads.
(C) Not annualized.
(D) Annualized.
See accompanying notes to financial statements.
49
MICRO CAP GROWTH FUND--CLASS I
FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ----------------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2006 2005(A)
- ----------------------------------------------------------------------------------------
Net asset value at beginning of period ............... $ 11.16 $ 9.89
===========================
Income (loss) from investment operations:
Net investment loss ............................... (0.03) (0.13)
Net realized and unrealized gains on investments .. 2.57 1.40
---------------------------
Total from investment operations ..................... 2.54 1.27
---------------------------
Net asset value at end of period ..................... $ 13.70 $ 11.16
===========================
Total return ......................................... 22.76% 12.84%(B)
===========================
Net assets at end of period (000's) .................. $ 676 $ --(C)
===========================
Ratio of net expenses to average net assets .......... 1.55% 1.55%(D)
Ratio of net investment loss to average net assets ... (0.77%) (2.34%)(D)
Portfolio turnover rate .............................. 90% 101%(D)
(A) Represents the period from commencement of operations (October 4, 2004)
through March 31, 2005.
(B) Not annualized.
(C) Amount rounds to less than $1,000.
(D) Annualized.
See accompanying notes to financial statements.
50
MID CAP GROWTH FUND--CLASS A
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year ....... $ 21.42 $ 21.73 $ 13.89 $ 19.52 $ 15.96
==============================================================================
Income (loss) from investment operations:
Net investment loss ..................... (0.12) (0.16) (0.13) (0.14) (0.14)
Net realized and unrealized gains
(losses) on investments .............. 4.70 1.03 7.97 (5.29) 3.76
------------------------------------------------------------------------------
Total from investment operations ........... 4.58 0.87 7.84 (5.43) 3.62
------------------------------------------------------------------------------
Distributions from net realized gains ...... (1.98) (1.18) -- (0.20) (0.06)
------------------------------------------------------------------------------
Net asset value at end of year ............. $ 24.02 $ 21.42 $ 21.73 $ 13.89 $ 19.52
==============================================================================
Total return(A) ............................ 22.21% 4.13% 56.44% (27.90%) 22.72%
==============================================================================
Net assets at end of year (000's) .......... $ 639,501 $ 574,855 $ 458,524 $ 153,247 $ 169,781
==============================================================================
Ratio of net expenses to
average net assets ...................... 1.50% 1.50% 1.49%(B) 1.50% 1.50%
Ratio of net investment loss
to average net assets ................... (0.57%) (0.84%) (0.93%)(B) (1.07%) (1.02%)
Portfolio turnover ......................... 69% 85% 79% 62% 73%
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 1.50% and the ratio of net investment
loss to average net assets would have been (0.94%).
See accompanying notes to financial statements.
51
MID CAP GROWTH FUND--CLASS B
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- --------------------------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED MARCH 31, ENDED
---------------------------------------------------------- MARCH 31,
2006 2005 2004 2003 2002(A)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ....... $ 19.50 $ 20.03 $ 12.53 $ 18.25 $ 16.45
=========================================================================
Income (loss) from investment operations:
Net investment loss ....................... (0.26) (0.29) (0.25) (0.14) (0.09)
Net realized and unrealized gains
(losses) on investments ................. 4.23 0.94 7.75 (5.38) 1.95
-------------------------------------------------------------------------
Total from investment operations ............. 3.97 0.65 7.50 (5.52) 1.86
-------------------------------------------------------------------------
Distributions from net realized gains ........ (1.98) (1.18) -- (0.20) (0.06)
-------------------------------------------------------------------------
Net asset value at end of period ............. $ 21.49 $ 19.50 $ 20.03 $ 12.53 $ 18.25
=========================================================================
Total return(B) .............................. 21.24% 3.37% 59.86% (30.34%) 11.35%(C)
=========================================================================
Net assets at end of period (000's) .......... $ 79,552 $ 71,879 $ 64,918 $ 26,226 $ 15,335
=========================================================================
Ratio of net expenses to average net assets .. 2.25% 2.25% 2.24%(E) 2.25% 2.25%(D)
Ratio of net investment loss to
average net assets ........................ (1.32%) (1.60%) (1.68%)(E) (1.77%) (1.90%)(D)
Portfolio turnover rate ...................... 69% 85% 79% 62% 73%(D)
(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) 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 investment
loss to average net assets would have been (1.69%).
See accompanying notes to financial statements.
52
MID CAP GROWTH FUND--CLASS C
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
------------------------------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year ........ $ 19.51 $ 20.04 $ 12.55 $ 18.26 $ 15.01
==============================================================================
Income (loss) from investment operations:
Net investment income (loss) ............. (0.25) (0.30) (0.23) (0.13) 0.01
Net realized and unrealized gains
(losses) on investments ................. 4.23 0.95 7.72 (5.38) 3.30
------------------------------------------------------------------------------
Total from investment operations ............. 3.98 0.65 7.49 (5.51) 3.31
------------------------------------------------------------------------------
Distributions from net realized gains ........ (1.98) (1.18) -- (0.20) (0.06)
------------------------------------------------------------------------------
Net asset value at end of year ............... $ 21.51 $ 19.51 $ 20.04 $ 12.55 $ 18.26
==============================================================================
Total return(A) .............................. 21.28% 3.36% 59.68% (30.27%) 22.09%
==============================================================================
Net assets at end of year (000's) ............ $ 327,867 $ 284,966 $ 252,021 $ 97,743 $ 67,347
==============================================================================
Ratio of net expenses to average net assets .. 2.25% 2.25% 2.24%(B) 2.25% 2.25%
Ratio of net investment loss to
average net assets ........................ (1.32%) (1.60%) (1.68%)(B) (1.77%) (1.61%)
Portfolio turnover ........................... 69% 85% 79% 62% 73%
(A) Total returns shown exclude the effect of applicable sales loads.
(B) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 2.25% and the ratio of net investment
loss to average net assets would have been (1.69%).
See accompanying notes to financial statements.
53
SMALL CAP GROWTH FUND--CLASS A
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED MARCH 31, ENDED
---------------------------------------- MARCH 31,
2006 2005 2004 2003(A)
- ------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .............. $ 15.25 $ 16.05 $ 9.78 $ 10.00
==========================================================
Income (loss) from investment operations:
Net investment loss .............................. (0.18) (0.25) (0.14) (0.06)
Net realized and unrealized gains (losses)
on investments ................................ 3.30 (0.14) 6.78 (0.16)
----------------------------------------------------------
Total from investment operations .................... 3.12 (0.39) 6.64 (0.22)
----------------------------------------------------------
Distributions from net realized gains ............... -- (0.41) (0.37) --
----------------------------------------------------------
Net asset value at end of period .................... $ 18.37 $ 15.25 $ 16.05 $ 9.78
==========================================================
Total return(B) ..................................... 20.46% (2.43%) 68.02% (2.20%)(C)
==========================================================
Net assets at end of period (000's) ................. $ 48,697 $ 37,675 $ 53,064 $ 15,230
==========================================================
Ratio of net expenses to average net assets ......... 1.95% 1.95% 1.89%(E) 1.95%(D)
Ratio of net investment loss to average net assets .. (1.18%) (1.40%) (1.34%)(E) (1.61%)(D)
Portfolio turnover .................................. 109% 114% 133% 128%(D)
(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) Annualized.
(E) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 1.95% and ratio of net investment loss
to average net assets would have been (1.40%).
See accompanying notes to financial statements.
54
SMALL CAP GROWTH FUND--CLASS B
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED MARCH 31, ENDED
---------------------------------------- MARCH 31,
2006 2005 2004 2003(A)
- ------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .............. $ 14.99 $ 15.90 $ 9.75 $ 10.00
==========================================================
Income (loss) from investment operations:
Net investment loss .............................. (0.31) (0.29) (0.21) (0.06)
Net realized and unrealized gains (losses)
on investments ............................... 3.31 (0.21) 6.73 (0.19)
----------------------------------------------------------
Total from investment operations .................... 3.00 (0.50) 6.52 (0.25)
----------------------------------------------------------
Distributions from net realized gains ............... -- (0.41) (0.37) --
----------------------------------------------------------
Net asset value at end of period .................... $ 17.99 $ 14.99 $ 15.90 $ 9.75
==========================================================
Total return(B) ..................................... 20.01% (3.15%) 66.99% (2.50%)(C)
==========================================================
Net assets at end of period (000's) ................. $ 9,858 $ 8,908 $ 7,831 $ 1,399
==========================================================
Ratio of net expenses to average net assets ......... 2.70% 2.70% 2.63%(E) 2.69%(D)
Ratio of net investment loss to average net assets .. (1.92%) (2.13%) (2.09%)(E) (2.38%)(D)
Portfolio turnover .................................. 109% 114% 133% 128%(D)
(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) Annualized.
(E) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 2.70% and the ratio of net investment
loss to average neet assets would have been (2.16%).
See accompanying notes to financial statements.
55
SMALL CAP GROWTH FUND--CLASS C
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- ------------------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED MARCH 31, ENDED
---------------------------------------- MARCH 31,
2006 2005 2004 2003(A)
- ------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period .............. $ 15.00 $ 15.91 $ 9.74 $ 10.00
==========================================================
Income (loss) from investment operations:
Net investment loss .............................. (0.32) (0.29) (0.21) (0.07)
Net realized and unrealized gains (losses)
on investments ............................... 3.33 (0.21) 6.75 (0.19)
----------------------------------------------------------
Total from investment operations .................... 3.01 (0.50) 6.54 (0.26)
----------------------------------------------------------
Distributions from net realized gains ............... -- (0.41) (0.37) --
----------------------------------------------------------
Net asset value at end of period .................... $ 18.01 $ 15.00 $ 15.91 $ 9.74
==========================================================
Total return(B) ..................................... 20.07% (3.15%) 67.26% (2.60%)(C)
==========================================================
Net assets at end of period (000's) ................. $ 20,964 $ 18,776 $ 14,596 $ 3,029
==========================================================
Ratio of net expenses to average net assets ......... 2.70% 2.70% 2.63%(E) 2.69%(D)
Ratio of net investment loss to average net assets .. (1.92%) (2.12%) (2.09%)(E) (2.39%)(D)
Portfolio turnover .................................. 109% 114% 133% 128%(D)
(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) Annualized.
(E) Absent voluntary expense reimbursements, the ratio of net expenses to
average net assets would have been 2.70% and the ratio of net investment
loss to average net assets would have been (2.16%).
See accompanying notes to financial statements.
56
SMALL CAP GROWTH FUND--CLASS I
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -----------------------------------------------------------------------------------------
YEAR PERIOD
ENDED ENDED
MARCH 31, MARCH 31,
2006 2005(A)
- -----------------------------------------------------------------------------------------
Net asset value at beginning of period ................ $ 15.31 $ 15.37
=============================
Income (loss) from investment operations:
Net investment loss ................................ (0.07) (0.05)
Net realized and unrealized gains on investments .. 3.25 0.40
-----------------------------
Total from investment operations ...................... 3.18 0.35
-----------------------------
Distributions from net realized gains ................. -- (0.41)
-----------------------------
Net asset value at end of period ...................... $ 18.49 $ 15.31
=============================
Total return .......................................... 20.77% 2.29%(B)
=============================
Net assets at end of period (000's) ................... $ 350,323 $ 82,846
=============================
Ratio of net expenses to average net assets ........... 1.55% 1.55%(C)
Ratio of net investment loss to average net assets .... (0.77%) (0.95%)(C)
Portfolio turnover .................................... 109% 114%(C)
(A) Represents the period from commencement of operations (May 5, 2004)
through March 31, 2005.
(B) Not annualized.
(C) Annualized.
See accompanying notes to financial statements.
57
VALUE PLUS FUND--CLASS A
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------------------------
2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year ......... $ 10.74 $ 10.14 $ 7.45 $ 10.49 $ 10.27
======================================================================
Income (loss) from investment operations:
Net investment income ..................... 0.10 0.04 0.06 0.05 0.02
Net realized and unrealized gains
(losses) on investments ................. 0.77 0.60 2.69 (3.05) 0.22
----------------------------------------------------------------------
Total from investment operations ............. 0.87 0.64 2.75 (3.00) 0.24
----------------------------------------------------------------------
Dividends from net investment income ......... (0.01) (0.04) (0.06) (0.04) (0.02)
----------------------------------------------------------------------
Net asset value at end of year ............... $ 11.60 $ 10.74 $ 10.14 $ 7.45 $ 10.49
======================================================================
Total return(A) .............................. 8.13% 6.34% 37.04% (28.59%) 2.34%
======================================================================
Net assets at end of year (000's) ........... $ 72,504 $ 73,600 $ 64,612 $ 46,113 $ 93,214
======================================================================
Ratio of net expenses to average net assets .. 1.30% 1.30% 1.30% 1.30% 1.30%
Ratio of net investment income
to average net assets ..................... 0.86% 0.46% 0.68% 0.58% 0.23%
Portfolio turnover ........................... 57% 29% 44% 58% 33%
(A) Total returns shown exclude the effect of applicable sales loads.
See accompanying notes to financial statements.
58
VALUE PLUS FUND--CLASS B
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
- -------------------------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED MARCH 31, ENDED
------------------------------------------------------- MARCH 31,
2006 2005 2004 2003 2002(A)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of period ......... $ 10.27 $ 9.73 $ 7.18 $ 10.18 $ 10.72
======================================================================
Income (loss) from investment operations:
Net investment income (loss) ................ 0.01 (0.03) --(B) --(B) (0.01)
Net realized and unrealized gains (losses)
on investments ............................ 0.73 0.57 2.58 (2.96) (0.53)
----------------------------------------------------------------------
Total from investment operations ............... 0.74 0.54 2.58 (2.96) (0.54)
----------------------------------------------------------------------
Dividends from net investment income ........... (0.01) -- (0.03) (0.04) --
----------------------------------------------------------------------
Net asset value at end of period ............... $ 11.00 $ 10.27 $ 9.73 $ 7.18 $ 10.18
======================================================================
Total return(C) ................................ 7.24% 5.55% 36.04% (29.05%) (5.01%)(D)
======================================================================
Net assets at end of period (000's) ............ $ 813 $ 876 $ 753 $ 367 $ 130
======================================================================
Ratio of net expenses to average net assets .... 2.05% 2.05% 2.05% 2.05% 2.05%(E)
Ratio of net investment income (loss)
to average net assets ....................... 0.10% (0.29%) (0.09%) (0.06%) (0.77%)(E)
Portfolio turnover rate ........................ 57% 29% 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.
59
VALUE PLUS FUND--CLASS C
FINANCIAL HIGHLIGHTS
- -----------------------------------------------------------------------------------------------------------------------
PER SHARE DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31,
----------------------------------------------------------------------
2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Net asset value at beginning of year ......... $ 10.33 $ 9.78 $ 7.22 $ 10.18 $ 10.02
======================================================================
Income (loss) from investment operations:
Net investment income (loss) .............. 0.01 (0.03) --(A) (0.02) (0.04)
Net realized and unrealized gains
(losses) on investments ................. 0.74 0.58 2.59 (2.94) 0.20
----------------------------------------------------------------------
Total from investment operations ............. 0.75 0.55 2.59 (2.96) 0.16
----------------------------------------------------------------------
Dividends from net investment income ......... (0.01) -- (0.03) -- --
----------------------------------------------------------------------
Net asset value at end of year ............... $ 11.07 $ 10.33 $ 9.78 $ 7.22 $ 10.18
======================================================================
Total return(B) .............................. 7.29% 5.62% 35.89% (29.08%) 1.60%
======================================================================
Net assets at end of year (000's) ............ $ 1,710 $ 1,851 $ 1,867 $ 1,512 $ 2,548
======================================================================
Ratio of net expenses to average net assets .. 2.05% 2.05% 2.05% 2.05% 2.05%
Ratio of net investment income (loss) to
average net assets ........................ 0.10% (0.29%) (0.05%) (0.15%) (0.51%)
Portfolio turnover ........................... 57% 29% 44% 58% 33%
(A) Amount rounds to less than $0.01 per share.
(B) Total returns shown exclude the effect of applicable sales loads.
See accompanying notes to financial statements.
60
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2006
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Growth Opportunities Fund, Large Cap Core Equity Fund, Large Cap Growth
Fund, Large Cap Value Fund, Micro Cap Growth Fund, Mid Cap Growth Fund (formerly
the Emerging 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 October 4, 2003, the Large Cap Growth Fund was a series of the
Navellier 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 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-advisor
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 Core Equity Fund seeks long-term capital appreciation as its
primary goal by investing at least 80% of its total assets in common stocks of
large cap companies. Income is a secondary goal.
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 common stocks
of large cap companies.
The Large Cap Value Fund seeks long-term growth of capital and income. Under
normal circumstances, the Fund will invest at least 80% of its assets in common
stocks of large cap companies.
The Micro Cap Growth Fund seeks long-term growth of capital. Under normal
circumstances, the Fund will invest at least 80% of its assets in the common
stocks of U.S. companies whose total market capitalization at the time of
investment is generally between $30 million and $300 million, referred to as
micro cap companies, and which, in the opinion of the sub-advisor, have superior
earnings growth characteristics.
The Mid Cap 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 80%
of its assets) in common stocks of mid 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 stocks
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-advisor believes are undervalued.
61
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
The Large Cap Value Fund offers two 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%), 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). The Growth Opportunities Fund,
Large Cap Core Equity Fund, Micro Cap Growth Fund, Mid Cap Growth Fund, and
Value Plus Fund offer three classes of shares: Class A shares (described above),
Class B shares, except Micro Cap Growth Fund, (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), Class C shares (described above), and Class I shares of Micro Cap
Growth Fund (sold without a distribution fee or sales charge, but offered only
through selected dealers and subject to a higher minimum initial investment).
The Large Cap Growth Fund and Small Cap Growth Fund offer four classes of
shares: Class A shares, Class B shares, Class C shares and Class I shares (all
described above). Each Class A, Class B, Class C and Class I 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 and Class
I 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.
On May 18, 2006, the Board of Trustees of the Trust approved an Agreement and
Plan of Reorganization whereby shares of the Touchstone Value Plus Fund will be
exchanged for shares of the Touchstone Large Cap Core Equity Fund in a tax-free
exchange. The Agreement and Plan of Reorganization is subject to shareholder
approval.
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. Money market instruments and other debt securities with a remaining
maturity of less than 60 days are valued at amortized cost, which approximates
market. Shares of open-end mutual funds in which the Funds invest are valued at
their respective net asset values as reported by the underlying funds.
62
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
PORTFOLIO SECURITIES LOANED -- Each Fund may lend its portfolio securities.
Lending portfolio securities exposes a Fund to the risk that the borrower may
fail to return the loaned securities or may not be able to provide additional
collateral or that the Fund may experience delays in recovery of the loaned
securities or loss of rights in the collateral if the borrower fails
financially. To minimize these risks, the borrower must agree to maintain
collateral marked to market daily, in the form of cash and/or liquid securities,
with the Fund's custodian in an amount at least equal to the market value of the
loaned securities. As of March 31, 2006, the following Funds loaned common
stocks and received collateral as follows:
- --------------------------------------------------------------------------------
Fair Value of Common Value of
Stocks Loaned Collateral Received
- --------------------------------------------------------------------------------
Growth Opportunities Fund $ 7,270,251 $ 7,507,740
Large Cap Growth Fund $ 38,309,218 $ 39,303,072
Micro Cap Growth Fund $ 21,879,579 $ 22,331,621
Mid Cap Growth Fund $ 131,577,739 $ 135,475,672
Small Cap Growth Fund $ 86,143,163 $ 88,338,869
Value Plus Fund $ 1,246,780 $ 1,297,296
- --------------------------------------------------------------------------------
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.
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, Class C and Class I shares of the Funds is equal to the net asset value
per share.
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 5.00% and 1.00%,
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.
63
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
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 U.S.
generally accepted accounting principles 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.
The tax character of distributions paid for the years ended March 31, 2006 and
2005 was as follows:
- -------------------------------------------------------------------------------------------------------------
GROWTH LARGE CAP LARGE CAP
OPPORTUNITIES CORE EQUITY GROWTH
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,
2006 2005 2006 2005 2006 2005
- -------------------------------------------------------------------------------------------------------------
From ordinary income .......... $ -- $ -- $ 20,159 $ 116,337 $ -- $ --
From long-term capital gains .. -- -- -- -- -- --
---------------------------------------------------------------------------
$ -- $ -- $ 20,159 $ 116,337 $ -- $ --
===========================================================================
- -------------------------------------------------------------------------------------------------------------
64
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- ------------------------------------------------------------------------------------------------------------------
LARGE CAP MICRO CAP MID CAP
VALUE GROWTH GROWTH
FUND FUND FUND
- ------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2006 2006 2005 2006 2005
- ------------------------------------------------------------------------------------------------------------------
From ordinary income ............. $ -- $ -- $ -- $15,608,776 $ --
From long-term capital gains ..... -- -- -- 67,044,251 51,761,552
---------------------------------------------------------------------------
$ -- $ -- $ -- $82,653,027 $51,761,552
===========================================================================
- ----------------------------------------------------------------------------------------------
SMALL CAP
GROWTH VALUE PLUS
FUND FUND
- ----------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2006 2005 2006 2005
- ----------------------------------------------------------------------------------------------
From ordinary income ............. $ -- $1,709,786 $ 86,810 $ 320,278
From long-term capital gains ..... -- 1,330,596 -- --
-------------------------------------------------------
$ -- $3,040,382 $ 86,810 $ 320,278
=======================================================
The following information is computed on a tax basis for each item as of March
31, 2006:
- -------------------------------------------------------------------------------------------------------------------
GROWTH LARGE CAP LARGE CAP LARGE CAP
OPPORTUNITIES CORE EQUITY GROWTH VALUE
FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
Tax cost of portfolio investments ...... $ 113,323,506 $ 24,641,380 $ 1,030,413,761 $ 12,146,094
========================================================================
Gross unrealized appreciation .......... 25,437,423 4,828,330 145,986,417 285,912
Gross unrealized depreciation .......... (7,833,301) (664,216) (15,227,097) (150,927)
------------------------------------------------------------------------
Net unrealized appreciation ............ 17,604,122 4,164,114 130,759,320 134,985
Capital loss carryforward .............. (54,188,470) (1,683,856) (28,010,400) --
Undistributed ordinary income .......... -- 184,135 -- 68,138
------------------------------------------------------------------------
Accumulated earnings (deficit) ..... $ (36,584,348) $ 2,664,393 $ 102,748,920 $ 203,123
========================================================================
- -------------------------------------------------------------------------------------------------------------------
MICRO CAP MID CAP SMALL CAP VALUE
GROWTH GROWTH GROWTH PLUS
FUND FUND FUND FUND
- -------------------------------------------------------------------------------------------------------------------
Tax cost of portfolio investments ...... $ 97,919,302 $ 993,428,565 $ 454,288,822 $ 68,272,179
========================================================================
Gross unrealized appreciation .......... 23,474,703 210,831,960 89,776,425 11,004,274
Gross unrealized depreciation .......... (2,497,178) (21,242,066) (11,446,665) (2,945,281)
------------------------------------------------------------------------
Net unrealized appreciation ............ 20,977,525 189,589,894 78,329,760 8,058,993
Post-October losses .................... -- -- (2,485,372) --
Capital loss carryforward .............. (2,797,723) -- (1,422,586) (6,348,335)
Undistributed ordinary income .......... -- 5,814,391 -- 629,055
Undistributed long-term capital gains .. -- 27,993,060 -- --
------------------------------------------------------------------------
Accumulated earnings ............... $ 18,179,802 $ 223,397,345 $ 74,421,802 $ 2,339,713
========================================================================
65
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
The difference between the tax cost of portfolio investments and the financial
statement cost is primarily due to wash sales.
As of March 31, 2006, the Funds had the following capital loss carryforwards for
federal income tax purposes.
- --------------------------------------------------------------------------------
EXPIRES
FUND AMOUNT MARCH 31,
- --------------------------------------------------------------------------------
Growth Opportunities Fund ................... $13,138,578 2010
21,975,058 2011
17,098,132 2012
1,976,702 2013
-----------
54,188,470
===========
Large Cap Core Equity Fund .................. $ 99,480 2009
24,780 2010
414,728 2011
1,025,778 2012
11,425 2013
107,665 2014
-----------
1,683,856
===========
Large Cap Growth Fund* ...................... $12,837,110 2009
2,396,670 2010
7,655,647 2011
3,322,314 2012
1,798,659 2013
-----------
28,010,400
===========
Micro Cap Growth Fund ....................... $ 1,123,992 2013
1,673,731 2014
-----------
2,797,723
===========
Small Cap Growth Fund ....................... $ 1,422,586 2013
===========
Value Plus Fund ............................. $ 6,348,335 2012
===========
- --------------------------------------------------------------------------------
*A portion of these capital loss carryforwards may be limited under tax
regulations.
During the year ended March 31, 2006, the following funds utilized capital loss
carryforwards:
Amount
------------
Growth Opportunities Fund ..... $ 11,315,372
Large Cap Growth Fund ......... 30,083,248
Small Cap Growth Fund ......... 530,203
Value Plus Fund ............... 6,337,013
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.
66
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Certain reclassifications, the result of permanent differences between financial
statement and income tax reporting requirements have been made to the components
of capital of the Funds. These reclassifications have no impact on the net
assets or net asset value per share of the Funds and are designed to present the
Fund's capital accounts on a tax basis. The following reclassification of net
investment loss have been made to the following Funds for the year ended March
31, 2006:
- --------------------------------------------------------------------------------------------
ACCUMULATED ACCUMULATED
PAID-IN NET INVESTMENT NET REALIZED
CAPITAL INCOME (LOSS) GAINS (LOSSES)
- --------------------------------------------------------------------------------------------
Growth Opportunities Fund ....... $ (1,474,605) $ 1,474,605 $ --
Large Cap Growth Fund ........... (1,803,898) 1,803,898 --
Micro Cap Growth Fund ........... (893,698) 893,698 --
Mid Cap Growth Fund ............. -- 8,207,217 (8,207,217)
Small Cap Growth Fund ........... (2,478,495) 2,478,495 --
- --------------------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments and U.S. Government
securities) were as follows for the period ended March 31, 2006:
- -----------------------------------------------------------------------------------------------------------------
GROWTH LARGE CAP LARGE CAP LARGE CAP
OPPORTUNITIES CORE EQUITY GROWTH VALUE
FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------
Purchases of investment securities .. $ 89,842,616 $ 14,358,010 $1,317,937,689 $ 11,554,131
-----------------------------------------------------------------------
Proceeds from sales and maturities
of investment securities ......... $ 95,285,299 $ 1,113,016 $ 714,645,317 $ 545,804
-----------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
MICRO CAP MID CAP SMALL CAP
GROWTH GROWTH GROWTH VALUE PLUS
FUND FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------
Purchases of investment securities .. $ 92,818,234 $ 635,337,744 $ 493,453,220 $ 42,018,719
-----------------------------------------------------------------------
Proceeds from sales and maturities
of investment securities ......... $ 59,564,307 $ 713,327,321 $ 270,062,295 $ 49,580,486
-----------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
4. TRANSACTIONS WITH AFFILIATES
Certain officers of the Trust are also officers of Touchstone Advisors, Inc.
(the Advisor), the Trust's investment advisor, Touchstone Securities, Inc. (the
Underwriter), the Trust's principal underwriter, or Integrated Fund Services,
Inc. (Integrated), the Trust's administrator, transfer agent and accounting
services agent. The Advisor, the Underwriter and Integrated are each
wholly-owned, indirect subsidiaries of The Western and Southern Life Insurance
Company.
67
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
MANAGEMENT AGREEMENTS
The Advisor provides general investment supervisory services for the Funds,
under the terms of an Advisory Agreement. Under the Advisory Agreement, the
Funds pay the Advisor a fee, which is computed and accrued daily and paid
monthly, at an annual rate based on average daily net assets as follows:
- --------------------------------------------------------------------------------
Growth Opportunities Fund 1.00% on the first $50 million
0.90% on the next $50 million
0.80% on the next $100 million
0.75% of such assets in excess of $200 million
- --------------------------------------------------------------------------------
Large Cap Core Equity Fund 0.65% on the first $100 million
0.60% on the next $100 million
0.55% on the next $100 million
0.50% of such assets in excess of $300 million
- --------------------------------------------------------------------------------
Large Cap Growth Fund 0.75% on the first $200 million
0.70% on the next $800 million
0.65% of such assets in excess of $1 billion
- --------------------------------------------------------------------------------
Large Cap Value Fund 0.75%
- --------------------------------------------------------------------------------
Micro Cap Growth Fund 1.25%
- --------------------------------------------------------------------------------
Mid Cap Growth Fund 0.80%
- --------------------------------------------------------------------------------
Small Cap Growth Fund 1.25%
- --------------------------------------------------------------------------------
Value Plus Fund 0.75% on the first $100 million
0.70% on the next $100 million
0.65% on the next $100 million
0.60% of such assets in excess of $300 million
- --------------------------------------------------------------------------------
During the period ended March 31, 2006, the Advisor waived investment advisory
fees and/or reimbursed expenses of the Funds as follows:
- --------------------------------------------------------------------------------
INVESTMENT OTHER OPERATING
ADVISORY EXPENSES
FEES WAIVED REIMBURSED
- --------------------------------------------------------------------------------
Large Cap Core Equity Fund ................ $ 68,913 $ 72,338
Large Cap Value Fund ...................... $ 5,781 $ 8,243
Micro Cap Growth Fund ..................... -- $ 55,353
Small Cap Growth Fund ..................... -- $ 9,162
Value Plus Fund ........................... -- $ 32,159
- --------------------------------------------------------------------------------
The Advisor has retained various Sub-Advisors to manage the investments of the
Funds under the terms of a Sub-Advisory Agreement. The Advisor (not the Funds)
pays the Sub-Advisors a fee for these services.
68
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
Mastrapasqua Asset Management, Inc. (Mastrapasqua) has been retained by the
Advisor to manage the investments of the Growth Opportunities Fund.
Todd Investment Advisors, Inc. (Todd), an affiliate of the Advisor, has been
retained by the Advisor to manage the investments of the Large Cap Core Equity
Fund.
Navellier & Associates, Inc. (Navellier) has been retained by the Advisor to
manage the investments of the Large Cap Growth Fund.
JS Asset Management, LLC (JSAM) has been retained by the Advisor to mange the
investments of the Large Cap Value Fund.
Bjurman, Barry & Associates (Bjurman) has been retained by the Advisor to manage
the investments of the Micro Cap Growth Fund.
TCW Investment Management Company (TCW) and Westfield Capital Management
Company, LLC (Westfield) have been retained by the Advisor to manage the
investments of the Mid Cap Growth Fund.
Longwood Investment Advisors, Inc. (Longwood) and Bjurman have been retained by
the Advisor to manage the investments of the Small Cap Growth Fund.
Fort Washington Investment Advisors, Inc. (Fort Washington), an affiliate of the
Advisor, has been retained by the Advisor to manage the investments of the Value
Plus Fund.
EXPENSE LIMITATION AGREEMENT
The Advisor has entered into an Expense Limitation Agreement to contractually
limit operating expenses of the Large Cap Growth Fund. The maximum operating
expense limit in any year with respect to the Fund is based on a percentage of
the average daily net assets of the Fund. The Advisor has agreed to waive
advisory fees and reimburse expenses in order to maintain expense limitations
for the Fund as follows: 1.30% for Class A shares, 2.25% for Class B shares,
2.25% for Class C shares and 1.05% for Class I shares. These expense limitations
shall remain in effect until March 31, 2007.
SPONSOR AGREEMENT
Pursuant to a Sponsor Agreement between the Advisor and the Trust, the Advisor
has been retained to provide certain management and supervisory services to the
Large Cap Core Equity Fund, the Large Cap Value Fund, the Micro Cap Growth Fund,
the Mid Cap Growth Fund, the Small Cap Growth Fund and the Value Plus Fund in
exchange for the payment of a sponsor fee by the Funds equal to an annual rate
of 0.20% of a Fund's average daily net assets. The Advisor provides the Funds
with general office facilities and oversees the provision of
administrative/non-investment services to the Trust, including the provision of
services to the Trust by the Trust's administrator and fund accounting agent,
transfer agent and custodian, including: (i) the updating of corporate
organizational documents, and the negotiation of contracts and fees with, and
the monitoring and coordination of performance and billings of, the Trust's
custodian and other independent contractors and agents; (ii) the preparation and
filing of all documents required for compliance by the Trust with applicable
laws and regulations, including registration statements, prospectuses, and
statements of additional information, and semi-annual and annual reports to
shareholders; (iii) reviewing, (including coordinating the preparing of, but not
preparing) tax returns; (iv) preparing agendas and supporting documents for, and
minutes of meetings of, the Trustees, committees of the Trustees, and
preparation of notices, proxy statements and minutes of meetings of shareholders
of the Trust or of one or more of the Funds; (v) the maintenance of books and
records of the Trust;
69
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
(vi) telephone coverage to respond to shareholder inquiries; (vii) the provision
of monitoring reports and assistance regarding compliance with federal
securities and tax laws including compliance with the 1940 Act and Subchapter M
of the Internal Revenue Code of 1986, as amended; (viii) the dissemination of
yield and other performance information to newspapers and tracking services,
(ix) the preparation of annual renewals for fidelity bond and errors and
omissions insurance coverage, (x) the development of a budget for the Trust, the
establishment of rate of expense accruals and the arrangement of the payment of
all fixed and management expenses and (xi) the determination of each Fund's net
asset value and the provision of all other fund accounting services to the
Funds. The Advisor also provides persons satisfactory to the Board of Trustees
of the Trust to serve as officers of the Trust. Such officers, as well as
certain other employees and Trustees of the Trust, may be directors, officers,
or employees of the Advisor or its affiliates.
The Advisor has agreed to waive its fees and reimburse expenses in order to
limit each Fund's annual expenses as follows:
Fund Class A Class B Class C Class I
- --------------------------------------------------------------------------------
Large Cap Core Equity 1.00% 1.75% 1.75% --
Large Cap Value Fund 1.35% -- 2.10% --
Micro Cap Growth Fund 1.95% -- 2.70% 1.55%
Mid Cap Growth Fund 1.50% 2.25% 2.25% --
Small Cap Growth Fund 1.95% 2.70% 2.70% 1.55%
Value Plus Fund 1.30% 2.05% 2.05% --
The fee waivers and expense reimbursements will remain in effect until at least
March 31, 2006 for all Funds except the Large Cap Core Equity Fund and Class I
shares of the Micro Cap Growth Fund. The fee waivers and expense reimbursements
for the Large Cap Core Equity Fund and Class I shares of the Micro Cap Growth
Fund will remain in effect until at least March 31, 2007.
During the period ended March 31, 2006, the Advisor waived Sponsor fees as
follows:
Large Cap Core Equity Fund $ 40,002
Large Cap Value Fund $ 1,542
Micro Cap Growth Fund $ 121,013
Mid Cap Growth Fund $ 438,781
Small Cap Growth Fund $ 277,120
Value Plus Fund $ 115,502
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.
70
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
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.
ACCOUNTING SERVICES AGREEMENT
Under the terms of the Accounting Services Agreement between the Trust and
Integrated, Integrated calculates the daily net asset value per share and
maintains the financial books and records of each Fund. 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
the following from underwriting and broker commissions on the sale of shares of
the following Funds for the period ended March 31, 2006:
Growth Opportunities Fund $ 8,161
Large Cap Core Equity Fund $ 2,445
Large Cap Growth Fund $ 297,718
Large Cap Value Fund $ 1,836
Micro Cap Growth Fund $ 62,826
Mid Cap Growth Fund $ 128,758
Small Cap Growth Fund $ 12,408
Value Plus Fund $ 2,512
In addition, the Underwriter collected the following contingent deferred sales
charges on the redemption of Class B and Class C shares of the following Funds
during the period ended March 31, 2006:
Growth Opportunities Fund $ 7,916
Large Cap Core Equity Fund $ 3,659
Large Cap Growth Fund $ 79,558
Micro Cap Growth Fund $ 9,494
Mid Cap Growth Fund $ 193,948
Small Cap Growth Fund $ 26,351
Value Plus Fund $ 3,309
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 Advisor 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.
71
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
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
Advisor 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.
COMPLIANCE SERVICES AGREEMENT
Under the terms of the Compliance Services Agreement between the Trust and
Integrated, Integrated provides certain compliance services to the Trust for a
fee, including developing and assisting in implementing a compliance program for
Integrated on behalf of the Funds and providing administrative support services
to the Funds' Compliance Program and Chief Compliance Officer.
AFFILIATED TRANSACTIONS
Each Fund may invest in the Touchstone Institutional Money Market Fund, subject
to compliance with the several conditions set forth in an order received by the
Trust from the Securities and Exchange Commission. To the extent that the other
Touchstone Funds are invested in the Touchstone Institutional Money Market Fund,
the Advisor and Administrator will be paid additional fees from the Touchstone
Institutional Money Market Fund that will not be waived or reimbursed.
A summary of each Fund's investment in the Touchstone Institutional Money Market
Fund, if any, for the period ended March 31, 2006, is noted below:
SHARE ACTIVITY
----------------------------------------------------
BALANCE BALANCE VALUE
3/31/05 PURCHASES SALES 3/31/06 DIVIDENDS 3/31/06
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Opportunites Fund
Touchstone Institutional Money Market Fund .... -- 25,054,380 (25,054,380) -- $ 22,024 $ --
Large Cap Core Equity Fund
Touchstone Institutional Money Market Fund .... -- 15,457,734 (14,706,314) 751,420 $ 17,483 $ 751,420
Large Cap Growth Fund
Touchstone Institutional Money Market Fund .... -- 498,279,354 (463,984,036) 34,295,318 $ 599,782 $ 34,295,318
Large Cap Value Fund
Touchstone Institutional Money Market Fund .... -- 3,831,473 (2,751,183) 1,080,290 $ 2,499 $ 1,080,290
Micro Cap Growth Fund
Touchstone Institutional Money Market Fund .... -- 21,825,762 (20,647,489) 1,178,273 $ 28,298 $ 1,178,273
Mid Cap Growth Fund
Touchstone Institutional Money Market Fund .... -- 331,263,688 (307,928,747) 23,334,941 $ 798,687 $ 23,334,941
Small Cap Growth Fund
Touchstone Institutional Money Market Fund .... -- 141,367,764 (122,662,289) 18,705,475 $ 417,804 $ 18,705,475
Value Plus Fund
Touchstone Institutional Money Market Fund .... -- 13,201,007 (11,751,617) 1,449,390 $ 57,646 $ 1,449,390
- -----------------------------------------------------------------------------------------------------------------------------------
72
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:
- -------------------------------------------------------------------------------------------------------------------------
GROWTH LARGE CAP
OPPORTUNITIES CORE EQUITY
FUND FUND
- -------------------------------------------------------------------------------------------------------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2006 2005 2006 2005
- -------------------------------------------------------------------------------------------------------------------------
CLASS A
Shares sold ...................................... 1,048,184 1,037,067 1,536,234 142,157
Shares reinvested ................................ -- -- 1,791 10,583
Shares redeemed .................................. (1,042,828) (3,011,561) (73,004) (134,214)
------------------------------------------------------------------
Net increase (decrease) in shares outstanding .... 5,356 (1,974,494) 1,465,021 18,526
Shares outstanding, beginning of year ............ 4,538,026 6,512,520 984,205 965,679
------------------------------------------------------------------
Shares outstanding, end of year .................. 4,543,382 4,538,026 2,449,226 984,205
==================================================================
CLASS B
Shares sold ...................................... 11,088 18,249 14,503 67,892
Shares reinvested ................................ -- -- 106 531
Shares redeemed .................................. (33,222) (46,186) (25,936) (52,718)
------------------------------------------------------------------
Net increase (decrease) in shares outstanding .... (22,134) (27,937) (11,327) 15,705
Shares outstanding, beginning of year ............ 180,539 208,476 176,784 161,079
------------------------------------------------------------------
Shares outstanding, end of year .................. 158,405 180,539 165,457 176,784
==================================================================
CLASS C
Shares sold ...................................... 95,020 85,925 49,650 35,206
Shares reinvested ................................ -- -- 70 434
Shares redeemed .................................. (280,735) (449,633) (92,093) (107,540)
------------------------------------------------------------------
Net decrease in shares outstanding ............... (185,715) (363,708) (42,373) (71,900)
Shares outstanding, beginning of year ............ 1,273,850 1,637,558 176,996 248,896
------------------------------------------------------------------
Shares outstanding, end of year .................. 1,088,135 1,273,850 134,623 176,996
==================================================================
- -------------------------------------------------------------------------------------------------------------------------
73
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- ---------------------------------------------------------------------------------------------
LARGE CAP LARGE CAP
GROWTH VALUE
FUND FUND
- ---------------------------------------------------------------------------------------------
YEAR YEAR PERIOD
ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31,
2006 2005(A) 2006(B)
- ---------------------------------------------------------------------------------------------
CLASS A
Shares sold ............................... 26,450,482 10,983,411 1,146,707
Shares redeemed ........................... (4,230,877) (1,202,420) --
----------------------------------------------
Net increase in shares outstanding ........ 22,219,605 9,780,991 1,146,707
Shares outstanding, beginning of period ... 13,816,493 4,035,502 --
----------------------------------------------
Shares outstanding, end of period ......... 36,036,098 13,816,493 1,146,707
==============================================
CLASS B
Shares sold ............................... 776,573 469,699 --
Shares redeemed ........................... (99,555) (40,038) --
----------------------------------------------
Net increase in shares outstanding ........ 677,018 429,661 --
Shares outstanding, beginning of period ... 539,696 110,035 --
----------------------------------------------
Shares outstanding, end of period ......... 1,216,714 539,696 --
==============================================
CLASS C
Shares sold ............................... 6,193,819 2,297,801 55,071
Shares redeemed ........................... (410,287) (79,041) --
----------------------------------------------
Net increase in shares outstanding ........ 5,783,532 2,218,760 55,071
Shares outstanding, beginning of period ... 2,468,677 249,917 --
----------------------------------------------
Shares outstanding, end of period ......... 8,252,209 2,468,677 55,071
==============================================
CLASS I
Shares sold ............................... 1,200,669 2,363,046 --
Shares redeemed ........................... (522,724) (184,075) --
----------------------------------------------
Net increase in shares outstanding ........ 677,945 2,178,971 --
Shares outstanding, beginning of period ... 2,178,971 -- --
----------------------------------------------
Shares outstanding, end of period ......... 2,856,916 2,178,971 --
==============================================
- ---------------------------------------------------------------------------------------------
(A) Except Class I shares which represents the period from commencement of
operations (November 10, 2004) through March 31, 2005.
(B) Represents the period from commencement of operations (March 6, 2006)
through March 31, 2006.
74
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- -------------------------------------------------------------------------------------------------------------------
MICRO CAP GROWTH MID CAP GROWTH
FUND FUND
- -------------------------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2006 2005(A) 2006 2005
- -------------------------------------------------------------------------------------------------------------------
CLASS A
Shares sold .................................... 2,621,786 3,074,850 8,058,028 13,681,174
Shares reinvested .............................. -- -- 1,818,658 1,192,525
Shares redeemed ................................ (962,416) (148,714) (10,087,013) (9,136,289)
--------------------------------------------------------------
Net increase (decrease) in shares outstanding .. 1,659,370 2,926,136 (210,327) 5,737,410
Shares outstanding, beginning of period ........ 2,926,136 -- 26,834,508 21,097,098
--------------------------------------------------------------
Shares outstanding, end of period .............. 4,585,506 2,926,136 26,624,181 26,834,508
==============================================================
CLASS B
Shares sold .................................... -- -- 263,600 699,782
Shares reinvested .............................. -- -- 263,051 166,527
Shares redeemed ................................ -- -- (512,011) (420,712)
--------------------------------------------------------------
Net increase in shares outstanding ............. -- -- 14,640 445,597
Shares outstanding, beginning of period ........ -- -- 3,686,497 3,240,900
--------------------------------------------------------------
Shares outstanding, end of period .............. -- -- 3,701,137 3,686,497
==============================================================
CLASS C
Shares sold .................................... 1,263,948 1,538,640 3,167,553 4,772,368
Shares reinvested .............................. -- -- 875,756 523,391
Shares redeemed ................................ (239,256) (64,989) (3,407,041) (3,265,751)
--------------------------------------------------------------
Net increase in shares outstanding ............. 1,024,692 1,473,651 636,268 2,030,008
Shares outstanding, beginning of period ........ 1,473,651 -- 14,602,781 12,572,773
--------------------------------------------------------------
Shares outstanding, end of period .............. 2,498,343 1,473,651 15,239,049 14,602,781
==============================================================
CLASS I
Shares sold .................................... 50,305 10 -- --
Shares redeemed ................................ (952) -- -- --
--------------------------------------------------------------
Net increase in shares outstanding ............. 49,353 10 -- --
Shares outstanding, beginning of period ........ 10 -- -- --
--------------------------------------------------------------
Shares outstanding, end of period .............. 49,363 10 -- --
==============================================================
- -------------------------------------------------------------------------------------------------------------------
(A) Represents the period from commencement of operations (June 22, 2004)
through March 31, 2005, except Class I shares which represents the period
from commencement of operations (October 4, 2004) through March 31, 2005.
75
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- -------------------------------------------------------------------------------------------------------------------
SMALL CAP GROWTH VALUE PLUS
FUND FUND
- -------------------------------------------------------------------------------------------------------------------
YEAR PERIOD YEAR YEAR
ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2006 2005(A) 2006 2005
- -------------------------------------------------------------------------------------------------------------------
CLASS A
Shares sold .................................... 1,014,623 1,507,000 404,184 1,455,498
Shares reinvested .............................. -- 74,546 7,411 28,930
Shares redeemed ................................ (833,383) (2,418,324) (1,012,372) (1,004,090)
--------------------------------------------------------------
Net increase (decrease) in shares outstanding .. 181,240 (836,778) (600,777) 480,338
Shares outstanding, beginning of year .......... 2,469,862 3,306,640 6,849,939 6,369,601
--------------------------------------------------------------
Shares outstanding, end of year ................ 2,651,102 2,469,862 6,249,162 6,849,939
==============================================================
CLASS B
Shares sold .................................... 33,538 145,750 9,862 24,214
Shares reinvested .............................. -- 12,741 88 --
Shares redeemed ................................ (79,806) (57,014) (21,355) (16,360)
--------------------------------------------------------------
Net increase (decrease) in shares outstanding .. (46,268) 101,477 (11,405) 7,854
Shares outstanding, beginning of year .......... 594,081 492,604 85,276 77,422
--------------------------------------------------------------
Shares outstanding, end of year ................ 547,813 594,081 73,871 85,276
==============================================================
CLASS C
Shares sold .................................... 242,061 563,065 13,934 33,863
Shares reinvested .............................. -- 16,055 171 --
Shares redeemed ................................ (329,173) (245,443) (38,777) (45,443)
--------------------------------------------------------------
Net increase (decrease) in shares outstanding .. (87,112) 333,677 (24,672) (11,580)
Shares outstanding, beginning of year ....... 1,251,315 917,638 179,241 190,821
--------------------------------------------------------------
Shares outstanding, end of year ................ 1,164,203 1,251,315 154,569 179,241
==============================================================
CLASS I
Shares sold .................................... 14,841,702 5,515,470 -- --
Shares reinvested .............................. -- 70,748 -- --
Shares redeemed ................................ (1,303,361) (173,778) -- --
--------------------------------------------------------------
Net increase in shares outstanding ............. 13,538,341 5,412,440 -- --
Shares outstanding, beginning of year .......... 5,412,440 -- -- --
--------------------------------------------------------------
Shares outstanding, end of year ................ 18,950,781 5,412,440 -- --
==============================================================
- -------------------------------------------------------------------------------------------------------------------
(A) Except Class I shares which represents the period from commencement of
operations (May 5, 2004) through March 31, 2005.
76
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
- --------------------------------------------------------------------------------
6. CUSTODY OFFSET ARRANGMENT
For financial reporting purposes for the year ended March 31, 2006, Custodian
fees reduced by the Custodian were $2,417, $6,664, $29,653 and $13,866 for the
Large Cap Growth Fund, Micro Cap Growth Fund, Small Cap Growth Fund and the
Value Plus Fund, respectively. There was no effect on net investment income.
7. COMMITMENTS AND CONTINGENCIES
The Funds indemnify the Trust's Officers and Trustees for certain liabilities
that might arise from their performance of their duties to the Funds.
Additionally, 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.
77
GROWTH OPPORTUNITIES FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2006
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 99.8% SHARES VALUE
- --------------------------------------------------------------------------------
TECHNOLOGY -- 29.6%
Agilent Technologies, Inc.*.......................... 126,000 $ 4,731,300
Akamai Technologies, Inc.*........................... 141,000 4,637,490
Analog Devices, Inc.................................. 90,000 3,446,100
Autodesk, Inc.*...................................... 68,000 2,619,360
Broadcom Corp. - Class A*............................ 67,500 2,913,300
Cognos, Inc.*........................................ 82,000 3,189,800
EMC Corp.*........................................... 350,000 4,770,500
Motorola, Inc........................................ 147,000 3,367,770
Texas Instruments, Inc............................... 150,000 4,870,500
VeriSign, Inc.*...................................... 90,000 2,159,100
------------
36,705,220
------------
HEALTH CARE -- 18.0%
Amgen, Inc.*......................................... 52,700 3,833,925
Barr Pharmaceuticals, Inc.*.......................... 20,000 1,259,600
Cerner Corp.* +...................................... 38,000 1,803,100
Genentech, Inc.*..................................... 42,500 3,591,675
Genzyme Corp.*....................................... 60,000 4,033,200
Invitrogen Corp.*.................................... 50,000 3,506,500
Lilly (Eli) & Co..................................... 35,000 1,935,500
St. Jude Medical, Inc.*.............................. 55,000 2,255,000
------------
22,218,500
------------
OIL & GAS -- 13.1%
Basic Energy Services, Inc.*......................... 1,000 29,800
Halliburton Company +................................ 65,000 4,746,300
National-Oilwell Varco, Inc.*........................ 50,000 3,206,000
Newfield Exploration Co.*............................ 45,000 1,885,500
Schlumberger Limited................................. 50,000 6,328,500
------------
16,196,100
------------
BUSINESS SERVICES -- 12.3%
Accenture Ltd........................................ 100,000 3,007,000
eBay, Inc.*.......................................... 65,000 2,538,900
Jacobs Engineering Group, Inc.*...................... 44,500 3,859,930
Monster Worldwide, Inc.*............................. 76,800 3,829,248
Yahoo!, Inc.*........................................ 60,000 1,935,600
------------
15,170,678
------------
AEROSPACE & DEFENSE -- 8.7%
Honeywell International.............................. 72,000 3,079,440
L-3 Communications Holdings, Inc. ................... 20,000 1,715,800
Rockwell Automation, Inc. +.......................... 38,000 2,732,580
United Technologies Corp. ........................... 55,000 3,188,350
------------
10,716,170
------------
INDUSTRIAL -- 6.4%
3M Co. .............................................. 30,000 2,270,700
Caterpiller, Inc..................................... 50,000 3,590,500
Emerson Electric Co. ................................ 25,000 2,090,750
SunPower Corp. - Class A* +.......................... 500 19,080
------------
7,971,030
------------
78
GROWTH OPPORTUNITIES FUND
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 99.8% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
RETAIL -- 3.5%
Starbucks Corp.*..................................... 114,000 $ 4,290,960
------------
MEDIA/ENTERTAINMENT -- 2.5%
Harrah's Entertainment, Inc.......................... 15,000 1,169,400
Rockwell Collins, Inc................................ 35,000 1,972,250
------------
3,141,650
------------
CHEMICALS -- 2.1%
Praxair, Inc. ....................................... 46,700 2,575,505
------------
INSURANCE -- 2.0%
ACE Ltd. ............................................ 47,500 2,470,475
------------
TRANSPORTATION -- 1.6%
C.H. Robinson Worldwide, Inc......................... 40,000 1,963,600
------------
TOTAL COMMON STOCKS.................................. $123,419,888
============
- --------------------------------------------------------------------------------
MARKET
INVESTMENT FUNDS -- 6.1% SHARES VALUE
- --------------------------------------------------------------------------------
Touchstone Institutional Money Market Fund ^ ** ..... 7,507,740 $ 7,507,740
------------
TOTAL INVESTMENT SECURITIES -- 105.9%
(Cost $113,323,506).................................. $130,927,628
LIABILITIES IN EXCESS OF OTHER ASSETS -- (5.9%)....... (7,281,693)
------------
NET ASSETS -- 100.0%.................................. $123,645,935
------------
* Non-income producing security.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
+ All or a portion of the security is on loan. The total value of securities
on loan as of March 31, 2006 was $7,270,251.
** As of March 31, 2006, $7,507,740 represents collateral for securities
loaned.
See accompanying notes to financial statements.
79
LARGE CAP CORE EQUITY FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2006
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 97.4% SHARES VALUE
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 19.5%
Cisco Systems, Inc.*................................. 48,980 $ 1,061,396
Computer Sciences Corp.*............................. 18,430 1,023,787
Hewlett-Packard Co................................... 30,320 997,528
Intel Corp. ......................................... 35,220 681,507
International Business Machines Corp. (IBM).......... 10,800 890,676
Microsoft Corp....................................... 34,640 942,554
-----------
5,597,448
-----------
INDUSTRIAL -- 17.0%
3M Co. .............................................. 12,100 915,849
Caterpillar, Inc..................................... 14,990 1,076,431
General Electric Co.................................. 26,320 915,410
Honeywell International, Inc......................... 23,520 1,005,950
United Technologies Corp. ........................... 17,170 995,345
-----------
4,908,985
-----------
CONSUMER STAPLES -- 14.9%
Altria Group, Inc.................................... 11,660 826,228
Coca-Cola Co......................................... 20,070 840,331
Kimberly-Clark Corp.................................. 14,550 840,990
Procter & Gamble Co.................................. 14,890 857,962
Wal-Mart Stores, Inc. ............................... 19,730 932,045
-----------
4,297,556
-----------
FINANCIAL SERVICES -- 12.4%
Allstate Corp........................................ 15,815 824,120
American Express Co.................................. 17,330 910,692
Bank of America Corp................................. 20,660 940,855
Citigroup, Inc....................................... 19,066 900,678
-----------
3,576,345
-----------
CONSUMER DISCRETIONARY -- 10.8%
Best Buy Co., Inc.................................... 20,715 1,158,590
Home Depot, Inc...................................... 22,630 957,249
The Walt Disney Co. ................................. 35,230 982,565
-----------
3,098,404
-----------
HEALTH CARE -- 9.4%
Cardinal Health, Inc................................. 13,610 1,014,217
Johnson & Johnson.................................... 13,690 810,722
WellPoint, Inc.*..................................... 11,390 881,928
-----------
2,706,867
-----------
FINANCIAL -- 3.7%
JP Morgan Chase & Co................................. 25,800 1,074,312
-----------
TELECOMMUNICATION SERVICE -- 3.4%
AT&T, Inc............................................ 36,140 977,226
-----------
MATERIALS -- 3.3%
Du Pont (E.I.) DE Nemours............................ 22,470 948,459
-----------
80
LARGE CAP CORE EQUITY FUND
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 97.4% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
ENERGY -- 3.0%
Exxon Mobil Corp..................................... 14,270 $ 868,472
-----------
TOTAL COMMON STOCKS.................................. $28,054,074
-----------
- --------------------------------------------------------------------------------
MARKET
INVESTMENT FUNDS -- 2.6% SHARES VALUE
- --------------------------------------------------------------------------------
Touchstone Institutional Money Market Fund ^......... 751,420 $ 751,420
-----------
TOTAL INVESTMENT SECURITIES -- 100.0%
(Cost $24,557,578)................................... $28,805,494
LIABILITIES IN EXCESS OF OTHER ASSETS -- 0.0%......... (695)
-----------
NET ASSETS -- 100.0%.................................. $28,804,799
===========
* Non-income producing security.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
See accompanying notes to financial statements.
81
LARGE CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2006
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 96.9% SHARES VALUE
- --------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY -- 21.6%
Advanced Micro Devices, Inc.*...................... 752,156 $ 24,941,493
Apple Computer, Inc.*.............................. 272,540 17,093,709
Corning, Inc.*..................................... 1,181,825 31,802,911
Lockheed Martin Corp............................... 400,705 30,104,967
Marvell Technology Group Ltd.*..................... 567,495 30,701,480
Motorola, Inc...................................... 1,458,410 33,412,172
SanDisk Corp.*..................................... 360,159 20,716,346
Texas Instruments, Inc............................. 697,115 22,635,324
The Boeing Co...................................... 416,655 32,469,923
--------------
243,878,325
--------------
FINANCE/INSURANCE -- 19.9%
Chicago Mercantile Exchange Holdings, Inc. +....... 73,220 32,765,950
E*TRADE Financial Corp.*........................... 1,400,000 37,772,000
Franklin Resources, Inc............................ 377,298 35,556,564
Lehman Brothers Holdings........................... 216,240 31,253,167
Principal Financial Group, Inc..................... 506,700 24,726,960
Prudential Financial, Inc.......................... 520,230 39,438,635
State Street Corp. ................................ 359,265 21,710,384
--------------
223,223,660
--------------
ENERGY MINERALS -- 11.0%
Marathon Oil Corp.................................. 472,950 36,024,601
Peabody Energy Corp................................ 604,150 30,455,202
Schlumberger Ltd. ................................. 287,450 36,382,546
Valero Energy Corp. ............................... 349,050 20,866,209
--------------
123,728,558
--------------
HEALTH SERVICES -- 10.6%
Aetna, Inc. ....................................... 551,785 27,114,715
CIGNA Corp......................................... 271,640 35,481,616
Express Scripts, Inc.*............................. 305,185 26,825,762
Medco Health Solutions, Inc.*...................... 523,625 29,961,823
--------------
119,383,916
--------------
HEALTH TECHNOLOGY -- 7.4%
Genentech, Inc.*................................... 377,210 31,878,017
Gilead Sciences, Inc.*............................. 519,120 32,299,647
Glaxosmithkline PLC - ADR.......................... 354,765 18,557,757
--------------
82,735,421
--------------
NON-ENERGY MINERALS -- 4.5%
Cameco Corp. +..................................... 391,330 14,087,880
Cemex S.A. - ADR................................... 557,375 36,385,440
--------------
50,473,320
--------------
COMMERCIAL SERVICES -- 3.5%
Moody's Corp. ..................................... 555,620 39,704,605
--------------
RETAIL TRADE -- 3.5%
CVS Corp........................................... 846,940 25,298,098
Whole Foods Market, Inc............................ 213,945 14,214,506
--------------
39,512,604
--------------
82
LARGE CAP GROWTH FUND
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 96.9% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
COMMUNICATION -- 3.4%
America Movil S.A. - ADR........................... 1,096,560 $ 37,568,146
--------------
TRANSPORTATION -- 3.2%
Burlington Northern Santa Fe Corp.................. 430,190 35,847,733
--------------
UTILITIES -- 2.8%
Edison International............................... 754,495 31,070,104
--------------
INDUSTRIAL SERVICES -- 2.2%
Transocean, Inc.*.................................. 302,890 24,322,067
--------------
PROCESS INDUSTRIES -- 1.9%
Praxair, Inc. ..................................... 377,210 20,803,132
--------------
TECHNOLOGY SERVICES -- 1.4%
Google, Inc.*...................................... 39,290 15,323,100
--------------
TOTAL COMMON STOCKS................................ $1,087,574,691
--------------
- --------------------------------------------------------------------------------
MARKET
INVESTMENT FUNDS -- 6.6% SHARES VALUE
- --------------------------------------------------------------------------------
Touchstone Institutional Money Market Fund ^ **.... 73,598,390 $ 73,598,390
--------------
TOTAL INVESTMENT SECURITIES -- 103.5%
(Cost $1,029,205,006).............................. $1,161,173,081
LIABILITIES IN EXCESS OF OTHER ASSETS -- (3.5%).... (39,806,780)
--------------
NET ASSETS -- 100.0%............................... $1,121,366,301
==============
* Non-income producing security.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
+ All or a portion of the security is on loan. The total value of securities
on loan as of March 31, 2006 was $38,309,218.
** As of March 31, 2006, $39,303,072 represents collateral for securities
loaned.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
83
LARGE CAP VALUE FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2006
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 85.6% SHARES VALUE
- --------------------------------------------------------------------------------
BANKS -- 16.7%
Bank of America Corp. ............................... 7,800 $ 355,212
Citigroup, Inc. ..................................... 11,300 533,812
JP Morgan Chase & Co. ............................... 13,100 545,484
Washington Mutual, Inc. ............................. 14,200 605,204
----------
2,039,712
----------
THRIFTS & MORTGAGE FINANCIALS -- 12.9%
Fannie Mae .......................................... 12,200 627,080
Freddie Mac ......................................... 10,100 616,100
MGIC Investment Corp. ............................... 5,100 339,813
----------
1,582,993
----------
INDUSTRIALS -- 7.9%
General Electric Co. ................................ 9,100 316,498
Tyco International Ltd. ............................. 24,400 655,872
----------
972,370
----------
HEALTH CARE -- 7.5%
Sanofi-Aventis - ADR ................................ 11,300 536,185
Tenet Healthcare Corp.* ............................. 52,300 385,974
----------
922,159
----------
CONSUMER DISCRETIONARY -- 7.4%
Federated Department Stores, Inc. ................... 4,300 313,900
Gannett Co., Inc. ................................... 3,200 191,744
Liberty Global, Inc.* ............................... 4,700 92,825
Liberty Media Corp.* ................................ 37,100 304,591
----------
903,060
----------
MATERIALS & PROCESSING -- 6.2%
Abitibi-Consolidated, Inc. - ADR .................... 105,000 435,750
International Paper Co. ............................. 9,200 318,044
----------
753,794
----------
TECHNOLOGY -- 5.9%
Avnet, Inc.* ........................................ 10,000 253,800
BearingPoint, Inc.* ................................. 11,300 95,937
Sanmina-SCI Corp.* .................................. 90,300 370,230
----------
719,967
----------
CONSUMER STAPLES -- 5.7%
Altria Group, Inc. .................................. 8,300 588,138
Safeway, Inc. ....................................... 4,200 105,504
----------
693,642
----------
COMMUNICATIONS EQUIPMENT -- 4.5%
Alcatel SA - ADR* ................................... 22,400 344,960
Nortel Networks Corp.* .............................. 66,000 201,300
----------
546,260
----------
PRODUCER MANUFACTURING -- 3.0%
Lear Corp. .......................................... 15,600 276,588
Navistar International Corp.* ....................... 3,400 93,772
----------
370,360
----------
84
LARGE CAP VALUE FUND
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 85.6% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
OTHER ENERGY -- 2.7%
Reliant Resources, Inc.* ....................... 31,600 $ 334,328
------------
TRANSPORTATION -- 2.7%
AMR Corp.* ..................................... 4,000 108,200
UAL Corp.* ..................................... 5,600 223,608
------------
331,808
------------
AEROSPACE & DEFENSE -- 2.5%
Honeywell International, Inc. .................. 4,800 205,296
The Boeing Co. ................................. 1,300 101,309
------------
306,605
------------
TOTAL COMMON STOCKS ............................ $ 10,477,058
- --------------------------------------------------------------------------------
MARKET
EXCHANGE TRADED FUNDS -- 4.5% SHARES VALUE
- --------------------------------------------------------------------------------
iShares Russell 1000 Value Index Fund .......... 7,600 $ 554,952
------------
- --------------------------------------------------------------------------------
MARKET
DEPOSITORY RECEIPT -- 1.4% SHARES VALUE
- --------------------------------------------------------------------------------
SPDR Trust Series 1 ............................ 1,300 $ 168,779
------------
- --------------------------------------------------------------------------------
MARKET
INVESTMENT FUNDS -- 8.8% SHARES VALUE
- --------------------------------------------------------------------------------
Touchstone Institutional Money Market Fund^ .... 1,080,290 $ 1,080,290
------------
TOTAL INVESTMENT SECURITIES -- 100.3%
(Cost $12,146,094) ............................. $ 12,281,079
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.3%) (36,212)
------------
NET ASSETS -- 100.0% ........................... $ 12,244,867
============
* Non-income producing security.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
ADR - American Depository Receipt
See accompanying notes to financial statements.
85
MICRO CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2006
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 99.5% SHARES VALUE
- --------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY -- 37.0%
Actuate Corp.* ................................... 159,600 $ 678,300
Alliance Fiber Optic Products, Inc.* ............. 115,000 254,150
Anaren, Inc.* .................................... 32,800 638,616
Art Technology Group, Inc.* ...................... 247,900 795,759
Astea International, Inc.* ....................... 13,400 157,182
Bitstream, Inc.* ................................. 90,100 669,443
BTU International, Inc.* ......................... 107,100 1,759,653
CEVA, Inc.* ...................................... 22,800 151,164
Click Commerce, Inc.* + .......................... 39,400 943,236
Comtech Group, Inc.* ............................. 80,800 808,000
CyberSource Corp.* ............................... 79,500 887,220
EFJ, Inc.* ....................................... 73,800 796,302
Ezenia!, Inc.* ................................... 34,000 113,900
Hurco Companies, Inc.* ........................... 4,600 125,212
I.D. Systems, Inc.* .............................. 33,100 827,500
Internet Commerce Corp.* + ....................... 67,600 255,528
Intevac, Inc.* ................................... 59,500 1,712,410
Key Tronic Corp.* ................................ 65,850 286,448
LoJack Corp.* .................................... 50,000 1,199,000
Micronetics, Inc.* ............................... 21,900 484,428
Neoware Systems, Inc.* + ......................... 53,000 1,569,860
Online Resources Corp.* .......................... 111,100 1,444,300
Optical Communication Products, Inc.* ............ 193,200 595,056
Orbit International Corp.* ....................... 41,200 397,580
PAR Technology Corp.* + .......................... 60,000 1,064,400
Peerless Systems Corp.* .......................... 56,400 421,308
RADCOM Ltd.* + ................................... 71,550 300,510
Radiant Systems, Inc.* ........................... 102,100 1,380,392
Radyne Corp.* .................................... 76,700 1,224,899
RELM Wireless Corp.* ............................. 68,500 667,190
Silicom Ltd.* .................................... 78,800 835,217
Sirenza Microdevices, Inc.* ...................... 112,000 1,058,400
Smith Micro Software, Inc.* + .................... 155,300 1,908,637
SRS Labs, Inc.* .................................. 71,500 430,430
Stellent, Inc. ................................... 115,000 1,363,900
Stratex Networks, Inc.* .......................... 274,200 1,686,330
Synplicity, Inc.* ................................ 34,800 224,808
TESSCO Technologies, Inc.* ....................... 22,002 407,037
Tollgrade Communications, Inc.* .................. 77,300 1,150,224
United Industrial Corp. + ........................ 33,500 2,041,154
Video Display Corp.* + ........................... 51,750 490,590
VSE Corp. ........................................ 27,600 1,145,400
----------
35,351,073
----------
86
MICRO CAP GROWTH FUND
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 99.5% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
HEALTH CARE -- 15.8%
Air Methods Corp.* ................................. 37,700 $ 1,113,658
American Science & Engineering, Inc.* + ............ 18,700 1,746,579
Angiodynamics, Inc.* ............................... 51,100 1,536,066
Bentley Pharmaceuticals, Inc.* + ................... 45,200 594,380
Bioanalytical Systems, Inc.* ....................... 15,250 96,075
Caraco Pharmaceutical Laboratories Ltd.* ........... 67,700 880,100
CAS Medical Systems, Inc.* + ....................... 84,972 717,164
Cerus Corp.* ....................................... 81,800 700,208
Clinical Data, Inc. + .............................. 13,275 272,403
Encore Medical Corp.* .............................. 85,700 438,784
First Consulting Group, Inc.* ...................... 49,900 368,761
Health Grades, Inc.* + ............................. 92,700 494,082
Hi-Tech Pharmacal Co., Inc.* ....................... 46,015 1,297,623
Horizon Health Corp.* .............................. 26,300 520,740
IntegraMed America, Inc.* .......................... 47,700 550,935
IRIS International, Inc.* + ........................ 40,500 633,015
Medical Action Industires, Inc.* ................... 25,900 621,341
Mesa Laboratories, Inc. ............................ 24,900 351,339
Natus Medical, Inc.* ............................... 58,200 1,193,100
U.S. Physical Therapy, Inc.* ....................... 59,700 1,021,467
-----------
15,147,820
-----------
PRODUCER MANUFACTURING -- 8.3%
Amerigon, Inc.* .................................... 171,500 1,332,555
Dynamic Materials Corp. + .......................... 70,000 2,494,800
Fuel-Tech N.V.* .................................... 82,850 1,324,772
Insteel Industries, Inc. + ......................... 14,600 828,988
Kadant, Inc.* ...................................... 21,600 490,320
K-Tron International, Inc.* ........................ 10,000 486,800
Miller Industries, Inc.* ........................... 10,000 255,000
Smith & Wesson Holding Corp.* ...................... 120,800 730,840
-----------
7,944,075
-----------
CONSUMER NON-DURABLES -- 7.4%
Cuisine Solutions, Inc.* ........................... 82,200 763,638
Jones Soda Co.* + .................................. 28,100 231,825
Matrixx Initiatives, Inc.* ......................... 56,800 1,323,440
National Beverage Corp. ............................ 24,900 288,093
Parlux Fragrances, Inc.* + ......................... 39,700 1,280,325
Reliv' International, Inc. + ....................... 49,600 614,544
Rocky Mountain Chocolate Factory, Inc. ............. 8,900 140,530
Steven Madden Ltd. ................................. 31,300 1,111,150
True Religion Apparel, Inc.* + ..................... 74,500 1,376,015
-----------
7,129,560
-----------
COMMERCIAL/INDUSTRIAL SERVICES -- 6.6%
ADDvantage Technologies Group, Inc.* ............... 37,400 220,660
American Ecology Corp. ............................. 43,300 882,454
Barrett Business Services, Inc.* ................... 24,400 658,800
Concur Technologies, Inc.* ......................... 54,900 1,017,297
Matrix Service Co.* + .............................. 19,600 225,008
Perficient, Inc.* .................................. 129,800 1,506,978
87
MICRO CAP GROWTH FUND
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 99.5% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
COMMERCIAL/INDUSTRIAL SERVICES -- 6.6% (CONTINUED)
Standard Parking Corp.* ............................. 10,400 $ 289,848
TheStreet.com, Inc. ................................. 201,500 1,523,340
----------
6,324,385
----------
BASIC MATERIALS -- 5.3%
Bakers Footwear Group, Inc.* + ...................... 34,800 751,680
Empire Resources, Inc. .............................. 16,200 447,120
Jorgensen (Earle M.) Co.* ........................... 20,000 303,000
MGP Ingredients, Inc. ............................... 80,500 1,304,100
Multi-Color Corp. ................................... 28,100 844,405
Origin Agritech Ltd.* ............................... 33,900 581,724
PW Eagle, Inc. + .................................... 16,000 444,800
Wheeling-Pittsburgh Corp.* .......................... 23,600 433,296
----------
5,110,125
----------
CONSUMER SERVICES -- 4.7%
American Medical Alert Corp.* ....................... 80,100 502,227
Gaming Partners International Corp. + ............... 18,400 291,272
McCormick & Schmick's Seafood Restaurants, Inc.* .... 49,700 1,265,859
New Frontier Media, Inc.* ........................... 39,700 301,323
Nutri/System, Inc.* + ............................... 40,000 1,900,800
WPCS International, Inc.* + ......................... 28,600 221,650
----------
4,483,131
----------
CONSUMER DURABLES -- 4.6%
Aldila, Inc. ........................................ 55,300 1,835,960
Apogee Enterprises, Inc. ............................ 35,800 604,304
Cavalier Homes, Inc.* ............................... 26,100 182,700
Cavco Industries, Inc.* ............................. 32,600 1,584,034
U.S. Home Systems, Inc.* + .......................... 28,100 242,222
----------
4,449,220
----------
RETAIL TRADE -- 4.0%
Big Dog Holdings, Inc.* ............................. 19,698 229,876
Casual Male Retail Group, Inc.* + ................... 48,600 473,364
Gaiam, Inc. - Class A* .............................. 26,100 420,471
PetMed Express, Inc.* ............................... 44,600 792,542
The Sportsman's Guide, Inc.* ........................ 27,700 733,773
United Retail Group, Inc.* .......................... 48,400 906,532
Zones, Inc.* ........................................ 43,000 315,491
----------
3,872,049
----------
FINANCE -- 3.8%
American Physicians Capital, Inc.* .................. 25,000 1,200,000
Bodisen Biotech, Inc.* + ............................ 73,900 1,165,403
Citizens, Inc.* + ................................... 25,700 132,612
EMC Insurance Group, Inc. ........................... 8,500 236,895
Marlin Business Services, Inc.* ..................... 28,100 621,010
Mercer Insurance Group, Inc.* ....................... 13,100 248,245
----------
3,604,165
----------
ENERGY -- 1.1%
GMX Resources, Inc.* + .............................. 20,000 749,000
ICO, Inc.* .......................................... 65,496 327,480
----------
1,076,480
----------
88
MICRO CAP GROWTH FUND
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 99.5% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
TRANSPORTATION -- 0.7%
Frozen Food Express Industries, Inc.* .......... 64,600 $ 675,070
-------------
UTILITIES -- 0.2%
Lightbridge, Inc.* ............................. 19,800 219,780
-------------
TOTAL COMMON STOCKS ............................ $ 95,386,933
-------------
- --------------------------------------------------------------------------------
MARKET
INVESTMENT FUNDS -- 24.5% SHARES VALUE
- --------------------------------------------------------------------------------
Touchstone Institutional Money Market Fund ^ ** 23,509,894 $ 23,509,894
-------------
TOTAL INVESTMENT SECURITIES -- 124.0%
(Cost $97,880,048) ............................. $ 118,896,827
LIABILITIES IN EXCESS OF OTHER ASSETS -- (24.0%) (22,996,158)
-------------
NET ASSETS -- 100.0% ........................... $ 95,900,669
=============
* Non-income producing security.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
+ All or a portion of the security is on loan. The total value of securities
on loan as of March 31, 2006 was $21,879,579.
** As of March 31, 2006, $22,331,621 represents collateral for securities
loaned.
See accompanying notes to financial statements.
89
MID CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2006
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 97.8% SHARES VALUE
- --------------------------------------------------------------------------------
SEMICONDUCTORS -- 9.5%
Analog Devices, Inc. ............................ 319,700 $ 12,241,313
Atmel Corp.* .................................... 1,083,500 5,114,120
Cypress Semiconductor Corp.* + .................. 425,900 7,219,005
Freescale Semiconductor, Inc. - Class B* ........ 341,300 9,477,901
Integrated Device Technology, Inc.* ............. 275,700 4,096,902
International Rectifier Corp.* .................. 141,400 5,858,202
Lam Research Corp.* ............................. 116,900 5,026,700
LSI Logic Corp.* ................................ 875,800 10,124,248
Micron Technology, Inc.* ........................ 1,090,700 16,055,103
National Semiconductor Corp. .................... 552,635 15,385,358
Novellus Systems, Inc.* ......................... 425,900 10,221,600
------------
100,820,452
------------
RETAILERS -- 7.2%
Dick's Sporting Goods, Inc.* + .................. 215,700 8,556,819
Family Dollar Stores, Inc. ...................... 300,400 7,990,640
Molson Coors Brewing Co. ........................ 115,500 7,925,610
OfficeMax, Inc. ................................. 283,865 8,564,207
O'Reilly Automotive, Inc.* ...................... 293,600 10,734,016
Regis Corp. ..................................... 221,400 7,633,872
Tiffany & Co. + ................................. 314,100 11,791,314
Weight Watchers, Inc. ........................... 97,100 4,990,940
Williams-Sonoma, Inc. ........................... 177,900 7,542,960
------------
75,730,378
------------
OIL & GAS -- 6.8%
Amerada Hess Corp. + ............................ 118,600 16,888,640
BJ Services Co. ................................. 302,000 10,449,200
Chesapeake Energy Corp. + ....................... 299,400 9,404,154
Cooper Cameron Corp.* ........................... 116,800 5,148,544
Murphy Oil Corp. ................................ 160,020 7,972,196
Pioneer Natural Resources Co. ................... 118,500 5,243,625
Smith International, Inc. + ..................... 291,200 11,345,152
Weatherford International Ltd.* ................. 96,500 4,414,875
------------
70,866,386
------------
COMPUTER SOFTWARE & PROCESSING -- 5.6%
Activision, Inc.* ............................... 148,265 2,044,574
Alliance Data Systems Corp.* .................... 264,200 12,356,634
Amdocs Ltd.* .................................... 259,300 9,350,358
CheckFree Corp.* ................................ 134,800 6,807,400
Cognos, Inc.* ................................... 262,700 10,219,030
Mercury Interactive Corp.* ...................... 215,700 7,495,575
TIBCO Software, Inc.* ........................... 1,240,600 10,371,416
------------
58,644,987
------------
HEALTH CARE EQUIPMENT -- 5.3%
Cytyc Corp.* .................................... 264,200 7,445,156
Dade Behring Holdings, Inc. ..................... 312,800 11,170,088
Fisher Scientific International, Inc.* .......... 210,300 14,310,915
Thermo Electron Corp.* .......................... 615,600 22,832,604
------------
55,758,763
------------
90
MID CAP GROWTH FUND
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 97.8% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
INDUSTRIAL -- 4.4%
American Standard Companies, Inc. ................ 156,400 $ 6,703,304
IDEX Corp. ....................................... 210,300 10,971,351
ITT Industries, Inc. ............................. 151,600 8,522,952
SPX Corp. ........................................ 157,440 8,410,445
Varian, Inc.* .................................... 288,950 11,898,961
-----------
46,507,013
-----------
ELECTRONICS -- 4.4%
AMETEK, Inc. ..................................... 329,000 14,791,840
Celestica, Inc.* + ............................... 599,825 6,867,996
Tektronix, Inc. .................................. 292,670 10,451,246
Vishay Intertechnology, Inc.* + .................. 948,270 13,503,365
-----------
45,614,447
-----------
BANKING -- 3.8%
Commerce Bancorp, Inc. + ......................... 464,030 17,006,699
People's Bank .................................... 153,910 5,040,553
SVB Financial Group* ............................. 23,440 1,243,492
Zions Bancorporation ............................. 195,500 16,173,715
-----------
39,464,459
-----------
PHARMACEUTICALS -- 3.6%
Elan Corp. PLC - ADR* + .......................... 1,127,200 16,276,768
Par Pharmaceutical Cos., Inc.* + ................. 109,400 3,082,892
Shire Pharmaceuticals Group PLC - ADR ............ 258,800 12,031,612
Valeant Pharmaceuticals International ............ 400,700 6,351,095
-----------
37,742,367
-----------
INSURANCE -- 3.6%
Arthur J. Gallagher & Co. + ...................... 308,000 8,565,480
Assurant, Inc. ................................... 219,210 10,796,092
Old Republic International Corp. ................. 397,450 8,672,359
Willis Group Holdings Ltd. ....................... 267,630 9,169,004
-----------
37,202,935
-----------
FINANCIAL SERVICES -- 3.4%
H&R Block, Inc. .................................. 319,250 6,911,763
Investors Financial Services Corp. + ............. 188,700 8,844,369
Marshall & Llsley Corp. .......................... 190,200 8,288,916
T. Rowe Price Group, Inc. ........................ 151,000 11,809,710
-----------
35,854,758
-----------
MEDICAL SUPPLIES -- 3.4%
Beckman Coulter, Inc. ............................ 118,100 6,444,717
Edwards Lifesciences Corp.* ...................... 155,150 6,749,025
Hillenbrand Industries, Inc. ..................... 157,700 8,671,923
Teradyne, Inc.* .................................. 880,750 13,660,433
-----------
35,526,098
-----------
APPAREL RETAILERS -- 3.3%
Federated Department Stores, Inc. ................ 169,437 12,368,901
Gap, Inc. ........................................ 603,000 11,264,040
Jones Apparel Group, Inc. ........................ 322,980 11,423,803
-----------
35,056,744
-----------
91
MID CAP GROWTH FUND
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 97.8% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
BIOTECHNOLOGY -- 3.3%
Celgene Corp.* + ................................. 648,000 $28,654,560
Charles River Laboratories International, Inc.* .. 121,060 5,934,361
-----------
34,588,921
-----------
HEALTH CARE PROVIDERS -- 3.3%
Community Health Systems, Inc.* .................. 242,600 8,769,990
Coventry Health Care, Inc.* ...................... 180,650 9,751,487
HEALTHSOUTH Corp.* + ............................. 1,012,100 5,040,258
Manor Care, Inc. ................................. 124,000 5,499,400
Triad Hospitals, Inc.* ........................... 127,300 5,333,870
-----------
34,395,005
-----------
HEAVY MACHINERY -- 3.2%
Dover Corp. ...................................... 254,590 12,362,890
Pentair, Inc. .................................... 270,400 11,018,800
W.W. Grainger, Inc. .............................. 132,750 10,002,713
-----------
33,384,403
-----------
COAL -- 2.7%
Arch Coal, Inc. .................................. 91,600 6,956,104
CONSOL Energy, Inc. .............................. 149,700 11,101,752
Massey Energy Co. ................................ 275,000 9,919,250
-----------
27,977,106
-----------
HOUSEHOLD PRODUCTS -- 2.6%
Leggett & Platt, Inc. ............................ 344,510 8,395,709
Stanley Works + .................................. 364,200 18,450,372
-----------
26,846,081
-----------
HEALTH CARE DISTRIBUTORS -- 2.3%
Omnicare, Inc. ................................... 429,200 23,601,708
-----------
COMMUNICATIONS EQUIPMENT -- 2.2%
Juniper Networks, Inc.* .......................... 420,900 8,047,608
Polycom, Inc.* ................................... 679,700 14,735,896
-----------
22,783,504
-----------
MEDIA - BROADCASTING & PUBLISHING -- 2.1%
Andrew Corp.* .................................... 718,500 8,823,180
Dow Jones & Company, Inc. ........................ 180,230 7,083,039
Entercom Communications Corp. .................... 86,650 2,419,268
Westwood One, Inc. ............................... 298,270 3,292,901
-----------
21,618,388
-----------
IT CONSULTING -- 1.9%
CACI International, Inc.* ........................ 161,800 10,638,350
Satyam Computer Services Ltd. - ADR .............. 213,100 9,325,256
-----------
19,963,606
-----------
CHEMICALS -- 1.5%
Cytec Industries, Inc. ........................... 130,010 7,801,900
International Flavors & Fragrances, Inc. ......... 237,700 8,157,864
-----------
15,959,764
-----------
EMPLOYMENT SERVICES -- 1.2%
Monster Worldwide, Inc.* ......................... 261,600 13,043,376
-----------
92
MID CAP GROWTH FUND
(CONTINUED)
- -----------------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 97.8% (CONTINUED) SHARES VALUE
- -----------------------------------------------------------------------------------------
TRANSPORTATION -- 1.1%
Canadian Pacific Railway Ltd. + ..................... 104,100 $ 5,201,877
Kirby Corp.* ........................................ 92,100 6,272,931
---------------
11,474,808
---------------
AEROSPACE & DEFENSE -- 1.0%
Alliant Techsystems, Inc.* + ........................ 135,700 10,471,969
---------------
MATERIALS - AGRICULTURAL / CHEMICALS -- 0.9%
Monsanto Co. ........................................ 107,900 9,144,525
---------------
COMPUTERS & INFORMATION -- 0.9%
Diebold, Inc. ....................................... 222,160 9,130,776
---------------
RESTAURANTS -- 0.8%
Sonic Corp.* ........................................ 249,800 8,775,474
---------------
HOTELS & MOTELS -- 0.7%
Gaylord Entertainment Co.* .......................... 161,800 7,342,484
---------------
WASTE DISPOSAL -- 0.7%
Republic Services, Inc. ............................. 172,600 7,337,226
---------------
COMMERCIAL SERVICES -- 0.6%
Anixter International, Inc.* ........................ 129,850 6,204,233
---------------
ENGINEERING SERVICES -- 0.5%
EMCOR Group, Inc.* .................................. 108,230 5,374,702
---------------
TOTAL COMMON STOCKS ................................. $ 1,024,207,846
---------------
- -----------------------------------------------------------------------------------------
MARKET
INVESTMENT FUNDS -- 15.2% SHARES VALUE
- -----------------------------------------------------------------------------------------
Touchstone Institutional Money Market Fund ^ ** ..... 158,810,613 $ 158,810,613
---------------
TOTAL INVESTMENT SECURITIES -- 113.0%
(Cost $989,651,102) ................................. $ 1,183,018,459
LIABILITIES IN EXCESS OF OTHER ASSETS -- (13.0%) .... (136,098,087)
---------------
NET ASSETS -- 100.0% ................................ $ 1,046,920,372
===============
* Non-income producing security.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
+ All or a portion of the security is on loan. The total value of securities
on loan as of March 31, 2006 was $131,577,739.
** As of March 31, 2006, $135,475,672 represents collateral for securities
loaned.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
93
SMALL CAP GROWTH FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2006
- --------------------------------------------------------------------------------
. MARKET
COMMON STOCKS -- 99.0% SHARES VALUE
- --------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY -- 20.5%
Actuate Corp.* .................................... 321,400 $1,365,950
Alliance Fiber Optic Products, Inc.* .............. 155,900 344,539
Anaren, Inc.* ..................................... 23,600 459,492
Art Technology Group, Inc.* ....................... 347,200 1,114,512
Astea International, Inc.* ........................ 20,600 241,638
Bitstream, Inc.* .................................. 196,600 1,460,738
Brocade Communications Systems, Inc.* ............. 1,378,700 9,209,715
BTU International, Inc.* .......................... 139,100 2,285,413
CEVA, Inc.* ....................................... 30,900 204,867
Click Commerce, Inc.* + ........................... 57,000 1,364,580
Comtech Group, Inc.* .............................. 108,500 1,085,000
CyberSource Corp.* ................................ 120,900 1,349,244
EFJ, Inc.* ........................................ 136,600 1,473,914
Ezenia!, Inc.* .................................... 55,600 186,260
Hurco Companies, Inc.* ............................ 7,900 215,038
I.D. Systems, Inc.* + ............................. 55,900 1,397,500
Informatica Corp.* ................................ 359,150 5,584,783
Internet Commerce Corp.* + ........................ 92,600 350,028
Keane, Inc.* ...................................... 149,850 2,360,138
Key Tronics Corp.* ................................ 103,750 451,313
Lawson Software, Inc.* + .......................... 642,800 4,930,276
Lojack Corp.* ..................................... 50,000 1,199,000
Micronetics, Inc.* ................................ 30,100 665,812
Mobility Electronics, Inc.* + ..................... 211,300 1,760,129
Neoware Systems, Inc.* + .......................... 87,900 2,603,598
Online Resources Corp.* ........................... 101,800 1,323,400
Optical Communication Products, Inc.* ............. 299,800 923,384
Orbit International Corp.* ........................ 63,400 611,810
PAR Technology Corp.* + ........................... 70,000 1,241,800
Peerless Systems Corp.* ........................... 47,900 357,813
Rackable Systems, Inc.* ........................... 175,800 9,291,029
RADCOM Ltd.* + .................................... 98,600 414,120
Radiant Systems, Inc.* ............................ 112,400 1,519,648
Radyne Corp.* ..................................... 103,800 1,657,686
RELM Wireless Corp.* .............................. 97,100 945,754
Silicom Ltd.* ..................................... 107,200 1,136,234
Sirenza Microdevices, Inc.* ....................... 158,000 1,493,100
Smith Micro Software, Inc.* + ..................... 218,000 2,679,220
SRS Labs, Inc.* ................................... 121,700 732,634
Stellent, Inc. .................................... 409,100 4,851,926
Stratex Networks, Inc.* ........................... 367,200 2,258,280
Synplicity, Inc.* ................................. 53,900 348,194
TESSCO Technologies, Inc.* ........................ 23,800 440,300
Tollgrade Communications, Inc.* ................... 106,100 1,578,768
United Industrial Corp. + ......................... 34,100 2,077,713
Video Display Corp.* + ............................ 54,300 514,764
Vignette Corp.* ................................... 136,400 2,011,900
94
SMALL CAP GROWTH FUND
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 99.0% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
ELECTRONIC TECHNOLOGY -- 20.5% (CONTINUED)
VSE Corp. .......................................... 27,300 $ 1,132,950
Xyratex Ltd.* ...................................... 138,400 4,359,600
-----------
87,565,504
-----------
COMMERCIAL/INDUSTRIAL SERVICES -- 15.2%
ADDvantage Technologies Group, Inc.* ............... 66,600 392,940
Allied Waste Industries, Inc.* + ................... 739,800 9,055,152
American Ecology Corp. ............................. 58,100 1,184,078
Asyst Technologies, Inc.* .......................... 351,000 3,653,910
Axcelis Technologies, Inc.* ........................ 864,350 5,065,091
Barrett Business Services, Inc.* ................... 67,100 1,811,700
BE Aerospace, Inc.* ................................ 238,050 5,979,816
Concur Technologies, Inc.* ......................... 296,600 5,495,998
Flowserve Corp.* ................................... 156,300 9,118,542
Matrix Service Co.* + .............................. 26,600 305,368
Perficient, Inc.* + ................................ 168,700 1,958,607
Standard Parking Corp.* ............................ 14,200 395,754
Teledyne Technologies, Inc.* ....................... 139,850 4,978,660
TheStreet.com, Inc. ................................ 288,700 2,182,572
Ultratech, Inc.* ................................... 330,800 8,097,984
Veeco Instruments, Inc.* + ......................... 240,150 5,607,503
-----------
65,283,675
-----------
HEALTH CARE -- 14.8%
Air Methods Corp.* ................................. 65,900 1,946,686
American Science and Engineering, Inc.* + .......... 19,100 1,783,940
Angiodynamics, Inc.* ............................... 60,000 1,803,600
Bentley Pharmaceuticals, Inc.* + ................... 82,200 1,080,930
Bioanalytical Systems, Inc.* ....................... 17,600 110,880
Caraco Pharmaceutical Laboratories Ltd.* ........... 92,100 1,197,300
CAS Medical Systems, Inc.* + ....................... 103,900 876,916
Centene Corp.* + ................................... 143,650 4,190,271
Cerus Corp.* ....................................... 137,100 1,173,576
Clinical Data, Inc. + .............................. 2,000 41,040
Encore Medical Corp.* .............................. 113,700 582,144
First Consulting Group, Inc.* ...................... 61,900 457,441
Genitope Corp.* + .................................. 104,400 908,280
Health Grades, Inc.* + ............................. 211,100 1,125,142
Herbalife Ltd. - ADR* .............................. 365,600 12,346,311
Hi-Tech Pharmacal Co., Inc.* ....................... 52,150 1,470,630
Horizon Health Corp.* .............................. 35,000 693,000
Immucor, Inc.* ..................................... 278,600 7,993,034
IntegraMed America, Inc.* .......................... 60,700 701,085
IRIS International, Inc.* + ........................ 48,800 762,744
Medical Action Industries, Inc.* ................... 34,700 832,453
Mesa Laboratories, Inc. ............................ 18,100 255,391
Natus Medical, Inc.* ............................... 109,500 2,244,750
Onyx Pharmaceuticals, Inc.* ........................ 280,550 7,367,243
U.S. Physical Therapy, Inc.* ....................... 61,600 1,053,976
Viasys Healthcare, Inc.* ........................... 254,950 7,668,896
WellCare Health Plans, Inc.* ....................... 65,250 2,964,960
-----------
63,632,619
-----------
95
SMALL CAP GROWTH FUND
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 99.0% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
ENERGY -- 6.4%
GMX Resources, Inc.* + ........................... 30,000 $ 1,123,500
ICO, Inc.* ....................................... 99,300 496,500
InterOil Corp.* + ................................ 274,800 3,610,872
Newpark Resources, Inc.* ......................... 325,150 2,666,230
Oil States International, Inc.* + ................ 322,150 11,871,227
Parker Drilling Co.* ............................. 848,750 7,867,913
-----------
27,636,242
-----------
TECHNOLOGY -- 6.1%
Atheros Communications* + ........................ 346,950 9,086,621
F5 Networks, Inc.* ............................... 168,700 12,229,063
Openwave Systems, Inc.* + ........................ 232,100 5,008,718
-----------
26,324,402
-----------
COMMUNICATIONS -- 6.0%
Arris Group, Inc.* ............................... 707,850 9,740,016
NII Holdings, Inc. - Class B* .................... 108,300 6,386,451
SBA Communications Corp. - Class A* .............. 414,200 9,696,422
-----------
25,822,889
-----------
PRODUCER DURABLES -- 5.5%
Intevac, Inc.* ................................... 392,600 11,299,028
Mattson Technology, Inc.* ........................ 517,400 6,208,800
Taser International, Inc.* + ..................... 596,000 6,311,640
-----------
23,819,468
-----------
BASIC MATERIALS -- 4.5%
Bakers Footwear Group, Inc.* + ................... 47,300 1,021,680
Empire Resources, Inc. + ......................... 21,900 604,440
Hexcel Corp.* .................................... 540,400 11,872,588
Jorgensen (Earle M.) Co.* ........................ 43,400 657,510
MGP Ingredients, Inc. ............................ 108,000 1,749,600
Multi-Color Corp. ................................ 37,400 1,123,870
Origin Agritech Ltd.* ............................ 54,100 928,356
PW Eagle, Inc. + ................................. 23,000 639,400
Wheeling-Pittsburgh Corp.* ....................... 32,000 587,520
-----------
19,184,964
-----------
FINANCIAL SERVICES -- 3.3%
Friedman, Billings, Ramsey Group, Inc. + ......... 808,050 7,579,509
Investment Technology Group, Inc.* + ............. 131,200 6,533,760
-----------
14,113,269
-----------
CONSUMER SERVICES -- 3.2%
American Medical Alert Corp.* .................... 100,900 632,643
Gaming Partners International Corp. + ............ 23,400 370,422
McCormick & Schmick's Seafood Restaurants, Inc.* . 67,400 1,716,678
New Frontier Media, Inc.* ........................ 54,500 413,655
Nutri/Systems, Inc.* + ........................... 50,000 2,376,000
Revlon, Inc.* .................................... 2,531,092 7,998,250
WPCS International, Inc.* + ...................... 40,300 312,325
-----------
13,819,973
-----------
96
SMALL CAP GROWTH FUND
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 99.0% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
CONSUMER NON-DURABLES -- 3.0%
Cuisine Solutions, Inc.* ........................... 96,100 $ 892,769
Jones Soda Co.* + .................................. 37,800 311,850
Matrixx Initiatives, Inc.* ......................... 66,500 1,549,450
National Beverage Corp. ............................ 33,600 388,752
Parlux Fragrances, Inc.* + ......................... 40,400 1,302,900
Reliv' International, Inc. + ....................... 66,700 826,413
Rocky Mountain Chocolate Factory, Inc. ............. 9,000 142,109
Steven Madden Ltd. ................................. 35,000 1,242,500
True Religion Apparel, Inc.* + ..................... 75,100 1,387,097
USANA Health Sciences, Inc.* + ..................... 113,700 4,743,564
-----------
12,787,404
-----------
PRODUCER MANUFACTURING -- 2.4%
Amerigon, Inc.* .................................... 248,000 1,926,960
Dynamic Materials Corp. + .......................... 70,000 2,494,800
Fuel-Tech N.V.* .................................... 112,300 1,795,677
Insteel Industries, Inc. + ......................... 18,900 1,073,142
Kadant, Inc.* ...................................... 29,300 665,110
K-Tron International, Inc.* ........................ 15,600 759,408
Miller Industries, Inc.* ........................... 30,000 765,000
Smith & Wesson Holding Corp.* + .................... 165,100 998,855
-----------
10,478,952
-----------
TRANSPORTATION -- 2.2%
AirTran Holdings, Inc.* + .......................... 495,750 8,978,033
Frozen Food Express Industries, Inc.* .............. 54,300 567,435
-----------
9,545,468
-----------
CONSUMER DURABLES -- 1.4%
Aldila, Inc. ....................................... 73,900 2,453,480
Apogee Enterprises, Inc. ........................... 65,400 1,103,952
Cavalier Homes, Inc.* .............................. 68,200 477,400
Cavco Industries, Inc.* ............................ 37,700 1,831,843
U.S. Home Systems, Inc.* + ......................... 38,300 330,146
-----------
6,196,821
-----------
AEROSPACE & DEFENSE -- 1.4%
AAR CORP.* ......................................... 209,600 5,969,408
-----------
RETAIL TRADE -- 1.3%
Big Dog Holdings, Inc.* ............................ 21,600 252,072
Casual Male Retail Group, Inc.* + .................. 69,000 672,060
Gaiam, Inc. - Class A* ............................. 34,200 550,962
PetMed Express, Inc.* .............................. 88,900 1,579,753
The Sportsman's Guide, Inc.* ....................... 33,700 892,713
United Retail Group, Inc.* ......................... 64,900 1,215,577
Zones, Inc.* ....................................... 49,000 359,513
-----------
5,522,650
-----------
97
SMALL CAP GROWTH FUND
(CONTINUED)
- ---------------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 99.0% (CONTINUED) SHARES VALUE
- ---------------------------------------------------------------------------------------
FINANCE -- 1.1%
American Physicians Capital, Inc.* .................. 31,200 $ 1,497,600
Bodisen Biotech, Inc.* + ............................ 99,200 1,564,384
Citizens, Inc.* + ................................... 31,001 159,965
Marlin Business Services, Inc.* ..................... 49,800 1,100,580
Mercer Insurance Group, Inc.* ....................... 17,700 335,415
-------------
4,657,944
-------------
INSURANCE -- 0.6%
EMC Insurance Group, Inc. ........................... 11,300 314,931
Platinum Underwriters Holdings Ltd. ................. 79,550 2,314,905
-------------
2,629,836
-------------
UTILITIES -- 0.1%
Lightbridge, Inc.* .................................. 52,500 582,750
-------------
TOTAL COMMON STOCKS ................................. $ 425,574,238
-------------
- ---------------------------------------------------------------------------------------
MARKET
INVESTMENT FUNDS -- 25.0% SHARES VALUE
- ---------------------------------------------------------------------------------------
Touchstone Institutional Money Market Fund^ ** ...... 107,044,344 $ 107,044,344
-------------
TOTAL INVESTMENT SECURITIES -- 124.0%
(Cost $453,460,602) ................................. $ 532,618,582
-------------
LIABILITIES IN EXCESS OF OTHER ASSETS -- (24.0%) .... (102,776,698)
-------------
NET ASSETS -- 100.0% ................................ $ 429,841,884
=============
* Non-income producing security.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
+ All or a portion of the security is on loan. The total value of securities
on loan as of March 31, 2006 was $86,143,163.
** As of March 31, 2006, $88,338,869 represents collateral for securities
loaned.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
98
VALUE PLUS FUND
PORTFOLIO OF INVESTMENTS
MARCH 31, 2006
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 98.0% SHARES VALUE
- --------------------------------------------------------------------------------
BANKING -- 14.7%
Bank of America Corp. .............................. 70,469 $ 3,209,158
Citigroup, Inc. .................................... 70,595 3,334,908
JP Morgan Chase & Co. .............................. 55,038 2,291,782
Wells Fargo & Co. .................................. 35,470 2,265,469
-----------
11,101,317
-----------
OIL & GAS -- 11.6%
Baker Hughes, Inc. ................................. 17,550 1,200,420
Chevron Corp. ...................................... 23,208 1,345,368
ConocoPhillips ..................................... 38,399 2,424,896
Exxon Mobil Corp. .................................. 35,866 2,182,805
Marathon Oil Corp. ................................. 21,280 1,620,898
-----------
8,774,387
-----------
PHARMACEUTICALS -- 7.9%
Cardinal Health, Inc. .............................. 16,168 1,204,839
Novartis AG ........................................ 23,112 1,281,329
Pfizer, Inc. ....................................... 139,104 3,466,472
-----------
5,952,640
-----------
COMPUTERS & INFORMATION -- 7.8%
Cisco Systems, Inc.* ............................... 78,480 1,700,662
Computer Sciences Corp.* ........................... 10,300 572,165
First Data Corp. ................................... 18,686 874,879
Hewlett-Packard Co. ................................ 23,111 760,352
Microsoft Corp. .................................... 74,645 2,031,089
-----------
5,939,147
-----------
FINANCIAL SERVICES -- 7.8%
Freddie Mac ........................................ 30,752 1,875,872
Merrill Lynch & Co., Inc. .......................... 25,834 2,034,685
Morgan Stanley ..................................... 30,925 1,942,709
-----------
5,853,266
-----------
BEVERAGE, FOOD & TOBACCO -- 6.9%
Anheuser Busch ..................................... 26,950 1,152,652
Diageo PLC - ADR + ................................. 20,691 1,312,430
McDonald's Corp. ................................... 24,192 831,237
Outback Steakhouse, Inc. ........................... 41,917 1,844,348
-----------
5,140,667
-----------
RETAILERS -- 5.5%
CVS Corp. .......................................... 49,181 1,469,037
Home Depot, Inc. ................................... 27,398 1,158,935
Target Corp. ....................................... 28,175 1,465,382
-----------
4,093,354
-----------
ELECTRIC UTILITIES -- 5.2%
Cinergy Corp. ...................................... 30,742 1,395,994
Dominion Resources, Inc. ........................... 15,241 1,052,086
Public Service Enterprise Group, Inc. .............. 22,345 1,430,974
-----------
3,879,054
-----------
99
VALUE PLUS FUND
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
COMMON STOCKS -- 98.0% (CONTINUED) SHARES VALUE
- --------------------------------------------------------------------------------
INDUSTRIAL - DIVERSIFIED -- 4.1%
General Electric Co. ................................ 58,395 $ 2,030,978
Tyco International Ltd. ............................. 37,637 1,011,683
-----------
3,042,661
-----------
TELEPHONE SYSTEMS -- 3.7%
ALLTEL Corp. ........................................ 12,246 792,929
AT&T, Inc. .......................................... 72,977 1,973,298
-----------
2,766,227
-----------
INSURANCE -- 3.6%
Allstate Corp. ...................................... 23,000 1,198,530
Genworth Financial, Inc. ............................ 45,024 1,505,152
-----------
2,703,682
-----------
MEDIA - BROADCASTING & PUBLISHING -- 3.1%
Clear Channel Communications, Inc. .................. 36,318 1,053,585
Comcast Corp. - Special Class A* .................... 49,512 1,293,254
-----------
2,346,839
-----------
HEALTH CARE -- 3.1%
Amgen, Inc.* ........................................ 10,604 771,441
WellPoint, Inc.* .................................... 19,599 1,517,551
-----------
2,288,992
-----------
FARM MACHINERY AND EQUIPMENT -- 2.6%
Deere & Co. ......................................... 24,296 1,920,599
-----------
SEMICONDUCTORS -- 2.4%
Intel Corp. ......................................... 33,097 640,427
Micron Technology, Inc. ............................. 78,560 1,156,403
-----------
1,796,830
-----------
BUILDING PRODUCTS -- 1.5%
Masco Corp. ......................................... 34,438 1,118,891
-----------
HEAVY MACHINERY -- 1.5%
Caterpiller, Inc. ................................... 15,357 1,102,786
-----------
MEDICAL SUPPLIES -- 1.4%
Boston Scientific Corp.* ............................ 45,788 1,055,413
-----------
CHEMICALS -- 1.2%
Dow Chemical Co. .................................... 22,725 922,635
-----------
ELECTRONICS -- 1.2%
Flextronics International Ltd.* ..................... 88,923 920,353
-----------
HOUSEHOLD PRODUCTS -- 1.2%
Kimberly-Clark Corp. ................................ 14,961 864,746
-----------
TOTAL COMMON STOCKS ................................. $73,584,486
-----------
100
VALUE PLUS FUND
(CONTINUED)
- --------------------------------------------------------------------------------
MARKET
INVESTMENT FUNDS -- 3.7% SHARES VALUE
- --------------------------------------------------------------------------------
Touchstone Institutional Money Market Fund ^ ** 2,746,686 $ 2,746,686
------------
TOTAL INVESTMENT SECURITIES -- 101.7%
(Cost $66,920,175) ............................. $ 76,331,172
LIABILITIES IN EXCESS OF OTHER ASSETS -- (1.7%) (1,303,753)
------------
NET ASSETS -- 100.0% ........................... $ 75,027,419
============
* Non-income producing security.
^ Affiliated Fund, sub-advised by Fort Washington Investment Advisors, Inc.
+ All or a portion of the security is on loan. The total value of securities
on loan as of March 31, 2006 was $1,246,780.
** As of March 31, 2006, $1,297,296 represents collateral for securities
loaned.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
101
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
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
Growth Opportunities Fund, Large Cap Core Equity Fund, Large Cap Growth Fund,
Large Cap Value Fund, Mid Cap Growth Fund (formerly Emerging Growth Fund), Micro
Cap Growth Fund, Small Cap Growth Fund, and Value Plus Fund (the iFundsi) as of
March 31, 2006, and the related statements of operations, statements of changes
in net assets and financial highlights for each of the periods indicated
therein, except for the financial highlights for the Large Cap Growth Fund for
each of the two years in the period ended December 31, 2002, which were audited
by other auditors whose report dated February 12, 2003 expressed an unqualified
opinion on those financial highlights. These financial statements and financial
highlights are the responsibility of the Fundsi management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Fundsi internal control over financial reporting. Our
audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Fundsi internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our procedures included
confirmation of securities owned as of March 31, 2006, by correspondence with
the custodian and brokers, or by other appropriate auditing procedures where
replies from brokers were not received. 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,
2006, the results of their operations, the changes in their net assets and their
financial highlights for each of the periods indicated therein, 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, 2006
102
OTHER ITEMS
(UNAUDITED)
- --------------------------------------------------------------------------------
DIVIDEND RECEIVED DEDUCTION
For corporate shareholders, the following ordinary dividends paid during the
year ended March 31, 2006 qualify for the corporate dividends received
deduction:
Large Cap Core Equity Fund 100%
Mid Cap Growth Fund 35%
Value Plus Fund 100%
PROXY VOTING
The Sub-Advisors are responsible for exercising the voting rights associated
with the securities purchased and held by the Funds. A description of the
policies and procedures that the Sub-Advisors use in fulfilling this
responsibility and information regarding how those proxies were voted during the
twelve month period ended June 30 are available without charge upon request by
calling toll free 1.800.543.0407. These items are also available on the
Securities and Exchange Commission's (the Commission) Website at
http://www.sec.gov.
QUARTERLY PORTFOLIO DISCLOSURE
The Trust files a complete listing of portfolio holdings for each Fund as of the
end of the first and third quarters of each fiscal year on Form N-Q. The
complete listing (i) is available on the Commission's Website; (ii) may be
reviewed and copied at the Commission's Public Reference Room in Washington, DC;
and (iii) will be made available to shareholders upon request by calling
1.800.543.0407. Information on the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330.
SCHEDULE OF SHAREHOLDER EXPENSES
As a shareholder of the Funds, you incur two types of costs: (1) transaction
costs, including reinvested dividends or other distributions; and (2) ongoing
costs, including investment advisory fees; distribution (12b-1) fees; and other
Fund expenses. This example is intended to help you understand your ongoing
costs (in dollars) of investing in the Funds and to compare these costs with the
ongoing costs of investing in other mutual funds.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Six
Months Ended March 31, 2006" to estimate the expenses you paid on your account
during this period.
103
OTHER ITEMS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
SCHEDULE OF SHAREHOLDER EXPENSES (CONTINUED)
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Funds' actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Funds' actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Funds and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
EXPENSES PAID
NET EXPENSE ENDING DURING THE
RATIO BEGINNING ACCOUNT SIX MONTHS
ANNUALIZED ACCOUNT VALUE VALUE ENDED
MARCH 31, OCTOBER 1, MARCH 31, MARCH 31,
2006 2005* 2006 2006**
- ----------------------------------------------------------------------------------------
GROWTH OPPORTUNITIES FUND
Class A Actual ............. 1.56% $ 1,000.00 $1,080.70 $ 8.08
Class A Hypothetical ....... 1.56% $ 1,000.00 $1,017.17 $ 7.83
Class B Actual ............. 2.90% $ 1,000.00 $1,078.80 $ 15.02
Class B Hypothetical ....... 2.90% $ 1,000.00 $1,010.48 $ 14.53
Class C Actual ............. 2.49% $ 1,000.00 $1,080.80 $ 12.89
Class C Hypothetical ....... 2.49% $ 1,000.00 $1,012.54 $ 12.47
LARGE CAP CORE EQUITY FUND
Class A Actual ............. 1.00% $ 1,000.00 $1,074.50 $ 5.16
Class A Hypothetical ....... 1.00% $ 1,000.00 $1,019.96 $ 5.02
Class B Actual ............. 1.75% $ 1,000.00 $1,071.10 $ 9.04
Class B Hypothetical ....... 1.75% $ 1,000.00 $1,016.20 $ 8.80
Class C Actual ............. 1.75% $ 1,000.00 $1,070.80 $ 9.04
Class C Hypothetical ....... 1.75% $ 1,000.00 $1,016.20 $ 8.80
LARGE CAP GROWTH FUND
Class A Actual ............. 1.19% $ 1,000.00 $1,090.50 $ 6.22
Class A Hypothetical ....... 1.19% $ 1,000.00 $1,018.98 $ 6.01
Class B Actual ............. 2.08% $ 1,000.00 $1,087.10 $ 10.84
Class B Hypothetical ....... 2.08% $ 1,000.00 $1,014.54 $ 10.46
Class C Actual ............. 1.99% $ 1,000.00 $1,087.50 $ 10.38
Class C Hypothetical ....... 1.99% $ 1,000.00 $1,014.98 $ 10.02
Class I Actual ............. 0.94% $ 1,000.00 $1,091.70 $ 4.88
Class I Hypothetical ....... 0.94% $ 1,000.00 $1,020.27 $ 4.71
104
OTHER ITEMS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
SCHEDULE OF SHAREHOLDER EXPENSES (CONTINUED)
EXPENSES PAID
NET EXPENSE ENDING DURING THE
RATIO BEGINNING ACCOUNT SIX MONTHS
ANNUALIZED ACCOUNT VALUE VALUE ENDED
MARCH 31, OCTOBER 1, MARCH 31, MARCH 31,
2006 2005* 2006 2006**
- ----------------------------------------------------------------------------------------
LARGE CAP VALUE FUND
Class A Actual ............. 1.30% $ 1,000.00 $1,019.00 $ 0.93
Class A Hypothetical ....... 1.30% $ 1,000.00 $1,018.47 $ 6.52
Class C Actual ............. 1.89% $ 1,000.00 $1,018.00 $ 1.36
Class C Hypothetical ....... 1.89% $ 1,000.00 $1,015.51 $ 9.50
MICRO CAP GROWTH FUND
Class A Actual ............. 1.95% $ 1,000.00 $1,153.80 $ 10.45
Class A Hypothetical ....... 1.95% $ 1,000.00 $1,015.23 $ 9.78
Class C Actual ............. 2.71% $ 1,000.00 $1,149.10 $ 14.52
Class C Hypothetical ....... 2.71% $ 1,000.00 $1,011.42 $ 13.59
Class I Actual ............. 1.55% $ 1,000.00 $1,157.10 $ 8.34
Class I Hypothetical ....... 1.55% $ 1,000.00 $1,017.20 $ 7.80
MID CAP GROWTH FUND
Class A Actual ............. 1.50% $ 1,000.00 $1,126.40 $ 7.95
Class A Hypothetical ....... 1.50% $ 1,000.00 $1,017.46 $ 7.54
Class B Actual ............. 2.25% $ 1,000.00 $1,121.50 $ 11.90
Class B Hypothetical ....... 2.25% $ 1,000.00 $1,013.72 $ 11.29
Class C Actual ............. 2.25% $ 1,000.00 $1,121.90 $ 11.90
Class C Hypothetical ....... 2.25% $ 1,000.00 $1,013.72 $ 11.29
SMALL CAP GROWTH FUND
Class A Actual ............. 1.95% $ 1,000.00 $1,120.10 $ 10.30
Class A Hypothetical ....... 1.95% $ 1,000.00 $1,015.22 $ 9.79
Class B Actual ............. 2.70% $ 1,000.00 $1,118.10 $ 14.25
Class B Hypothetical ....... 2.70% $ 1,000.00 $1,011.48 $ 13.53
Class C Actual ............. 2.70% $ 1,000.00 $1,118.60 $ 14.26
Class C Hypothetical ....... 2.70% $ 1,000.00 $1,011.47 $ 13.54
Class I Actual ............. 1.55% $ 1,000.00 $1,121.30 $ 8.22
Class I Hypothetical ....... 1.55% $ 1,000.00 $1,017.18 $ 7.81
105
OTHER ITEMS
(UNAUDITED) (CONTINUED)
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SCHEDULE OF SHAREHOLDER EXPENSES (CONTINUED)
EXPENSES PAID
NET EXPENSE ENDING DURING THE
RATIO BEGINNING ACCOUNT SIX MONTHS
ANNUALIZED ACCOUNT VALUE VALUE ENDED
MARCH 31, OCTOBER 1, MARCH 31, MARCH 31,
2006 2005* 2006 2006**
- ----------------------------------------------------------------------------------------
VALUE PLUS FUND
Class A Actual 1.30% $ 1,000.00 $1,052.00 $ 6.65
Class A Hypothetical 1.30% $ 1,000.00 $1,018.45 $ 6.54
Class B Actual 2.05% $ 1,000.00 $1,047.90 $ 10.47
Class B Hypothetical 2.05% $ 1,000.00 $1,014.71 $ 10.30
Class C Actual 2.05% $ 1,000.00 $1,048.60 $ 10.47
Class C Hypothetical 2.05% $ 1,000.00 $1,014.71 $ 10.30
* The example is based on an investment of $1,000 invested at the beginning
of the period (October 1, 2005 for the Growth Opportunities Fund, Large
Cap Core Equity Fund, Large Cap Growth Fund, Micro Cap Growth Fund, Mid
Cap Growth Fund, Small Cap Growth Fund and the Value Plus Fund; March 6,
2006 for the Large Cap Value Fund and held for the entire period through
March 31, 2006).
** Expenses are equal to the Fund's annualized expense ratio, multiplied by
the average account value over the period, multiplied by [number of days
in most recent fiscal half-year/365 [or the number of days in the initial
reporting period]] (to reflect the one-half year period).
106
OTHER ITEMS
(UNAUDITED) (CONTINUED)
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ANNUAL RENEWAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS
The Board of Trustees (the "Board") of the Touchstone Strategic Trust
("TST")(the "Trust"), and by a separate vote, the Independent Trustees of the
Trust, approved the continuance of the Advisory Agreement between the Trust and
the Advisor with respect to Emerging Growth Fund, Growth Opportunities Fund,
Large Cap Core Equity Fund, Large Cap Growth Fund, Micro Cap Growth Fund, Small
Cap Growth Fund and Value Plus Fund (each a "Fund") and the Sub-Advisory
Agreement(s) with respect to each Fund at a meeting held on November 17, 2005.
In determining whether to approve the continuation of the Advisory Agreement and
the Sub-Advisory Agreement(s) with respect to each Fund, the Advisor furnished
information necessary for a majority of the Independent Trustees to make the
determination that the continuance of the Advisory Agreement and of the
Sub-Advisory Agreement is in the interests of each of the Funds and its
respective shareholders. The information provided to the Board included: (1)
industry data comparing advisory fees and expense ratios of comparable
investment companies, (2) comparative performance information; (3) the Advisor's
revenues and costs of providing services to the Funds; and (4) information about
the Advisor's and Sub-Advisor's personnel. Prior to voting, the Independent
Trustees reviewed the proposed continuance of the Advisory Agreement and the
Sub-Advisory Agreements with management and with experienced independent counsel
and received materials from such counsel discussing the legal standards for
their consideration of the proposed continuation of the Advisory Agreement and
the Sub-Advisory Agreement(s) with respect to each Fund. The Independent
Trustees also reviewed the proposed continuation of the Advisory Agreement and
the Sub-Advisory Agreement(s) with respect to each of the Funds in private
sessions with counsel at which no representatives of management were present.
In approving the Funds' Advisory Agreement, the Board considered various
factors, among them: (1) the nature, extent and quality of services provided to
the Funds including the personnel providing services; (2) the Advisor's
compensation and profitability; (3) comparison of fees and performance with
other advisers; (4) economies of scale; and (5) the terms of the Advisory
Agreement. The Board's analysis of these factors is set forth below. The
Independent Trustees were advised by independent legal counsel throughout the
process.
NATURE, EXTENT AND QUALITY OF ADVISOR SERVICES. The Board considered the level
and depth of knowledge of the Advisor, including the professional experience and
qualifications of senior personnel. The Board discussed the Advisor's
effectiveness in monitoring the performance of the Sub-Advisors, certain of
which are affiliates of the Advisor, and its timeliness in responding to
performance issues. In evaluating the quality of services provided by the
Advisor, the Board took into account its familiarity with the Advisor's senior
management through Board meetings, discussions and reports during the preceding
year. The Board took into account the Advisor's willingness to consider and
implement organizational and operational changes designed to improve investment
results. The Board also took into account the Advisor's compliance policies and
procedures. The quality of administrative and other services, including the
Advisor's role in coordinating the activities of the Funds' other service
providers, was also considered. The Board also considered the Advisor's
relationship with its affiliates and the resources available to them, as well as
any potential conflicts of interest. The Trustees concluded that they were
satisfied with the nature, extent and quality of services provided to each of
the Funds under the Advisory Agreement.
ADVISOR'S COMPENSATION AND PROFITABILITY. The Board took into consideration the
financial condition and profitability of the Advisor and its affiliates and the
direct and indirect benefits derived by the Advisor and its affiliates from the
Advisor's relationship with the Funds. The information considered by the Board
included operating profit margin information for the Advisor's business as
107
OTHER ITEMS
(UNAUDITED) (CONTINUED)
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ANNUAL RENEWAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS (CONTINUED)
a whole. The Trustees also considered Fund-by-Fund profitability data that they
received from management, which indicated the relative profit and loss of each
of the Funds. The Board noted that the Advisor has waived advisory fees and
reimbursed expenses for the Funds indicated below and also pays the sub-advisory
fees out of the advisory fees the Advisor receives from the Funds. The Trustees
reviewed the profitability of the Advisor's relationship with the Funds both
before and after tax expenses and whether the Advisor had the financial
wherewithal to continue to provide a high level of services to the Funds, noting
the ongoing commitment of the Advisor's parent with respect to providing support
and resources as needed. The Trustees also considered that the Funds'
distributor, an affiliate of the Advisor, received Rule 12b-1 distribution fees
from the Funds and receives a portion of the sales charges on sales or
redemptions of certain classes of shares. The Trustees also noted that the
Advisor derives reputational and other benefits from its association with the
Funds.
The Trustees recognized that the Advisor should be entitled to earn a reasonable
level of profits in exchange for the level of services it provides to each Fund
and the entrepreneurial risk that it assumes as Advisor. Based upon their
review, the Trustees concluded that the Advisor's level of profitability, if
any, from its relationship with each Fund was reasonable and not excessive.
EXPENSES AND PERFORMANCE. The Board compared the advisory fees and total expense
ratios for the Funds with various comparative data, including the industry
median and average advisory fees and expense ratios in each Fund's respective
peer group. The Board also considered the Funds' performance results during the
six-months, twelve-months, twenty-four and thirty-six months ended September 30,
2005 and noted that the Board reviews on a quarterly basis detailed information
about the Funds' performance results, portfolio composition and investment
strategies.
The Board also considered the effect of each Fund's growth and size on its
performance and expenses. The Board further noted that the Advisor has waived
advisory fees and/or reimbursed expenses for the Funds noted below as necessary
to reduce their operating expenses to targeted levels. The Board noted that the
fees under the Sub-Advisory Agreement(s) with respect to each Fund are paid by
the Advisor out of the advisory fee it receives from the Fund and the impact of
such sub-advisory fees on the profitability of the Advisor. In reviewing the
expense ratios and performance of the Funds, the Board also took into account
the nature, extent and quality of the services provided by the Advisor and its
affiliates.
The Board also discussed with management certain factors as set forth in the
conditions to the Funds' exemptive order issued by the Securities and Exchange
Commission relating to the investment by the non-money market Funds in the
Institutional Money Market Fund (the "non-money market Funds"). Based upon the
nature and extent of the services provided by the Advisor and the Sub-Advisors
to the Funds and a discussion by management with respect to the costs to the
Advisor and Sub-Advisors of the portion of the advisory fee and sub-advisory fee
attributable to the portion of the non-money market Funds' assets to be invested
in the Institutional Money Market Fund, the Board concluded that the advisory
fee and the sub-advisory fee of each of the non-money market Funds are based on
services that are in addition to, rather than duplicative of, services provided
under the Advisory and Sub-Advisory Agreements with respect to the portion of
such Funds to be invested in the Institutional Money Market Fund.
108
OTHER ITEMS
(UNAUDITED) (CONTINUED)
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ANNUAL RENEWAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS (CONTINUED)
The Trustees considered, among other data, the specific factors and related
conclusions set forth below with respect to each Fund:
EMERGING GROWTH FUND. The Fund's advisory fee and total expense ratio (net of
applicable expense waivers) were above the median of its peer group. The Board
noted that the Advisor was currently waiving a portion of its advisory fee. The
Fund's performance for the six-months and twelve-months ended September 30, 2005
was in the 3rd quartile of the Fund's peer group, in the 4th quartile for the
twenty-four month period and in the 2nd quartile for the thirty-six month
period. The Trustees took into account management's discussion of the Fund's
performance and the quality of the Sub-Advisor's performance, including its
plans to address the Fund's underperformance. Based upon their review, the
Trustees concluded that the Fund's performance matters were being addressed and
that the advisory fee was reasonable in light of the high quality of services
received by the Fund and the other factors considered.
GROWTH OPPORTUNITIES FUND. The Fund's advisory fee and total expense ratio were
above the median of its peer group. The Fund's performance for the six-months,
twelve-months and thirty-sixth months ended September 30, 2005 was in the 2nd
quartile of the Fund's peer group and in the 3rd quartile for the twenty-four
month period. The Trustees considered the Advisor's discussion of the Fund's
performance, including its discussion of a potential change in the Fund's
benchmark. Based upon their review, the Trustees concluded that the Fund's
performance was satisfactory and also found that the advisory fee was reasonable
in view of the high quality of services received by the Fund and the other
factors considered.
LARGE CAP CORE EQUITY FUND. The Fund's advisory fee and total expense ratio (net
of applicable expense waivers) were below the median of its peer group. The
Board noted that the Fund had waived its entire advisory fee for the Fund and
was reimbursing Fund expenses. The Fund's performance for the six-month period
ended September 30, 2005 was in the 4th quartile of its peer group, for the
twelve-months and twenty-four months ended September 30, 2005 was in the 3rd
quartile of the Fund's peer group and was in the 1st quartile for the thirty-six
month period. The Board took into account management's discussion of the Fund's
performance, including its potential plans with respect to the Fund. The Board
also noted the Fund's current asset levels. Based upon their review, the
Trustees concluded that the Fund's performance was being addressed and that the
Fund's advisory fee was reasonable in view of the high quality of services
received by the Fund and the other factors considered.
LARGE CAP GROWTH FUND. The Fund's current advisory fee and total expense ratio
(net of applicable expense waivers) were above the median and below the median,
respectively, of its peer group. The Board also noted that the Advisor was
currently reimbursing a portion of the Fund's expenses. The Fund's performance
for the six-months ended September 30, 2005 was in the 2nd quartile and in the
1st quartile of the Fund's peer group for the twelve-months, twenty-four months
and thirty-six month period ended September 30, 2005. Based upon their review,
the Trustees concluded that the Fund's performance was satisfactory and that the
Fund's advisory fee was reasonable in view of the high quality of services
received by the Fund and the other factors considered.
109
OTHER ITEMS
(UNAUDITED) (CONTINUED)
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ANNUAL RENEWAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS (CONTINUED)
MICRO CAP GROWTH FUND. The Fund's advisory fee and total expense ratio (net of
applicable expense waivers) were above the median of its peer group. The Board
noted that the Advisor was currently waiving a portion of its advisory fee. The
Fund's performance for the six-months ended September 30, 2005 was in the 4th
quartile and in the 1st quartile of the Fund's peer group for the twelve-months
period. The Board noted management's discussion on the Fund's performance and
expenses. Based upon their review, the Trustees concluded that the Fund's
performance was satisfactory and that the Fund's advisory fee was reasonable in
view of the high quality of services received by the Fund and the other factors
considered.
SMALL CAP GROWTH FUND. The Fund's advisory fee and total expense ratio (net of
applicable expense waivers) was above the median of its peer group. The Board
noted that the Advisor was currently waiving a portion of its advisory fee. The
Fund's performance for the six-months, twelve-months and twenty-four months
ended September 30, 2005 was in the 4th quartile of the Fund's peer group. The
Board took into account management's discussion of the performance of each of
the Fund's Sub-Advisors. The Board also noted management's discussion of Fund
expenses. Based upon their review, the Trustees concluded that the Fund's
performance was reasonable and that the Fund's advisory fee was reasonable in
view of the high quality of services received by the Fund and the other factors
considered.
VALUE PLUS FUND. The Fund's advisory fee and total expense ratio (net of
applicable expense waivers) were above the median and below the median,
respectively, of its peer group. The Board noted that the Advisor was currently
waiving a portion of its advisory fee. The Fund's performance for the
six-months, twelve-months and twenty-four months ended September 30, 2005 was in
the 4th quartile of the Fund's peer group. The Board took into account
management's discussion of the Fund's performance and expenses, including it
plans with respect to the Fund. Based upon their review, the Trustees concluded
that the Fund's performance was being addressed and that the Fund's advisory fee
was reasonable in view of the high quality of services received by the Fund and
the other factors considered.
ECONOMIES OF SCALE. The Board considered the effect of each Fund's current size
and potential growth on its performance and fees. The Board considered the
effective fees under the Advisory Agreement as a percentage of assets at
different asset levels and possible economies of scale that may be realized if
the assets of each Fund grows. The Board noted that the advisory fee schedule
for most of the Funds contain breakpoints that reduce the fee rate on assets
above specified levels and considered the necessity of breakpoints with respect
to the Funds that do not currently have such breakpoints. The Trustees noted
that the current fee level for the Growth Opportunities Fund reflects such
economies of scale. The Board also noted that the operating expense ratio for
the Large Cap Growth Fund had been reduced from the prior year. The Board
requested that management consider instituting a breakpoint with respect to the
Emerging Growth Fund and determined that adding breakpoints at specified levels
to the advisory fees of the other Funds that currently did not have such a fee
structure would not be appropriate at this time. The Trustees also noted that if
a Fund's assets increase over time, the Fund may realize other economies of
scale if assets increase proportionally more than certain other expenses. The
Board also considered the fact that, under the Advisory Agreement, the fees
payable to the Advisor by the Funds are reduced by total fees paid to the
Sub-Advisor.
110
OTHER ITEMS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
ANNUAL RENEWAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS (CONTINUED)
CONCLUSION. In considering the renewal of the Funds' Advisory Agreement, the
Board, including the Independent Trustees, did not identify any single factor as
controlling, and each Trustee attributed different weights to the various
factors. The Trustees evaluated all information available to them on a
Fund-by-Fund basis, and their determinations were made separately with respect
to each Fund. The Board reached the following conclusions regarding the Funds'
Advisory Agreement with the Advisor, among others: (a) the Advisor has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (b) the Advisor maintains an
appropriate compliance program; (c) the performance of each Fund is reasonable
or satisfactory in relation to the performance of funds with similar investment
objectives and to relevant indices, or as discussed above, is being addressed;
and (d) each Fund's advisory expenses are reasonable in relation to those of
similar funds and to the services to be provided by the Advisor. Based on their
conclusions, the Board determined that continuation of the Advisory Agreement
for each Fund would be in the interests of the respective Fund and its
shareholders.
In approving the Funds' Sub-Advisory Agreements, the Board considered various
factors with respect to each Fund and its Sub-Advisory Agreement(s), among them:
(1) the nature, extent and quality of services provided to the Funds including
the personnel providing services; (2) the Sub-Advisor's compensation; (3) a
comparison of sub-advisory fees and performance with other advisers; and (4) the
terms of the Sub-Advisory Agreement. The Board's analysis of these factors is
set forth below. The Independent Trustees were advised by independent legal
counsel throughout the process.
NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED; INVESTMENT PERSONNEL. The Board
considered information provided by the Advisor regarding the services provided
by each Sub-Advisor, including information presented periodically throughout the
previous year. The Board noted the affiliation of the Sub-Advisor of certain of
the Funds with the Advisor, noting any potential conflicts of interest. The
Board noted that, on a periodic basis, the Board meets with various portfolio
managers of the Sub-Advisors to discuss their respective performance and
investment process and strategies. The Board considered each Sub-Advisor's level
of knowledge and investment style. The Board reviewed the experience and
credentials of the investment personnel who are responsible for managing the
investment of portfolio securities with respect to the Funds. The Trustees also
noted each Sub-Advisor's brokerage practices. The Board also considered the
Sub-Advisors' regulatory and compliance history. The Board noted that the
Advisor's compliance monitoring processes include quarterly reviews of
compliance reports and annual compliance visits to the Sub-Advisors and that
compliance issues are reported to the Board.
SUB-ADVISOR'S COMPENSATION. The Board also took into consideration the financial
condition of each Sub-Advisor and any indirect benefits derived by each
Sub-Advisor and its affiliates from the Sub-Advisor's relationship with the
Funds. In considering the profitability to that Sub-Advisor of its relationship
with the Funds, the Trustees noted the undertakings of the Advisor to maintain
expense limitations for certain of the Funds and also noted that the fees under
the Sub-Advisory Agreement were paid by the Advisor out of the advisory fees
that it receives under the Advisory Agreement. As a consequence, the
profitability to the Sub-Advisors of its relationship with each Fund were not
substantial factors in the Trustees' deliberations. For similar reasons, the
Trustees did not consider the potential economies of scale in each Sub-Advisor's
management of the Funds to be substantial factors in their consideration at this
time although it was noted that the sub-advisory fee schedule for most of the
Funds contain breakpoints that reduce the fee rate on assets above specified
levels.
111
OTHER ITEMS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
ANNUAL RENEWAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS (CONTINUED)
SUB-ADVISORY FEES AND FUND PERFORMANCE. The Board considered that each Fund pays
an advisory fee to the Advisor and that, in turn, the Advisor pays a
sub-advisory fee to the Sub-Advisor. Accordingly, the Board considered the
amount retained by the Advisor and the fee paid to the Sub-Advisor with respect
to the various services provided by the Advisor and the Sub-Advisor. The Board
also noted that the Advisor negotiates the sub-advisory fees with each of the
unaffiliated Sub-Advisors at arms-length. The Board compared the sub-advisory
fees for each Fund with various comparative data, if available, including the
industry median and average sub-advisory fees in each Fund's respective
investment category, and found that each Fund's sub-advisory fee was reasonable
and appropriate under the facts and circumstances.
EMERGING GROWTH FUND. The Fund's sub-advisory fee was above the median of its
peer group. Based upon their review, the Trustees concluded that the
sub-advisory fee was reasonable in light of the high quality of services
received by the Fund and the other factors considered.
GROWTH OPPORTUNITIES FUND. The Fund's sub-advisory fee was above the median of
its peer group. Based upon their review, the Trustees concluded that the
sub-advisory fee was reasonable in light of the high quality of services
received by the Fund and the other factors considered.
LARGE CAP CORE EQUITY FUND. The Fund's sub-advisory fee was below the median of
its peer group. Based upon their review, the Trustees concluded that the Fund's
sub-advisory fee is reasonable.
LARGE CAP GROWTH FUND. The Fund's sub-advisory fee was above the median of its
peer group. Based upon their review, the Trustees concluded that the
sub-advisory fee was reasonable in light of the high quality of services
received by the Fund and the other factors considered.
MICRO CAP GROWTH FUND. The Fund's sub-advisory fee was above the median of its
peer group. Based upon their review, the Trustees concluded that the
sub-advisory fee was reasonable in light of the high quality of services
received by the Fund and the other factors considered.
SMALL CAP GROWTH FUND. The Fund's sub-advisory fee was above the median of its
peer group. Based upon their review, the Trustees concluded that the
sub-advisory fee was reasonable in light of the high quality of services
received by the Fund and the other factors considered.
VALUE PLUS FUND. The Fund's sub-advisory fee was above the median of its peer
group. Based upon their review, the Trustees concluded that the sub-advisory fee
was reasonable in light of the high quality of services received by the Fund and
the other factors considered.
As noted above, the Board considered each Fund's performance during the
six-months, twelve-months, twenty-four months and thirty-six months ended
September 30, 2005, as applicable, as compared to each Fund's respective peer
group and noted that the Board reviews on a quarterly basis detailed information
about the Funds' performance results, portfolio composition and investment
strategies. It noted the Advisor's expertise and resources in monitoring the
performance, investment style and risk adjusted performance of the Sub-Advisors.
The Board was mindful of the Advisor's focus on each Sub-Advisor's performance
and its ways of addressing underperformance.
112
OTHER ITEMS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
ANNUAL RENEWAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS (CONTINUED)
CONCLUSION. In considering the renewal of the Sub-Advisory Agreement(s) with
respect to each Fund, the Board, including the Independent Trustees, did not
identify any single factor as controlling, and each Trustee attributed different
weights to the various factors. The Board reached the following conclusions
regarding the Sub-Advisory Agreement(s) with respect to each Fund, among others:
(a) the Sub-Advisor is qualified to manage the applicable Fund's assets in
accordance with its investment objectives and policies; (b) the Sub-Advisor
maintains an appropriate compliance program; (c) the performance of each Fund is
satisfactory or reasonable in relation to the performance of funds with similar
investment objectives and to relevant indices or performance is being addressed
as discussed above; (d) each Fund's advisory expenses are reasonable in relation
to those of similar funds and to the services to be provided by the Advisor and
the Sub-Advisor(s); and (e) the Sub-Advisor's investment strategies are
appropriate for pursuing the respective investment objectives of each Fund.
Based on their conclusions, the Board determined that approval of the
Sub-Advisory Agreement(s) with respect to each Fund would be in the interests of
the respective Fund and its shareholders.
113
OTHER ITEMS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
INITIAL APPROVAL OF ADVISORY AGREEMENT AND SUB-ADVISORY AGREEMENT FOR LARGE CAP
VALUE FUND
The Board of Trustees (the "Board") of the Touchstone Strategic Trust
("TST")(the "Trust"), and by a separate vote, the Independent Trustees of the
Trust, initially approved the Advisory Agreement between the Trust and the
Advisor with respect to the Large Cap Value Fund (the "Fund") and the
Sub-Advisory Agreement with respect to the Fund at a meeting held on February
16, 2006.
In determining whether to approve the Advisory Agreement and the Sub-Advisory
Agreement with respect to the Fund, the Advisor furnished information necessary
for a majority of the Independent Trustees to make the determination that the
approval of the Advisory Agreement and of the Sub-Advisory Agreement is in the
interests of the Fund and its shareholders. The information provided to the
Board included: (1) comparable performance information; (2) the Advisor's
revenues and costs of providing services to the Funds; and (3) information about
the Advisor's and Sub-Advisor's personnel. Prior to voting, the Independent
Trustees reviewed the proposed Advisory Agreement and the Sub-Advisory Agreement
with management and with experienced independent counsel and discussed the legal
standards for their consideration of the proposed Advisory Agreement and the
Sub-Advisory Agreement with respect to the Fund with such counsel. The
Independent Trustees also reviewed the proposed Advisory Agreement and the
Sub-Advisory Agreement in private sessions with counsel at which no
representatives of management were present.
In approving the Fund's Advisory Agreement, the Board considered various
factors, among them: (1) the nature, extent and quality of services to be
provided to the Fund, including the personnel providing services; (2) the
Advisor's anticipated compensation and profitability; (3) performance of a
comparably managed account; (4) economies of scale; and (5) the terms of the
Advisory Agreement. The Board's analysis of these factors is set forth below.
The Independent Trustees were advised by independent legal counsel throughout
the process.
NATURE, EXTENT AND QUALITY OF ADVISOR SERVICES. The Board considered the level
and depth of knowledge of the Advisor, including the professional experience and
qualifications of senior personnel. The Board discussed the Advisor's
effectiveness in monitoring the performance of the sub-advisors of the various
Touchstone Funds and its timeliness in responding to performance issues. In
evaluating the quality of services to be provided by the Advisor, the Board took
into account its familiarity with the Advisor's senior management through Board
meetings, discussions and reports during the preceding year. The Board also took
into account the Advisor's compliance policies and procedures. The quality of
administrative and other services to be provided to the Fund, including the
Advisor's role in coordinating the activities of the Funds' other service
providers, was also considered. The Board also considered the Advisor's
relationship with its affiliates and the resources available to them, as well as
any potential conflicts of interest. The Trustees concluded that they were
satisfied with the nature, extent and quality of services to be provided to the
Fund under the Advisory Agreement.
ADVISOR'S COMPENSATION AND PROFITABILITY. The Board took into consideration the
financial condition of the Advisor and its affiliates and the direct and
indirect benefits to be derived by the Advisor and its affiliates from the
Advisor's relationship with the Fund. The Trustees considered the anticipated
profitability of the Advisor's relationship with the Fund in terms of the total
amount of advisory fees that it expects to receive with respect to the Fund
under the Advisory Agreement. The Board noted that the Advisor has agreed to
waive advisory fees and reimburse expenses for the Fund and will also pay the
sub-advisory fees out of the advisory fees the Advisor receives from the Fund.
The Trustees also considered that the Fund's distributor, an affiliate of the
Advisor, will
114
OTHER ITEMS
(UNAUDITED) (CONTINUED)
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INITIAL APPROVAL OF ADVISORY AGREEMENT AND SUB-ADVISORY AGREEMENT FOR LARGE CAP
VALUE FUND (CONTINUED)
receive Rule 12b-1 distribution fees from the Fund and receive a portion of the
sales charges on sales or redemptions of certain classes of shares. The Trustees
also noted that the Advisor will derive reputational and other benefits from its
association with the Fund.
The Trustees recognized that the Advisor should be entitled to earn a reasonable
level of profits in exchange for the level of services it provides to the Fund
and the entrepreneurial risk that it assumes as Advisor. Based upon their
review, the Trustees concluded that the Advisor's anticipated level of
profitability, if any, from its relationship with the Fund will be reasonable
and not excessive.
EXPENSES AND PERFORMANCE. The Board compared the proposed advisory fee and
estimated total expense ratio for the Fund with that of the other large cap
funds in the Touchstone complex and determined that such fees and expenses were
within the range of such comparable funds. The Board further noted that the
Advisor will waive advisory fees and/or reimburse expenses for the Fund as
necessary to reduce its operating expenses to targeted levels. The Board noted
that the fees under the Sub-Advisory Agreement will be paid by the Advisor out
of the advisory fee it will receive from the Fund and the impact of such
sub-advisory fees on the profitability of the Advisor.
The Board also took into account its previous discussion with management of
certain factors as set forth in the conditions to the Touchstone Funds'
exemptive order issued by the Securities and Exchange Commission relating to the
investment by the non-money market funds in the Institutional Money Market Fund
(the "non-money market Funds"). Based upon the nature and extent of the services
provided by the Advisor and the Sub-Advisor to the Fund and the discussion by
management with respect to the costs to the Advisor and sub-advisors of the
portion of the advisory fee and sub-advisory fee attributable to the portion of
the non-money market Funds' assets to be invested in the Institutional Money
Market Fund, the Board concluded that the advisory fee and the sub-advisory fee
of the Fund are based on services that are in addition to, rather than
duplicative of, services provided under the Advisory and Sub-Advisory Agreements
with respect to the portion of such funds to be invested in the Institutional
Money Market Fund.
The Board also took into account their familiarity with the performance of the
other funds in the Touchstone complex that are managed by the Advisor, as well
as the performance of comparable fund managed by the Sub-Advisor as discussed
below.
ECONOMIES OF SCALE. The Board considered the effect of the Fund's potential size
and growth on its performance and fees. The Trustees also noted that if the
Fund's assets increase over time, the Fund may realize other economies of scale
if assets increase proportionally more than certain other expenses. The Board
also considered the fact that, under the Advisory Agreement, the fees payable to
the Advisor by the Fund will be reduced by total fees paid to the Sub-Advisor.
CONCLUSION. In considering approval of the Fund's Advisory Agreement, the Board,
including the Independent Trustees, did not identify any single factor as
controlling, and each Trustee attributed different weights to the various
factors. The Board reached the following conclusions regarding the Fund's
Advisory Agreement with the Advisor, among others: (a) the Advisor has
demonstrated that it possesses the capability and resources to perform the
duties required of it under the Advisory Agreement; (b) the Advisor maintains an
appropriate compliance program; and (c) the Fund's proposed advisory expenses
are reasonable in relation to those of similar funds and to the services to be
provided by the Advisor. Based on their conclusions, the Board determined that
continuation of the Advisory Agreement for the Fund would be in the interests of
the Fund and its shareholders.
115
OTHER ITEMS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
INITIAL APPROVAL OF ADVISORY AGREEMENT AND SUB-ADVISORY AGREEMENT FOR LARGE CAP
VALUE FUND (CONTINUED)
In approving the Fund's Sub-Advisory Agreement, the Board considered various
factors with respect to the Fund and its Sub-Advisory Agreement, among them: (1)
the nature, extent and quality of services to be provided to the Fund, including
the personnel providing services; (2) the Sub-Advisor's compensation; (3) the
sub-advisory fee of the comparable fund managed by the Sub-Advisor and
performance of such comparable fund managed by the Sub-Advisor; and (4) the
terms of the Sub-Advisory Agreement. The Board's analysis of these factors is
set forth below. The Independent Trustees were advised by independent legal
counsel throughout the process.
NATURE, EXTENT AND QUALITY OF SERVICES PROVIDED; INVESTMENT PERSONNEL. The Board
considered information provided by the Advisor regarding the services to be
provided by the Sub-Advisor. The Board noted that, on a periodic basis, the
Board will meet with the portfolio manager of the Sub-Advisor to discuss their
respective performance and investment process and strategies. The Board
considered the Sub-Advisor's level of knowledge and investment style. The Board
reviewed the experience and credentials of the investment personnel who will be
responsible for managing the investment of portfolio securities with respect to
the Fund. The Trustees also noted the Sub-Advisor's brokerage practices. The
Board also considered the Sub-Advisor's regulatory and compliance history. The
Board noted that the Advisor's compliance monitoring processes will include
quarterly reviews of compliance reports and annual compliance visits to the
Sub-Advisor and that compliance issues are reported to the Board.
SUB-ADVISOR'S COMPENSATION. The Board also took into consideration the financial
condition of the Sub-Advisor and any indirect benefits to be derived by the
Sub-Advisor and its affiliates from the Sub-Advisor's relationship with the
Fund. In considering the profitability to that Sub-Advisor of its relationship
with the Fund, the Trustees noted the undertakings of the Advisor to maintain
expense limitations for the Fund and also noted that the fees under the
Sub-Advisory Agreement will be paid by the Advisor out of the advisory fees that
it receives under the Advisory Agreement. As a consequence, the profitability to
the Sub-Advisor of its relationship with the Fund was not a substantial factor
in the Trustees' deliberations. For similar reasons, the Trustees did not
consider the potential economies of scale in the Sub-Advisor's management of the
Fund to be a substantial factor in their consideration at this time, although it
was noted that the sub-advisory fee schedule for the Fund contains breakpoints
that reduce the fee rate on assets above specified levels.
SUB-ADVISORY FEES AND FUND PERFORMANCE. The Board considered that the Fund pays
an advisory fee to the Advisor and that, in turn, the Advisor pays a
sub-advisory fee to the Sub-Advisor. Accordingly, the Board considered the
amount to be retained by the Advisor and the fee to be paid to the Sub-Advisor
with respect to the various services to be provided by the Advisor and the
Sub-Advisor. The Board also noted that the Advisor negotiated the proposed
sub-advisory fee with the Sub-Advisor at arms-length. The Board also noted that
the sub-advisory fee to be paid to the Sub-Advisor was comparable to the fee
received by the Sub-Advisor with respect to the comparable fund that it also
manages. The Board found that the Fund's proposed sub-advisory fee was
reasonable and appropriate under the facts and circumstances.
As noted above, the Board considered the performance of the comparable fund and
accounts managed by the Sub-Advisor. Among other data, the Board noted that the
Sub-Advisor's Large Cap Value Composite, which reflects the performance of the
comparable large cap value fund of the Sub-Advisor, outperformed its benchmark
for four of the five years between 2000 and 2004. The Board noted that it will
review on a quarterly basis detailed information about the Fund's
116
OTHER ITEMS
(UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
INITIAL APPROVAL OF ADVISORY AGREEMENT AND SUB-ADVISORY AGREEMENT FOR LARGE CAP
VALUE FUND (CONTINUED)
performance results, portfolio composition and investment strategies. It also
noted the Advisor's expertise and resources in monitoring the performance,
investment style and risk adjusted performance of the sub-advisors of the
Touchstone complex. The Board was mindful of the Advisor's focus on each
sub-advisor's performance.
CONCLUSION. In considering the renewal of the Sub-Advisory Agreement with
respect to the Fund, the Board, including the Independent Trustees, did not
identify any single factor as controlling, and each Trustee attributed different
weights to the various factors. The Board reached the following conclusions
regarding the Sub-Advisory Agreement with respect to the Fund, among others: (a)
the Sub-Advisor is qualified to manage the Fund's assets in accordance with its
investment objectives and policies; (b) the Sub-Advisor maintains an appropriate
compliance program; (c) the Fund's proposed advisory expenses are reasonable in
relation to those of similar funds and to the services to be provided by the
Advisor and the Sub-Advisor; and (d) the Sub-Advisor's investment strategies are
appropriate for pursuing the investment objective of the Fund. Based on their
conclusions, the Board determined that approval of the Sub-Advisory Agreement
with respect to the Fund would be in the interests of the Fund and its
shareholders.
117
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 principal officers and is
available, without charge, upon request by calling 1.800.543.0407.
INTERESTED TRUSTEES(1):
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF FUND
NAME POSITION(S) TERM OF OFFICE(2) OVERSEEN IN TH OTHER
ADDRESS HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) TOUCHSTONE FUN DIRECTORSHIPS
AGE TRUST TIME SERVED DURING PAST 5 YEARS COMPLEX(3) HELD(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder Trustee and Until retirement Senior Vice President of The Western 54 Director of
Touchstone Advisors, Inc President at age 75 or and Southern Life Insurance Company. LaRosa's (a
303 Broadway until she resigns President and a director of IFS restaurant
Cincinnati, OH or is removed Financial Services, Inc. (a holding chain).
Age: 50 company). She is a director of
Trustee since Capital Analysts Incorporated (an
1999 investment advisor and broker-
dealer), Integrated Fund Services,
Inc. (the Trust's administrator,
accounting 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), W&S Financial
Group Distributors, Inc. (an annuity
distributor) and IFS Systems, Inc.
She is Senior Vice President and a
director of Fort Washington
Brokerage Services, Inc. (a broker-
dealer). She is a director,
President and Chief Executive
Officer of Integrity Life Insurance
Company and National Integrity Life
Insurance Company. She is President
of Touchstone Tax-Free Trust,
Touchstone Investment Trust,
Touchstone Variable Series Trust and
Touchstone Strategic Trust,
Costellation Funds Group and
Constellation Institutional
Portfolios. She was President of
Touchstone Advisors, Inc., and
Touchstone Securities, Inc. until
2004.
- ------------------------------------------------------------------------------------------------------------------------------------
John F. Barrett Trustee Until retirement Chairman of the Board, President and 32 Director of
The Western and at age 75 or Chief Executive Officer of The The Andersons
Southern Life until he resigns Western and Southern Life Insurance (an
Insurance Company or is removed Company, Western- Southern Life agribusiness
400 Broadway Assurance Company and Western & and retailing
Cincinnati, OH Trustee since Southern Financial Group, Inc.; company);
Age: 56 2002 Director and Chairman of Columbus Convergys
Life Insurance Company; Fort Corporation (a
Washington Investment Advisors, provider of
Inc., Integrity Life Insurance business
Company and National Integrity Life support
Insurance Company; Director of Eagle systems and
Realty Group, Inc., Eagle Realty customer care
Investments, Inc. and Integrated operations)
Fund Services, Inc.; Director, and Fifth
Chairman and CEO of WestAd, Inc.; Third Bancorp.
President and Trustee of Western &
Southern Financial Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
118
MANAGEMENT OF THE TRUST
(CONTINUED)
- --------------------------------------------------------------------------------
INDEPENDENT TRUSTEES(1):
- ------------------------------------------------------------------------------------------------------------------------------------
TERM OF NUMBER OF FUNDS
NAME POSITION(S) OFFICE(2) OVERSEEN IN THE OTHER
ADDRESS HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION(S) TOUCHSTONE FUND DIRECTORSHIPS
AGE TRUST TIME SERVED DURING PAST 5 YEARS COMPLEX(3) HELD(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Richard L. Brenan Trustee Until Retired Managing Partner of KPMG LLP 32 Director of
303 Broadway retirement (a certified public accounting firm); Wing Eyecare
Cincinnati, OH at age 75 or Director of The National Underwriter Companies.
Age: 61 until Company (a publisher of insurance and
he resigns or financial service products) until
is 2004.
removed
Trustee since
2005
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip R. Cox Trustee Until President and Chief Executive Officer 54 Director of
303 Broadway retirement of Cox Financial Corp. (a financial the Federal
Cincinnati, OH at age 75 or services company). Reserve Bank
Age: 58 until of Cleveland
he resigns or and Cinergy
is Corporation (a
removed utility
company);
Trustee since Chairman of
1999 The Cincinnati
Bell Telephone
Company LLC;
Director of
The Timken
Company (a
manufacturer
of bearings,
alloy steels
and related
products and
services);
Director of
Diebold,
Incorporated
(a provider
of integrated
self-service
delivery and
security
systems).
- ------------------------------------------------------------------------------------------------------------------------------------
H. Jerome Lerner Trustee Until Principal of HJL Enterprises (a 32 None
303 Broadway retirement privately held investment company).
Cincinnati, OH at age 75 or
Age: 67 until
he resigns or
is
removed
Trustee since
1981
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. Siekmann Trustee Until Executive for Duro Bag Manufacturing 54 None
303 Broadway retirement Co. (a bag manufacturer); President
Cincinnati, OH at age 75 or of Shor Foundation for Epilepsy
Age: 67 until Research (a charitable foundation);
he resigns or Trustee of Riverfront Funds (mutual
is funds) from 1999 - 2004.
removed
Trustee since
2005
- ------------------------------------------------------------------------------------------------------------------------------------
Robert E. Stautberg Trustee Until Retired Partner of KPMG LLP (a 54 Trustee of
303 Broadway retirement certified public accounting firm). Tri-Health
Cincinnati, OH at age 75 or Vice President of St. Xavier High Physician
Age: 71 until School. Enterprise
he resigns or Corporation.
is
removed
Trustee since
1999
- ------------------------------------------------------------------------------------------------------------------------------------
John P. Zanotti Trustee Until CEO, Chairman and Director of Avaton, 32 Director of
303 Broadway retirement Inc. (a wireless entertainment QMed (a health
Cincinnati, OH at age 75 or company). President of Cincinnati care
Age: 57 until Biomedical (a life science and management
he resigns or economic development company). CEO, company).
is Chairman and Director of Astrum
removed Digital Information (an information
monitoring company) from 2000 until
Trustee since 2001; President of Great American
2002 Life Insurance Company from 1999
until 2000; A Director of Chiquita
Brands International, Inc. until 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Ms. McGruder, as a director of Touchstone Advisors, Inc., the Trust's
investment advisor, and Touchstone Securities, Inc., the Trust's
distributor and an officer of affiliates of the advisor and 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., Chairman of Fort Washington Investment
Advisors, Inc., a Trust sub-advisor and an officer of other affiliates of
the advisor and distributor 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 or she sooner resigns or is
removed.
(3) The Touchstone Fund Complex consists of 8 series of the Trust, 4 series of
Touchstone Tax-Free Trust, 5 series of Touchstone Investment Trust, 15
variable annuity series of Touchstone Variable Series Trust, 19 series of
Constellation Funds Group and 3 series of Constellation Institutional
Portfolios.
(4) Each Trustee is also a Trustee of Touchstone Tax-Free Trust, Touchstone
Investment Trust and Touchstone Variable Series Trust. Ms. McGruder and
Messrs. Cox, Siekmann and Stautberg are also Trustees of Constellation
Funds Group and Constellation Institutional Portfolios.
119
MANAGEMENT OF THE TRUST
- --------------------------------------------------------------------------------
(CONTINUED)
PRINCIPAL OFFICERS:
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF FUNDS OTHER
NAME POSITION(S) TERM OF OFFICE(1) PRINCIPAL OCCUPATION(S) OVERSEEN IN THE DIRECTORSHIPS
ADDRESS HELD WITH AND LENGTH OF DURING PAST 5 YEARS TOUCHSTONE FUND HELD
AGE TRUST TIME SERVED COMPLEX(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Jill T. McGruder President Until See biography above. 54 See biography
Touchstone and Trustee resignation, above.
Advisors, Inc. removal or
303 Broadway disqualification
Cincinnati, OH
Age: 50 President since
2004; President
from 2000-2002
- ------------------------------------------------------------------------------------------------------------------------------------
Brian E. Hirsch Vice Until Vice President-Compliance of IFS 54 None
Touchstone Advisors, Inc. President resignation, Financial Services, Inc., Director
303 Broadway and Chief removal or of Compliance of Fort Washington
Cincinnati, OH Compliance disqualification Brokerage Services, Inc.; Chief
Age: 48 Officer Compliance Officer of Puglisi & Co.
Vice President 2003 from 2001
since until 2002; Vice
President -
Compliance of
Palisade Capital
Management LLC
(an investment
advisor) from
1997 until 2000.
- ------------------------------------------------------------------------------------------------------------------------------------
James H. Grifo Vice Until President of Touchstone Securities, 54 None
Touchstone Securities, President resignation, Inc. and Touchstone Advisors, Inc.;
Inc. removal or Managing Director, Deutsche Asset
303 Broadway disqualification Management until 2001.
Cincinnati, OH
Age: 54 Vice President
since 2004
- ------------------------------------------------------------------------------------------------------------------------------------
William A. Dent Vice Until Senior Vice President of Touchstone 54 None
Touchstone Advisors, Inc. President resignation, Advisors, Inc.; Marketing Director
303 Broadway removal or of Promontory Interfinancial Network
Cincinnati, OH disqualification from 2002-2003; Senior Vice
Age: 42 President of McDonald Investments
Vice President from 1998 - 2001.
since 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Terrie A. Wiedenheft Controller Until Senior Vice President, Chief 54 None
Touchstone and resignation, Financial Officer and Treasurer of
Advisors, Inc. Treasurer removal or Integrated Fund Services, Inc., IFS
303 Broadway disqualification Fund Distributors, Inc. and Fort
Cincinnati, OH Washington Brokerage Services, Inc.
Age: 43 Controller since She is Chief Financial Officer of
2000 Treasurer IFS Financial Services, Inc.,
since 2003 Touchstone Advisors, Inc. and
Touchstone Securities, Inc. and
Assistant Treasurer of Fort
Washington Investment Advisors, Inc.
Director and Senior Counsel of
Integrated Fund Services, Inc. and
IFS Fund Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Jay S. Fitton Secretary Until resignation, 54 None
Integrated Fund Services, removal or disqualification
Inc.
303 Broadway Secretary since
Cincinnati, OH 2006
Age: 36
- ------------------------------------------------------------------------------------------------------------------------------------
1 Each officer also holds the same office with Touchstone Investment Trust,
Touchstone Tax-Free Trust, Touchstone Variable Series Trust, Constellation
Funds Group and Constellation Institutional Portfolios.
2 The Touchstone Fund Complex consists of 8 series of the Trust, 4 series of
Touchstone Tax-Free Trust, 5 series of Touchstone Investment Trust, 15
variable annuity series of Touchstone Variable Series Trust, 19 series of
Constellation Funds Group and 3 series of Constellation Institutional
Portfolios.
120
TOUCHSTONE INVESTMENTS
DISTRIBUTOR
Touchstone Securities, Inc.
303 Broadway
Cincinnati, Ohio 45202-4203
800.638.8194
www.touchstoneinvestments.com
INVESTMENT ADVISOR
Touchstone Advisors, Inc.
303 Broadway
Cincinnati, Ohio 45202-4203
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.
303 Broadway
Cincinnati, Ohio 45202-4203
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 $92,700 for the March 31, 2006
fiscal year and approximately $82,500 for the March 31, 2005 fiscal year,
including fees associated with the annual audit and filings of the registrant's
Form N-1A and Form N-SAR.
(b) Audit-Related Fees. Audit-Related fees totaled $113,200 for the March 31,
2006 fiscal year and $95,000 for the March 31, 2005 fiscal year and consisted
SAS 70 internal control reviews of the registrant's fund accountant and transfer
agent.
(c) Tax Fees. Tax fees totaled approximately $20,700 for the March 31, 2006
fiscal year and approximately $19,500 for the March 31, 2005 fiscal year and
consisted of fees for tax compliance services and tax consultation services.
(d) All Other Fees. There were no other fees for the March 31, 2006 or March 31,
2005 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 (excluding sub-advisors) and any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant were approximately $217,800 for the fiscal year ended March 31, 2006
and $244,100 for the fiscal year ended March 31, 2005.
(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. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. 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 11. 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 disclosure controls 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 12. 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 12(a)(2) of Form N-CSR are filed
herewith.
(b) Certification required by Item 11(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 2, 2006
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 2, 2006
/s/ Terrie A. Wiedenheft
- --------------------------------------------------------------------------------
Terrie A. Wiedenheft
Controller & Treasurer
Date: June 2, 2006